Archive for June 3rd, 2009

Morrisons reports buoyant sales
Supermarket chain Morrisons has said it has had an encouraging start to the financial year after reporting better-than-expected sales figures.The grocer said sales excluding fuel and VAT at stores open more than a year rose 8.2% in the 13 weeks to 3 May. Including VAT, sales rose 7.3%. The Bradford-based group said it was a “particularly good result”, with sales growth ahead of rivals. It said it was benefitting as shoppers switched from “premium food retailers”. However, Morrisons said that its financial forecast for the year remained unchanged. The supermarket also said that, following consultation with its pension scheme members, it was to close its final salary pension scheme for staff and switch to a system based on career average earnings. The chain added that the Co-Op and Somerfield stores it bought last year would be rebranded as Morrisons this year.
Source:BBC

Latvia denies currency pressure
The Latvian prime minister has denied that the country will need to devalue its currency, the lat, following the failure of a government bond auction.Valdis Dombrovskis said such a move would unfairly hit savers and increase the cost of the country’s imports. Instead, the government is now hoping to secure its next tranche of emergency funds from the International Monetary Fund and the European Union. The Baltic state has been one of the countries worst hit by the recession. Its economy contracted at an annual pace of 18% in the first three months of the year, and the government said earlier this week that this rate of decline was likely to continue for the remainder of 2009. Liquidity woesLatvian bond traders said the gilt auction failed because of a severe lack of liquidity in the country’s money market, a situation exasperated by the efforts of the Latvian central bank to shore up the lat. The country was granted a 7.5bn euro (10.6bn; 6.5bn) IMF and EU bail-out last December, and hopes to secure a further 1.2bn euros from this pot in July. However, to do so, the Latvian parliament first needs to agree on a revised 2009 budget. Despite the comments of Mr Dombrovskis, many currency analysts say a devaluation of the lat will be inevitable. “Latvia seems to have reached the point of no return as its peg may not survive for much longer,” said TD Securities. News of the bond sale failure has hit the share price of Swedish banks with major investments in Latvia. Swedbank’s shares lost 16% on Wednesday, while SEB declined 11%. The Latvian economy has seen a sharp fall in consumer spending as unemployment has risen.
Source:BBC

Japanese companies cut investment
Japanese firms cut their capital spending by a record level in the first quarter of 2008, a survey has said.Firms cut spending on plant and equipment by a quarter during January to March, according to the survey by Japan’s finance ministry. The 25% decline from the same period a year earlier, followed a 17% fall in October to December last year. The Japanese economy contracted by a record annual rate of 15% during the first quarter of 2009. However, analysts expect it to grow very slightly between April and May, and July to September, as global trade starts to recover. JP Morgan economist Masamichi Adachi said analysts had expected an even bigger fall in capital spending. “The figures were weak but not as poor as some had feared,” he said. Japan has been one of the major economies worst hit by the global recession.
Source:BBC

UK tops investment target league
The UK retained its position last year as the most attractive destination in Europe for firms looking to invest in operations overseas.But the Country Attractiveness Survey from Ernst & Young found the number of jobs created fell 16% from 2007. However, the number of projects being undertaken was steady. The report’s authors suggested that was because investment decisions for 2008 would mainly have been taken before the recession got underway. “The true picture of how the global recession has hit inward investment has yet to emerge,” said Marc Lhermitte at Ernst & Young. “We expect 2009 to tell a very different story.” The number of projects announced for European countries in the first three months of 2009 was down 8% from the same period last year. France, Germany and Spain made up the rest of the top four in the rankings.
Source:BBC

Premier League revenues near 2bn
By Bill Wilson
Business reporter, BBC News

The Premier League saw its revenues soar by 26% in the 2007/08 season to nearly 2bn (3.15bn; 2.2bn euros), a report into football finances has said.The revenues of top-flight English sides were 1.93bn, up from 1.5bn a year earlier, Deloitte said. Despite the downturn, 11 of the 20 top league clubs made an operating profit in 2007/08, from eight a year before. But Premier League salary costs topped 1bn for the first time, and the clubs’ total net debt was 3.1bn.
Two-thirds of the debt was carried by the big four of Manchester United, Liverpool, Chelsea and Arsenal, but Dan Jones, the editor of Deloitte’s Annual Review of Football Finance, said those clubs all had business plans “that they feel make sense”. The strong revenue growth outstripped the ever-upwards salary growth, which boomed by 23% to 1.2bn, the biggest annual increase in absolute terms recorded by the Premier League. ‘Remarkable achievement’”In season 2007/08 the big change was the new broadcasting deal – most of the growth came from there, ” Mr Jones told the BBC. The current three-year broadcasting deal – worth 1.7bn – began in August 2007. “In the season that has just finished [2008/09] we think the growth is going to be a little bit lower, but it is going to get clubs up to that magical 2bn mark – which is a remarkable achievement, an average of 100m a club in the Premier League.”
But he warned that the approaching summer months would reveal the extent to which fans and sponsors were willing to match their previous levels of demand, with clubs having to closely examine their marketing and pricing strategies. “This summer will be critical for football clubs, it will be very interesting to see how the season ticket renewals go, how the corporate hospitality renewals go,” said Mr Jones. “I think that is why we are seeing a lot of clubs freezing season ticket prices, reducing prices. They are very sensitive to the fans and their corporate sponsors and the problems they are facing.”
However, he said English football – at both Premier League and Football League level – was proving more resilient in the face of downturn than many other industries. Soaring wagesThe wages to turnover ratio in the Premier League dropped slightly to 62%, a small decline, but still close to the previous year’s high of 63%. Wages paid by top-flight English sides grew by 23% from the previous season to 1.2bn.
Sunderland saw its wage bill soar by 56% and Derby County by 51%. Chelsea once again had the highest wage bill, totalling 172.1m Premier League clubs increased commercial revenues to 447m, up by 12%, whereas matchday revenues grew more modestly, by 3%, to 554m. Meanwhile, revenues in the Championship increased by 2% to 226m in 2007/08, with total revenues of the total 72 Football League clubs exceeding 500m for the first time.
However, despite revenue growth, improved profitability has remained elusive. “For many owners, Premier League clubs represent ‘trophy assets’ with the potential to deliver a long term return but which at best break even annually, rather then a cash cow delivering an ongoing ‘dividend’,” said Mr Jones. Indeed, of the total net debt of 3.1bn in the Premier League, a total of 1.2bn was in non-interest bearing “soft loans” from club owners. Tax contributionsMr Jones also pointed out that while footballer’s wages often attracted headlines, the amount of cash the industry put into national coffers was often ignored. “One thing that does not draw much attention in the midst of all these huge numbers around football is the tax side of things,” he said.
“So, in 2007/08 season we think the overall tax payment to the government from professional football in England was about 860m. “When the new top rate of tax comes in that will go up to 1bn.” However, he said that despite reports of elaborate tax avoidance schemes around players wages, Deloitte was not aware of any being widely adopted by clubs. Limited growthAs well as looking at the English Premier League and Football League the Deloitte report also studies Germany, France, Italy and Spain. Italy’s Serie A was the fastest growing league in terms of revenue, thanks mainly to the change in clubs in the league, including the return of Juventus, in 2007/08. In joint second place after the Premier League, in terms of gross revenues, was Spain’s La Liga and Germany’s Bundesliga. The Bundesliga, France’s Ligue 1, and the English Premier League have been boosted by having secured long-term broadcast deals which deliver significant proportions of total revenue.
Source:BBC

What will the recovery look like?
By Anthony Reuben
Business reporter, BBC News
As recently as October, there were genuine fears that we could be about to see a collapse of the financial system – a sort of financial Armageddon.
Less than nine months later, there is a fresh optimism in the air and some economists suggest it could be time to start talking about having reached the bottom of the recession. But if we are now looking forward to a recovery, what sort of recovery should we expect? In past recessions, it has been consumer spending that has led the recovery, but personal debt was a part of what started this downturn. Bank of England Governor Mervyn King said at the launch of his inflation report that “in the UK, our national saving rate will need to rise”, and that would be difficult to reconcile with growth in consumer spending. Nonetheless, even if there is not a big rise in spending, retailers could still boost growth by boosting their stock in the near future, according to former Monetary Policy Committee member Professor Charles Goodhart, now at the London School of Economics.
“After Lehman Brothers collapsed, everyone tried to reduce their inventories as far as they could, so there was a massive inventories run-down for about six months, which made the figures for growth a great deal worse than the underlying reduction in demand.” He says that on the flip side, retailers will have to restock their shelves at some point soon, which will make the recovery look better than the growth in demand would suggest. Nonetheless, consumer spending is unlikely to be the leading factor in the recovery. Some have suggested it could be an export-led recovery. “I think there’s a good chance that exports will play a significant role in leading the UK out of recession,” says Stephen Radley, chief economist for the manufacturers’ organisation EEF. UK exporters are already benefiting from the weak pound against the euro and the dollar, which makes their products cheaper to their overseas customers. The problem with an export-led recovery is that it means we would have to wait for other countries to have their recoveries before we can. At the moment, about 60% of UK exports go to the European Union, and the economies of many EU countries look in just as bad condition as the UK, even if they have not had as much reliance on their financial sectors. Only way is upBut is the UK manufacturing sector in any state to lead the UK economy’s recovery? As BBC economics editor Stephanie Flanders points out in a
if you have stopped production altogether, as many industrial firms have done, there is nowhere to go but up.
“The worry is that some manufacturing companies won’t have the capacity to take advantage of the upturn when it comes,” Mr Radley says. “Companies will have been forced by the recession to lose a significant chunk of their workforce and some of those will be highly skilled people who they’ve reluctantly had to let go because of the pressure they’re under.” Prof Goodhart points out that the weakening of the pound is a rebalancing of the economy. In the past, what was keeping the pound strong was the earnings from financial institutions, he argues. “Now the City is likely to be somewhat less successful, the pound has depreciated really quite a lot and our tradeable goods industries will be much more successful in future.” A possible source of growth in the recovery could be green technology. “I think manufacturing firms that can launch new, green products are likely to benefit,” says Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club. “Though the UK has a dwindling manufacturing sector in terms of its size and share of the economy, I think it has very high quality and value-added and I think in those sorts of areas the UK has an advantage and could push forward.” ‘Banking has problems’It is not just the manufacturing sector that could see an upturn in exports – the service sector could also benefit. The UK tourist industry is expected to benefit from the weak pound encouraging visitors from overseas. There may even be some growth from the financial services sector. “Obviously banking has its problems and is likely to grow at a much slower rate, but I think there are other key parts of the financial services sector, which we’d expect to continue to do quite well: areas such as asset management and insurance in particular,” Mr Goodwin says. Dangerous strategyThere has also been some talk of an inflation-led recovery. The thinking is that if debt is the big problem for both the government and individuals, some controlled inflation would reduce the value of that debt.
On top of that, reasonably large, inflation-linked annual pay-rises for employees and renewed growth in house prices could make people feel good again and spark some consumer spending. But it could be a dangerous strategy. “You start to create a monster and you need to know how to stop it,” says Paola Subacchi, head of the international economics programme at Chatham House. “One risk when you start to play with inflation is that you create expectations and if the inflationary expectations get out of hand, then you create some undesirable inflation, which becomes more difficult to control.” Prof Goodhart says that the problem with the strategy would be the rising cost of borrowing. “I don’t think it would do you that much good because it would just raise the interest rates and therefore the cost of [the debt],” he says. ‘A big mess’So it looks as if we may be relying on exports and investment when the recovery comes, but perhaps we should not raise our hopes too high. “We wouldn’t necessarily think it’s going to be a particularly exciting recovery, even in exports,” Mr Radley warns. There is a perception that there will not be a return to the sort of growth we were used to before the downturn began. “We think growth will be much slower than it has been in the recent past,” predicts Mr Goodwin. “It’s averaged over 3% over the past decade and we’re looking at something nearer 2.25% going forwards.” On the other hand, the Armageddon scenario outlined in September, featuring total loss of confidence in currencies and economies has not happened and we should all be grateful for that. “We are in a big mess but at least it’s not going to get worse – we hope,” concludes Ms Subacchi.
Source:BBC

Ghana’s oil boom: blessing or curse?
By Mark Broad
Economics producer, Accra, Ghana
Deep below the Gulf of Guinea lies the key to Ghana’s economic future. After decades of casting jealous looks at its oil rich-neighbours, the taps of Ghana’s very own oil boom are about to open. As the oil starts to flow, so, Ghanaians hope, will the money needed to move the country into the next economic league. But as many oil-rich African nations have found, oil is as likely to be as much of a curse as a blessing. Gold, cocoa and oilMost countries would settle for an abundance in one lucrative natural commodity. Ghana can now boast quite a collection.
Having built an economy on its rich gold reserves, plentiful supply of timber and extensive cocoa plantations, the country will soon have a new resource to sell. Ghana’s offshore oil wells are set to start pumping in 2010 with predictions that they could eventually produce some 10 billions barrels of oil. And despite the fall in the price of and demand for oil during the global recession, the Ghanaian government remains confident that an oil windfall will deliver all that it has promised. “In 10 years time Ghana will be a very prosperous nation,” says finance minister Kwabena Duffuor. “We will be an oil exporter, doing very well in gold mining and with a strong financial sector – we will have a very buoyant economy’, he says. Oil prosperity To make the most of the new oil fields, the government has transformed the Ghana National Petroleum Company (GNPC) to ensure it can cope with the demands of oil extraction.
GNPC has entered into a joint agreement with a number of foreign oil companies to help extract and deliver the oil. While Ghana may be short on domestic oil industry expertise, it’s not short on people wanting to lend a hand. Earlier this year, Norway sent a government delegation to advise the Ghanaian government to offer their knowledge on dealing with the country’s oil find. The offer came after Kofi Annan, the former UN secretary general, contacted the Norwegian government keen to make sure that his native country avoided the “oil curse”. It is now expected that Ghana could develop a fund for oil revenues similar to Norway’s 322bn (197bn) sovereign wealth fund. Failing neighbours Ghana does not have to look far for examples of “worst-practice” oil industry development.
Just down the coast lies the rich oil region of the Nigerian Delta, one of the most dangerous parts of West Africa. “There are a million lessons that Ghana can learn from Nigeria,” says Duncan Clarke, an oil expert at Global Pacific & Partners. “From the parking of oil funds abroad, to the direct plundering of state resources and simple corruption, Ghana has plenty of things to avoid,” he says. A living for the locals One of the major concerns in Ghana is that the country’s population will not be able share in the oil boom. “An offshore oil business can be designed so that no oil actually comes on shore, limiting the ability of locals to benefit,” says Tutu Agyare, of London-based Nubuke Investments.
“If locals do not have the skills and access to the oil industry, then you end up with a situation where people are very aggrieved.” The Ghanaian government has asserted that its oil find will be of benefit to the whole of the country, but many are concerned that good intentions may not turn into reality. “Spreading the wealth among the population is much easier said than done,” according to Mr Clarke. “There are plenty of examples in developing economies where this has not happened.” Crude hopes? With the oil not set to flow for another year, the government is working hard to manage the country’s soaring expectations. For charity workers in the country, the oil find offers a one-off opportunity to boost the living standards of the poorest members of society. Martin Derry, of the the non-governmental organisation Pronet North, believes that once the oil funds start to flow, people will need to be patient before they see any improvements to their lives. “Once the oil revenue arrives I expect the government to channel it into the deprived Northern area of Ghana, but I don’t see that happening any time soon,” he says. But while the doubts and worries persist, both inside and outside the country, the Ghanaian government remains resolutely optimistic. “We’ve seen what others that have found oil have gone through and we’ve looked at their mistakes,” says Dr Kwabena Duffuor. “Our oil will be a blessing and not a curse.”
Source:BBC

The purchasing power of peace
By Jorn Madslien
Business reporter, BBC News
Purchasing power long ago overtook manpower as the most important lever in the race towards military might.Currently, personnel expenditure accounts for less than 40% of global defence spending, according to Datamonitor. As hi-tech machinery continues to reduce the need to use soldiers to fight wars, this proportion is shrinking. Meanwhile, the amount spent on defence is soaring in every region of the world. In 2007 alone, global defence spending rose 8.4% to 1,140.5bn, according to Datamonitor, which predicts a near 34% increase to 1,527.6bn by 2012. Poverty fuels violenceAt a time when a deep economic recession is causing much turbulence in the civilian world – buffeting both airlines and aerospace companies – defence giants such as Boeing and EADS, or Finmeccanica and Northrop Grumman, are thus enjoying a reliable and growing revenue stream from countries eager to increase their military might.
Defence spending has a tendency to rise during times of economic hardship. Both geopolitical hostilities and domestic violence tend to flare up during downturns. Last year, for instance, high food and fuel prices during the first part of the year and the recession later in the year eroded peace, according to the Global Peace Index, published by the Institute for Economics and Peace. On the domestic stage, meanwhile, “rapidly rising unemployment, pay freezes and falls in the value of house prices, savings and pensions is causing popular resentment”, the report says. Valuable ‘violence’Shareholders and employees in the aerospace and defence industry are clearly the ones who benefit most from growing defence spending.
Defence companies, whose main task is to aid governments’ efforts to defend or acquire territory, routinely highlight their capacity to contribute to economic growth and to provide employment. Indeed, some 2.4 trillion (1.5tr), or 4.4%, of the global economy “is dependent on violence”, according to the Global Peace Index, referring to “industries that create or manage violence” – or the defence industry. Economic stimulusMany governments deem defence spending as a useful tool to fend off recessions – another reason why defence spending often rises during downturns. Take China, which has doubled its defence budget since 2006 and is planning yet another 15% rise in its official defence budget this year to 480bn yuan (70bn; 43bn). The hope is that the additional defence spending should act as a fiscal stimulus and thus help to get the Chinese economy’s wheels turning even faster. China is not the only Asian country to boost its defence budgets. Last year, Asia overtook Europe as the second-biggest military spender (173bn), after the US (374bn) and ahead of European Nato members (144bn), according to the International Institute for Strategic Studies (IISS). Profitable peace
Undoubtedly, such additional cash injections will reap benefits in the economies concerned. But if “violence”, or the threat of such, is economically beneficial, then peace – the “absence of violence” – is even more valuable, according to the Global Peace Index, which has calculated its value in US dollar terms. “Ideally, living without the threat of instability would mean the violence dollars could be redeployed into areas that would cause other less destructive markets to grow,” the report says. The economic bonus of peace – or the removal of the cost of “lost peace” – would be 7.2tn a year, based on latest data from 2007, the report has found. “There is a very, very strong correlation between peace and wealth,” Steve Killelea, founder of the Global Peace Index. Peace industryTo reach this figure, the report’s authors set out to identify the “peace industry”, as distinct from the defence industry. “The peace industry comprises those companies and industries whose markets improve, or whose costs decrease with improving peacefulness,” it says. “Examples include retail, finance, tourism and insurance.” The report’s findings are not as abstract as they may at first seem. Not only does it insist that “wars are no longer economically viable”. It also calls for companies to promote peace: “If the cost of investing in proactive peace-creation was minimal compared to the lost potential caused by violence, then would it not be fitting for business to engage with government to create peace in the markets in which they operate?” Virtuous cycleSince the end of the Cold War in 1989, the world has become a more peaceful place, as “more wars have ceased than have started”, the Global Peace Index observes.
Promoting peace may boost economic growth.
“One of the biggest beneficiaries of this has been business.” More recently, between 2000 and 2007, the number of conflicts fell from 40 to 30. Meanwhile, global GDP, or economic output, has risen from 32tn to 55tn. This is a direct result of what the report calls a “virtuous cycle”, where productive employment – which can only arise if there is peace – leads to wealth creation. “People become motivated by the improved standard of their lives, rather than seeking retribution for past wrongs,” it says. Conversely, when economic development contracts, violence increases, thus harming the business environment. Military might delivers geopolitical supremacy, but peace delivers economic prosperity and stability. And that, the report insists, is what is good for business.
Source:BBC

NEW YORK (Fortune) — Regulators shelved a controversial plan that aimed to cleanse banks’ balance sheets of toxic assets. The Federal Deposit Insurance Corp. said Wednesday it has postponed the initial sale of bank assets under its Legacy Loans Program, or LLP. The FDIC said it wasn’t canceling the program but would put it under study for revival in a different form. The plan, which was to offer low-cost federal financing to private investors in troubled bank assets, had been expected to begin with a trial sale this month. The loan program was unveiled in March as part of the Obama administration’s effort to restore investor confidence in the financial system. At the time, officials said removing bad assets from banks was the key to restarting the financial markets and putting the economy on track to recover. But since then, policymakers led by Treasury Secretary Tim Geithner and FDIC chairman Sheila Bair have put the nation’s 19 largest banks through stress tests. The tests came in generally better than observers had expected, and big institutions have been able to raise some 85 billion in investor funds. Shares of banks ranging from money-center giants Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) to regional banks Fifth Third (FITB, Fortune 500) and KeyCorp (KEY, Fortune 500) have rallied. Other big banks, including Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), have laid plans to repay money they got last fall under Treasury’s Troubled Asset Relief Program. Regulators are expected to let some banks begin paying back those funds next week. The banks’ capital-raising success, coming just months after a robust debate in Washington and on Wall Street about whether distressed giant banks would have to be taken over by the government, has reduced banks’ incentive to sell assets into the legacy loans program, regulators said. “Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system,” Bair said in a statement Wednesday. “As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector.” 0:00
/3:01′Weak institutions need to fail’But the industry’s success in refilling its coffers isn’t the only thing that doomed the legacy loans plan and the broader Public-Private Investment Program (PPIP). The Boxer rebellion?Critics warned that PPIP amounted to a multibillion-dollar handout to banking industry insiders who had already profited at the expense of the general public during the credit bubble earlier this decade. In addition, investors and bankers cowered at the thought of submitting to deepening and often capricious government involvement in the private sector. And then Congress got into the act, making it all much worse.Bair said two weeks ago at a press briefing that the legacy loan start date was running late because Treasury was reworking the rules to implement a recently enacted amendment by Sens. Barbara Boxer, D-Calif., and John Ensign, R-Nev. The amendment aims to prevent collusion or conflicts of interest in the legacy loan program.The Boxer-Ensign amendment ultimately may have caused some big players to back away from PPIP – illustrating what Hal Reichwald, a partner at law firm Manatt, Phelps & Phillips in Los Angeles, calls “the toxic combination of policy and politics.” The next step, Reichwald suggests, is for regulators to embrace the possibilities of reconstituting troubled banks with the aid of private equity investors. He points to the recent FDIC seizure and sale of Florida’s BankUnited — as well as the likely use of so-called good bank/bad bank structures that separate troubled assets from banks. Along those lines, the FDIC said Wednesday it will test the legacy loans funding structure in a sale next month of receivership assets — the remains of a failed bank. “The current situation behooves all those who would be players in the distressed asset market to begin to think creatively,” Reichwald said in a recent note to clients, “because notwithstanding the government’s apparent change of heart the opportunities are still there.” CNNMoney.com senior writer Jennifer Liberto contributed to this report.

Source:CNN

NEW YORK: Manchester United will no longer bear the AIG logo, the British soccer team announced Wednesday, officially ending its relationship with the fallen insurance giant. The team. which has one of the most recognizable sports brands in the world, said it reached a new sponsorship agreement with global risk management company Aon Corporation.Under the terms of the deal, which goes into effect in 2010, the Manchester United shirt will feature the Aon brand for the following four years. Manchester United had been sponsored by American International Group, the massive insurance group that was taken over by the government last year.

Source:CNN