The Sydney Morning Herald from Sydney, New South Wales, Australia • Page 30

30 World Business THE SYDNEY MORNING HERALD FRIDAY, NOVEMBER 14, 1997 MELTING MOMENTS PROXY BATTLE I Collapse fear I Iff! "ZZ? JUL .11 rT- Ml, abate as Asian Itooumee NEWS IN BRIEF Surplus slashed Tokyo (Bloomberg): Japan's current account surplus fell 34pc in September from August, the third decline in the past four months, as exports to Asia continued to slow. The surplus fell to a seasonally adjusted Y796.4bn the Finance Ministry said. That was in line with economists' forecasts. Exports fell 3.1pc in September, while imports rose 6.8pc. Ginemas sold Dallas (Bloomberg): Hicks, Muse, Tate.

Furst Inc are to buy United Artists Theatre Group for about $US850m in cash and debt, grabbing the second-largest US cinema chain as the industry rapidly consolidates. Rates untouched Washington (NY Times): The US Federal Reserve voted on Wednesday to leave interest rates unchanged a decision widely expected by economists and investors. Saying yes for the money if mm i riW- i to take the more attractive financial offer." In a preliminary count, 65 million proxy votes were cast for ITT's slate of directors, and Hilton received 25 million, according to ITT spokesman Mr Jim Gallagher. Certification of the count will take at least seven days. The Phoenix-based Starwood Lodging recently purchased Westin Hotels and now will have ITT's Sheraton chain, Caesar's World casinos and its corporate-owned luxury hotels, such as the St Regis.

A combined Starwood-ITT would have 650 hotels in 70 countries, DEAL DISAPPOINTS li i BOD XL Tokyo: Fears of a further meltdown on global sharemar-kets eased yesterday as key Asian sharemarkets pulled out of an early dive after the 157-point plunge on Wall Street on Wednesday night Japanese stocks recouped early losses on buying by government pension funds to close little changed ahead of the release today by the ruling party of a second economic stimulus package. In Hong Kong, the Hang Seng index, after initially falling below 9,500, gained ground and closed at 9,720, a gain of 1.17 per cent Overall, South-East Asian markets remained jumpy with Singapore's Straits Times Industrial index plunging 25 points to 1,660 in the morning. Malaysia's Composite index fell 13 points, to 672 but finished higher. Japan's benchmark Nikkei 225 stock average closed down 6.9 points, or 0.04 per cent, at 15,427.27. It touched a low of 15,083.22 in morning trading.

"Public pension funds are supporting the market with all their might because of anxiety about the financial system and the risk of increasing bankruptcies," said Mr Shigemi Non-aka, managing director at Sak-ura Asset Management "But without an effective plan, there's no sign we've hit bottom." Nikkei-225 index futures traded in Chicago settled at 14,960 overnight and investors are worried that the benchmark could fall through 15,000 in today's trading. Triggering the decline was concern about Japan's weak economy, fiscal instability and uninspiring government proposals. Mr-- nomic package likely to prove effective, the Government has ample cause to support, through public pension fund buying, a market which has fallen 9.7 per cent over the past month. As the Nikkei plunges, the risk to banks is increased as their latent profits on equity holdings plummet. Banks need those profits to write off trillions of yen in bad loans, which could increase as more companies go bankrupt in Japan and around Asia.

The profits are also needed to meet the Bank for International Settlements's capital-adequacy requirements. When the benchmark falls below 14,700, latent profits on equity holdings on average vanish for the top 20 banks and eight life insurers, said Mr Hideo Mizutani, a strategist at Tokyo Securities. Moreover, Japan's financial woes, spurred by Sanyo Securi-ties's filing for court protection on November 3, have made for tighter credit lines for Japanese banks borrowing overseas. Hong Kong's rise was only the second in eight days. It reflected investors targeting Hong Kong Telecom and other utilities in a bid to insulate themselves from the threat of rising interest rates.

HK Telecom gained 4.7 per cent. Adding to the rally, one-month inter-bank rates eased to 1 1 per cent. Still, fund managers warned the market is not yet on the mend, as investor sentiment remains weak. "We're definitely in a bear market," said Mr Raymond Chan, associate director at Barclays Global Investors HK. Bloomberg ITT shareholders meet the press after voting against Hilton's Hilton out of takeover race for ITT I TSEOUL Shares were up early and eased to 2pts up at 519.

The won was stronger at 987. TTOKYO The Nikkei recovered to close up 0.4pc. The yen strengthened to 125.3. THONG KONG The Hang Seng hit 9436 but finished up 113pts at 9720. 1 TJAKARTA Shares were down all day, closing down 2.6pc.

The rupiah weakened to 3400. 1 TSINGAPORE An early plunge was regathered and the STI finished up0.3pc. TBANGKOK Shares plunged then ran on down to close off 3.3pc. The baht weakened to 38.35. Japan has also been quick to react to falls in the Hong Kong sharemarket (see story below).

In the absence of an eco initially fell further, though it later revived amid strong buying from government pension funds. The latest threat is the alarming tendency in recent weeks of Japan's stockmarket the world's second largest to follow the far-smaller Hong Kong market lower. Japan's banks and insurers rely heavily on their huge domestic stock portfolios as a hidden reserve of capital, selling bits of these holdings whenever they are short of money needed to meet pay-outs to policyholders or to write off problem loans. Each downward tick in the Nikkei average thus weakens balance sheets across the Japanese financial industry. That is forcing other banks to question the health of many Japanese institutions and thus to demand that Japanese banks pay more for short-term money-market loans.

This so-called Japan pre- Financial crisis hitting Japanese at home bid. Photograph by AP SI SI0 billion in annual revenue and estimated annual earnings of nearly $L'S2 billion. "I'm excited. I'm delighted. I'm ecstatic," said Starwood chairman Mr Barry Sternlicht after the vote.

"But somebody else could show up." Mr Bollenbach maintained he was not upset by the loss, saying the company's management would consider purchasing the Caesar's casinos as Mr Sternlicht had indicated that he might sell. But he acknowledged that there are few big prizes left in the rapidly consolidating hotel industry. The Washington Post Barclays reversed an earlier decision to sell its equity derivatives business, which has capital employed of about 110 million and will be integrated within the Barclays Capital Group. Despite the lower than expected price, Barclays chief executive Mr Martin Taylor called the deal satisfactory as it enabled the bank to exit an area of business on which it no longer wanted to concentrate resources. "It's a fair price for the business," Mr Taylor said.

"I am only disappointed that we haven't sold the whole thing." Mr Taylor said he hoped to sell the businesses in Australasia and the Asian-Pacific by year's end. AP-Dow Jones HK TELECOM TRADE-OFF SIGNS OF EAST ASAN TWSTEP? Barclays sells BZW Europe for $245m 17500' IJyi 17000 Vl 16500 w1 16000 I 15500 15000 Source: Bloomberg Tokyo: Japan's exposure to the Asian financial crisis is starting to hit home, undermining Japanese stock prices. The stockmar-ket's drop, in turn, is pushing up the premium the country's banks pay to raise funds. Japan's interests in the region are no secret, from the Japanese-owned factories that dot the map of Asia to the billions of yen in bank loans. But a chain of events on Wednesday, starting with the 4 per cent slide in Hong Kong's Hang Seng index, illustrates how Japan's vast Asian interests can turn into unexpected and sudden liabilities Tokyo's Nikkei Stock Average closed that day down 433.06 points, or 2.7 per cent, at 15,434.17, its lowest level since July 1995.

Bank shares, which weigh heavily in all of Japan's key stock indexes, led the decline. And yesterday the market 15000 November 1 to 13 mium is likely to rise if the Nikkei average keeps falling. "Bank shares were actually higher at the outset of trading on Wednesday," said Mr Yasuo Ueki, the general manager of the stock-trading divi- i OTt 14000 130001 12000 1 ruxjqpj lOOOp 9000 TI strong Dallas (AP-Dow Jones): Texas Instruments said that despite currency turmoil in the Asia-Pacific region, the world semiconductor market remained on track for moderate recovery. The electronics giant said pricing pressure continued in digital random-access memory products but demand was strong. Honda ahead Tokyo (Bloomberg): Honda Motors said first-half net profit on worldwide sales rose 33pc to Y126.5bn, as Japan's third-largest car maker almost doubled exports to meet strong demand in Europe and the US.

Sales jumped 16pc to 500,000 in the US, Honda's biggest market. Casio's climb Tokyo (AP-Dow Jones): Japan's Casio, a leading watchmaker, boosted pre-tax profit for the six months by 182pc to Y11.74bn from the same period a year ago. Spending down Tokyo (AP-Dow Jones): Even before the Asian crisis, Japanese manufacturers' spending on machinery and equipment but excluding land in the region in the April-to-June period fell 6.8pc from the preceding quarter to Y115.7bn, the Ministry of International Trade and Industry said. MCI sells stake London (Bloomberg): British Telecom will buy MCI Commu-nications's 24.9pc stake in Concert Communications, the companies' international phone services venture. The move follows WorldCom's plan to pay BT $US7bn (SlObn) in cash for its 20pc stake in MCI.

Comstock buyout Dallas (Bloomberg): Comstock Resources has agreed to acquire Louisiana oil and natural gas properties for $US203m in cash from Bois d'Arc Resources and its affiliates. China play all options open. its uniquely strong presence in China's newest province. Reporting strong first-half results, Mr Brown said the sale of a 5.4 per cent stake in Hong Kong Telecom to China Telecom had resulted in a 519 million exceptional gain. China Telecom controls another 10 per cent stake and now has a seat on the board.

But finance director Mr Robert Lerwell said the group's stake could fall below 50 per cent and it could still retain "economic and management control." The board said it was in negotiations with Global One, the joint venture between Sprint, America's third-largest longdistance operator, France Telecom and Deutsche Telecom, but would keep all options open. The Guardian would drop its SUS12.8 billion offer if its slate of directors were not accepted at the shareholders meeting held at the St Regis Hotel here. ITT has set up a special committee to auction the company but industry experts and Wall Street analysts said it was unlikely another bidder would emerge. "Going into it, I thought it was going to be closer than it appears to have been," said Mr John Rohs, an analyst at Schroder Co. "ITT shareholders liked the money on the table and the option of taking cash and stock.

At the end of the day, shareholders were happy economy and its other financial markets. The yen now is following other Asian currencies and beginning to slide against the dollar. US car industry officials already are turning up the pressure, complaining that the weaker yen would make it harder for foreign car companies to compete in Japan. An American dollar in Tokyo trading yesterday fetched roughly Y125, compared with Y121 in early September. But the Bank of Japan, the central bank, has yet to intervene, said currency traders, possibly out of fear of hurting the stockmarket.

The central bank is refraining from buying the yen, some speculate, because such intervention, while stemming the currency's decline, would also hurt shares of exporters perhaps the only sector slowing the decline in the Nikkei. AP-Dow Jones production in the advanced economies of Europe was displaced by lower-priced imports from the countries of new settlement Australia, Canada, the US west, New Zealand and Argentina in rather the same way in which manufactured goods from the emerging economies have been undercutting local production in the advanced economies over the past decade. With the latest round of sharp devaluations that process is about to become much more aggressive. What happened in that first phase of globalisation in the late 19th century was a much more benign period of deflation than the 1930s -although it wasn't for many displaced agricultural workers, many of whom were forced to migrate. from 14.6 per cent to 17.1 per cent.

The direction of the performance measures certainly suggests that Westpac is moving in the more appropriate way in the current climate. It certainly appears to be both an aggressive and nimble strategy hich Joss is pursuing. It is one which has met with approval from market analysts. On the other hand, Argus is talking asset growth rather than streamlining. His recent big policy statement spoke of the big picture development of a global financial house with credit card acquisitions as next on the shopping list.

New York: ITT's shareholders on Wednesday overwhelmingly re-elected its board of directors, allowing Starwood Lodging to begin negotiating its billion ($19.7 billion) friendly takeover of the hotel and gaming company, thereby handing a big defeat to Hilton Hotels and its president, Mr Stephen Bollenbach. Starwood Lodging, a little-known real estate investment trust, is now poised to become one of the world's largest hotel operators. The vote brings to a close the 10-month hostile bid for ITT waged by Hilton, which said it 18000 November 1 to 13 sion at Nikko Securities. "But when news hit that the Hong Kong stockmarket was falling, the selling soon hit Tokyo." Concerns over the health of Japanese financial institutions are rippling through the nation's a channel through which the Ministry of Finance could bail out its overexposed banks without directly approaching Japanese taxpayers who have demonstrated previously that they have no sympathy for the bankers, whom they blame for the economy's current problems. While Japan's deflationary experience has certainly been an unpleasant one it falls well short of the global deflation of the 1930s which we now call the Great Depression.

In fact, the period which was first called the Great Depression occurred in Europe during the final quarter of the 19th century, from 1873 to 1896. This, too, was a time of price deflation, though it was largely consumer price deflation as agricultural led the march on asset securitisation which allows more efficient use of capital. NAB also undertook a buyback this year but issued exchangeable capital units which can be converted to equity and, if the aggressive acquisition strategy continues (and there is every indication from Argus that it ill), there is more chance NAB will need to increase rather than decrease equity. This balance-sheet management is reflected in the returns on shareholders' funds hich each has been achieved over the past year. Where NAB fell from 17.1 per cent to 16.2 per cent over the year, Westpac moved seeks more access to China FOR INFORMED INVESTMENT nothing beats experience AFR pi From previous page central banking and financial bureaucracies go to elaborate lengths to maintain confidence in their banking systems.

as we see in the case of Japan, this can prolong the agony rather than heal it. While the Bank of Japan has cut its discount rate to near zero in order to help the banks repair their balance sheets, credit growth in Japan has been virtually stagnant. This has meant that Japanese banks have gone offshore seeking business, mainly in Asia. They are now highly exposed to the troubled economies of South-East and North Asia which is why Japan's Ministry of Finance is persisting with the idea of creating an Asian Financial Emergency Fund to supplement IMF loans to the region. Such a fund would provide London: Credit Suisse First Boston has agreed to acquire the European equity and investment banking businesses of Barclays's BZW unit for 100 million ($245 million), far below expectations.

The price is 50 million below the 150 million declared book value of those operations; in the first half, they generated revenue of 120 million. Stockbroking analysts and investors were disappointed with the deal, after earlier expectations that Barclays could raise more than 300 million and up to 600 million for the sale of these and other BZW businesses. Barclays is still stuck trying to sell BZWs businesses in Australasia and the Asian-Pacific. The period began with a serious recession, particularly in Germany and the United States, both of which suffered financial crashes in 1873. Reflecting what is happening in Asia today, these two countries had been through a period of "irrational optimism" (in the wake of major wars: the US Civil War and the Franco-Prussian War) which had led to over-investment.

Despite its description as the Great Depression this period recorded positive economic growth. While it would be inappropriate to place too much importance on analogies between now and that period it is useful to remember that deflation and depression do not aut6matically or inevitably go hand in hand. While this met with a mixed response, it would be very bold to write off Argus too quickly as an old style banker who is out of touch with ways to deal in the current environment. He clearly has an eye for the future and wants to take NAB to a new level. He is not content to confine his aspirations to the Australian market or to traditional banking products.

And it could be that in five years' time all will be marvelling at the achievements of Argus in transforming his NAB into a financial conglomerate which has truly outgrown the local market. The Australian Financial Review Australian Mines Handbook is the leading annual publication on resources, specialising in current information on the mining scene. The new 199798 edition from Lothean Publishing features two comprehensive sections; Companies, a detailed listing of Australian listed resource companies and Deposits, a detailed listing of mines and promising prospects. Also included are comprehensive overviews from industry experts, a listing of company directors, a guide to Government departments and industry associations plus ABARE's Mineral Statistics. With each handbook purchase you have the opportunity to also buy the new AFR Australian Mines Handbook on CD-Rom for just $140 more! (plus $5 pip) Trade Distributor: Kirby Book Company RRP only $269 AFR London: Cable and Wireless, Britain's second biggest telecommunications company, said on Wednesday it was prepared to trade outright control of its most lucrative asset, Hong Kong Telecom, for opportunities in mainland China one of the world's fastest growing markets.

The group said it was open to discussions with all main companies in the industry on forging a global alliance. It refused to rule out reopening talks with its bigger domestic rival, British Telecom, still smarting from its year-long debacle with MCI in the US -though it will receive almost $US7 billion ($10 billion) for its MCI stake. Cable and Wireless directors also said they had set about raising 1 billion ($2.5 billion) within a year from disposal of businesses in which it did not have a significant stake or outright control. There are about 50 businesses where it does not own at least 50 per cent. But the company stressed it would retain a strong grip on Hong Kong Telecom, even if further shares were sold, and on Cable Wireless Communications, the recently formed cable venture which includes its UK telephone company, Mercury.

Chief executive Mr Richard Brown said that cutting its 54.2 per cent stake in Hong Kong Telecom was an option, but would only be done in return for mainland China opportunities. "We would consider selling down the shareholding in Hong Kong Telecom only if we can get an equal or better deal in China," he said. has faced City criticism for failing to squeeze more from Send completed coupon to: AFR BOOKS, PO BOX NS42, GROSVENOR PLACE, SYDNEY NSW OR Phone our 24 Hour Credit Card Hodine: (02) 9238 7655 OR I 800 25 I 949 (free call outside Sydney http:www.market.fairfax.com.au 2000 area) of copies required: Handbook. (pkis $5 Handbook on CD (oo arafebte with book puixrase) made payable to John Fairfax Publications Bankcard Visa Mastercard (3 CD Amx AB AC US From previous page cent to 3.59 per cent over the year, in the six months to September, it improved to 3.63 per cent. NAB also suffered from the margin squeeze with net margins falling from 3.9 per cent to 3.5 per cent.

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