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Shares in American Express surged more than 8% on Tuesday after it said it was to spin off its less profitable financial advisory subsidiary. |
The US credit card to travel services giant said off-loading American Express Financial Advisors (AEFA) would boost its profitability. AEFA has more than 12,000 advisers selling financial advice, funds and insurance to 2.5 million customers. Over the years it has delivered poor profits and even some losses. |
"This is an excellent move by American Express to focus on its core businesses, and sell off a laggard division, which has been a problem for quite some time," said Marquis Investment Research analyst Phil Kain. Analysts estimate that a stand-alone AEFA could have a market value of $10bn (£5.3bn). The unit was acquired by American Express 20 years ago as Investors Diversified Service, of Minneapolis, at a time when firms were amassing one-stop financial empires. However, the business of selling investments was never integrated with the rest of the group. |
Stock market eyes Japan recovery |
Japanese shares have ended the year at their highest level since 13 July amidst hopes of an economic recovery during 2005. |
The Nikkei index of leading shares gained 7.6% during the year to close at 11,488.76 points. In 2005 it "will rise toward 13,000", predicted Morgan Stanley equity strategist Naoki Kamiyama. The optimism in the financial markets contrast sharply with pessimism in the Japanese business community. Earlier this month, the quarterly Tankan survey of Japanese manufacturers found that business confidence had weakened for the first time since March 2003. |
Slower economic growth, rising oil prices, a stronger yen and weaker exports were blamed for the fall in confidence. Despite this, traders expect strength in the global economy to benefit Japan, which has been close to sliding into recession in recent months. Structural reform within Japan and an anticipated end to the banking sector's bad debt problems should also help, they say. |
Iraqi voters turn to economic issues |
Beyond the desperate security situation in Iraq lies an economy in tatters. |
A vicious cycle of unemployment, poor social services and poverty has been made worse by a lack of investment. So there is much hope that an elected government will break the deadlock. "First rule of law, then the economy," says Radwan Hadi, deputy managing director of Aberdeen-based oil and gas consultancy Blackwatch Petroleum Services, which entered Iraq in 2003. Mr Hadi's view about what the new government's priorities should be is shared by many Iraqis. The economy has become the second-most dominant issue for many political parties ahead of Sunday's election, according to Bristol University political scientist Anne Alexander, who is working on a project that looks at governance and security in post-war Iraq. |
Job creation ranks high both on election manifestos and on the Iraqi people's wish list. Nobody knows exactly how many Iraqis are out of work, but it is clear that the situation is dire. "Estimates of Iraq's unemployment rate vary, but we estimate it to be between 30-40%," the Washington-based independent think-tank The Brookings Institution says in its Iraq Index. But some progress has been made, largely thanks to the country's oil revenues which have exceeded $22bn since June 2003. |
Iraq's infrastructure is on the mend, with notable improvements having been made in areas such as electricity supply, irrigation, telephone networks and the re-opening of hospitals. But serious problems remain and the growing divide between haves and have-nots is angering voters. One Iraqi woman told Ms Alexander about her frustration as she watched TV adverts for private hospitals soon after having failed to track down basic medicines from Baghdad's pharmacies. Observes Mr Hadi: "The economy at present marks a big divide; the rich get richer, the poor get poorer." An indication of this can be seen in the world of finance where, in contrast with the daily plight of ordinary people, 19 private banks operate, only one of which is run in accordance with Islamic banking principles. Hopes are high for the future of finance, so foreign banks have been buying into the sector. National Bank of Kuwait has bought a majority stake in Credit Bank of Iraq, the Jordanian investment bank Export & Finance Bank has bought 49% of National Bank of Iraq. |
Foreign firms also hope to cash in on the reconstruction effort. Bechtel's efforts to rebuild schools and restore power have attracted controversy as well as boosting its bottom line while Halliburton has enjoyed a wealth of military contracts. But the involvement of foreign firms in the health and banking sectors and beyond sits uneasily with many Iraqis who are accustomed to the state taking responsibility for functions that are essential to making society work, observes Ms Alexander. "It is seen as a selling off of Iraq's assets and bringing in multinationals at the expense of Iraqi businesses and Iraqi workers," she says. Consequently, the transitional government has been forced to backtrack in recent months over its proposal to allow 100% foreign ownership of Iraqi assets, she explains. In the West, it is easy to forget that the otherwise brutal Baathist regime used to look after the majority of Iraq's citizens rather well in terms of job creation, social security and healthcare. Opinion polls suggest that "people still want the state to take a leading role in providing these things", Ms Alexander says. |
Yet in some areas of the economy, investment from abroad is still warmly welcomed, insists Mr Hadi, an Iraqi who left the country three decades ago. "I think the private sector will evolve incredibly fast," Mr Hadi says. "Iraq's vast natural resources can support any magnitude of economic growth." |
Many foreign companies say they are keen to get in on the act, yet few are actually entering the country in any meaningful way. But there are exceptions. Mr Hadi's Blackwatch is just one of many small operators preparing for a much bigger future. Blackwatch's Baghdad-based affiliate Falcon Group has dozens of people working for it across the country in Kirkuk and Baghdad, and its engineers and geo-scientists work with the Iraqi oil ministry to hammer out technology transfer issues, Mr Hadi points out. "These guys are trying to work. The Iraqi business people will do business at all times. "Life goes on in Iraq, the people take responsibility, they want to live normal lives." |
Peugeot deal boosts Mitsubishi |
Struggling Japanese car maker Mitsubishi Motors has struck a deal to supply French car maker Peugeot with 30,000 sports utility vehicles (SUV). |
The two firms signed a Memorandum of Understanding, and say they expect to seal a final agreement by Spring 2005. The alliance comes as a badly-needed boost for loss-making Mitsubishi, after several profit warnings and poor sales. The SUVs will be built in Japan using Peugeot's diesel engines and sold mainly in the European market. Falling sales have left Mitsubishi Motors with underused capacity, and the production deal with Peugeot gives it a chance to utilise some of it. |
In January, Mitsubishi Motors issued its third profits warning in nine months, and cut its sales forecasts for the year to March 2005. Its sales have slid 41% in the past year, catalysed by the revelation that the company had systematically been hiding records of faults and then secretly repairing vehicles. As a result, the Japanese car maker has sought a series of financial bailouts. Last month it said it was looking for a further 540bn yen ($5.2bn; £2.77bn) in fresh financial backing, half of it from other companies in the Mitsubishi group. US-German carmaker DaimlerChrylser, a 30% shareholder in Mitsubishi Motors, decided in April 2004 not to pump in any more money. The deal with Peugeot was celebrated by Mitsubishi's newly-appointed chief executive Takashi Nishioka, who took over after three top bosses stood down last month to shoulder responsibility for the firm's troubles. Mitsubishi Motors has forecast a net loss of 472bn yen in its current financial year to March 2005. Last month, it signed a production agreement with Japanese rival Nissan Motor to supply it with 36,000 small cars for sale in Japan. It has been making cars for Nissan since 2003. |
China continues breakneck growth |
China's economy has expanded by a breakneck 9.5% during 2004, faster than predicted and well above 2003's 9.1%. |
The news may mean more limits on investment and lending as Beijing tries to take the economy off the boil. China has sucked in raw materials and energy to feed its expansion, which could have knock-on effects on the rest of the world if it overheats. But officials pointed out that industrial growth had slowed, with services providing much of the impetus. Growth in industrial output - the main target of government efforts to impose curbs on credit and investments - was 11.5% in 2004, down from 17% the previous year. |
Still, consumer prices - at 2.4% - rose faster than in 2004, adding to concern that a sharp rise in producer prices of 7.1% could stoke inflation. And overall investment in fixed assets was still high, up 21.3% from the previous year - although some way off the peak of 43% seen in the first quarter of 2004. The result could be higher interest rates. China raised rates by 0.27 percentage points to 5.8% - its first hike in nine years - in October 2004. |
Despite the apparent rebalancing of the economy the overall growth picture remains strong, economists said. "There is no sign of a slowdown in 2005," said Tim Congdon, economist at ING Barings. |
China's economy is not only gathering speed thanks to domestic demand, but also from soaring sales overseas. Figures released earlier this year showed exports at a six-year high in 2004, up 35%. Part of the impetus comes from the relative cheapness of the yuan, China's currency. The government keeps it pegged close to a rate of 8.28 to the US dollar, - much to the chagrin of many US lawmakers who blame China for lost jobs and competitiveness. Despite urging to ease the peg, officials insist they are a long way from ready to make a shift to a more market-set rate. "We need a good and feasible plan and formulating such a plan also needs time," National Bureau of Statistics chief Li Deshui told Reuters. "Those who hope to make a fortune by speculating on a renminbi revaluation will not succeed in making a profit." |
Japan's ageing workforce: built to last |
In his twenties he battled tuberculosis for eight years, then went on to run his own clothing business before marrying in his late thirties. And the 101-year-old Torao Toshitsune has eaten raw fish pretty much every day throughout his life. |
Mr Toshitsune is one of Japan's 23,000 centenarians - a club that is growing by 13% annually, and where the oldest member is 114. At his neat Osaka detached house, where he lives with one of his sexagenarian daughters, Mr Toshitsune keeps a regular routine of copying out Buddhist sutras and preparing the traditional Japanese tea ceremony. Between tasks, this remarkably active senior citizen reveals what his next goal is: "Well, what's most important for me is to be Japan's number one." Mr Toshitsune wants to outlive everyone. And when it comes to longevity, Japan, as a country, appears to be doing just that. Women can expect to live until 85, men until 78, four years longer than Americans and Europeans. |
On the outskirts of Kyoto, 83-year-old Yuji Shimizu contemplates this phenomenon during a round of golf with his younger friends, who are in their seventies. |
"I think this is because the food industry and the environment have improved," he remarks. "On average, we can live longer." Whether it's the diet, or the traditional family structure where roles were clearly defined, or just something in the genes, Japan's elderly are remarkable. But while life may be a game of golf for Mr Shimizu, his grandchildren have huge problems ahead. Japan is the world's least fertile nation with childbirth rates of just two thirds of that in the US. |
By 2007, Japan's population is expected to peak at 127 million, then shrink to under 100 million by the middle of the century. This means 30 million fewer workers at a time when the number of elderly will have almost doubled. |
"In the year 2050, if the birth rate remains the same people over 60 will make up over 30% of the population," explains Shigeo Morioka of the International Longevity Centre in Tokyo. So how will Japan's finances stay on track? After a decade of economic stagnation and huge deficit spending, the public sector debt is already about 140% of the country's gross domestic product (GDP), the highest rate among industrialised countries. The International Monetary Fund predicts that as the falling birth rate takes grip from 2010, the cost of running Japan's welfare state will double to more than 5% of GDP, while current account balances will deteriorate by over 2%. But unfortunately, Japan appears poorly prepared both financially and politically. Glen Wood, Vice President of Deutsche Securities Japan, asks; "Who's going to fund the pension fund for the next generation and indeed who are going to be the new Japanese worker? "Who is going to build the economy, who are going to be the leaders? Who are going to be the producers of the GDP going forward?" One option is further welfare reform. Another is immigration, possibly from the Philippines and Indonesia. But so far, any emerging policy appears restricted to a limited number of nursing staff. |
Standing next to Tokyo harbour is a version of New York's Statue of Liberty. But, as yet, Japan is not ready for an Ellis Island. |
"Japan has never really liked that option in its history and I think it's an option that's becoming more and more plausible and necessary," insists Mr Wood. In Japan, as in Europe which also faces a workforce decline, immigration is a very sensitive subject. But for the Japanese economy, facing 8% fewer consumers by 2050 means slumping domestic sales of cars, hi-tech kit and home appliances, perhaps even another property crash. |
Of course the Japanese could always have more children. The government is currently considering financial rewards for procreative couples similar to those in operation in Australia. But there would be no pay back until 2030, when today's babies are taxpayers, and the demographic crisis, like in Europe, starts to unfold in 2010. In contrast to Japan - and of course the European Union - the US population is expected to increase by 46% to 420 million by the middle of the century. Although President Bush must re-devise Social Security to take account of a 130% rise in America's over 65s, the IMF foresees a positive contribution to the US current account balance from the combined forces of fertility and immigration. |
Some voices in Japanese industry are calling for radical changes to the nature of the Japanese labour market. They want a shift towards financial services, though doubts persist over the country's ability, let alone willingness, to move away from manufacturing. "Japan still has problems getting a viable banking system, let alone shifting their auto business or their semi-conductor business or the broad based tech manufacturing business overseas," says Mr Wood. Japan can either drive some radical reforms or else run the risk of a vicious ageing recession. Falling demand and a lower tax take could result in soaring budget pressures and a basket case currency. Come 2020, Japan could be more dependent on a shrinking workforce than any other industrialised power. There are fears that the world's number two economy is doomed to a permanent recession. But none of this is Mr Toshitsune's concern anymore. At 101, he chuckles that, he feels fine. |
UK economy facing 'major risks' |
The UK manufacturing sector will continue to face "serious challenges" over the next two years, the British Chamber of Commerce (BCC) has said. |
The group's quarterly survey of companies found exports had picked up in the last three months of 2004 to their best levels in eight years. The rise came despite exchange rates being cited as a major concern. However, the BCC found the whole UK economy still faced "major risks" and warned that growth is set to slow. It recently forecast economic growth will slow from more than 3% in 2004 to a little below 2.5% in both 2005 and 2006. |
Manufacturers' domestic sales growth fell back slightly in the quarter, the survey of 5,196 firms found. Employment in manufacturing also fell and job expectations were at their lowest level for a year. |
"Despite some positive news for the export sector, there are worrying signs for manufacturing," the BCC said. "These results reinforce our concern over the sector's persistent inability to sustain recovery." The outlook for the service sector was "uncertain" despite an increase in exports and orders over the quarter, the BCC noted. |
The BCC found confidence increased in the quarter across both the manufacturing and service sectors although overall it failed to reach the levels at the start of 2004. The reduced threat of interest rate increases had contributed to improved confidence, it said. The Bank of England raised interest rates five times between November 2003 and August last year. But rates have been kept on hold since then amid signs of falling consumer confidence and a slowdown in output. "The pressure on costs and margins, the relentless increase in regulations, and the threat of higher taxes remain serious problems," BCC director general David Frost said. "While consumer spending is set to decelerate significantly over the next 12-18 months, it is unlikely that investment and exports will rise sufficiently strongly to pick up the slack." |
Steady job growth continues in US |
The US created fewer jobs than expected in December, but analysts said that the dip in hiring was not enough to derail the world's biggest economy. |
According to Labor Department figures, 157,000 new jobs were added last month. That took 2004's total to 2.2 million, the best showing in five years. Job creation was one of last year's main concerns for the US economy. While worries still remain, the conditions are set for steady growth in 2005, analysts said. The unemployment rate stayed at 5.4% in December, and about 200,000 jobs will need to be created each month if that figure is to drop. |
"It was a respectable report," said Michael Moran, analyst at Daiwa Securities. |
"Payroll growth in December was a little lighter than the consensus forecast, but we had upward revisions to the prior two months and an increase in manufacturing employment." "Manufacturing is a cyclical area of the economy and if it's showing job growth, it's a good indication that the economy is on a solid growth track." That means that the Federal Reserve is likely to continue its policy of raising interest rates. The Fed lifted borrowing costs five times last year to 2.25%, citing evidence the US economic recovery was becoming more robust. |
Job creation was one of last year's main concerns for the US economy, and proved to be a main topic of debate in the US presidential election. While demand for workers is far from booming, the conditions are set for steady growth. "Overall, compared to the previous year it looks great, it just keeps going stronger and stronger and I expect that to be the case" in 2005, said Kurt Karl, economist at Swiss Re in New York. Meanwhile, economists cautioned against reading too much into data from the Federal Reserve showing an unexpected $8.7bn drop in consumer debt in November. A fall in consumer spending, which makes up about two-thirds of all US economic activity, could help limit the extent of any future interest rate rises. But economists said there could be a number of reasons for a fall in the borrowing, which include credit cards and personal loans, while noting that such figures can vary on a month-to-month basis. |
Dutch bank to lay off 2,850 staff |
ABN Amro, the Netherlands' largest bank, is to cut 2,850 jobs as a result of falling profits. |
The cuts - amounting to 3% of the bank's workforce - will result in a one-off charge of 790m euros ($1.1bn). About 1,100 jobs will go in investment banking while 1,200 and 550 will go in IT and human resources respectively. ABN Amro is the third large European bank to announce cutbacks in the past month following Deutsche Bank and Credit Suisse Group. |
Its profitability has been hit by a fall in mortgage lending in the United States - the bank's largest single market - following recent interest rate rises. ABN Amro's operations in the Netherlands and the United Kingdom will be hardest hit. Jobs will also be lost in the US - which accounted for 46% of profit in the first half of 2004 - and across its operations in the Americas and Asia-Pacific regions. |
The restructuring is designed to improve efficiency by reducing administrative costs and increasing focus on client service. The bank said it was on course for a 10% rise in net income this year but operating profits are set to fall because of a fall in US revenues. ABN Amro currently has more than 100,000 staff. "To get any profit growth in the coming years, they will have to lower costs, so shedding jobs makes total sense," Ivo Geijsen, an analyst with Bank Oyens & Van Eeghen, told Bloomberg. Europe's leading banks seem set for a period of retrenchment. Deutsche Bank said earlier this month it would reduce its German workforce by 1,920 while as many as 300 jobs will be lost at Credit Suisse First Boston. |
Fannie Mae 'should restate books' |
US mortgage company Fannie Mae should restate its earnings, a move that is likely to put a billion-dollar dent in its accounts, watchdogs have said. |
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