| From: Sam Citron | 2/9/2009 3:09:25 PM | | | | | | Japan’s Investors Savor Strong Yen in Hunt for Assets (Update3)
By Ron Harui
Feb. 9 (Bloomberg) -- Daiwa SB Investments Ltd. is urging clients to put their money into Brazil, Mexico and Turkey after the yen’s 55 percent gain against their currencies made emerging markets a bargain. A year ago, it wasn’t recommending any developing nation funds.
“A lot of assets have gotten extremely cheap and Japanese investors are looking to park their money somewhere,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at the second-largest brokerage in Tokyo. “Emerging markets including Brazil, Mexico and Turkey look attractive. We would like to invest more in such countries.”
After a year when the yen rallied against 177 currencies, Japan’s biggest money managers say the best is over in the foreign exchange market. The nation’s investors bought 940 billion yen ($10.3 billion) more international stocks and bonds than they sold in the five days to Jan. 31, the seventh week of net purchases, according to the Ministry of Finance.
Japanese companies are also taking advantage of the strengthening currency, spending record amounts on mergers and acquisitions outside the country. The total value of overseas takeovers more than tripled to $76.8 billion last year, according to data compiled by Bloomberg.
The yen rallied 60 percent against the Brazilian real, 55 percent versus the Mexican peso, and 62 percent against the Turkish lira in 2008 as the global economic slump led investors to pull billions of dollars out of emerging-market assets to repay low-cost loans funded in Japan’s currency.
‘Wave’ of Selling
Now, traders expect a turnaround. The yen may fall 18 percent this year to as low as 112 against the dollar from 91.52 today as domestic investors find bargains outside the country, said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., an arm of Japan’s largest publicly listed lender. His target is weaker than the median forecast for a 6 percent decline to 98 by year-end, according to a Bloomberg News survey of 48 analysts.
“A wave of yen-selling orders is starting to hit the market,” Shimizu said. “Banks are stepping up the amount of investment trusts focused on overseas assets.”
Mizuho Asset Management Co. wants to increase holdings of dollar-, euro- and Australian dollar-denominated sovereign debt, said Akira Takei, who helps oversee the equivalent of $42.5 billion as head of non-yen bonds at the unit of Japan’s second- largest bank in Tokyo.
“Foreign yields look attractive right now,” Takei said. “There are still some risks, so I’d rather stick with sovereign bonds. The yen may decline to 112 versus the dollar this year. I certainly don’t expect the dollar to plummet.”
The dollar weakened the most in two decades last year.
‘Doing Better’
The strategy is similar to the so-called carry trade, where investors borrow in countries with low rates and invest in nations with higher borrowing costs.
The carry trade dominated foreign exchange markets in 2005 and 2006 as declining volatility and rising risk appetites spurred investors to sell yen and buy Australian and New Zealand dollars as well as South African rand and Brazilian reais.
Japan’s target rate is 0.1 percent. An expansion of the carry trade helped push the yen down 13 percent in 2005 versus the U.S. dollar. The collapse of credit markets and almost $1.1 trillion of losses and writedowns at the world’s biggest financial companies triggered a flight from higher-yielding assets last year, when the yen strengthened 23 percent.
Total Return
Emerging-market assets are appealing to Japanese because those nations suffered only a fraction of the credit-market losses that pushed the U.S., euro region and Japan into recession. In a Jan. 28 report, the International Monetary Fund said while the global economy is likely to shrink 0.5 percent this year, emerging markets will grow an average of 3.4 percent.
“Emerging countries still have the impression of doing better relative to the developed world,” said Kimihiko Tomita, head of foreign exchange in Tokyo at State Street Bank & Trust Co., a unit of the world’s largest money manager for institutions. “Japanese investment trusts and individuals are still interested in emerging markets.”
Brazil is one of the favorites because its benchmark interest rate is 12.75 percent, Tomita said. It takes only 40.89 yen to buy a Brazilian real, down from 69.67 yen as recently as Aug. 6. The country’s interest rate is the highest in the world, accounting for inflation, even after the central bank cut borrowing costs last month for the first time since September.
Foreign Investment
The world’s 10th-largest economy received a record $45.1 billion in foreign direct investment last year, including $8.1 billion in December, more than twice the forecast in a Bloomberg survey of 13 economists.
Japanese investors may earn a 25 percent total return this year on Brazil’s local-currency bonds, should the median forecast for the yen in a Bloomberg survey of analysts prove accurate. Anyone who bought the country’s 10 percent notes due January 2014 at the start of the year would gain 13 percent from the yield on the securities. Yen-based buyers would get another 12 percent from currency appreciation, based on the forecast for 44.34 yen to the real by year-end.
That same bet would have resulted in a loss of 24 percent in 2008.
Emerging-market bonds offer the best way to gain from the yen’s strength, said Hideo Shimomura, who helps oversee the equivalent of $44.3 billion as chief fund manager at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank.
Extra Yield
The extra yield investors demand to own bonds of developing nations instead of Treasuries was at 6.40 percentage points today, up from 1.46 percentage points in the first half of 2007, according to JPMorgan Chase & Co.
“Sovereign bonds in the Middle East, South America, South Africa, and Turkey are popular,” Tokyo-based Shimomura said, forecasting yen may fall as low as 100 to the dollar this year. “Brazil, for example, has relatively sound fundamentals and is likely to keep luring funds pretty easily.”
The yen’s five-month advance versus the dollar leaves more room for appreciation, and emerging-assets will get even cheaper as the global recession deepens, said Jun Fukashiro, a senior fund manager at Toyota Asset Management Co. in Tokyo, who helps oversee about $10 billion in assets.
“We want to wait on investments in emerging markets,” Fukashiro said. “Foreign bonds are attractive given that the global economy is still deteriorating but this isn’t a time to aggressively get into emerging-market debt.”
Growth Slumps
Mexico’s economy will shrink 1.2 percent this year, according to the average forecast of 31 economists surveyed by the central bank Jan. 20-29. Brazil’s growth will slow to 2 percent, the weakest since 2003, a central bank survey published Jan. 26 found. Latin America’s gross domestic product will contract 0.5 percent, JPMorgan said in a report Feb. 4.
The MSCI Emerging Markets Index is down 1 percent this year, after slumping 54 percent in 2008, its biggest annual decline in at least two decades.
“We think it is unlikely that the Japanese will be rushing into overseas markets any time soon,” a team of analysts at Citigroup Inc. wrote in a note to clients on Feb. 5. “The risk- reward of overseas investment is not what it once was. Interest- rate differentials are closing fast and foreign-exchange volatility remains high.”
Acquisitions Surge
Japanese companies are increasing their overseas investments as the stronger yen boosts their purchasing power.
International acquisitions by Japanese firms climbed to $76.8 billion last year from $23.1 billion in 2007, beating the previous record of $57.1 billion set in 2006, according to data compiled by Bloomberg. The figures include debt assumed in the purchases.
Nomura Holdings Inc., the nation’s largest brokerage, bought the non-American businesses of Lehman Brothers Holdings Inc. in October after the U.S. investment bank collapsed the previous month. Tokyo-based Nomura said the purchase would cost $2 billion. Asahi Breweries Ltd., Japan’s top-selling beermaker, spent $667 million buying a majority stake in China’s Tsingtao Brewery Co. in January, after the Tokyo-based brewer purchased the Australian beverage operations of Cadbury Plc for 550 million pounds ($811 million) in December.
Last month, Tokyo drugmaker Astellas Pharma Inc. made a $1 billion bid for Palo Alto, California-based CV Therapeutics Inc., adding to the $9.2 billion Japanese firms spent buying U.S. pharmaceutical and biotech companies last year.
“If companies can secure enough funding, the appreciation of the yen gives them a good chance of exploring business opportunities outside Japan,” said Toshiro Yanagiya, Tokyo- based general manager of securities business division at Aozora Bank Ltd. “We are likely to see plenty more such deals in the year ahead.” |
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| From: Sam Citron | 2/13/2009 2:14:49 PM | | | | | | Oh, Canada!
Canada Stocks Lead as Barrick Surges, Banks Forgo Aid (Update2)
By John Kipphoff
Feb. 13 (Bloomberg) -- Canada is beating the biggest stock markets this year as the global recession prompts investors to buy its gold producers and banks.
The Standard & Poor’s/TSX Composite Index of shares traded in Toronto has fallen 2.7 percent, less than stocks in the U.S., Australia, Spain, the U.K., Germany, Hong Kong, France, Switzerland and Japan. The median drop among benchmark gauges in the biggest developed countries this year is 7.3 percent.
Barrick Gold Corp. and 11 other Canadian producers surged 5.2 percent as a group in 2009. Bank shares fell 8 percent, the second-best performance among the biggest economies, which averaged a 13 percent loss. Lenders in the S&P 500 plunged 42 percent this year.
“The biggest driver is the confidence in gold as an asset class,” said Frank Holmes, who oversees about $2 billion as chief executive officer of U.S. Global Investors Inc. in San Antonio. “It also has a different banking system that’s very deposit driven, and banks that have a broad deposit base in Canada have done better than those in the U.S.”
Toronto-based Barrick, the world’s biggest gold producer, is benefiting as investors boosting their inflation forecasts buy the precious metal as a hedge against consumer price increases. A gauge of inflation projections for the next decade, derived from yields on 10-year Treasury notes, climbed to 1.23 percent from 0.12 percent on Jan. 5.
Ninth Annual Gain
In the same period, gold added 9.2 percent to $936.80 an ounce in New York, the highest price since July. It gained in six of the past eight days and is rising for the ninth straight year.
Peter Schiff, who oversees about $1 billion as president of Euro Pacific Capital in Darien, Connecticut, said as much as 20 percent of his clients’ assets are invested in Canada, mostly in mining and energy companies. He’s betting inflation will cause gold to rise to more than $1,500 an ounce this year.
“A strong gold price will be helpful to the economies that have a big mining industry,” Schiff said. Canada is the world’s seventh-biggest gold producer.
Barrick surged 109 percent to C$44.95 since sinking to a five-year low in October. Kinross Gold Corp. and Yamana Gold Inc. also more than doubled in three months. They are among gold companies worldwide that sold more than $2 billion in stock since November. Iamgold Corp. is up 194 percent from its Oct. 23 low. Kinross, Yamana and Iamgold are all based in Toronto.
‘Count On’ Gold
The rally lifted gold producers to 11 percent of the S&P/TSX yesterday, the highest weighting in Canada’s benchmark compared with monthly values since 1996, according to Howard Silverblatt, S&P’s senior index analyst in New York.
“Gold is the only thing you can count on,” said Andrew Martyn, who helps manage about C$420 million ($337 million) at Toronto-based Davis-Rea Ltd.
The World Economic Forum says Canada’s banks are the soundest because they speculated less on mortgage assets that have proved toxic. Canada’s banks, which account for about 6.7 percent of the industry’s worldwide market value, suffered only 1.5 percent of the $817 billion in mortgage-related losses reported globally.
As Canada’s banks wrote down $12.5 billion since 2007, its six biggest lenders, including Royal Bank of Canada and Toronto- Dominion Bank, attracted new investment, selling C$9.2 billion in stock and bonds as a group since October.
Unlike their global counterparts, which have accepted almost $500 billion in bailouts, Canada’s banks have done without direct government aid. While Canada is providing guarantees on more than C$200 billion in bank debt and has bought mortgage bonds to boost lending, none have required taxpayer-funded cash injections.
“There is a sense that the Canadian banks are much better regulated and in stronger shape,” said Quincy Krosby, Hartford, Connecticut-based chief investment strategist at Hartford Financial Services Group Inc. The firm has $346 billion in assets. “The Canadian market has come on the radar screen over the last month or so.” |
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| From: Sam Citron | 2/17/2009 12:34:17 PM | | | | | | Japan’s Finance Minister Quits After G-7 Blunder [NYT]
By HIROKO TABUCHI and BETTINA WASSENER
TOKYO — Japan’s finance minister resigned Tuesday after widespread criticism of embarrassing behavior at the weekend Group of 7 meeting in Rome.
The minister, Shoichi Nakagawa, raised eyebrows for his slurred speech and muddled answers, and for appearing to fall asleep at a news conference in Rome on Saturday. A clip of Mr. Nakagawa in which he appeared to be groggy in front of journalists was posted on YouTube.
After intense criticism from politicians who said he had embarrassed Japan, Mr. Nakagawa stepped down on Tuesday, adding to the woes of a government that is facing a backlash for its handling of the economic crisis.
Mr. Nakagawa, 55, said cold medication and fatigue were to blame for his behavior, but also admitted to sipping wine before the event.
“I apologize for causing great inconvenience over my behavior at the G-7 meeting,” Mr. Nakagawa said at a news conference on Tuesday. “However, I still have a strong commitment to improving Japan’s economy.”
Prime Minister Taro Aso appointed Kaoru Yosano, Japan’s economics minister, to take on Mr. Nakagawa’s role, lending continuity to discussions about Japan’s budget and stimulus efforts.
Mr. Nakagawa’s behavior was a major embarrassment for Mr. Aso, who is under fire for his handling of the economy and whose public support has plummeted ahead of elections later this year.
The long-ruling Liberal Democratic Party and its junior coalition partner are in danger of losing the election, which could set the stage for far-reaching changes in Japan’s political landscape.
Although Mr. Nakagawa’s behavior may not make much difference to voters — Mr. Aso’s ratings in some opinion polls already below 10 percent — “what it does underscore is how unprofessional the Aso government is,” said Jesper Koll, chief executive of Tantallon Research in Tokyo.
Mr. Nakagawa’s resignation comes as Japan is trying to stimulate a flagging economy. Data on Monday showed its economy, the world’s second largest, had deteriorated in the fourth quarter of 2008 at its fastest pace since 1974. The country’s real gross domestic product shrank at an annual rate of 12.7 percent from October to December after contracting for two previous quarters as the country’s mainstay exports slumped amid the global economic crisis.
Some economists believe that the current quarter could be even worse and that added stimulus measures will be needed to haul the economy out of recession. Hiroshi Shiraishi of BNP Paribas in Tokyo on Monday revised his forecast for contraction this year to 5.8 percent from an earlier projection of 3.4 percent. |
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| To: Sam Citron who wrote (218) | 2/17/2009 12:38:59 PM | | From: Sam Citron | | | | Next in Line:
Kaoru Yosano (??? ?, Yosano Kaoru?, born August 22, 1938) is a Japanese politician. He is a member of Liberal Democratic Party (LDP) and member of the House of Representatives, currently serving his ninth term in the Lower House representing Tokyo's first electoral district. Yosano was Chief Cabinet Secretary to Prime Minister Shinzo Abe from August 2007 to September 2007 and is currently State Minister in charge of Economic and Fiscal Policy.
Born the grandson of poets Yosano Akiko and Yosano Tekkan in Tokyo, he graduated from the University of Tokyo in 1963. In 1972 he unsuccessfully ran for a seat in House of Representatives. Yosano then served as secretary to Yasuhiro Nakasone. He ran again in 1976 and was elected for the first time. On August 27, 2007, he was appointed Chief Cabinet Secretary to Prime Minister Shinzo Abe, replacing Yasuhisa Shiozaki. He was replaced by Nobutaka Machimura on September 27 when Yasuo Fukuda succeeded Abe.[1]
Yosano was appointed as State Minister in charge of Economic and Fiscal Policy on August 1, 2008.[2]
Yosano is known for advocating an increase in the consumption tax to reconstruct the nation's debt-ridden fiscal structure. His hobbies include golf, making computers, photography, fishing, and playing Japanese board games.[1]
Following the resignation of Prime Minister Yasuo Fukuda, Yosano announced his candidacy for the LDP presidency on September 8, 2008: "I believe politicians should never mislead the public by showing some rosy pictures. The LDP is facing the biggest crisis since its creation. I will contest the election with high spirits and the courage to lead Japan. Japan is going through a crisis. I will battle the situation for the benefit of the people."[3][4] In the leadership election, held on September 22, 2008, Taro Aso was elected with 351 of the 527 votes, while Yosano trailed in second place with 66 votes.[5] In Aso's Cabinet, appointed on 24 September 2008, Yosano retained his post as State Minister in charge of Economic and Fiscal Policy.[6]
en.wikipedia.org |
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| From: Sam Citron | 2/18/2009 2:55:24 PM | | | | | | Slim’s [Mexican] Economic Forecasts Are Alarmist, Lozano Says (Update2)
By Jens Erik Gould
Feb. 10 (Bloomberg) -- Mexican billionaire Carlos Slim’s economic forecasts are alarmist, may discourage consumers and scare away investment as the country grapples with a global downturn, Labor Minister Javier Lozano said.
Slim, one of the world’s richest men, told lawmakers in Congress yesterday that Mexico’s gross domestic product will “plunge” and unemployment will increase to record levels as exports and the price of oil drop.
No forecast has been more “grave” than Slim’s, Lozano said today in an interview with the Televisa television network.
“All the headlines refer to this catastrophic scenario that the most powerful man and businessman we have is giving,” Lozano said. “He should be conscious that this isn’t just another declaration or forecast. It can really have an impact on investment, employment and the mood of the people.”
The government is seeking to downplay Slim’s forecast after the country’s biggest newspapers printed front-page articles about the billionaire’s comments today. The Finance Ministry expects GDP to be unchanged this year, an outlook that’s more optimistic than predictions by analysts and the central bank.
Analysts polled by the central bank in a Feb. 1 survey forecast the economy will contract 1.2 percent this year as demand for exports wanes, remittances fall and job losses mount. The central bank says the economy may shrink as much as 1.8 percent.
Job Losses
Mexico has lost almost 500,000 formal jobs since November, the worst performance in the labor market since the Tequila crisis in the mid-1990s, Goldman Sachs Group Inc. analysts said in a report yesterday. Formal employment fell by 128,122 jobs in January, according to the Social Security Institute.
Slim, 69, is the world’s second-richest man according to Forbes magazine. He controls Telefonos de Mexico SAB, Mexico’s largest fixed-line phone company, and America Movil SAB, Latin America’s largest mobile-phone company. Slim agreed to loan the New York Times Co. $250 million last month.
Telmex’s press office declined to comment on Lozano’s remarks when contacted by Bloomberg News.
Organizacion Soriana SAB, Mexico’s second-largest retailer, fell 2.3 percent to 23.4 pesos, the first decline in three days. Investors who heard Slim’s remarks may be betting that consumers will further curtail spending, said Tufic Salem, an analyst with Credit Suisse in Mexico City.
Economic Concerns
“There’s a lot of concern about the economic environment,” Salem said in a phone interview. “It’s all closing in.”
Lozano said that while the economy will probably continue to lose jobs and may contract in the first half of the year, President Felipe Calderon’s stimulus plan will help mitigate the impact of the global downturn.
Calderon last month announced an initiative to increase infrastructure spending, raise unemployment benefits and lower energy costs. The plan, along with moves announced last year that include building Mexico’s first new refinery in almost 30 years, are worth 1.8 percent of gross domestic product, the government says. Mexico also freed a similar amount in credit for small and medium-sized businesses, Calderon said in a Jan. 31 interview.
The government and industries will increase spending on projects such as roads, airports and sea ports to 570 billion pesos ($39.9 billion) this year, Calderon said last month.
“He’s not considering what’s being done, everything we’re adding to the domestic market,” Lozano said about Slim. |
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| From: Sam Citron | 2/20/2009 7:31:11 AM | | | | | | [Sweden] GM unit Saab files for protection from creditors
Friday February 20, 6:09 am ET
By Karl Ritter, Associated Press Writer
STOCKHOLM (AP) -- General Motors Corp.'s Swedish-based subsidiary Saab filed for bankruptcy protection Friday so it can be spun off or sold by its struggling U.S. parent, officials said.
The move comes after Sweden turned down GM's request for government help for Saab.
An application to reorganize the Swedish-based unit was filed at a district court in Vanersborg, in southwestern Sweden, Saab spokeswoman Margareta Hogstrom said.
The Swedish government on Wednesday rejected a request from loss-making GM to inject money into the carmaker. GM, which is seeking help from the U.S. government to avoid bankruptcy at home, has been looking for buyers for Saab but said it needs more funding to spin off or sell the division.
"We explored and will continue to explore all available options for funding and/or selling Saab and it was determined a formal restructuring would be the best way to create a truly independent entity that is ready for investment," Saab's managing director, Jan Ake Jonsson, said in a statement.
The move would give Saab protection from creditors while it restructures in a process similar to a Chapter 11 bankruptcy in the U.S.
"Pending court approval, the reorganization will be executed over a three-month period and will require independent funding to succeed," Saab said, adding it would seek funding "from both public and private sources."
However, government officials seemed to rule out financial assistance. "I'm not sure what they're referring to, because support in the form of money is not on the agenda," Industry Ministry spokesman Hakan Lind said.
Industry Minister Maud Olofsson told Swedish news agency TT it was "very hard to say what our role will be."
On Wednesday, Olofsson rejected GM's plea for state funding for Saab, saying it was up to the U.S. automaker to save the brand.
In its own restructuring plan, GM said Tuesday it would need up to $30 billion from the U.S. Treasury Department, up from a previous estimate of $18 billion and including $13.4 billion it has already received. It also said it would need to cut 47,000 jobs worldwide and close five more U.S. factories
GM said it needed about $6 billion in support from the governments of Canada, Germany, Britain, Sweden and Thailand to provide liquidity for its overseas operations in those countries.
The Detroit automaker said it had developed a proposal that would cap its financial support of Saab with the Trollhattan-based automaker's operations "effectively becoming an independent business entity" by Jan. 1, 2010.
Saab has around 4,500 workers in more than 50 countries. Its main markets include the U.S. Britain, Sweden, Germany, Italy, Australia, France, the Netherlands, and Norway, with most of its production located in Sweden. |
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| From: Sam Citron | 2/20/2009 8:02:45 AM | | | | | | Obviously a lot more to the Swedish socialist model than meets the eye.
Putting EWD on the watchlist. [iShares Sweden] |
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| From: Sam Citron | 2/23/2009 9:26:58 AM | | | | | | Irish Mogul's Empire Totters As Slump Tames Celtic Tiger [WSJ]
By AARON O. PATRICK
DUBLIN -- Sir Anthony O'Reilly long has been a symbol of Irish resurgence, a national rugby hero and raconteur who conquered the U.S. corporate world before returning home to oversee a sprawling business empire. That empire now shows signs of unraveling.
Sir Anthony, once America's highest-paid chief executive while leading H.J. Heinz & Co., has seen the value of his holding in his Dublin-based global newspaper group, Independent News & Media PLC, plunge to $52 million from more than $1.1 billion just 18 months ago.
Concerns about a €200 million ($253 million) debt payment that Independent News faces in May have sent its shares down 90% over the past year to 18 European cents -- less than the price of most of its newspapers. Facing declining advertising and readership in addition to its debt load, say analysts, the company could be forced into a fire sale of assets that could cost the firm its trophy publication: the London-based Independent.
In another corner of the O'Reilly world, Waterford Wedgwood PLC, the historic maker of fine china and crystal controlled by Sir Anthony and his brother-in-law, is in the equivalent of bankruptcy reorganization, and workers are occupying a shuttered factory. U.S. private-equity investor KPS Capital Partners LP is negotiating a possible purchase of the company that could be announced within days, according to a person familiar with the situation.
Sir Anthony is an example of how, for some business titans, the credit crunch and recession have become a brutal multifront assault. His big bets on newspapers, luxury goods and the remaking of Ireland itself made him the richest man in the country. Now each of those areas has boomeranged on him.
Mr. O'Reilly, 72 years old, sounds pessimistic about his prospects and Ireland's, saying in a recent interview that the Irish economy will be "lucky" to contract just 4% this year and that there is little the country can do about it. "It is impossible that if Ireland does not do well, that any of us can do well," he said.
The drama also finds Sir Anthony fending off a business nemesis, Irish industrialist Denis O'Brien. Sir Anthony owns 27.9% of Independent News & Media. Mr. O'Brien has acquired a 26.2% stake and is pressing for changes, in a move that could disrupt the possibility of Mr. O'Reilly's being succeeded by his son, Gavin.
At Waterford Wedgwood, a sale to a foreign buyer such as KPS Capital would be another blow to Sir Anthony, who was deeply proud that he helped turn the 250-year-old Irish company into a global brand. KPS has acknowledged discussing a possible purchase of Waterford Wedgwood but wouldn't comment further.
Sir Anthony's problems are unfolding against a backdrop of Ireland's severe downturn following a decade of boom. In the 1990s, the country's low corporate taxes, business-friendly governments and English-speaking work force attracted huge amounts of foreign investment, driving up incomes and property prices. The global recession reversed the flow, puncturing the property boom and hammering major banks. The Irish economy is now one of the sickest in Europe.
The problems are a rude comedown for Sir Anthony, whose stint as Heinz CEO from 1979 to 1998 turned a sleepy Pittsburgh company into a food dynamo. He is unhappy with criticisms that he took on too much debt in his Irish business. It's not his companies that have changed, he says, but the world. "If the debt of a company has not gone up in three years, was it an over-indebted company three years ago or is it an over-indebted company now?" he asks.
Criticism of his businesses is a far cry from the plaudits Sir Anthony grew accustomed to over the past 40 years. He rose to prominence as a rugby player for Ireland and a combined British-Irish team. He set scoring records that in some cases still stand, became an international celebrity and dated beautiful women. One common story: that his athletic frame led to a request that he audition for the lead in the 1959 movie "Ben Hur." A biography written with his cooperation says "he rather encouraged this distortion of the truth" but was never in serious contention for the role.
While continuing to play rugby, he became, at 26, chief executive of the Irish Dairy Board, fueling a butter export boom by launching a new brand called "Kerrygold." He says he was urged to go into politics by an Irish prime minister and believes he had a chance of becoming prime minister. "I would have been in contention," Sir Anthony says.
Instead, he became the head of Heinz's British unit at age 32, and within 10 years was CEO of the parent company. In 1991, he earned $75 million in combined salary, bonus and stock options, more than any other CEO in the U.S. that year.
While rising through Heinz, he bought a controlling stake in Dublin's Irish Independent, a leading morning paper. It was the start of many investments in Ireland's leading companies, and part of a mission by Sir Anthony to introduce modern management, finance and marketing techniques to Ireland.
Sir Anthony -- he was knighted in 2001 -- turned Independent News & Media into Ireland's first international media company. In the decade leading up to 2007, its revenue rose 75% to €1.4 billion and operating profit more than doubled to €349 million, as the company bought newspapers and advertising businesses in India, Indonesia, South Africa and the U.K. In doing so, Independent News & Media took on €1.4 billion in debt, including about €500 million on its partly owned Australian unit.
The company also attracted the attention of Mr. O'Brien, who had made his fortune in telecommunications. As the two competed for Irish phone company Eircom PLC in 2001, Sir Anthony's newspapers, along with others, reported that Mr. O'Brien was being investigated by a judicial commission for giving money to a government official who awarded him a cellphone license. Mr. O'Brien denied doing anything wrong. The commission hasn't released its findings.
In 2006, Mr. O'Brien bought a stake in Independent News & Media and quickly built it up to the current level not far below Sir Anthony's own stake. At the company's annual meetings over the next three years, Mr. O'Brien's sharp criticisms of Sir Anthony's management and corporate governance -- posed by proxies, not by Mr. O'Brien himself -- became a regular feature.
Last March, Independent News & Media responded by publicly accusing Mr. O'Brien of trying to destabilize the company and damaging the interests of other shareholders. The company released a five-year-old letter from Mr. O'Brien accusing Independent News of "trying to destroy my reputation." Mr. O'Brien wrote he was "waiting for the appropriate time to rectify the damage."
Mr. O'Brien declined to comment on the letter or any feud with Sir Anthony, who for his part said there were no hostilities between the company and any of its shareholders.
When the economic crisis kicked into high gear last fall, Sir Anthony found himself in an increasingly defensive position, as investors grew concerned about Independent News's ability to meet its debt obligations.
Sir Anthony began to search for allies. He tried to interest News Corp., owner of The Wall Street Journal, in taking a 3% or 4% stake, according to a person familiar with the matter. News Corp. Chairman and Chief Executive Rupert Murdoch nixed the idea.
A spokesman for Sir Anthony denied there was any approach to News Corp. A spokeswoman for News Corp. declined to comment.
One person who did make an investment was Mexican billionaire Carlos Slim, who now owns 1% of Independent News. Sir Anthony says Mr. Slim is a friend but "there is no suggestion we solicited him." A spokeswoman for Mr. Slim declined to comment.
Sir Anthony tried to raise cash through the sale of one of Independent News's most successful investments, a 39.1% stake in Australian and New Zealand media group APN News & Media Ltd. Lachlan Murdoch, the eldest son of Rupert Murdoch, expressed interest but didn't proceed, say people familiar with the situation. Other buyers couldn't get financing, according to Independent News.
In January, Sir Anthony dropped the idea of selling the stake and said he would raise cash through a bond issue while focusing on "eliminating any loss-making businesses." Among the options: selling the Independent newspaper in London, which would be a concession to Mr. O'Brien, who has complained about the paper's estimated £10 million ($14 million) annual losses.
Independent News is hoping to make peace with Mr. O'Brien, according to board-meeting minutes. In November Mr. O'Brien held his first meeting with the company as a shareholder. With Sir Anthony away on business, Mr. O'Brien, 51, got a tour of a printing plant in south Dublin, accompanied by executives including Sir Anthony's son Gavin, 42, the chief operating officer of Independent News.
Independent News faces significant problems even absent any feud with Mr. O'Brien. The Independent in London lost 14% of its circulation over the past year, and advertising is in the tank.
"If you are in the advertising business, there is no place to hide," Sir Anthony says. "You are in the crossroads of everything that is happening in the country -- of property, of motor cars, of recruitment, of dislocation, of restaurants, of travel."
Sir Anthony has also been hit by changing tastes in luxury goods. In 1990, he and his brother-in-law, Peter Goulandris, and several other investors bought a 29.9% interest in Waterford Wedgwood, one of Ireland's most famous brands.
Sir Anthony figured his marketing expertise and U.S. knowledge could revive the struggling ceramics and crystal maker, and sales indeed improved. In 1996, he described Waterford Wedgwood and his other Irish investments as "perhaps the greatest success story in Irish business in the last decade" in a letter to Irish Prime Minister John Bruton.
But after years of success, sales started to slip during the 2001 U.S. recession. Some consumers found the company's fine bone china old-fashioned and its crystal clunky, say former executives. No matter what Sir Anthony did -- change senior management, close factories, sell products on Amazon.com -- revenue and profits continued to slide. Customers were reluctant to buy expensive china stamped "Made in Indonesia," as some of it was. By the end of 2007, the company's cash levels were so low it couldn't afford to ramp up production over the crucial holiday period.
Sir Anthony and Mr. Goulandris put up an addition €133 million, according to regulatory filings. But the cash didn't come through quickly enough, and the company's big ceramics factory in Stoke-on-Trent, in central England, was unable to make enough cups and plates for Christmas, according to the company's 2008 annual report.
According to Thomas R. Wedgwood, who is a descendant of founder Josiah Wedgwood and worked for the company in Asia, Sir Anthony and his managers didn't market the brand enough in Japan and China, where European tableware is prestigious. "All of the [investment] was going to the U.S." Mr. Wedgwood says. "There was a huge disconnect with the customers."
From a €68 million profit in 2000, Waterford Wedgwood swung to a €231 million loss in the year ended last April 5. Between its business problems and the credit crunch, it didn't have enough money to make a €400 million payment in December.
The default, together with other violations of the company's debt agreements, allowed creditors to demand their money back immediately. Sir Anthony looked for a buyer. He couldn't find one.
On Jan. 5, Deloitte LLP was appointed to place Waterford Wedgwood in administration, a form of bankruptcy proceedings. Sir Anthony declined to comment on Waterford Wedgwood's problems; Mr. Goulandris couldn't be reached. The men have lost an estimated €400 million.
At the company's closed Waterford factory in southern Ireland, about 200 employees have occupied part of the plant since the company to a large extent stopped operating, and say they will stay until the company is sold. They have taken turns tending the factory's furnace, fearing it will crack if its temperature gets too low, according to a spokesman for the Unite union. In addition to KPS Capital Partners, another U.S. private-equity firm, Clarion Capital Partners LLC, has been interested in buying the company, according to spokesmen for the funds.
Sir Anthony remains widely respected in Ireland for his determination, including 29 years as chairman or chief executive of Independent News. "He stayed the course a lot longer than people thought he would," says Gerry Hennigan, an analyst at Goodbody Stockbrokers in Dublin. |
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| From: Sam Citron | 3/1/2009 8:50:00 AM | | | | | | Juarez, Mexico: Becoming a Failed State
With Force, Mexican Drug Cartels Get Their Way [NYT]
By MARC LACEY
CIUDAD JUÁREZ, Mexico — Mayor José Reyes Ferriz is supposed to be the one to hire and fire the police chief in this gritty border city that is at the center of Mexico’s drug war. It turns out, though, that real life in Ciudad Juárez does not follow the municipal code.
It was drug traffickers who decided that Chief Roberto Orduña Cruz, a retired army major who had been on the job since May, should go. To make clear their insistence, they vowed to kill a police officer every 48 hours until he resigned.
They first killed Mr. Orduña’s deputy, Operations Director Sacramento Pérez Serrano, together with three of his men. Then another police officer and a prison guard turned up dead. As the body count grew, Mr. Orduña eventually did as the traffickers had demanded, resigning his post on Feb. 20 and fleeing the city.
Replacing Mr. Orduña will also fall outside the mayor’s purview, although this time the criminals will not have a say. With Ciudad Juárez and the surrounding state of Chihuahua under siege by heavily armed drug lords, the federal government last week ordered the deployment of 5,000 soldiers to take over the Juárez Police Department. With the embattled mayor’s full support, the country’s defense secretary will pick the next chief.
Chihuahua, which already has about 2,500 soldiers and federal police on patrol, had almost half the 6,000 drug-related killings in all of Mexico in 2008 and is on pace for an even bloodier 2009. Juárez’s strategic location at the busy El Paso border crossing and its large population of local drug users have prompted a fierce battle among rival cartels for control of the city.
“Day after day, there are so many horrible things taking place there,” said Howard Campbell, an anthropologist at the University of Texas at El Paso who studies Mexico’s drug war. “The cartels are trying to control everything.”
<>Nothing is surprising in Chihuahua anymore. Gunmen recently shot at one of three cars in Gov. José Reyes Baeza’s motorcade, killing a bodyguard and wounding two agents. The drug cartels routinely collect taxes from business owners, shooting those who refuse to pay up. As for the Juárez mayor, who has made cleaning up the notoriously corrupt police department his focal point, the cartel recently threatened to decapitate him and his family unless he backed off.
The handwritten threat that it issued went further than that. Like many people in Juárez, Mayor Reyes has homes on both sides of the border, splitting his time between El Paso and Juárez. The note threatening him made it clear that the assassins going after him would have no qualms about crossing into the United States to finish off the mayor and his family.
“We took the threat seriously,” said Chris Mears, a spokesman for the El Paso Police Department. “I’m not going to tell you what actions were taken, but we’ve taken actions.”
In an interview in his wood-paneled office overlooking the United States, Mr. Reyes, 46, whose father was mayor in the early 1980s, said he was not going to allow criminals to run the city, despite the inroads they are making. He said he initially opposed his police chief’s decision to resign because he did not want the outlaws to feel empowered. He acceded only as a life-saving gesture, he said.
“I’m not going to give in,” he vowed in an interview, welcoming the arrival of soldiers so that the traffickers will feel the heat even more.
Right now, the Juárez police are no match for the outlaws. Last year, the senior uniformed officer was killed, one of 45 local police officers killed since January 2007, and a former police chief pleaded guilty to charges of smuggling a ton of marijuana from Juárez to El Paso. Mr. Orduña, who lived at the police station to avoid being killed, had replaced another chief who fled to El Paso after receiving threats last year. If the army had not come in, the mayor would no doubt have had a difficult time finding somebody to head the department.
Introducing a nationwide police recruitment campaign, the mayor has raised salaries and benefits enough that he is attracting new recruits to replace the many officers being fired for their links to organized crime.
“I know the dangers and I accept them,” said José Martín Jáuregui López, one of the 289 cadets now being trained at Juárez’s police academy. “There are a lot of people afraid for me: my mom, my relatives. But this is what I want to do.”
As a sign to the traffickers that he was not running from them, Mr. Reyes appeared Friday to be like any other mayor, giving a speech at the opening of a shopping center, signing a memorandum of understanding with a developer, reassuring residents that he would keep loiterers from gathering in front of their homes.
But the bodyguards holding assault rifles who clung close to him made it clear that Juárez remained a city under siege.
“There’s no square inch of the city that has been untouched by the violence,” said Lucinda Vargas, an economist who works by day to remake the city as executive director of Juárez Strategic Plan, but retreats to El Paso at night. “There’s a lot of evidence that Juárez, in a micro sense, is becoming a failed state. But I still think we haven’t failed yet and that we could still rescue ourselves.” |
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| From: Sam Citron | 3/2/2009 8:35:57 AM | | | | | | Growing Economic Crisis Threatens the Idea of One Europe [NYT]
By STEVEN ERLANGER and STEPHEN CASTLE
PARIS — The leaders of the European Union gathered Sunday in Brussels in an emergency summit meeting that seemed to highlight the very worries it was designed to calm: that the world economic crisis has unleashed forces threatening to split Europe into rival camps.
An urgent call from Hungary for a large bailout for newer, Eastern members was bluntly rejected by Europe’s strongest economy, Germany, and received little support from other countries. Chancellor Angela Merkel of Germany, facing federal elections in September, said countries must be dealt with on a case-by-case basis.
“Saying that the situation is the same for all Central and Eastern European states, I don’t see that,” Mrs. Merkel told reporters. She spoke after Prime Minister Ferenc Gyurcsany of Hungary warned, “We should not allow that a new Iron Curtain should be set up and divide Europe.”
With uncertain leadership and few powerful collective institutions, the European Union is struggling with the strains this crisis has inevitably produced among 27 countries with uneven levels of development.
The traditional concept of “solidarity” is being undermined by protectionist pressures in some member countries and the rigors of maintaining a common currency, the euro, for a region that has diverse economic needs. Particularly acute economic problems in some newer members that once were part of the Soviet bloc have only made matters worse.
Europe’s difficulties are in sharp contrast to the American response. President Obama has just announced a budget that will send the United States more deeply into debt but that also makes an effort to redistribute income and overhaul health care, improve education and combat environmental problems.
Whether Europe can reach across constituencies to create consensus, however, has been an open, and suddenly pressing, question.
“The European Union will now have to prove whether it is just a fair-weather union or has a real joint political destiny,” said Stefan Kornelius, the foreign editor of the German newspaper Süddeutsche Zeitung. “We always said you can’t really have a currency union without a political union, and we don’t have one. There is no joint fiscal policy, no joint tax policy, no joint policy on which industries to subsidize or not. And none of the leaders is strong enough to pull the others out of the mud.”
Thomas Klau, Paris director of the European Council on Foreign Relations, an independent research and advocacy group, said, “This crisis affects the political union that backs the euro and of course the E.U. as a whole, and solidarity is at the heart of the debate.”
The crisis also has implications for Washington, which wants a European Union that can promote common interests in places like Afghanistan and the Middle East with financial and military help.
“All of that is in doubt if the cornerstone of the E.U. — its internal market, economic union and solidarity — is in question,” said Ronald D. Asmus, a former State Department official who runs the Brussels office of the German Marshall Fund.
The problems are basically twofold: within the inner core of nations that use the euro as their common currency, which together have an economy roughly the size of the United States’; and within the larger European Union.
The 16 nations that use the euro — introduced in 1999, and one of the proudest European accomplishments — must submit to the monetary leadership of the European Central Bank. That keeps some members hardest hit by the economic downturn, like Ireland, Spain, Italy and Greece, from unilaterally taking radical steps to stimulate their economies.
Germany once vowed never to bail out weaker members in return for giving up its strong national currency, the deutsche mark. But German leaders are now faced with the unpalatable prospect of having to put German money at risk to bail out less responsible partners that do not adhere to European fiscal rules.
Within the larger European Union, fissures are growing between older members and newer ones, especially those that lived under the yoke of Soviet socialism. Some countries of Central Europe, like the Czech Republic and Poland, are doing relatively well. Others, including Hungary, Romania and the Baltic states, are in a state of near-meltdown.
But only two newer members — tiny Slovenia and Slovakia — are protected by being among the countries that use the euro, and there was little support on Sunday for changing the rules to allow more to join quickly.
Many new members have seen their currencies plummet against the euro. That has made their debt repayments to European banks, their primary lenders, a much greater burden even as the global recession has meant a plunge in orders from consumers in the West. Some countries are asking for aid, both from their European partners and from the International Monetary Fund, to prop up their currencies and the banks.
While Western European countries are reluctant, with their own problems both at home and among the countries using the euro, there is a deep interconnectedness in any case.
Much of the debt at risk in Eastern Europe is on the books of euro zone banks — especially ones in Austria and Italy. The same is true of problems farther afield, in Ukraine, which is not yet a member.
Having watched the Soviet Union collapse, the countries of Central and Eastern Europe embraced the liberal, capitalist model as the price of integration with Europe. That model is now badly tarnished, and the newer members feel adrift.
Before the larger European summit meeting on Sunday, the Poles called an unprecedented meeting of nine of the new member nations in the East to discuss common grievances.
Prime Minister Mirek Topolanek of the Czech Republic, which holds the rotating presidency of the European Union, tried to ease tensions, insisting that no member would be left “in the lurch.”
“We do not want any dividing lines; we do not want a Europe divided along a north-south or east-west line, pursuing a beggar-thy-neighbor policy,” Mr. Topolanek said.
But his Hungarian colleague, Mr. Gyurcsany, called for a special European Union fund of up to $241 billion to protect the weakest members. His government circulated a paper on Sunday suggesting that Central Europe’s refinancing needs this year could total $380 billion.
“Failure to act,” the paper said, “could cause a second round of systemic meltdowns that would mainly hit the euro zone economies.”
Mrs. Merkel opposed an undifferentiated package, although she suggested on Thursday that targeted help might be offered to specific countries, like Ireland.
Governments of the countries of the European Union have already spent a total of $380 billion in bank recapitalizations and put up $3.17 trillion to guarantee banks’ loans and try to get credit moving again.
On Friday, the European Bank of Reconstruction and Development, the European Investment Bank and the World Bank said they would jointly provide $31.1 billion to support Eastern European nations, but much more will be needed.
Mr. Klau, of the European Council on Foreign Relations, sees a worrying loss of faith in a certain brand of capitalism. “It’s politically dangerous there since they’ve just emerged from an ultraregulated and stifling system, were confronted with shock therapy that created great hardship, and are just beginning to recover and stabilize,” he said. “Now they’re thrown back into an economic and political cauldron.”
The new members are finding that their European partners are putting their own national interests ahead of “collective and necessary solidarity,” Mr. Klau said.
Charles Grant, director of the Center for European Reform, a research group in London, is more sanguine, however. “My expectation is that the euro zone countries, out of pure self-interest, will bail each other out,” he said. “For Central and Eastern Europe it is too early to say there won’t be solidarity. But non-E.U. countries in the east — particularly Ukraine — seem to be the No. 1 worry.” |
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