Japan's top banks to accelerate cutting client equity holdings

NOV 13, 20157:17 PM

[TOKYO] Japan's top banks are accelerating a planned cutback in their holdings of shares of corporate clients, a practice that has been criticised for making the lenders vulnerable to market swings and for impeding good governance in companies.

Mizuho Financial Group, Japan's second-largest lender by assets, said on Friday it will cut 40 per cent of its equity holdings and aims to dispose at least 70 per cent of them by the end of March 2019.

"Stock holdings are exposed to market risks. We will constantly reduce them by gaining understanding from issuer companies," Mizuho CEO Yasuhiro Sato told an earnings briefing. Mizuho said the book value of its domestic equity holdings stood at about 1.96 trillion yen (S$22.7 billion) as of March.

Mizuho posted a 13 per cent net profit increase in its financial second quarter ended in September, helped by gains from selling some of its equity holdings.

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Japanese banks hold billions of dollars worth of corporate clients' stocks to cement business ties. The practice has been widely criticised for hindering rigorous corporate governance, as banks play the role of friendly shareholders to management.

The banks are also under regulatory pressure to reduce such equity holdings since they could hurt lenders' financial health in times of market turmoil.

Sumitomo Mitsui Financial Group also said it has set a goal of reducing its domestic equity holdings by half as a percentage of its core capital in five years.

The third-largest bank said the book value of its domestic equity holdings stood at about 1.8 trillion yen as of September, which is about 28 per cent of its common equity Tier 1 capital.

The lender's second-quarter net profit fell more than half from the year-earlier period to 120.3 billion yen after it booked impairment losses on its minority stake in Indonesian lender PT Bank Tabungan Pensiunan Nasional Tbk (BTPN).

Japan's largest lender, Mitsubishi UFJ Financial Group , also announced a similar goal of cutting the equity shareholdings, saying it aims to bring down the percentage of such holdings against Tier 1 capital to around 10 per cent in five years, from about 19 per cent now.

The 10 per cent goal is "the level, at which we are not likely to post losses even at times like the Lehman shock", MUFG CEO Nobuyuki Hirano said at an earnings briefings.

Its second-quarter net profit fell 5 per cent to 321.6 billion yen, hurt by bigger credit costs.

REUTERS

    
 

Euro-area growth misses estimates as ECB mulls more stimulus 

With a slowdown in emerging markets testing the strength of the pick up in the currency union, the data will provide ECB President Mario Draghi with more visibility heading into December's monetary policy meeting.

PHOTO: AFP

NOV 13, 20156:45 PM

[MADRID] Euro-area economic growth unexpectedly slowed in the third quarter, underscoring the vulnerability of the region's recovery as the European Central Bank examines the need for fresh stimulus.

Gross domestic product in the 19-nation bloc rose 0.3 per cent, data showed Friday, down from 0.4 per cent in the previous period, which was also the median estimate of economists in a Bloomberg survey. Germany and France's economies each grew 0.3 per cent, while Italy's expanded 0.2 per cent.

With a slowdown in emerging markets testing the strength of the pick up in the currency union, the data will provide ECB President Mario Draghi with more visibility heading into December's monetary policy meeting. The central banker has signaled additional stimulus is in the pipeline, citing renewed downside risks for growth and the region's inflation outlook, which risks becoming entrenched well below the ECB's goal of 2 per cent.

GDP missing estimates for the currency bloc adds "to the already strong case for the ECB to step up monetary stimulus in December," Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam, said before the euro-area data were published.

"The domestic economy has been doing well, but the euro zone faces external drags, with world trade growth weak and exports to emerging markets falling like a brick."

Speaking at the European Parliament on Nov 12, Mr Draghi said the outlook for core inflation, which removes volatile items like energy, had "somewhat weakened," while noting that downside risks from a global slowdown are "clearly visible."

"What we've seen in the data leading up to this is very low-end industrial production, and missed expectations, and weak factory orders, so any kind of suggestion that this is a result of infiltrated weakness coming from emerging markets will release expectations that Draghi will act," said Eimear Daly, a currency strategist at Standard Chartered Plc, told Bloomberg TV on Friday.

"It's quite highly priced in the market that he is going to do something at the December meeting."

There is a 96 per cent chance that the ECB's Governing Council will cut its deposit rate by 10 basis points in December, taking it to minus 0.3 per cent, ECB-dated Eonia forwards show.

The euro weakened after the data, dropping toward a six- month low against the dollar. Bonds advanced from Germany and France to Italy.

German and French GDP were in line with economist estimates, while data for Italy, the Netherlands and Portugal fell short of projections in Bloomberg surveys.

China's attempt to transition from an investment boom to consumer-led growth poses risks to export-oriented Germany, itself struggling to raise productivity in an aging society. At the same, record-low unemployment, easy credit conditions and a weakened currency have provided a buffer to consumers and companies.

The German data "does not represent the fundamental cruising speed of the German economy," said Andreas Rees, an economist at UniCredit SpA in Frankfurt.

"Anyone who thinks that the development after the summer break marks a turnaround to the worse will soon get a bloody nose. A rebound in exports and industrial activity plus strong internal demand is a pretty decent growth cocktail."

In a sign of the difficulties in global trade, Hamburger Hafen & Logistik AG, expects a "strong decrease" in container volumes this year on slowing growth in China, its top trading partner, and as Russia heads for the longest recession in two decades. The gloomy outlook by the handler of three in four containers at Germany's biggest port follows a 40 per cent decline in traffic with Russia on European Union and US sanctions. The third quarter was also blighted for euro-area companies by Greece's near-exit from the currency bloc, which dented confidence in the region's outlook.

Meanwhile in France, domestic demand contributed 0.3 per cent to growth in the quarter as consumers benefit from lower oil prices, boosting disposable income. Inventory building contributed 0.7 per cent, while external trade represented a 0.7 per cent drag on growth. Corporate investment rose 0.7 per cent after a 0.5 per cent increase the previous quarter.

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Cisco earnings is a beat, but its next quarter will be softer than expected

• Julie Bort
 
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Business Insider/screen captureCisco CEO Chuck Robbins

Cisco just reported its first quarter earnings. Although it reported a healthy beat, investors are not happy. Cisco is warning them that its second quarter won't be as strong as they expected.

Cisco reported:

• $12.7 billion in revenue. Analysts were expecting $12.65 billion. That's a slight beat.
• 59 cents EPS, analysts expected 56 cents EPS. That's a big beat.

But the stock is dropping in after-hours trading because its guidance was ligher than expected.

Cisco expects 0%-2% year/year FQ2 revenue growth and EPS of 53-55 cents. Analysts wanted 5.1% revenue growth and EPS of 56 cents. The stock is down about 3% in after-hours trading.

Cisco CEO Chuck Robbins is blaming the global economy and foreign exchange rates. In the press release, he said, "We guided to solid growth in Q2. Our guidance reflects lower than expected order growth in Q1, driven largely by the uncertainty of the macro environment and currency impacts."

Here's the full press release.

This is the first full quarter under Cisco's new CEO Chuck Robbins, although he hasn't been flying totally solo. Former long-time CEO John Chambers is executive chairman and still very much involved in the company. 

Nordstrom is crashing

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Associated Press

Nordstrom reported ugly third-quarter earnings results on Thursday, and the stock got wrecked.

After sliding in after-hours trading, shares were down 20% in premarket trading on Friday.

The upscale retailer reported earnings per share of $0.42, missing Bloomberg's consensus estimate of $0.72. The company said this reflected transaction costs related to the $2.2 billion sale of its credit-card portfolio to TD Bank in October.

Sales rose 6% in the third quarter to $3.3 billion.

Comparable sales, or sales at stores open for at least one year, rose 0.9%, missing the forecast for growth of 3.6%.

So we have yet another retailer reporting disappointing results. Macy's, America's largest department-store company, on Wednesday reported sales that were below expectations, with a lower outlook for the fourth quarter.

As Macy's shares plunged after the earnings results, Nordstrom and Kohl's shares also fell. Apparel retailers are facing a warmer-than-usual holiday season, meaning clothes for the fall season may not sell as early as before, according to analysts.

And foot traffic to malls has been declining.

Nordstrom lowered its outlook. It now sees full-year sales rising 7.5% to 8% from a previously guided range of 8.5% to 9.5%.

"Tourism weakness, warm weather, a focus on experiences/entertainment, consumers purchasing big ticket items (autos/furniture), and the Amazon effect have all been excuses for weakness across retail over the past few weeks," wrote Deutsche Bank analysts in a client note on Thursday.

Nordstrom's "management cited none of these factors, instead highlighting a meaningful slowdown in transactions across all formats, across all categories, and across all geographies beginning in August that has yet to recover. With a superior business model, in our view, that is half high-end dept. store, 30% off-price, and 20% online, this level of deceleration (from mid to single-digit same-store sales to ~1%) is a potential cautionary tale of the U.S. consumer’s health."

Here's a chart showing the drop in shares, which have fallen 36% year-to-date:Google

SEE ALSO: Mounting inventory at Macy's is ringing warning bells at department stores

Europe is screwed if this is as good as it gets

• Mike Bird
 
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REUTERS/Laszlo Balogh

The eurozone just missed expectations for the third quarter, with gross domestic product rising 0.3% from three months earlier.

That's a disappointment, since analysts were expecting a 0.4% rise.

Unlike the United States, Europe calculates growth on a quarter-on-quarter basis, so the figure shows the total growth from the end of June to the end of September. In the US, that figure is annualised, so it seems much larger.

We've also got the figures from each of the three biggest economies in Europe:

• Italian GDP rose by 0.2%, a weaker rate than financial markets were expecting.
• French GDP rose by 0.3%, in line with what was expected, after a flat performance in Q2.
• German growth also came in at 0.3%. That was also expected, and below the 0.4% recorded in Q2.

The Italian and German numbers are particularly worrying. The zone has had extremely loose monetary policy — zero interest rates — for years now, yet these major economies are nowhere near the kind of robust growth they're aiming for.

One of the few pieces of surprisingly good news was Greece's performance. Though the economy contracted by 0.5% in the third quarter, that's pretty impressive given the capital controls that were brought in during July.

As lacklustre as the European recovery seems, this is pretty much as good as it has been for four years now. GDP growth of 0.4% in both the first and the second quarter was very slightly better, but other than that, it has been the same or worse. The eurozone officially came out of recession nine quarters earlier, and progress since has been painfully slow.

There is even worse news when you dig down into the data. Germany's economy is undoubtedly the bloc's strongest. It has been humming along slowly for most of the past three years, recording solid but unspectacular growth in most quarters. German GDP is now 1.8% higher than it was a year ago, and that's the strongest figure it has recorded in 18 months.

Italy is probably the most depressing example. Take a look at this:

Capital Economics

Italy never saw anything like the frothy expansion Spain did during the early years of the eurozone. In the near decade of the single currency's existence up to the 2008 financial crash, Italy grew by only about 15%. It has since slumped and is nowhere near a full recovery, sitting nearly 10% below its 2008 levels.

When measured on a per-capita basis, Italy hasn't grown at all since the euro was introduced. People talk about Japan's lost decades, but Japanese real GDP per capita hasclearly outperformed that of Italy over the past 20 years.

Spain has undoubtedly had a rough ride since the financial crisis, and output is still some distance from returning to peak levels — but at least it had a boom in the first place. Along with Ireland, Spain is paraded by European authorities as one of austerity's star performers, bringing in necessary structural reforms early and reaping the benefits. But with unemployment still over 20%, it seems gruesome to celebrate.

There are some nuggets of positivity. From next year, the fiscal squeeze on eurozone economies should loosen a little. After years of budget cutting to try to comply with the bloc's strict rules on spending, many have now just about reached the deficit limit of 3% of GDP.

If the European Central Bank also chooses to do something dramatic in December, that might also offer some more support to the economies.

Average growth for the eurozone before the financial crisis was about 0.6% to 0.7% per quarter. That's similar to what the UK and the US have been recording for a while now, but it feels as if it's still a very long way off for Europe.

The picture is depressing even before you start to think about how unprepared Europe would be for another financial crisis or recession.

NOW WATCH: Animated map shows how European languages evolved and spread

More: Eurozone GDP German economy French Economy Italian Economy

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China: Stocks close down as manufacturing, energy shares weigh

China stocks closed down on Friday as manufacturing and energy shares weighed on the indexes. 

PHOTO: REUTERS

NOV 13, 20153:47 PM

[SHANGHAI] China stocks closed down on Friday as manufacturing and energy shares weighed on the indexes.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 1.3 per cent, to 3,746.24, while the Shanghai Composite Index lost 1.4 per cent, to 3,580.84 points.

The CSI300 energy subindex was down sharply by 2.4 per cent, hit by sliding oil prices.

Total turnover of A shares traded in Shanghai was 34.4 billion lots, while Shenzhen volume was 36.2 billion lots.

REUTERS

Update: Aung San Suu Kyi's NLD seals historic election win in Myanmar

Myanmar's National League for Democracy party leader Aung San Suu Kyi talks to supporters after general elections in Yangon on Nov 9, 2015.

PHOTO: REUTERS

NOV 13, 20151:47 PM

[YANGON] Myanmar's longtime opposition leader Aung San Suu Kyi led her party to an historic victory in national elections, routing the military-linked government in a vote that will further loosen the army's grip on the Southeast Asian nation.

The National League for Democracy secured 332 seats in the two houses of parliament, enough to choose the country's next president without seeking support from any other political party, according to official results from the nation's election commission.

Ms Suu Kyi, 70, and her party are the longtime foils to the generals who ruled Myanmar from a coup in 1962 until 2011, when they handed power to their political arm after a 2010 vote that was tainted by allegations of fraud and boycotted by the opposition. The Nov. 8 ballot was the most widely contested poll since 1990, when a first NLD landslide was ignored by the generals, plunging the country into another generation of repression and isolation. Ms Suu Kyi was under house arrest at the time and had to accept the Nobel Peace Prize the following year in absentia.

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