Archive for March, 2009

ASEAN leaders say coordinating on financial crisis (Reuters)

Sunday, March 1st, 2009 | Finance News

HUA HIN, Thailand (Reuters) –
Southeast Asian leaders said on Sunday they backed stimulus plans, opposed protectionism and would coordinate policies to confront a deepening global financial crisis battering their economies.

The 10 leaders of the Association of South East Asian Nations (ASEAN) did not spell out any specific actions the group would take in a chairman's statement issued after their summit in the Thai seaside resort of Hua Hin.

They said they endorsed expansionary policies, including fiscal stimulus plans, monetary easing, access to credit and trade financing, and measures to stimulate domestic demand.

Export-dependent Asian economic growth is slowing rapidly as consumers and companies cut back spending amid the worsening global downturn.

In Southeast Asia, Singapore is in recession and economists say Malaysia and Thailand are on the brink, while Indonesian growth has slowed to its weakest pace in more than two years.

Many Asian countries have announced stimulus plans in a bid to stem the economic damage, but exports will not stage a major recovery until consumers in the West start spending again.

The leaders also agreed to stand firm against protectionism and refrain from introducing or raising new trade barriers and called for "bold and urgent reform" of the international financial system, the statement said.

"We will be severely tested from now on, both as a group and as a part of the broader Asia region," Thailand's Prime Minister Abhisit Vejjajiva told the summit opening on Saturday.

"As the financial crisis deepens, the world will look toward our region for action and for confidence."

ROADMAP TO COMMUNITY

ASEAN has begun, with this summit, implementing a roadmap that will turn what used to be a consensus-based group long derided as a talk-shop into a single economic community of 570 million people with a combined GDP of $2 trillion in six years.

Economic ministers this week agreed to reduce trade barriers and open up some service industries.

The most tangible outcome of the meetings was the signing of a free trade agreement between ASEAN, New Zealand and Australia that could eventually add $48 billion to economies in the region.

In the run-up to the meeting, ASEAN along with China, South Korea and Japan agreed to enlarge their pool of foreign reserves to $120 billion to defend their currencies from the fallout of the financial crisis.

But while ASEAN leaders made a stand against protectionism, they have defended their own buy-local campaigns, saying those conform with trade rules, and are similar to the "Buy American" clause in the $787 billion U.S. stimulus package.

The summit, whose theme this year was "ASEAN Charter for ASEAN Peoples," held talks with civil society groups, part of its drive toward creating an integrated socio-cultural community.

The dialogues, which will become a regular feature of these meetings, got off to a shaky start when Cambodia and Myanmar refused to recognize the groups representing their countries.

Activist groups said the incident showed ASEAN was still succumbing to its tradition of non-interference in each member's affairs and taking decisions by consensus.

Abhisit told reporters: "This is something new. This is the first time and we will continue to make more progress."

The leaders also agreed on the contours of a much-debated human rights body and will make it operational by the end of this year. But it will not have the power to punish violators, ASEAN Secretary-General Surin Pitsuwan told Reuters.

The leaders urged military-ruled Myanmar "to be as inclusive as possible" in preparing for elections next year, allow all political parties to participate, and free political prisoners.

They did not mention detained opposition leader Aung San Suu Kyi, Malaysia's Prime Minister Abdullah Badawi said.

"Myanmar has told us before they would rather deal with the U.N., rather than ASEAN. We do not have to be the interpreter for Myanmar any more."

The problems with Myanmar illustrate the challenges ASEAN faces in becoming an integrated political community. The group includes two communist states, a military dictatorship, an absolute monarchy, and young democracies.

(Additional reporting by Nopporn Wong-Anan and Martin Petty; Editing by Paul Tait)

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Buffett says economy in shambles (Reuters)

Sunday, March 1st, 2009 | Finance News

NEW YORK (Reuters) –
Berkshire Hathaway Inc (BRKa.N) (BRKb.N), Warren Buffett's insurance and investment company, barely broke even in the fourth quarter because of losses on derivatives contracts tied to the stock market.

Profit fell 96 percent, the fifth straight quarterly decline, and Berkshire's net worth tumbled $10.9 billion in the year's final three months. Net worth per share fell 9.6 percent in 2008, only the second decline since Buffett began running Berkshire in 1965. It fell 6.2 percent in 2001.

In his eagerly anticipated annual letter to Berkshire shareholders, Buffett also offered a gloomy economic outlook, saying "the economy will be in shambles throughout 2009 -- and for that matter, probably well beyond."

Still, despite what he called "paralyzing fear" resulting from the credit crisis and falling housing and stock prices, he remained optimistic about American resilience, and praised government efforts to avoid a "cataclysmic" breakdown in the financial system.

"Though the path has not been smooth, our economic system has worked extraordinarily well over time," he said. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead.

Berkshire generates about half its results from insurance, including auto insurer Geico Corp, but operates more than 70 businesses that offer such things as carpeting, ice cream, paint, real estate services and underwear.

Buffett is one of the world's most-admired investors, and Forbes magazine last year called him the second-richest American.

Quarterly net income for Omaha, Nebraska-based Berkshire sank to $117 million, or $76 per Class A share, from $2.95 billion, or $1,904, a year earlier. Revenue fell 12 percent to $24.59 billion.

Excluding $3.25 billion of investment losses, more than double the previous nine months combined, operating profit rose 43 percent to $3.37 billion, or $2,175 per Class A share, from $2.35 billion, or $1,518.

The amount in part reflected underwriting gains at Berkshire Hathaway Reinsurance Group, and investment gains and a termination fee related to an aborted effort to buy Constellation Energy Group Inc (CEG.N).

"They are doing better than many rivals in a very difficult investment and operating environment," said Bill Bergman, senior equity analyst at Morningstar Inc in Chicago. "We had a 5-star rating, the highest we have, on Berkshire, and after reading the letter I feel better than I did yesterday."

Buffett said insurance and utility results helped offset his mistakes, including a decision to buy shares of oil company ConocoPhillips (COP.N) when oil and gas prices were near their peak. He said his "terrible timing" cost Berkshire "several billion dollars." Buffett said he has also lost most of a $244 million investment in shares of two Irish banks.

Berkshire's book value, or assets minus liabilities, fell to $109.27 billion at year end from $120.16 billion at the end of September, and from $120.73 billion at the end of 2007.

DERIVATIVE LOSSES

Results were battered by $4.61 billion of pretax losses on about 251 derivative contracts largely tied to the longer-term performance of four stock market indexes and the credit quality of higher-risk "junk" bonds.

A deteriorating economy and tight credit led to steep declines in stock prices and an increase in junk bond defaults, resulting in losses for Berkshire.

While the losses exist on paper, accounting rules require Berkshire to report them with earnings.

Buffett revealed for the first time which stock indexes he has been using: the Standard & Poor's 500, Britain's FTSE 100, Europe's Euro Stoxx 50, and the Nikkei 225 in Japan.

In his letter, Buffett said he believed each contract that Berkshire owns was "mispriced" at the outset, and that the ups and downs "neither cheer nor bother" him.

Berkshire nevertheless got billions of dollars of upfront payments from parties on the other side of the contracts, which the company can invest as it wishes. This, he has said, makes the contracts different from the "financial weapons of mass destruction" that he has called other derivatives.

"The income statement understates the benefits Buffett gets by putting the upfront premiums to work," said Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, whose largest investment is Berkshire stock.

Berkshire ended the year with $25.54 billion of cash, down from $44.33 billion a year earlier. It said it made roughly $6 billion of acquisitions in 2008, and spent $14.5 billion on fixed-income securities from General Electric Co (GE.N), Goldman Sachs Group Inc (GS.N) and chewing gum maker Wm Wrigley Jr Co. Buffett sold some stocks to fund the latter purchases.

For all of 2008, profit at Berkshire fell 62 percent to a six-year low of $4.99 billion, or $3,224 per share, from $13.21 billion, or $8,548. Revenue fell 9 percent to $107.8 billion.

Berkshire Class A shares closed Friday at $78,600 on the New York Stock Exchange. They have fallen 44 percent since the end of February 2008, while the Standard & Poor's 500 (.SPX) has dropped 45 percent.

(Reporting by Jonathan Stempel; editing by Vicki Allen and Mohammad Zargham)

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