Archive for January, 2009

Grim Japan, U.S. figures show world crisis deepening (Reuters)

Friday, January 30th, 2009 | Finance News

LONDON (Reuters) –
Japan sank deeper into recession with industrial output tumbling at a record pace and inflation near zero, while data was expected to show the U.S. economy contracting at its fastest rate in 26 years.

As the world global economic crisis deepened, Euro zone unemployment hit 8.0 in December while inflation fell to a near 10-year low of 1.1 percent, Eurostat said on Friday, heightening expectations the European Central Bank, will slash interest rates in March.

British mortgage lending in December came off all-time lows to rise three times faster than expected, in what could be an early indication banks have started to lend again after capital injections from the government.

However, the trend was far from global. In Australia, private sector credit shrank in December for the first time since 1992 as foreign banks cut lending.

Japanese GDP figures in February are now expected to show its economy shrinking at a double-digit rate after industrial production fell 9.6 percent in December, with companies forced to cut output as demand for cars, electronics and machinery waned, while annual core inflation slowed to just 0.2 percent.

Rising unemployment, slowing household spending and no improvement in the industrial outlook added to investors' fears Japan was flirting with deflation and would post a horror GDP figure in February if exports do not bail it out.

"It is already a consensus view that core consumer inflation will turn negative soon, but we must watch if a worsening of the economy pushes Japan into a deflationary spiral even though the Bank of Japan sees no signs of that happening right now," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.

Worsening economic conditions could see drastic measures from central banks seeking inventive ways to support economies and help credit markets that are starving companies of cash.

HSBC, Europe's biggest bank and one of the few major banks that has not needed government support, said fair value accounting and capital adequacy rules had worsened the financial crisis, and called for a new set of principles and rules to boost financial market transparency.

Chairman Stephen Green said: "Business needs to co-operate with government and regulators in the creation of a new global marketplace for all industries and consumers."


More bad news was expected in the United States on Friday.

Economists think the U.S. Commerce Department will report fourth-quarter gross domestic product, the broadest measure of economic activity, shrank an annualized 5.4 percent.

Figures on Thursday showed new U.S. single-family home sales fell 14.7 percent in December to an all-time low. The number of Americans receiving unemployment benefits jumped to a record 4.78 million in mid-January and first-time filings also rose.

U.S. President Barack Obama is seeking to get a $819 billion stimulus plan through the Senate, following its passage through the House of Representatives this week, before mid-February.

British mortgage lending rose three times as fast as expected in December, an early indication banks have started to lend again after capital injections from the government.

Despite the rise in British mortgage lending, UBS economist Amit Kara said the housing market remained tough.

"It's clearly better than expected, but it's important to remember that we are coming off all-time lows. These numbers are consistent with further pretty sharp falls in house prices.

In Australia, Reserve Bank of Australia figures showed total credit fell 0.3 percent in December, well below a forecast 0.5 percent rise, fuelling expectations the central bank would announce another hefty interest rate cut next week.

Economists said the surprise figure strengthened the case for a second stimulus package in Australia, accelerated income tax cuts and increased government spending.

Across the Tasman Sea, the once-favored New Zealand dollar fell to another six-year low after the central bank said interest rates would likely be cut further, a day after the benchmark rate was cut by 1.5 percentage points.

European stocks were little changed in mid-morning trade after Japan's Nikkei share average closed 3.1 percent lower on the bad industrial output and rising unemployment news. The falls followed a similar decline on Wall Street after record monthly U.S. unemployment figures.

On currency markets, the dollar was firmer against the euro but down on the yen.


Major global companies are providing daily evidence of how deep the global crisis is biting, costing governments trillions of dollars and threatening millions of jobs.

Toyota Motor was likely to post a 2008-09 operating loss in excess of its latest forecast of 150 billion yen ($1.66 billion), a company source said, because of big production cuts planned in coming months. The Nikkei business daily said Toyota's loss would hit 400 billion yen.

Rival Honda Motor lowered annual profit forecasts for the fourth time in a year, and after a December 17 warning.

Toshiba Corp was in talks to merge part of its chip operations with NEC Corp's semiconductor unit as they battle slumping demand and prices, a source with knowledge of the negotiations said. Toshiba had already warned it would post its biggest annual loss ever and its shares slid 17 percent.

Separately, NEC said it would cut 20,000 jobs, including some already announced, by March 2010.

"It's a losers' union," said SMBC Friend Securities manager Fumiyuki Nakanishi. "The domestic chip industry appears at the brink of death."

(Additional reporting by Paul Tait in Singapore and Reuters bureaux; Editing by Jon Boyle)


Morgan Stanley, Goldman mull more job cuts: report (Reuters)

Friday, January 30th, 2009 | Finance News

(Reuters) –
Morgan Stanley (MS.N) and Goldman Sachs (GS.N) are considering further cuts in staff, the Wall Street Journal reported on Friday, citing people familiar with the matter.

Morgan Stanley is considering laying off up to 5 percent of its 47,000 employees, while Goldman Sachs is also contemplating further cuts in staff after letting go about 10 percent of its employees late last year, the paper said.

Morgan Stanley, which let go of about 7,000 employees last year, may decide on another round of staffing cuts in the next two weeks, the paper wrote.

The cuts could affect back-office and support functions including technology, infrastructure and human resources, the paper added.

For Morgan Stanley, there could also be additional cuts in riskier trading businesses which have fallen out of favor with regulators and investors, the paper reported.

For both the companies no decisions have been finalized, the paper said.

Morgan Stanley and Goldman Sachs were not immediately available for comment.

(Reporting by Bijoy Koyitty in Bangalore; Editing by David Holmes)


Honda cuts forecasts again, Toyota losses to balloon (Reuters)

Friday, January 30th, 2009 | Finance News

TOKYO (Reuters) –
Honda Motor Co (7267.T) lowered its annual profit forecasts for a fourth time this year, while rival Toyota Motor Corp's (7203.T) losses are growing as sliding global car sales force the industry to cut production further.

The spreading global recession has dealt a severe blow to the auto industry as consumers, fearing for their jobs, have put off buying big-ticket items. Tightening credit has also made it difficult for potential buyers to get financing.

While a shrinking car market has forced automakers everywhere to scale down production, analysts said Honda faces an especially tough quarter because it waited longer than Toyota and Nissan Motor Co (7201.T) to make the move.

Honda, Japan's second-biggest automaker, this week announced further production cuts of 50,000 vehicles for the year to end-March, on top of the 370,000 that had been planned in North America, Europe and Japan.

"The sales environment is changing faster than we were able to predict," Honda Executive Vice President Koichi Kondo told a news conference, noting that four profit warnings in a single year was probably unprecedented in Honda's history.

"We don't expect conditions in the U.S. to improve in the first half of next year, and we can only hope they will start to recover in the second half," he added.

Struggling to clear bloated inventory, Honda is scheduled to close its UK factory for four months starting in February.

Kondo said it would likely take until June or July to bring global inventory down to appropriate levels.

Honda said it expected an operating profit for the year to end-March of 140 billion yen ($1.6 billion), down from a record 953 billion yen last year and below its previous profit forecast of 180 billion yen.

Half of that will likely come from its motorcycle business, Kondo said, noting the segment's high level of local production and parts procurement helped to shield Honda more effectively against currency swings compared with other Japanese carmakers.

Honda expects annual net profit of 80 billion yen instead of 185 billion yen.

Analysts have said automakers' final results for this year could change dramatically depending on how much and how early they set aside reserves against financing losses and other costs to start the new year on a cleaner slate.

Honda said it now sees losses from soured credit and falling residual values of used cars to total almost 100 billion yen this year, double what it had foreseen three months ago.

October-December operating profit slumped to 102.45 billion yen from 276.24 billion yen, while quarterly net profit crashed to 20.24 billion yen from 200 billion yen a year earlier.

Third-quarter revenue fell 17 percent to 2.53 trillion yen.


Still, Honda is among the few Japanese automakers expected to escape an annual loss.

Toyota, until last year the most profitable automaker in the world, last month projected its first operating loss in the year to March, of 150 billion yen, as capacity utilization at its global factories falls below the break-even point.

A company source told Reuters on Friday that loss would likely expand, citing massive production cuts planned in the coming months. The Nikkei business daily reported the loss may reach 400 billion yen.

Ford Motor Co (F.N) reported on Thursday a record $14.6 billion loss for 2008, when it burned through $21 billion in cash.

Crosstown-rivals General Motors Corp (GM.N) and Chrysler LLC are faring even worse, relying on a federal bailout to survive the worst downturn in auto sales in decades.

"Honda is relatively better positioned than Toyota because it has focused on smaller cars and hasn't aggressively expanded its global operations like Toyota. It also helped that the Chinese market fared relatively well," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

But he added: "The operating environment is still tough going forward as the U.S. economy is unlikely to recover during the first half of this year, coupled with the strong yen."

Honda lowered its global car sales forecast for this business year to 3.525 million vehicles from 3.65 million units, and is assuming a dollar rate of 85 yen and euro of 110 yen for the current January-March quarter.

Honda has never posted a loss in its 60-year history, although that record is likely to be broken next year if exchange rates stay around the current high levels of 90 yen to the dollar and 115 yen to the euro.

Toyota, Mazda Motor Corp (7261.T) and Suzuki Motor Corp report their earnings next week, with Nissan Motor Co (7201.T) results due on February 9.

Ahead of the results, Honda shares closed down 9.2 percent at 2,070 yen and Toyota fell 4.1 percent to 2,925 yen.

($1=89.59 Yen)

(Additional reporting by Nobuhiro Kubo and Aiko Hayashi; Editing by Rodney Joyce & Ian Geoghegan)