NEWS UPDATE-------------FEBRUARY 23, 2010 TUESDAY
BANGLADESH: NEWS
Current ADP reduced by 6.56 per cent
The government has decided to downsize the original Tk 30,500 crore Annual Development Programme by 6.56 per cent to Tk 28,500 crore due to many ministries’ inability to utilize foreign assistance fully, said official sources.
The planning ministry, however, has proposed to reduce the ADP’s local currency content by 2.6 per cent or Tk 455 crore, and has also proposed to slash by 12 per cent or Tk 1,545 crore the assistance for 1,058 projects in the existing ADP.
According to the planning ministry’s proposal, foreign finance make up Tk 11,300 crore of the current fiscal year’s revised ADP fund while the remaining sum of Tk 12,000 crore comes from internal sources.
‘We have failed to disburse some of the foreign assistance fund and as a result the planning ministry has decided to slash the maximum amount of fund under project assistance in the revised Annual Development Programme,’ said a senior official.
The official also said that block allocation would be increased for the development of the local government division projects, including development of the Chittagong Hill Tracts and six city corporations.
According to the draft of the revised ADP, the planning ministry has decided to increase special development allocation, commonly known as ‘block allocation’, by Tk 60 crore to Tk 1,033 crore.
In addition to a special allocation of Tk 571.49 crore, another major chunk of the outlay will be spent for unexpected necessary expenditure as well as unapproved development projects for rest of the fiscal year, sources said. It is alleged that the past governments had plundered public money in the name of block allocation.
The draft of the revised Annual Development Programme will be placed at the National Economic Council’s meeting today with Prime Minister Sheikh Hasina in the chair.
‘We still have many things to do, like acceleration of ADP implementation,’ planning minister AK Khandker recently told secretaries of all the ministries.
He further said the more fund would be allocated to the priority projects in the revised ADP.
He also reminded them that proper ADP implementation would expedite the country’s progress.
The revised ADP will put forward a total of 1,058 project proposals for the rest of the fiscal year, of which 880 are existing ADP projects and 178 are new projects. Of the new projects 130 are investment projects, 39 are technical assistance projects and 9 are Japan Debt Cancellation Fund projects.
The ministries and agencies have spent Tk 8,602 crore, 28 per cent of the Tk 30,500 crore ADP, in the first half (Jul-Dec) of fiscal year 2009-10.
The project implementing agencies spent a record sum of Tk 19, 668 crore in the last financial year, which was 86 per cent of the total allocations of the revised ADP of Tk 23,000 billion.
In the draft of the revised ADP the allocation for the health ministry has been cut by 7.82 per cent, bringing it down to Tk 2,981 crore, while allocation for the transport sector has been cut by 22 per cent, reducing it to Tk 3,650 crore.
Allocation for the government’s physical infrastructure building, including the Padma Bridge and water supply, has also been slashed by 21 per cent to Tk 2,842 crore.
However, many ministries will see increases in their allocations as their project implementation rates were high.
The Energy and Mineral Resources Division spent 74 per cent of its current allocation in the first six months of this fiscal year, and as a result its allocation will be increased by 53 per cent to Tk 1,079 crore.
Allocation for the agriculture ministry will be Tk 1,798 crore after being enhanced by 5.95 per cent.
The allocation for the water resources ministry will be enhanced by 22 per cent to Tk 1,085 crore.
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STOCK MARKET
DSE sees big slide
Dhaka Stock Exchange index on Monday slumped following the change in the Grameenphone’s share trading from main frame to spot market.
Dhaka Stock Exchange index on Monday faced a big correction following the change in the Grameenphone’s share trading from main frame to spot market.
The Securities and Exchange Commission last week decided to place GP on the spot market to cool off the unusual rise of its prices and the market indicator.
The SEC’s decision, which came into effect on Sunday, substantially razed the price of GP, the largest issue of the country’s stock market. The issue lost 7.78 per cent or Tk 28.10 per share at close of Tk 333.10.
The price fall of the largest issue eventually navigated the DSE index downward with 137.95 points or 2.39 per cent to close at 5622.99.
The fall in the GP and in the index began at the day’s opening and continued for the rest of the day, unsettling the DSE trading largely, some share brokers said.
The brokers said the volatility also caused significant decline in the large number of issues, a prominent deviation from the recent market trend.
In the last few months the number of gaining issues remained higher on most trading sessions on DSE with rear exception. But, 169 issues incurred loss on Sunday when only 66 issues advanced.
Besides GP, among the losing issues were mostly from mutual funds including Aims First Mutual Fund, Grameen First Mutual Fund and Third ICB Mutual Fund.
Beximco, another big issue, however, was at the top of the traded issues with a 3.52 per cent gain on highly speculative buying.
Daily turnover declined significantly to Tk 1,098 crore from Thursday’s Tk 1305 crore when investors were observing the changing market situation.
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WORLD ECONOMY
Singapore to slow down hiring of foreign workers
Singapore said on Monday it would raise levies to curb the hiring of foreign workers, amid growing unease among locals over the influx of guest workers and immigrants in recent years.
The phased-in increase from July 1 is aimed at reducing dependence on foreign workers, who already comprise almost a third of the city-state’s total workforce, finance minister Tharman Shanmugaratnam said.
‘We should moderate the growth of the foreign workforce and avoid a continuous increase in its proportion of the total workforce,’ he said in presenting the 2010 fiscal year budget in parliament.
But instead of imposing quotas, Shanmugaratnam said the government would raise the levies paid by companies for every worker they hire.
‘This allows the foreign workforce to fluctuate across the economic cycle and enables employers who are doing well and need more foreign workers to continue to hire them rather than be constrained by fixed quotas.’
He said the rise in the levies will be phased-in over the next three years.
The government will help companies upgrade the skills of local workers to boost their productivity and raise their salaries.
The move to slow the influx of guest workers follows a recent public backlash over Singapore’s open-door policy, with locals complaining that they having to compete for jobs, housing, medical care and other needs. Foreign workers have also been blamed for soaring property prices.
Singapore had earlier taken steps to sharpen the distinction between locals and permanent residents in a bid to placate criticism that immigrants were getting almost the same benefits.
Singapore’s founding father and first Prime Minister Lee Kuan Yew however had warned against reducing the number of foreign workers drastically.
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IN FOCUS
Coca Cola plans own sales,
distribution operations
Coca-Cola Company on Monday announced plans to commence its own sales and distribution operations in Bangladesh.
The company earlier submitted a proposal to the government for setting up a manufacturing plant in the country to have direct presence on the local market.
Coca Cola products have been prepared, packaged and sold in Bangladesh for around 50 years. But it has been marketing its products through local representatives.
With the imminent launch of sales and distribution operations, the company will distribute its flagship products — Coca-Cola, Sprite and Fanta — to the local market directly.
Company sources told the news agency on Monday that the Coca Cola was expecting a positive response shortly to its proposal for setting up a plant jointly with the government.
Tabani Beverage, a state-owned company, used to bottle and market Coca Cola products in Bangladesh until September 2009. But Tabani stopped its operation in September when Coca Cola made a partnership with a private company for bottling and marketing of its products.
The plan for setting up a plant and commence own sales and distributions showed the company’s keen interest in boosting its business and investment in Bangladesh.
The sales and distribution operations will shortly be launched in Dhaka and Rajshahi, the company said in a news release.
‘The launch of our sales and distribution operations in Dhaka and Rajshahi is a reaffirmation of this commitment,’ the press release quoted Debasish Deb, country manager, Coca-Cola Far East Limited, as saying.
The commencement of sales and distribution operations in Dhaka and Rajshahi is also expected to generate direct and indirect employment in the country for over 2,500 people.
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WORLD ECONOMY: SPECIAL
Mobile phones become pocket
banks in poor countries
An Afghan police officer gets his salary in a text message on his mobile phone. A Kenyan worker dials a few numbers to send money to his family.
The rise of banking transactions through mobile phones is giving a whole new meaning to pocket money in parts of the developing world that lack banks or cash machines.
Mobile money applications are emerging as potent financial tools in rural and remote areas of the globe, allowing people with no bank accounts to get paid, send remittances or settle their bills.
‘One billion consumers in the world have a mobile phone but no access to a bank account,’ said Gavin Krugel, the director of mobile banking strategy at GSM Association, an industry group of 800 wireless operators.
‘We see it as very big opportunity,’ he said this week at the Mobile World Congress in Barcelona, Spain, the industry’s annual four-day event that ended on Thursday. Mobile banking began to emerge six years ago in the Philippines and South Africa, where 8.5 million and 4.5 million people, respectively, use such services.
Today, 40 million people worldwide use mobile money, and the industry is growing, according to the GSMA. ‘Africa and Asia are the most active regions right now,’ Krugel said. ‘We expect Latin America pick up this year.’
There are 18,000 new mobile banking users per day in Uganda, 15,000 in Tanzania and 11,000 in Kenya, he said.
Mobile phones can offer a wide range of banking solutions, from sending transfers to a relative to buying goods in a store or putting money aside for a rainy day — all by dialling a few numbers on one’s handset.
Mobile banking can also make life easier for people in parts of Africa where paying a simple bill can be time-consuming, said Reg Swart, regional executive of Fundamo, a company that makes banking applications.
‘It takes one day to pay one bill. You have to physically go to the bank, then you must queue, a long queue,’ he said.
In Afghanistan, the national police have been testing a service from mobile operator Roshan to pay its officers — a system that helps to limit corruption, the company said.
‘We are currently moving from a trial to a full launch in paying the Afghan national police,’ said Roshan’s head of mobile commerce, Zahir Jhoja.
Every month, police officers receive a text message in the language they prefer informing them they have received their salaries, Jhoja said.
A voice message is also left on the phone ‘because a lot of them are illiterate and cannot read,’ he said.
The officer can then go get his money from an authorized Roshan agent.
‘The benefit is that police and police officers don’t have to carry cash anymore: from their post they are able to send their money home, buy items, and take whatever cash they want from an agent, or to store for future,’ he said.
The system has helped officers who were not receiving their full salaries due to ‘corruption and skimming.
‘The police officers who received the money electronically were very surprised to learn that they earn so much money. When they were getting cash they were receiving 25 to 30 per cent less,’ Johja said.
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WTO says ‘too early’ for ministers to meet on Doha
World Trade Organization (WTO) chief Pascal Lamy said Monday that he was against inviting ministers to a meeting in March which is aimed at driving forward negotiations for a global trade liberalisation pact.
While acknowledging that political commitment was needed to conclude the Doha Round of talks, Lamy also assessed that it was ‘too early’ to call on ministers to make such a push at the end of next month.
‘On... the political decision about 2010, I believe this is a judgment that belongs to ministers and that, on this specific issue, engagement will be needed,’ he told diplomats representing the WTO’s 153-member states.
‘Given where we are right now, it is also clear, however, that the end of March is too early for that,’ added the director-general of the WTO.
Lamy said that the meeting in March, aimed at taking stock of the progress in negotiations, would be ‘best undertaken by senior officials at this stage.’
Lamy had earlier warned that WTO member states risk missing the 2010 target set by world leaders for reaching a long delayed global trade pact unless there was a breakthrough by the end of the first quarter.
The Doha Round of negotiations for a trade liberalisation deal began in 2001 with a focus on dismantling obstacles to trade for poor nations, by aiming for a deal that would cut agriculture subsidies and tariffs on industrial goods.
Deadlines to conclude the talks have been repeatedly missed.
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BANGLADESH: UPDATE
Trade through Benapole land port resumes
Export-Import through Benapole land port resumed on Monday after a two-day halt.
Trading through the land port remained suspended on Saturday due to political turmoil on the Indian side while its activities remained closed on Sunday because of public holiday.
Benapole Customs Cargo officer Dilip Sarker said the trade resumed at 10:00am on Monday.
Seventy truckloads of goods entered the land port from India while 40 truckloads of goods were exported to the country till 2:00pm, he said.
Petrapole C&F Association official Kartik Chandra Dey informed that rival groups of workers belonging to Congress Party and Trinamul Congress clashed for domination at the port leading to the closer of activities on Saturday.
Later, the workers joined their work today after fruitful meetings with customs, Bangaon Thana and administrative officials.
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BADC imports 25,955 tonnes of TSP fertilizer
The government has imported 25,955 tonnes of Triple Super Phosphate fertilizer under Bangladesh Agriculture Development Corporation.
The imported fertilizer has already reached Chittagong and Mongla ports and half of the total TSP fertilizer would be unloaded at Chittagong Port in a day or two.
Mother vessels carrying the fertilizer imported from Tunisia reached the Chittagong Port on February 7.
Joint director of BADC Shimul Bikash Dash told the news agency that the imported fertilizer would be kept at warehouses of BADC’s sales centres and later the soil nutrient would be distributed to district and Upazila and union levels through dealers.
He said there would be no fertilizer crisis this year because the BADC has bulk stock of fertilizer in its stocks.
Nonetheless, he said, the government has imported the fertilizer in view of farmers’ interest.
‘We are hastening our works to unload the imported TSP fertilizer so that this essential agriculture input can be reached to farmers in time,’ said Shimul Bikash.
The BADC opened 25 sales centres in 19 areas across the country for fertilizer management this year.
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WORLD NEWS
Air France, Japan Airlines mull joint venture
Air France-KLM and Japan Airlines are discussing joining forces on flights between France and Japan to share costs and revenues, and French daily reported on Monday, but the companies denied any such plans.
Under the joint venture, the two airlines would harmonize their prices, schedules and business practices, La Tribune reported, citing unidentified Air France sources.
But both airlines shot down the report.
‘We deny that there are talks underway on the creation of a joint venture between Air France and JAL,’ an Air France spokesman told the AFP.
JAL, which declared bankruptcy in January,
said that the report was ‘untrue’.
JAL spokeswoman Yap Sze Hunn said: ‘Air France is our valued bilateral partner with whom we share code share flights connecting Japan to Paris and beyond, and we are committed to strengthening this relationship.’
She said: ‘However, there is no intention now to explore a joint venture together.’
JAL has a code-sharing arrangement with Air France on 10 weekly flights between Tokyo and Paris. The two companies also share codes to connect Japan with 12 other European cities via Paris, the spokeswoman said.
JAL rejected an offer earlier this month to team up with the SkyTeam alliance, which includes Air France-KLM and US carrier Delta Airlines.
Instead the Japanese airline said it would expand its alliance with American Airlines and its Oneworld partners.
JAL went bankrupt a month ago with $26 billion of debt in one of the country’s biggest ever corporate failures, but continued operating and began a painful overhaul involving more than 15,000 job cuts and a public bailout.
Code sharing is an important tool for airlines to make alliances by passing each other passengers though ticketing arrangements, thereby maximizing the sales and network capacity of each participant.
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BANGLADESH: SHORT NEWS
HBFC office upgraded in Rangpur
Bangladesh House Building Finance Corporation, Rangpur regional office was on Monday upgraded to divisional office at Parjatan Motel in the Rangpur town.
Chairman of the corporation’s board of directors M Janibul Haq was present as chief guest while managing director Rayhana Anisa Yousuf Ali, general manager (admin) Ferdousi Begum and deputy commissioner, Rangpur, BM Enamul Haque were present as special guests with Rangpur zonal manager Nazrul Islam Sarkar in the chair.
Later the chief guest unveiled the divisional office at Keranipara of the town.
House Building Finance Corporation, Rangpur unit had disbursed Tk 32 core loan among 1,700 beneficiaries since 1966. Of the beneficiaries, 80 were sued for loan default. The office disbursed Tk 5 core loan in the current year.
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WORLD NEWS
RBS chief to forgo bank bonus
The boss of Britain’s state-controlled Royal Bank of Scotland will refuse his bonus for 2009, the Financial Times reported on Monday.
RBS chief executive Stephen Hester will waive his right to a possible 1.6 million pounds ($2.5m), the bank is set to disclose on Thursday when it unveils annual results.
‘He will do whatever is necessary to secure the future of the bank,’ the FT quoted one person close to Hester as saying.
The bank is 84-per cent owned by the British government after a series of enormous state bailouts.
The FT report comes after Barclays bank last week announced that its top executives had shunned their latest annual bonuses amid outrage over pay.
There is widespread public anger about the banking sector’s bonus culture, which some observers blame for encouraging excessive risk-taking and helping to tip the world economy into recession.
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Euro drifts lower on Greece concerns
The euro dipped against the dollar Monday on stubborn concerns about the Greek debt crisis, despite speculation about billions of dollars of European aid, dealers said.
In morning London trade, the European single currency eased to 1.3602 dollars, down from 1.3608 dollars late in New York on Friday. It also fell to 124.37 yen from 124.62.
Against the Japanese currency, the dollar slipped to 91.47 yen from 91.57 yen on Friday.
‘Despite reassuring comments from Greek politicians on its budget, European investors are clearly still nervous that worse could be in store for the euro,’ said analyst Jane Foley at online trading site Forex.com.
She added: ‘Greece’s budget difficulties may eventually be softened by help from the EU.
‘However, this will not fix any of the structural fiscal problems of EMU (European Monetary Union) which have been uncovered by the recession.’
Germany’s Der Spiegel magazine reported over the weekend that the European Union could provide Greece with up to 25 billion euros ($34b) in aid, with each country’s contribution to be calculated according to its relative position in the European Central Bank.
While the German finance ministry later denied the report, speculation helped support the euro in earlier Asian trade.
European leaders have pledged their solidarity with Greece, which has a total debt estimated at about 300 billion euros, but the EU has not announced any concrete financial aid.
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European stocks mostly fall
Europe’s main stock markets mainly edged lower on Monday after recent volatility and following a surge for Asian equities on bargain-hunting, traders said.
The aviation sector was in focus with German airline Lufthansa cancelling two-thirds of its flights on Monday as its pilots began a four-day strike over pay and job security and threatened further walkouts.
Meanwhile British Airways faced a threat of strike action by its cabin crew, with a ballot result on whether to stop work due at about 1400GMT.
London’s benchmark FTSE 100 index rose 0.15 per cent to 5,366.72 points in late morning trade, with BA’s share price down 0.81 per cent to 208.9 pence.
Frankfurt’s DAX 30 dipped 0.15 per cent to 5,713.49 points, as Lufthansa dropped 1.97 per cent to 10.96 euros.
In Paris the CAC 40 edged down 0.07 per cent to 3,766.93 near the half-way mark and the DJ Euro Stoxx 50 index of top eurozone shares lost 0.21 per cent in value to reach 2,787.12 points.
A bout of bargain-buying after recent losses caused by last week’s rate hike by the US Federal Reserve combined with gains on Wall Street to send most Asian stocks higher on Monday.
However, Chinese investors, returning from a week-long Lunar New Year holiday, weighed credit tightening moves from Beijing as local stocks ended lower in choppy trade.
Japan’s Nikkei jumped 2.74 per cent to 10,400.47 points as concerns following the US Federal Reserve move receded. The market recorded its biggest gain since December 3.
Hong Kong jumped 2.43 per cent to end at 20,377.27.
Markets were hit Friday after the Fed announced it would hike the primary credit rate on emergency loans to banks to 0.75 per cent from 0.5 per cent.
Despite the bank stressing the move did not signal a broader tightening of policy, dealers sold up fearing a drying up of credit.
‘Caution prevailed in markets Friday following the Federal Reserve’s surprise moves to cut its discount rate. But that sense of vigilance has now eased,’ said Daiwa Securities Capital Markets equity Chief Kazuhiro Takahashi.
Investors were given some cheer by a 0.09 per cent gain on Wall Street Friday as fears over the Fed’s move were soothed by New York Fed president William Dudley, who said it ‘is not at all a signal of any imminent tightening’.
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New documents raise heat on Toyota
Pressure rose on Toyota days before its chief faces a US congressional grilling, as new documents showed the automaker boasted about saving $100 million by limiting its safety recalls.
The beleaguered Japanese giant has pulled more than eight million vehicles worldwide and faces a host of US lawsuits linking its defects to more than 30 deaths in class action suits that could cost it billions of dollars.
As its president Akio Toyoda, the grandson of the company’s founder, braces for a showdown with a Congress panel on Wednesday, more bad news hit the iconic company embroiled in the worst crisis in its 70-year history.
Internal company documents subpoenaed by the Congress committee showed that Toyota executives reported last year that the company had limited the financial impact of its product recalls through lobbying in Washington.
In one internal document, Toyota’s top North America executive Yoshimi Inaba spoke of ‘wins for Toyota and (the car) industry’ achieved by its Washington bureau when it ‘secured safety rulemaking favorable to Toyota’.
Inaba said in the presentation that Toyota saved 100 million dollars by negotiating with US authorities a limited recall of the 2007 Toyota Camry and Lexus ES requiring it to take back floor mats but not fix car defects.
The company also said it had avoided an investigation into rust problems affecting the undercarriage of its Tacoma pickup trucks.
Toyota reacted to the release of the documents by pledging: ‘Our first priority is the safety of our customers, and to conclude otherwise on the basis of one internal presentation is wrong.’
Critics have attacked Toyota for its sluggish response to complaints linked to accelerator systems and of covering up the defects.
Former Toyota lawyer Dimitrios Biller, now involved in a legal battle with the company, has accused it of hiding and destroying evidence of safety flaws and of ‘a culture of hypocrisy and deception’.
America’s top automobile insurer State Farm has said it first reported Toyota acceleration problems to the US Department of Transportation in 2004, also prompting questions as to whether regulators dithered in response.
Toyoda and Inaba are due to face questioning on the safety recalls on Wednesday at a hearing by the House Oversight and Government Reform Committee — one of three scheduled Congress hearings on Toyota’s safety woes.
A major focus is expected to be Toyota’s so-called electronic throttle control or ‘drive-by-wire’ system in which the accelerator pedal and the engine are linked electronically rather than mechanically.
Toyota has said there is nothing wrong with the system.
Congress members are also expected to examine when the world’s biggest carmaker first knew of the ‘sticky accelerator’ problems, and whether it took its time before informing US regulators and the public about them.
The office of the committee’s ranking Republican, Darrell Issa, said Inaba’s presentation raised ‘significant questions regarding the interactions between Toyota Japan, Toyota North America and government regulators’.
‘Did regulators do their due diligence once problems were brought to their attention? Did Toyota raise potential safety problems with regulators as soon as they knew a problem existed?’ asked Issa’s spokesman in a statement.
‘But there are also questions involving what happened in-between and whether Toyota was lobbying for less rigid actions from regulators to protect their bottom-line.’
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Pilots ground Lufthansa in its longest ever strike
Fearing potential staff cuts, Lufthansa’s high-paid German pilots took to the picket lines on Monday, plunging the airline into its longest ever strike and forcing the carrier to cancel hundreds of flights.
Passengers left stranded by the strike that started at midnight local time are being rebooked on other airlines or have to take trains for domestic travel, after last-ditch attempts to reach a compromise failed over the weekend.
Lufthansa expects the strike will cost it about 100 million euros ($135 million) in cash, in addition to lost ticket sales and possible damage to its reputation now that it will ground about 800 flights per day over a four-day period.
European travelers could face additional headaches, as Monday is also the final day of a cabin crew strike ballot at rival British Airways that could cast travel in Europe’s second-biggest economy into turmoil as well.
Some 4,000 German pilots voted for the strike at Lufthansa on concerns the company could try to cut staff costs by shifting jobs to foreign subsidiaries such as Austrian Airlines or Lufthansa Italia, where wages are lower.
The starting salary for a first officer in a Lufthansa cockpit is 62,000 euros, for a captain 115,000 euro, according to the company’s recruiting website. Media reports put the top end of pilots’ salaries at about 325,000 euros.
‘As we have been saying last week, those pilots want to be treated like managers but are acting like underpaid bus drivers,’ said a local trader.
Lufthansa’s pilots have offered to forego pay increases if in return they get some control over which routes or pilot jobs are transferred to other group airlines. Lufthansa has rejected that demand, saying it would require ceding control over parts of business strategy to its workers and the union.
Germany’s economic recovery stalled at the end of 2009, and workers are becoming increasingly concerned that they could lose their jobs. They are looking to employers to promise job security in exchange for concessions on pay, as carmaker Volkswagen has.
Engineering sector workers have also accepted moderate wage increases to help boost employment prospects.
Over the weekend, the pilots’ union offered new talks, but Lufthansa said it would not resume negotiations unless the union dropped demands for what it saw as undue influence on managerial decisions, leaving the two parties in a stalemate.
‘The conflict is very difficult to solve and ongoing strike action could not be ruled out,’ Equinet analyst Jochen Rothenbacher said.
Rival airlines, rail operators and rental car companies, meanwhile, stand to benefit from the strike as Lufthansa passengers switch to alternative modes of transportation.
Car rental company Sixt ran a full-page paid advertisement in German daily Sueddeutsche Zeitung featuring a photograph of a man in a pilot’s uniform and the line: ‘Underpaid? Become a chauffeur at Sixt! Job ads under sixt.de’
Shares in Lufthansa were down 1.34 per cent at 1004GMT.
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European banks need to issue $327b annually, says Citi
Twenty-four European banks may need to issue about 240 billion euros ($327b) annually for the next three years to fund existing and new businesses, as well as to meet the new Basel stable funding requirements, Citigroup said.
The volatility in bond markets have once again elevated the issue of funding for banks, Citigroup analysts said, adding that sovereign and interest rate risks could add further pressure to earnings.
According to analysts, including Stefan Nedialkov, the 24 European banks, who account for 65 to 70 per cent of the sector’s assets, issued 56 billion euros of long/medium-term funding in January but investors’ macro-economic concerns are restricting their appetite for new issuance in February.
This could eventually drive up funding costs meaningfully, even as fears of crowding out by sovereign and corporate issuers appear overblown, the analysts said.
They estimate a 10 per cent cumulative impact from increased funding costs on banks’ normalized earnings under a stressed scenario.
Still, funding availability is unlikely to be a major issue for most banks through 2012, and the new stable funding ratio regulations from Basel only appear onerous for a relatively small number of banks, Citigroup analysts said.
The Basel Committee of central bankers and financial supervisors through their proposals — dubbed Basel III — is seeking to avoid a repeat of the credit crunch and reduce the industry’s cyclical volatility by raising the quality of banks’ capital, after many of the assets they were using crumbled during the crisis.
Belgian banking and insurance group KBC, Franco-Belgian financial services group Dexia SA and Britain’s largest retail banking group Lloyds Banking Group will see the highest impact to normalized earnings and funding needs from higher funding costs and Basel III requirements, analysts said.
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SOUTH ASIA
Bharti lines up $9b in loans for Zain Africa
India’s Bharti Airtel has lined up $9 billion in loans from foreign and local banks for its planned acquisition of the African assets of Kuwait’s Zain, the Economic Times reported on Monday.
The newspaper cited three people familiar with the matter as saying nearly a dozen banks — mostly foreign — had come forward to commit the amount in long-term loans, compared with earlier plans of taking short-term or bridge loans.
Standard Chartered is leading the consortium of banks and has alone committed $5.5 billion, the paper said. The pricing for the 7-year loan could be close to 300 basis points over the London inter-bank offered rate, it said.
Barclays has also committed close to $5 billion to the company, the paper said.
Sources had earlier told Reuters Standard Chartered and Barclays were advising Bharti on the deal and also on the funding and that Standard Chartered was looking to lead roughly $5 billion loan for Bharti.
The Economic Times said about $2-$3 billion could be rupee loans from a couple of Indian banks keen on being part of a syndicate of banks.
Foreign banks including ANZ, BNP Paribas, Citi, DBS, Bank of Tokyo-Mitsubishi UFJ and JPMorgan were likely to be part of the overseas syndication, it said.
Among Indian banks, the State Bank of India and Kotak Mahindra Bank, besides some state owned banks, also want to partner in this deal, it said.
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WORLD NEWS
Taiwan exits worst post-war recession
Taiwan said Monday it had emerged from its worst post-war recession, as the export-dependent island saw a pick-up in demand from top buyer China and other key export markets in the region.
The island’s economy expanded by 9.22 per cent in the fourth quarter from the same period in 2008, but the economy shrank for the year as a whole, the Directorate General of Budget, Accounting and Statistics said.
‘The growth was made possible by the pickup in China and the other emerging economies in the Asia region,’ said Shih Su-mei, the head of the directorate general.
The Taiwanese economy had not experienced positive growth since the second quarter of 2008, before it was engulfed by the global financial crisis.
‘Not only does this mark a return to growth after five consecutive quarters of decline, it is also the highest quarterly growth since the third quarter of 2004,’ the directorate general said in a statement.
Also contributing to the fourth quarter figure was strong domestic demand as a result of a significant rise in the domestic stock market and a sharp decline in the number of employees on unpaid leave, Shih said.
Taiwan’s stock market increased by nearly 80 per cent in 2009, ending the year as one of the world’s best performers.
However, the island’s economy contracted 1.87 per cent in 2009 year-on-year as the export-dependent island experienced its most protracted downturn in decades.
Consumer prices, the main indicator of inflation, declined 0.87 per cent over the year, the directorate general said.
It forecast growth of 4.72 per cent in 2010, up from a previous forecast of 4.39 per cent.
‘The better performance mainly came from strong exports, indicating the global economic recovery is on track,’ said Cheng Cheng-mount, chief economist at Citibank Taiwan.
In January, Taiwan exports registered its strongest growth in nearly 34 years on increasing global demand for the island’s high-tech goods.
January shipments totaled $21.75 billion, marking year-on-year growth of 75.8 per cent, the best performance since August 1976.
But China, which is the largest buyer of Taiwan’s products, is tightening its monetary policy, prompting some concern among analysts.
China has made several efforts recently to cool lending amid concerns over rising inflation, asset bubbles and bad loans, triggering fears over market liquidity.
‘It remains to be seen whether demand on the mainland will be compromised,’ Cheng said.
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Oil prices breach $80
Oil prices rose above $80 a barrel Monday in Asia, extending a three-week rally as investors expect the US central bank to keep interest rates near zero to help fuel economic growth, which would boost crude consumption.
Benchmark crude for March delivery was up 51 cents to $80.32 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract added 75 cents to settle at $79.81 a barrel on Friday.
Investors are betting that a low inflation rate and weak employment figures will lead the Federal Reserve to keep interest rates low.
The Fed surprised investors late Thursday when it raised the so-called ‘discount’ lending rate on emergency bank loans by one-quarter point to 0.75 per cent. But Fed officials on Friday were quick to downplay the possibility of across-the-board rate hikes.
Consumer prices edged up 0.2 per cent in January, the Labour Department said Friday, and excluding volatile food and energy, prices fell 0.1 per cent, the first monthly decline since December 1982.
‘There’s hardly any fear of inflation right now,’ said Victor Shum, an energy analyst with consultancy Purvin & Gertz. ‘So the thinking is the Fed will keep interest rates near zero.’
‘With unemployment still high, the market doesn’t expect the Fed to raise rates until the US economy is stronger.’
Low interest rates and massive government stimulus spending could also help weaken the US dollar, which would further support oil prices. A weaker dollar makes dollar-based commodities such as oil cheaper for foreign investors.
Oil has jumped from $69.59 a barrel on February 5.
In other Nymex trading in March contracts, heating oil rose 1.92 cents to $2.089 a gallon, and gasoline gained 2 cents to $2.105 a gallon. Natural gas dropped 8.4 cents to $4.96 per 1,000 cubic feet.
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BANGLADESH: NEWS
Current ADP reduced by 6.56 per cent
The government has decided to downsize the original Tk 30,500 crore Annual Development Programme by 6.56 per cent to Tk 28,500 crore due to many ministries’ inability to utilize foreign assistance fully, said official sources.
The planning ministry, however, has proposed to reduce the ADP’s local currency content by 2.6 per cent or Tk 455 crore, and has also proposed to slash by 12 per cent or Tk 1,545 crore the assistance for 1,058 projects in the existing ADP.
According to the planning ministry’s proposal, foreign finance make up Tk 11,300 crore of the current fiscal year’s revised ADP fund while the remaining sum of Tk 12,000 crore comes from internal sources.
‘We have failed to disburse some of the foreign assistance fund and as a result the planning ministry has decided to slash the maximum amount of fund under project assistance in the revised Annual Development Programme,’ said a senior official.
The official also said that block allocation would be increased for the development of the local government division projects, including development of the Chittagong Hill Tracts and six city corporations.
According to the draft of the revised ADP, the planning ministry has decided to increase special development allocation, commonly known as ‘block allocation’, by Tk 60 crore to Tk 1,033 crore.
In addition to a special allocation of Tk 571.49 crore, another major chunk of the outlay will be spent for unexpected necessary expenditure as well as unapproved development projects for rest of the fiscal year, sources said. It is alleged that the past governments had plundered public money in the name of block allocation.
The draft of the revised Annual Development Programme will be placed at the National Economic Council’s meeting today with Prime Minister Sheikh Hasina in the chair.
‘We still have many things to do, like acceleration of ADP implementation,’ planning minister AK Khandker recently told secretaries of all the ministries.
He further said the more fund would be allocated to the priority projects in the revised ADP.
He also reminded them that proper ADP implementation would expedite the country’s progress.
The revised ADP will put forward a total of 1,058 project proposals for the rest of the fiscal year, of which 880 are existing ADP projects and 178 are new projects. Of the new projects 130 are investment projects, 39 are technical assistance projects and 9 are Japan Debt Cancellation Fund projects.
The ministries and agencies have spent Tk 8,602 crore, 28 per cent of the Tk 30,500 crore ADP, in the first half (Jul-Dec) of fiscal year 2009-10.
The project implementing agencies spent a record sum of Tk 19, 668 crore in the last financial year, which was 86 per cent of the total allocations of the revised ADP of Tk 23,000 billion.
In the draft of the revised ADP the allocation for the health ministry has been cut by 7.82 per cent, bringing it down to Tk 2,981 crore, while allocation for the transport sector has been cut by 22 per cent, reducing it to Tk 3,650 crore.
Allocation for the government’s physical infrastructure building, including the Padma Bridge and water supply, has also been slashed by 21 per cent to Tk 2,842 crore.
However, many ministries will see increases in their allocations as their project implementation rates were high.
The Energy and Mineral Resources Division spent 74 per cent of its current allocation in the first six months of this fiscal year, and as a result its allocation will be increased by 53 per cent to Tk 1,079 crore.
Allocation for the agriculture ministry will be Tk 1,798 crore after being enhanced by 5.95 per cent.
The allocation for the water resources ministry will be enhanced by 22 per cent to Tk 1,085 crore.
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STOCK MARKET
DSE sees big slide
Dhaka Stock Exchange index on Monday slumped following the change in the Grameenphone’s share trading from main frame to spot market.
Dhaka Stock Exchange index on Monday faced a big correction following the change in the Grameenphone’s share trading from main frame to spot market.
The Securities and Exchange Commission last week decided to place GP on the spot market to cool off the unusual rise of its prices and the market indicator.
The SEC’s decision, which came into effect on Sunday, substantially razed the price of GP, the largest issue of the country’s stock market. The issue lost 7.78 per cent or Tk 28.10 per share at close of Tk 333.10.
The price fall of the largest issue eventually navigated the DSE index downward with 137.95 points or 2.39 per cent to close at 5622.99.
The fall in the GP and in the index began at the day’s opening and continued for the rest of the day, unsettling the DSE trading largely, some share brokers said.
The brokers said the volatility also caused significant decline in the large number of issues, a prominent deviation from the recent market trend.
In the last few months the number of gaining issues remained higher on most trading sessions on DSE with rear exception. But, 169 issues incurred loss on Sunday when only 66 issues advanced.
Besides GP, among the losing issues were mostly from mutual funds including Aims First Mutual Fund, Grameen First Mutual Fund and Third ICB Mutual Fund.
Beximco, another big issue, however, was at the top of the traded issues with a 3.52 per cent gain on highly speculative buying.
Daily turnover declined significantly to Tk 1,098 crore from Thursday’s Tk 1305 crore when investors were observing the changing market situation.
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WORLD ECONOMY
Singapore to slow down hiring of foreign workers
Singapore said on Monday it would raise levies to curb the hiring of foreign workers, amid growing unease among locals over the influx of guest workers and immigrants in recent years.
The phased-in increase from July 1 is aimed at reducing dependence on foreign workers, who already comprise almost a third of the city-state’s total workforce, finance minister Tharman Shanmugaratnam said.
‘We should moderate the growth of the foreign workforce and avoid a continuous increase in its proportion of the total workforce,’ he said in presenting the 2010 fiscal year budget in parliament.
But instead of imposing quotas, Shanmugaratnam said the government would raise the levies paid by companies for every worker they hire.
‘This allows the foreign workforce to fluctuate across the economic cycle and enables employers who are doing well and need more foreign workers to continue to hire them rather than be constrained by fixed quotas.’
He said the rise in the levies will be phased-in over the next three years.
The government will help companies upgrade the skills of local workers to boost their productivity and raise their salaries.
The move to slow the influx of guest workers follows a recent public backlash over Singapore’s open-door policy, with locals complaining that they having to compete for jobs, housing, medical care and other needs. Foreign workers have also been blamed for soaring property prices.
Singapore had earlier taken steps to sharpen the distinction between locals and permanent residents in a bid to placate criticism that immigrants were getting almost the same benefits.
Singapore’s founding father and first Prime Minister Lee Kuan Yew however had warned against reducing the number of foreign workers drastically.
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IN FOCUS
Coca Cola plans own sales,
distribution operations
Coca-Cola Company on Monday announced plans to commence its own sales and distribution operations in Bangladesh.
The company earlier submitted a proposal to the government for setting up a manufacturing plant in the country to have direct presence on the local market.
Coca Cola products have been prepared, packaged and sold in Bangladesh for around 50 years. But it has been marketing its products through local representatives.
With the imminent launch of sales and distribution operations, the company will distribute its flagship products — Coca-Cola, Sprite and Fanta — to the local market directly.
Company sources told the news agency on Monday that the Coca Cola was expecting a positive response shortly to its proposal for setting up a plant jointly with the government.
Tabani Beverage, a state-owned company, used to bottle and market Coca Cola products in Bangladesh until September 2009. But Tabani stopped its operation in September when Coca Cola made a partnership with a private company for bottling and marketing of its products.
The plan for setting up a plant and commence own sales and distributions showed the company’s keen interest in boosting its business and investment in Bangladesh.
The sales and distribution operations will shortly be launched in Dhaka and Rajshahi, the company said in a news release.
‘The launch of our sales and distribution operations in Dhaka and Rajshahi is a reaffirmation of this commitment,’ the press release quoted Debasish Deb, country manager, Coca-Cola Far East Limited, as saying.
The commencement of sales and distribution operations in Dhaka and Rajshahi is also expected to generate direct and indirect employment in the country for over 2,500 people.
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WORLD ECONOMY: SPECIAL
Mobile phones become pocket
banks in poor countries
An Afghan police officer gets his salary in a text message on his mobile phone. A Kenyan worker dials a few numbers to send money to his family.
The rise of banking transactions through mobile phones is giving a whole new meaning to pocket money in parts of the developing world that lack banks or cash machines.
Mobile money applications are emerging as potent financial tools in rural and remote areas of the globe, allowing people with no bank accounts to get paid, send remittances or settle their bills.
‘One billion consumers in the world have a mobile phone but no access to a bank account,’ said Gavin Krugel, the director of mobile banking strategy at GSM Association, an industry group of 800 wireless operators.
‘We see it as very big opportunity,’ he said this week at the Mobile World Congress in Barcelona, Spain, the industry’s annual four-day event that ended on Thursday. Mobile banking began to emerge six years ago in the Philippines and South Africa, where 8.5 million and 4.5 million people, respectively, use such services.
Today, 40 million people worldwide use mobile money, and the industry is growing, according to the GSMA. ‘Africa and Asia are the most active regions right now,’ Krugel said. ‘We expect Latin America pick up this year.’
There are 18,000 new mobile banking users per day in Uganda, 15,000 in Tanzania and 11,000 in Kenya, he said.
Mobile phones can offer a wide range of banking solutions, from sending transfers to a relative to buying goods in a store or putting money aside for a rainy day — all by dialling a few numbers on one’s handset.
Mobile banking can also make life easier for people in parts of Africa where paying a simple bill can be time-consuming, said Reg Swart, regional executive of Fundamo, a company that makes banking applications.
‘It takes one day to pay one bill. You have to physically go to the bank, then you must queue, a long queue,’ he said.
In Afghanistan, the national police have been testing a service from mobile operator Roshan to pay its officers — a system that helps to limit corruption, the company said.
‘We are currently moving from a trial to a full launch in paying the Afghan national police,’ said Roshan’s head of mobile commerce, Zahir Jhoja.
Every month, police officers receive a text message in the language they prefer informing them they have received their salaries, Jhoja said.
A voice message is also left on the phone ‘because a lot of them are illiterate and cannot read,’ he said.
The officer can then go get his money from an authorized Roshan agent.
‘The benefit is that police and police officers don’t have to carry cash anymore: from their post they are able to send their money home, buy items, and take whatever cash they want from an agent, or to store for future,’ he said.
The system has helped officers who were not receiving their full salaries due to ‘corruption and skimming.
‘The police officers who received the money electronically were very surprised to learn that they earn so much money. When they were getting cash they were receiving 25 to 30 per cent less,’ Johja said.
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WTO says ‘too early’ for ministers to meet on Doha
World Trade Organization (WTO) chief Pascal Lamy said Monday that he was against inviting ministers to a meeting in March which is aimed at driving forward negotiations for a global trade liberalisation pact.
While acknowledging that political commitment was needed to conclude the Doha Round of talks, Lamy also assessed that it was ‘too early’ to call on ministers to make such a push at the end of next month.
‘On... the political decision about 2010, I believe this is a judgment that belongs to ministers and that, on this specific issue, engagement will be needed,’ he told diplomats representing the WTO’s 153-member states.
‘Given where we are right now, it is also clear, however, that the end of March is too early for that,’ added the director-general of the WTO.
Lamy said that the meeting in March, aimed at taking stock of the progress in negotiations, would be ‘best undertaken by senior officials at this stage.’
Lamy had earlier warned that WTO member states risk missing the 2010 target set by world leaders for reaching a long delayed global trade pact unless there was a breakthrough by the end of the first quarter.
The Doha Round of negotiations for a trade liberalisation deal began in 2001 with a focus on dismantling obstacles to trade for poor nations, by aiming for a deal that would cut agriculture subsidies and tariffs on industrial goods.
Deadlines to conclude the talks have been repeatedly missed.
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BANGLADESH: UPDATE
Trade through Benapole land port resumes
Export-Import through Benapole land port resumed on Monday after a two-day halt.
Trading through the land port remained suspended on Saturday due to political turmoil on the Indian side while its activities remained closed on Sunday because of public holiday.
Benapole Customs Cargo officer Dilip Sarker said the trade resumed at 10:00am on Monday.
Seventy truckloads of goods entered the land port from India while 40 truckloads of goods were exported to the country till 2:00pm, he said.
Petrapole C&F Association official Kartik Chandra Dey informed that rival groups of workers belonging to Congress Party and Trinamul Congress clashed for domination at the port leading to the closer of activities on Saturday.
Later, the workers joined their work today after fruitful meetings with customs, Bangaon Thana and administrative officials.
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BADC imports 25,955 tonnes of TSP fertilizer
The government has imported 25,955 tonnes of Triple Super Phosphate fertilizer under Bangladesh Agriculture Development Corporation.
The imported fertilizer has already reached Chittagong and Mongla ports and half of the total TSP fertilizer would be unloaded at Chittagong Port in a day or two.
Mother vessels carrying the fertilizer imported from Tunisia reached the Chittagong Port on February 7.
Joint director of BADC Shimul Bikash Dash told the news agency that the imported fertilizer would be kept at warehouses of BADC’s sales centres and later the soil nutrient would be distributed to district and Upazila and union levels through dealers.
He said there would be no fertilizer crisis this year because the BADC has bulk stock of fertilizer in its stocks.
Nonetheless, he said, the government has imported the fertilizer in view of farmers’ interest.
‘We are hastening our works to unload the imported TSP fertilizer so that this essential agriculture input can be reached to farmers in time,’ said Shimul Bikash.
The BADC opened 25 sales centres in 19 areas across the country for fertilizer management this year.
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WORLD NEWS
Air France, Japan Airlines mull joint venture
Air France-KLM and Japan Airlines are discussing joining forces on flights between France and Japan to share costs and revenues, and French daily reported on Monday, but the companies denied any such plans.
Under the joint venture, the two airlines would harmonize their prices, schedules and business practices, La Tribune reported, citing unidentified Air France sources.
But both airlines shot down the report.
‘We deny that there are talks underway on the creation of a joint venture between Air France and JAL,’ an Air France spokesman told the AFP.
JAL, which declared bankruptcy in January,
said that the report was ‘untrue’.
JAL spokeswoman Yap Sze Hunn said: ‘Air France is our valued bilateral partner with whom we share code share flights connecting Japan to Paris and beyond, and we are committed to strengthening this relationship.’
She said: ‘However, there is no intention now to explore a joint venture together.’
JAL has a code-sharing arrangement with Air France on 10 weekly flights between Tokyo and Paris. The two companies also share codes to connect Japan with 12 other European cities via Paris, the spokeswoman said.
JAL rejected an offer earlier this month to team up with the SkyTeam alliance, which includes Air France-KLM and US carrier Delta Airlines.
Instead the Japanese airline said it would expand its alliance with American Airlines and its Oneworld partners.
JAL went bankrupt a month ago with $26 billion of debt in one of the country’s biggest ever corporate failures, but continued operating and began a painful overhaul involving more than 15,000 job cuts and a public bailout.
Code sharing is an important tool for airlines to make alliances by passing each other passengers though ticketing arrangements, thereby maximizing the sales and network capacity of each participant.
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BANGLADESH: SHORT NEWS
HBFC office upgraded in Rangpur
Bangladesh House Building Finance Corporation, Rangpur regional office was on Monday upgraded to divisional office at Parjatan Motel in the Rangpur town.
Chairman of the corporation’s board of directors M Janibul Haq was present as chief guest while managing director Rayhana Anisa Yousuf Ali, general manager (admin) Ferdousi Begum and deputy commissioner, Rangpur, BM Enamul Haque were present as special guests with Rangpur zonal manager Nazrul Islam Sarkar in the chair.
Later the chief guest unveiled the divisional office at Keranipara of the town.
House Building Finance Corporation, Rangpur unit had disbursed Tk 32 core loan among 1,700 beneficiaries since 1966. Of the beneficiaries, 80 were sued for loan default. The office disbursed Tk 5 core loan in the current year.
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WORLD NEWS
RBS chief to forgo bank bonus
The boss of Britain’s state-controlled Royal Bank of Scotland will refuse his bonus for 2009, the Financial Times reported on Monday.
RBS chief executive Stephen Hester will waive his right to a possible 1.6 million pounds ($2.5m), the bank is set to disclose on Thursday when it unveils annual results.
‘He will do whatever is necessary to secure the future of the bank,’ the FT quoted one person close to Hester as saying.
The bank is 84-per cent owned by the British government after a series of enormous state bailouts.
The FT report comes after Barclays bank last week announced that its top executives had shunned their latest annual bonuses amid outrage over pay.
There is widespread public anger about the banking sector’s bonus culture, which some observers blame for encouraging excessive risk-taking and helping to tip the world economy into recession.
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Euro drifts lower on Greece concerns
The euro dipped against the dollar Monday on stubborn concerns about the Greek debt crisis, despite speculation about billions of dollars of European aid, dealers said.
In morning London trade, the European single currency eased to 1.3602 dollars, down from 1.3608 dollars late in New York on Friday. It also fell to 124.37 yen from 124.62.
Against the Japanese currency, the dollar slipped to 91.47 yen from 91.57 yen on Friday.
‘Despite reassuring comments from Greek politicians on its budget, European investors are clearly still nervous that worse could be in store for the euro,’ said analyst Jane Foley at online trading site Forex.com.
She added: ‘Greece’s budget difficulties may eventually be softened by help from the EU.
‘However, this will not fix any of the structural fiscal problems of EMU (European Monetary Union) which have been uncovered by the recession.’
Germany’s Der Spiegel magazine reported over the weekend that the European Union could provide Greece with up to 25 billion euros ($34b) in aid, with each country’s contribution to be calculated according to its relative position in the European Central Bank.
While the German finance ministry later denied the report, speculation helped support the euro in earlier Asian trade.
European leaders have pledged their solidarity with Greece, which has a total debt estimated at about 300 billion euros, but the EU has not announced any concrete financial aid.
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European stocks mostly fall
Europe’s main stock markets mainly edged lower on Monday after recent volatility and following a surge for Asian equities on bargain-hunting, traders said.
The aviation sector was in focus with German airline Lufthansa cancelling two-thirds of its flights on Monday as its pilots began a four-day strike over pay and job security and threatened further walkouts.
Meanwhile British Airways faced a threat of strike action by its cabin crew, with a ballot result on whether to stop work due at about 1400GMT.
London’s benchmark FTSE 100 index rose 0.15 per cent to 5,366.72 points in late morning trade, with BA’s share price down 0.81 per cent to 208.9 pence.
Frankfurt’s DAX 30 dipped 0.15 per cent to 5,713.49 points, as Lufthansa dropped 1.97 per cent to 10.96 euros.
In Paris the CAC 40 edged down 0.07 per cent to 3,766.93 near the half-way mark and the DJ Euro Stoxx 50 index of top eurozone shares lost 0.21 per cent in value to reach 2,787.12 points.
A bout of bargain-buying after recent losses caused by last week’s rate hike by the US Federal Reserve combined with gains on Wall Street to send most Asian stocks higher on Monday.
However, Chinese investors, returning from a week-long Lunar New Year holiday, weighed credit tightening moves from Beijing as local stocks ended lower in choppy trade.
Japan’s Nikkei jumped 2.74 per cent to 10,400.47 points as concerns following the US Federal Reserve move receded. The market recorded its biggest gain since December 3.
Hong Kong jumped 2.43 per cent to end at 20,377.27.
Markets were hit Friday after the Fed announced it would hike the primary credit rate on emergency loans to banks to 0.75 per cent from 0.5 per cent.
Despite the bank stressing the move did not signal a broader tightening of policy, dealers sold up fearing a drying up of credit.
‘Caution prevailed in markets Friday following the Federal Reserve’s surprise moves to cut its discount rate. But that sense of vigilance has now eased,’ said Daiwa Securities Capital Markets equity Chief Kazuhiro Takahashi.
Investors were given some cheer by a 0.09 per cent gain on Wall Street Friday as fears over the Fed’s move were soothed by New York Fed president William Dudley, who said it ‘is not at all a signal of any imminent tightening’.
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New documents raise heat on Toyota
Pressure rose on Toyota days before its chief faces a US congressional grilling, as new documents showed the automaker boasted about saving $100 million by limiting its safety recalls.
The beleaguered Japanese giant has pulled more than eight million vehicles worldwide and faces a host of US lawsuits linking its defects to more than 30 deaths in class action suits that could cost it billions of dollars.
As its president Akio Toyoda, the grandson of the company’s founder, braces for a showdown with a Congress panel on Wednesday, more bad news hit the iconic company embroiled in the worst crisis in its 70-year history.
Internal company documents subpoenaed by the Congress committee showed that Toyota executives reported last year that the company had limited the financial impact of its product recalls through lobbying in Washington.
In one internal document, Toyota’s top North America executive Yoshimi Inaba spoke of ‘wins for Toyota and (the car) industry’ achieved by its Washington bureau when it ‘secured safety rulemaking favorable to Toyota’.
Inaba said in the presentation that Toyota saved 100 million dollars by negotiating with US authorities a limited recall of the 2007 Toyota Camry and Lexus ES requiring it to take back floor mats but not fix car defects.
The company also said it had avoided an investigation into rust problems affecting the undercarriage of its Tacoma pickup trucks.
Toyota reacted to the release of the documents by pledging: ‘Our first priority is the safety of our customers, and to conclude otherwise on the basis of one internal presentation is wrong.’
Critics have attacked Toyota for its sluggish response to complaints linked to accelerator systems and of covering up the defects.
Former Toyota lawyer Dimitrios Biller, now involved in a legal battle with the company, has accused it of hiding and destroying evidence of safety flaws and of ‘a culture of hypocrisy and deception’.
America’s top automobile insurer State Farm has said it first reported Toyota acceleration problems to the US Department of Transportation in 2004, also prompting questions as to whether regulators dithered in response.
Toyoda and Inaba are due to face questioning on the safety recalls on Wednesday at a hearing by the House Oversight and Government Reform Committee — one of three scheduled Congress hearings on Toyota’s safety woes.
A major focus is expected to be Toyota’s so-called electronic throttle control or ‘drive-by-wire’ system in which the accelerator pedal and the engine are linked electronically rather than mechanically.
Toyota has said there is nothing wrong with the system.
Congress members are also expected to examine when the world’s biggest carmaker first knew of the ‘sticky accelerator’ problems, and whether it took its time before informing US regulators and the public about them.
The office of the committee’s ranking Republican, Darrell Issa, said Inaba’s presentation raised ‘significant questions regarding the interactions between Toyota Japan, Toyota North America and government regulators’.
‘Did regulators do their due diligence once problems were brought to their attention? Did Toyota raise potential safety problems with regulators as soon as they knew a problem existed?’ asked Issa’s spokesman in a statement.
‘But there are also questions involving what happened in-between and whether Toyota was lobbying for less rigid actions from regulators to protect their bottom-line.’
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Pilots ground Lufthansa in its longest ever strike
Fearing potential staff cuts, Lufthansa’s high-paid German pilots took to the picket lines on Monday, plunging the airline into its longest ever strike and forcing the carrier to cancel hundreds of flights.
Passengers left stranded by the strike that started at midnight local time are being rebooked on other airlines or have to take trains for domestic travel, after last-ditch attempts to reach a compromise failed over the weekend.
Lufthansa expects the strike will cost it about 100 million euros ($135 million) in cash, in addition to lost ticket sales and possible damage to its reputation now that it will ground about 800 flights per day over a four-day period.
European travelers could face additional headaches, as Monday is also the final day of a cabin crew strike ballot at rival British Airways that could cast travel in Europe’s second-biggest economy into turmoil as well.
Some 4,000 German pilots voted for the strike at Lufthansa on concerns the company could try to cut staff costs by shifting jobs to foreign subsidiaries such as Austrian Airlines or Lufthansa Italia, where wages are lower.
The starting salary for a first officer in a Lufthansa cockpit is 62,000 euros, for a captain 115,000 euro, according to the company’s recruiting website. Media reports put the top end of pilots’ salaries at about 325,000 euros.
‘As we have been saying last week, those pilots want to be treated like managers but are acting like underpaid bus drivers,’ said a local trader.
Lufthansa’s pilots have offered to forego pay increases if in return they get some control over which routes or pilot jobs are transferred to other group airlines. Lufthansa has rejected that demand, saying it would require ceding control over parts of business strategy to its workers and the union.
Germany’s economic recovery stalled at the end of 2009, and workers are becoming increasingly concerned that they could lose their jobs. They are looking to employers to promise job security in exchange for concessions on pay, as carmaker Volkswagen has.
Engineering sector workers have also accepted moderate wage increases to help boost employment prospects.
Over the weekend, the pilots’ union offered new talks, but Lufthansa said it would not resume negotiations unless the union dropped demands for what it saw as undue influence on managerial decisions, leaving the two parties in a stalemate.
‘The conflict is very difficult to solve and ongoing strike action could not be ruled out,’ Equinet analyst Jochen Rothenbacher said.
Rival airlines, rail operators and rental car companies, meanwhile, stand to benefit from the strike as Lufthansa passengers switch to alternative modes of transportation.
Car rental company Sixt ran a full-page paid advertisement in German daily Sueddeutsche Zeitung featuring a photograph of a man in a pilot’s uniform and the line: ‘Underpaid? Become a chauffeur at Sixt! Job ads under sixt.de’
Shares in Lufthansa were down 1.34 per cent at 1004GMT.
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European banks need to issue $327b annually, says Citi
Twenty-four European banks may need to issue about 240 billion euros ($327b) annually for the next three years to fund existing and new businesses, as well as to meet the new Basel stable funding requirements, Citigroup said.
The volatility in bond markets have once again elevated the issue of funding for banks, Citigroup analysts said, adding that sovereign and interest rate risks could add further pressure to earnings.
According to analysts, including Stefan Nedialkov, the 24 European banks, who account for 65 to 70 per cent of the sector’s assets, issued 56 billion euros of long/medium-term funding in January but investors’ macro-economic concerns are restricting their appetite for new issuance in February.
This could eventually drive up funding costs meaningfully, even as fears of crowding out by sovereign and corporate issuers appear overblown, the analysts said.
They estimate a 10 per cent cumulative impact from increased funding costs on banks’ normalized earnings under a stressed scenario.
Still, funding availability is unlikely to be a major issue for most banks through 2012, and the new stable funding ratio regulations from Basel only appear onerous for a relatively small number of banks, Citigroup analysts said.
The Basel Committee of central bankers and financial supervisors through their proposals — dubbed Basel III — is seeking to avoid a repeat of the credit crunch and reduce the industry’s cyclical volatility by raising the quality of banks’ capital, after many of the assets they were using crumbled during the crisis.
Belgian banking and insurance group KBC, Franco-Belgian financial services group Dexia SA and Britain’s largest retail banking group Lloyds Banking Group will see the highest impact to normalized earnings and funding needs from higher funding costs and Basel III requirements, analysts said.
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SOUTH ASIA
Bharti lines up $9b in loans for Zain Africa
India’s Bharti Airtel has lined up $9 billion in loans from foreign and local banks for its planned acquisition of the African assets of Kuwait’s Zain, the Economic Times reported on Monday.
The newspaper cited three people familiar with the matter as saying nearly a dozen banks — mostly foreign — had come forward to commit the amount in long-term loans, compared with earlier plans of taking short-term or bridge loans.
Standard Chartered is leading the consortium of banks and has alone committed $5.5 billion, the paper said. The pricing for the 7-year loan could be close to 300 basis points over the London inter-bank offered rate, it said.
Barclays has also committed close to $5 billion to the company, the paper said.
Sources had earlier told Reuters Standard Chartered and Barclays were advising Bharti on the deal and also on the funding and that Standard Chartered was looking to lead roughly $5 billion loan for Bharti.
The Economic Times said about $2-$3 billion could be rupee loans from a couple of Indian banks keen on being part of a syndicate of banks.
Foreign banks including ANZ, BNP Paribas, Citi, DBS, Bank of Tokyo-Mitsubishi UFJ and JPMorgan were likely to be part of the overseas syndication, it said.
Among Indian banks, the State Bank of India and Kotak Mahindra Bank, besides some state owned banks, also want to partner in this deal, it said.
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WORLD NEWS
Taiwan exits worst post-war recession
Taiwan said Monday it had emerged from its worst post-war recession, as the export-dependent island saw a pick-up in demand from top buyer China and other key export markets in the region.
The island’s economy expanded by 9.22 per cent in the fourth quarter from the same period in 2008, but the economy shrank for the year as a whole, the Directorate General of Budget, Accounting and Statistics said.
‘The growth was made possible by the pickup in China and the other emerging economies in the Asia region,’ said Shih Su-mei, the head of the directorate general.
The Taiwanese economy had not experienced positive growth since the second quarter of 2008, before it was engulfed by the global financial crisis.
‘Not only does this mark a return to growth after five consecutive quarters of decline, it is also the highest quarterly growth since the third quarter of 2004,’ the directorate general said in a statement.
Also contributing to the fourth quarter figure was strong domestic demand as a result of a significant rise in the domestic stock market and a sharp decline in the number of employees on unpaid leave, Shih said.
Taiwan’s stock market increased by nearly 80 per cent in 2009, ending the year as one of the world’s best performers.
However, the island’s economy contracted 1.87 per cent in 2009 year-on-year as the export-dependent island experienced its most protracted downturn in decades.
Consumer prices, the main indicator of inflation, declined 0.87 per cent over the year, the directorate general said.
It forecast growth of 4.72 per cent in 2010, up from a previous forecast of 4.39 per cent.
‘The better performance mainly came from strong exports, indicating the global economic recovery is on track,’ said Cheng Cheng-mount, chief economist at Citibank Taiwan.
In January, Taiwan exports registered its strongest growth in nearly 34 years on increasing global demand for the island’s high-tech goods.
January shipments totaled $21.75 billion, marking year-on-year growth of 75.8 per cent, the best performance since August 1976.
But China, which is the largest buyer of Taiwan’s products, is tightening its monetary policy, prompting some concern among analysts.
China has made several efforts recently to cool lending amid concerns over rising inflation, asset bubbles and bad loans, triggering fears over market liquidity.
‘It remains to be seen whether demand on the mainland will be compromised,’ Cheng said.
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Oil prices breach $80
Oil prices rose above $80 a barrel Monday in Asia, extending a three-week rally as investors expect the US central bank to keep interest rates near zero to help fuel economic growth, which would boost crude consumption.
Benchmark crude for March delivery was up 51 cents to $80.32 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract added 75 cents to settle at $79.81 a barrel on Friday.
Investors are betting that a low inflation rate and weak employment figures will lead the Federal Reserve to keep interest rates low.
The Fed surprised investors late Thursday when it raised the so-called ‘discount’ lending rate on emergency bank loans by one-quarter point to 0.75 per cent. But Fed officials on Friday were quick to downplay the possibility of across-the-board rate hikes.
Consumer prices edged up 0.2 per cent in January, the Labour Department said Friday, and excluding volatile food and energy, prices fell 0.1 per cent, the first monthly decline since December 1982.
‘There’s hardly any fear of inflation right now,’ said Victor Shum, an energy analyst with consultancy Purvin & Gertz. ‘So the thinking is the Fed will keep interest rates near zero.’
‘With unemployment still high, the market doesn’t expect the Fed to raise rates until the US economy is stronger.’
Low interest rates and massive government stimulus spending could also help weaken the US dollar, which would further support oil prices. A weaker dollar makes dollar-based commodities such as oil cheaper for foreign investors.
Oil has jumped from $69.59 a barrel on February 5.
In other Nymex trading in March contracts, heating oil rose 1.92 cents to $2.089 a gallon, and gasoline gained 2 cents to $2.105 a gallon. Natural gas dropped 8.4 cents to $4.96 per 1,000 cubic feet.
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