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March 2004

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  • Private investor
  • Baudoin Prot, the CEO of BNP Paribas, used a results announcement last month to deny some of the merger rumours involving his firm and to sketch out plans for using the bank's excess capital. As he outlined the bank's 2003 results, which included an impressive 13.1% increase in net income from the corporate and investment banking division, he declined to reveal what BNP Paribas would do if a large US firm bought one of its European rivals. He described such hypothetical strategic plans as "science fiction".
  • Iran's State Tax Organization (STO) last month made its ambitions clear: in 2004/05 it is aiming to gather enough tax revenue to cover almost half of government expenditure. To achieve this it needs to record a 38% year-on-year increase in tax collection, or total revenues of almost $11 billion.
  • Asia's leaders are playing a dangerous game of poker with the US, accumulating dollar reserves even as the US currency falls. Excess liquidity is driving stock markets in Asia and threatens to inflate bubbles while economic restructuring is patchy. The game cannot continue indefinitely: the end could be ugly. Chris Leahy reports.
  • Banks and lawyers in the US face confusion over the tests used to determine their liability on securities fraud.
  • At first blush, Thai Union Frozen Products Public Company seems to be a poster child of the new Thai economy.
  • Despite rapid growth in recent years, the investment management industry in China is hampered by volatile flows, strict regulation and an uneasy relationship between fund managers and distributors. Joint ventures with overseas firms have met with mixed success. Julie Dalla-Costa reports.
  • President Vladimir Putin surprised everyone with his appointment of unknown technocrat Mikhail Fradkov to replace sacked prime minister Mikhail Kasyanov. Fradkov is Russia's envoy to the EU, based in Brussels. Before this, he was director of the tax police. In many ways, he is a compromise candidate between the two Kremlin factions of the security services and the liberal reformers. He has served in the Russian security council, giving him links to the former, and also served in Yegor Gaidar's reformist government in the early 1990s, giving him some credibility with the latter group. He is not well-known but regarded as a competent bureaucrat who will, above all, be loyal to Putin.
  • Source: www.breakingviews.comis Europe's leading financial commentary service Eric Daniels , the chief executive of Lloyds TSB, has passed over the opportunity to give the UK bank a radical change of direction. Not only that – he has forced out the one board member who was gunning for change, former finance director Philip Hampton.
  • Indonesia has at last emerged from IMF intensive care to take its own first tentative steps towards full rehabilitation. Banks looks healthier and the country is preparing to return to the international capital markets. Early signs are encouraging, but key challenges lie ahead, including the roll-over of domestic recapitalization bonds. Chris Leahy reports.
  • India's bond and equity markets spurted into action last month as the government announced over $3 billion-worth of sales of shares in six companies. Indian companies and banks will also tap the market for another $2 billion, about half of which will be foreign currency debt. In addition, the Asian Development Bank closed a $110 million rupee bond, the first local currency bond by a multilateral bank.
  • The Dutch B2B group pulls off a large restructuring to survive a liquidity crunch amid heavy trading of its debt by US hedge funds.
  • Alan Greenspan came in for a great deal of criticism following his remarks to Congress at the end of February about social security and deficits. Whether he deserves it or not depends largely on your political colours. But his testimony raises a fundamental issue about ageing populations – an issue that politicians, inside and outside the US, ought to be wrestling with now. In the US today, federal commitments to social security and Medicare programmes are less than 7% of GDP. This is predicted to rise to 12% by 2030. When spending on Medicaid is added in, this percentage will be even higher. These are large sums that will further strain a US budget already crashing back into deficit.
  • Source: www.breakingviews.comis Europe's leading financial commentary service Sanofi's attempted e48 billion takeover of Aventis is just the latest in a string of merger moves in the drugs sector over the past decade. To get an idea of the scale of the activity, consider that the market share of the top 10 companies has risen from 25% in 1988 to around 50% today. And there is much further to go, as pill-making is still a highly fragmented activity compared with other sectors of the economy.
  • Selling off Germany's autobahns and lamp posts are two of the more bizarre proposals of a government desperate to raise cash to bail out an ailing economy. The irony is that while there is broad agreement that changes are needed, the country's consensus system of politics is impeding progress. Ben Aris reports.
  • KfW's platform to securitize portfolios of loans to SMEs in Germany has broadened opportunities for the banks involved. It is far from clear, though, that these lenders have taken the steps needed to enhance margins on this business. Katie Martin reports.
  • The UK has avoided adding an extra layer of complexity to M&A transactions after a legal ruling that the Office of Fair Trading can maintain a degree of discretion in assessing proposed deals. The ruling sends a positive signal that the UK is sympathetic to mergers.
  • ABN AMRO Private Bank has added to the ever-growing jargon bandied about by bankers. "Internet cockpit" is its contribution. The bank's new office in Marbella boasts two of them. The Dutch bank is pulling out all the stops in its latest bid to win international high-net-worth clients with second homes in the Spanish resort. And the internet cockpits seem to be doing the trick. ABN says it has already seen lots of interest, particularly from Dutch clients.
  • Source: www.breakingviews.com is Europe's leading financial commentary service
  • The US extendible MTN market has seen a raft of longer-dated deals of late, tapping investor demand for two- and three-year debt which is not naturally filled by money market instruments or traditional term bond issuance. The standard extendible MTN product is a floating rate note with an initial maturity of 13 months, which investors can elect to extend out to a maximum of five years, with a pre-set pricing step-up every year. These are specifically targeted at money market funds as a higher yielding product, which allow investors to exploit the relative steepness of an issuer's credit curve and still meet 2a7 eligibility requirements.
  • Since New York state attorney general Eliot Spitzer went public last year with his investigations into the bias and conflicts of interest in research, the equity research landscape has been changing. A number of analysts at investment banks have set up or joined independent research companies causing a huge influx of new firms on the research scene.
  • At the end of February, Standard & Poor's revised its outlook on Volkswagen's single-A rating from stable to negative, owing to the car company's lower than expected 2003 earnings. VW's operating profits were down 48% to e2.5 billion in 2003, according to its headline numbers published last month. S&P said the sales performance of its new Golf, retaining its profitability in Europe and its ability to carry out planned annual cost cutting of e1 billion were the company's key challenges in 2004.
  • How many Deutsche Bank managing directors does it take to change a lightbulb? If last month's press release announcing the hiring in the US of 10 tech bankers from CSFB is any indication, they'd be queuing up round the block.
  • Should vigorous sex be taxed as well as taxing? The German city of Cologne thinks it should.
  • Lehman Brothers has finally finished moving its London headquarters from its slightly gloomy premises in Broadgate to its shiny new tower in Docklands, joining Standard & Poor's and Bank of America as new residents in what is now London's key financial district. The building is so new that the local cab drivers haven't worked out how to get to it yet. And the building is very striking. In keeping with the big banks' one-upmanship in glitzy foyer design, it is super sleek and modern.
  • The rugby bandwagon continues to roll. Latest to declare their new love of the game are fund managers Gartmore. The recipient of Gartmore's contribution is that venerable rugby institution the Barbarians. The club, founded in 1890, is most widely lauded for its 1973 match against the New Zealand All Blacks in which Gareth Edwards scored arguably the greatest ever try.
  • Country risk index: The strong currency is damaging economic performance in the eurozone. But the outlook for some emerging markets is brighter, thanks to rising commodity prices and improving prospects for Asia. Paul Pedzinski and Andrew Newby report.
  • Iran's banking sector is dominated by five large state-owned commercial banks, accompanied by five smaller ones, which are required to conform to Islamic banking principles. As a rule, the public banks post weak profits, are undercapitalized and over-staffed, and are run by risk-averse managers. James McCormack at Fitch Ratings says the sector's weakness is state induced. "Sectoral credit allocations, deposit rates and lending rates are prescribed by the authorities based on economic development objectives as opposed to credit risk or monetary policy considerations," he says. The banks are thus "direct instruments of public policy". New licences
  • The world's largest steel company's M&A team is as big as an investment bank's steel sector corporate finance division. Arcelor reckons, though, that its team's superior sector knowledge makes it more effective at doing deals that enhance core assets, deliver synergies and boost shareholder value. Kathryn Tully reports.
  • Latin American bond markets have maintained unexpected buoyancy so far this year. But the restructuring of Argentina's debt still looms as a prerequisite of the investment flows it needs, and Brazil is yet to institute the reforms that will enable its private sector to generate growth. Trade agreements would help. Felix Salmon reports.