All the news that fits... -MW
PEREGRINE AND RATES HIKE SEND MARKET INTO TAILSPIN
By JAKE LLOYD-SMITH
Updated at 1.25am: Hong Kong stocks prices were decimated on Monday
morning as the market reeled from the imminent collapse of investment
bank Peregrine Investment Holdings, fears about the stability of the
local currency and region-wide retreats in financial markets.
The 33-member Hang Seng Index, the market's leading indicator, plunged
985.51 points, or 11.08 per cent to end at the morning session at
7,909.13.
Nikko Securities senior investment adviser Kent Rossiter said: ''It's a
triple whammy. You've got the [falls in the] States, Peregrine and
higher interbank rates all at one.''
Peregrine, Asia's biggest independent investment bank, is on the verge
of collapse after a rescue bid led by Switzerland's Zurich Group failed
last week. Peregrine faces millions of dollars of losses from
investments across Asia - especially Indonesia - that have gone sour.
Emergency talks over the weekend by Peregrine management failed to
secure a fresh white-knight deal and Peregrine staffers said this
morning that an announcement on closure was expected within hours.
One Peregrine employee said: ''It's like the [film] Titanic, the stern
is sticking up out of the water and we're going down.''
He said that staff were removing personal effects from the offices,
which were besieged by worried investors, in anticipation of the
premises being sealed by liquidators.
''Everyone's knicking everything and going out the back stairs. It's
pathetic. There's blind panic. It's a disaster. They've told us all the
rescue bids have failed,'' the employee said.
Brokers said that Peregrine's potential failure was hurting already
fragile sentiment in the stock market, which has fallen for eight
consecutive sessions.
Fears over the continued stability of the peg, the 14-year-old tie that
binds the local dollar to its US counterpart were also punishing share
prices, brokers said.
Interbank lending rates moved sharply higher, indicating that pressure
was building on the link.
Three-month money was quoted at 18.5 per cent compared with 15.5 per
cent. The overnight rate was at 10/15 per cent compared with 7/9 per
cent.
On Friday, banks raised their best lending rates by threequarters of
apercentage point to 11.5 per cent.
Mr Rossiter said: ''There are genuine fears [about the peg] but they are
misplaced. I think it will hold. The pressure, though, has never been
this bad. This is a true test of the Hong Kong Government.''
Senior Government officials have repeatedly stated the administration's
total commitment to the link, or currency board. It also enjoys the
complete support of the Beijing government, which has said it is
prepared to back it with China's vast foreign currency reserves if the
need arises.
On money markets the Hong Kong dollar was trading level at 7.74 to the
US dollar.
Brokers said Wall Street's 222.2 point slide on Friday was adding to the
bearish mix.
More declines on the Hong Kong market were predicted in the afternoon
session, which begins at 2:30 pm Hong Kong time.
Mainland-related shares were hit even harder than the blue-chip market,
which is at its lowest level since March 1995.
The official red-chip index shed 24.32 per cent to 934.78 points, while
the Hang Seng China Enterprises slumped 17.8 per cent to 436.51 points.
Stock prices were weaker in most Asian centres this morning, with the
exception of Manila and Jakarta.
Copyright ) 1998 South China Morning Post Publishers Ltd. All rights
reserved.
___________________________________________________________________
Monday January 12 1:10 AM PST
PEREGRINE MOVES TO LIQUIDATE
Updated at 4.15pm: Peregrine Investments Holdings was on Monday
preparing an application for liquidation.
The news came after Asia's largest independent investment bank laid off
non-essential staff after telling personnel it could no longer ensure
their pay.
''We have already defaulted in the US,'' said a senior company source
earlier.
''My guess would be that they are going to have a board meeting and the
next step in this scenario would be the appointment of a liquidator.
''They will make that decision in the meeting.''
Director Peter Fu said the company would appoint a liquidator by 5pm.
Another director said an announcement would be made later on Monday.
''There will be an announcement, probably this evening,'' director Alan
Mercer said at the company's Central offices.
Another Peregrine official said the firm was likely to be broken up and
its best-performing businesses sold.
Profitable units like Peregrine Securities and Peregrine Capital would
probably be put up for sale, the official said.
___________________________________________________________________
Monday January 12 1:10 AM PST
PRESSURE MOUNTS ON SUHARTO
By From GREG TORODE in Jakarta
Unprecedented diplomatic pressure will mount this week on Indonesia's
troubled President Suharto as tensions rise over his leadership.
Japanese Prime Minister Ryutaro Hashimoto and German Chancellor Dr
Helmut Kohl were expected to phone Mr Suharto to urge him to institute
urgent reforms for the sake of stability, diplomatic sources said.
The calls follow a lead taken by US President Bill Clinton on Friday
when he phoned Mr Suharto with a warning to stand by International
Monetary Fund (IMF) rescue efforts.
Australian Prime Minister John Howard called Mr Suharto yesterday.
The Western push will be amplified today by the arrival in Jakarta of US
Deputy Treasury Secretary Lawrence Summers.
Mr Summers is expected to demand structural changes which could hurt
lucrative monopolies operated by some of Mr Suharto's children.
Also expected later in the week is US Defence Secretary William Cohen,
who sought to calm fears of tensions degenerating into anarchy in
Jakarta.
"This is precisely the reason that the IMF and the US are seeking to
provide confidence to each of the countries and to the people," Mr Cohen
said on arrival in Kuala Lumpur.
Mr Suharto spent the weekend in his house in suburban Jakarta surrounded
by his family and closest advisers to prepare for what could be the
toughest week of his 32-year rule.
Popular pro-democracy leader Megawati Sukarnoputri raised the political
tension across the capital on Saturday by declaring her nomination for
the presidency in a speech that attacked Mr Suharto's regime as "greedy
and corrupt" and dominated by "economic criminals".
The city was calm last night but armed vehicles were seen cruising the
inner city.
The rupiah tumbled to 11,200 to the US dollar on Friday but recovered to
just under 8,000 when markets closed for the weekend.
Any further devaluation of the rupiah could add to pressures on
Indonesia to declare a moratorium on US$133.3 billion (HK$1,032 billion)
in private sector debt - most of it short-term and unhedged.
Mr Suharto's senior economic ministers will continue talks with IMF
deputy managing director Stanley Fischer today in preparation for the
arrival of the fund's chief Michel Camdessus on Wednesday.
___________________________________________________________________
Monday January 12, 6:01 am Eastern Time
Japan funds gloomy on Japanese stocks - Merrill
LONDON, Jan 12 (Reuters) - Japanese fund managers were taking an
increasingly negative attitude towards Japanese shares, according to a
Merrill Lynch survey released on Monday.
Buyers of Japanese shares outnumber sellers by just seven percent, the
lowest such figure since March 1997, and down from 24 percent a month
ago.
The outlook for earnings is gloomy, according to the survey. Fund
managers were forecasting fiscal year 1997 earnings growth of 2.8
percent, down from about 10 percent in May.
Although 60 percent of managers expect economic activity in Japan to
improve over the coming year, expectations are modest, according to
Merrill. Not one manager expected the economy to improve
``significantly,'' according to Merrill.
Japanese fund managers were also bearish on the yen and continued to
favour U.S. Treasuries. Only one in ten managers named the yen as their
favourite currency for the coming year, while 69 percent chose the U.S.
dollar as their favourite.
And Japanese fund managers continue to sell Japanese bonds, with sellers
outnumbering buyers by 19 percent, U.S. Treasuries continued to be
popular, with buyers outnumbering sellers by 31 percent.
The survey was conducted by Gallup on behalf of Merrill between January
5 AND 6. It covered 42 institutions responsible for funds totalling $644
billion.
___________________________________________________________________
Monday January 12, 5:59 am Eastern Time
Japan banks problem loans assessed at $575 billion
By Fumiko Fujisaki
TOKYO, Jan 12 (Reuters) - Problem loans held by Japanese banks run to
around 76 trillion yen ($575 billion) -- more than three times
previously accepted estimates, the Ministry of Finance (MOF) said on
Monday.
The new total, which includes 65 trillion yen ($492 billion) in
``substandard loans,'' was calculated using a stricter appraisal method
and comes as Japan's parliament begins a session expected to focus on
measures to stabilise the nation's rickety financial system.
The mountain of bad debt, much of it extended during the heady days of
the bubble economy, is blamed for undermining confidence in Japan's
banks and creating the current credit crunch.
A ministry official said the new and more realistic picture of the
country's bad loans mess was offered to help deepen public awareness of
the severity of the situation.
While the government has worked out a package of measures to stabilise
the financial system, many analysts expect heated debate in parliament,
particularly over provisions to use public money to shore up the system.
Loans extended by 146 Japanese banks totalled 624.86 trillion yen ($4.73
trillion), of which healthy loans stood at 548.16 trillion yen ($4.15
trillion), the MOF said in a statement. The data was calculated under
the new assessment method, known as ``prompt corrective action'' (PCA),
by banks between March and September last year.
The banks had 65.29 trillion yen ($494 billion) of ``class two'' loans,
those where the creditworthiness of the borrower raises concern that
recovery may be more difficult than on ordinary obligations.
It also said ``class three'' bad loans totalled 8.72 trillion yen ($66.0
billion) and ``class four'' bad loans totalled 2.69 trillion yen ($20.3
billion).
Class three loans are those to firms with management difficulties but
which are in no immediate danger of bankruptcy. Class four assets are
considered impossible to recover.
A MOF official said that while banks must keep loan-loss reserves
against all four classes of loans, banks can exercise their own judgment
under the lead of auditors in setting aside provisions for class two and
three loans.
``As for class two loans, it is misleading if you say that they are all
problem loans,'' the official said.
Industry sources said banks generally set aside loan loss provisions of
about 50 percent of the value of class three assets.
Under the PCA system, which officially starts on April 1, financial
institutions are required to make stricter risk assessments of each
customer's financial situation based on advice from auditors. They must
unload potentially risky loans.
The PCA system is meant to serve as an early warning mechanism for
financially troubled banks.
Under a different calculation system by the Federation of Bankers'
Associations of Japan, problem loans held by Japanese banks totalled
21.7 trillion yen ($164 billion) at the end of last September.
Analysts said the amount of problem loans unveiled on Monday was not
surprising as there has already been increased market scrutiny of
Japanese banks' bad loan mess.
Some analysts said they now expected some big banks to unmask their bad
loans on an individual basis in order to win back long-lost confidence.
``To ease unnecessary worries over their financial health and
speculation, Japanese banks should voluntarily announce bad loans,''
Yoshinobu Yamada, an analyst at Merrill Lynch Japan, said recently.
He said without improved disclosure of bad loans, it would be difficult
for Japanese banks to win confidence.
___________________________________________________________________
Monday January 12, 2:08 am Eastern Time
Japan PM says will not trigger global depression
By Yoko Kobayashi
TOKYO, Jan 12 (Reuters) - Japanese Prime Minister Ryutaro Hashimoto on
Monday outlined to parliament his plans to head off what he said was any
chance of his country triggering a global depression.
Urged on by world leaders to use economic recovery in Japan to pull Asia
out of its financial crisis, Hashimoto vowed to make Japan again ``the
leader of a flock of flying geese.''
``It is my strong determination not to start a financial or economic
depression from Japan, to stabilise the financial system, which is the
main artery of the economy, and to restore confidence in the economic
outlook,'' Hashimoto said in a speech to a new session of the Lower
House of parliament.
There were no new measures announced in the speech, which was more a
clarion call to battle than a list of what needed to be done to revive
the world's second-largest economy.
Explaining his already announced decision to seek parliamentary approval
for income tax cuts of two trillion yen ($15.1 billion) from February,
Hashimoto said he acted after realising that Asia's economic plight was
worse than he had thought.
``I took into account the history and the reality of Asia's economic
growth -- where Japan acted as the leader of a flock of flying geese --
and the need to achieve a strong Japanese economic recovery,'' Hashimoto
said.
The prime minister said Japan would stick to its plans for fiscal reform
but it needed to be flexible in adapting to financial conditions and
global economic conditions.
U.S., European and Asian leaders have urged Japan to loosen its purse
strings to get domestic consumption back on track.
``I will never associate myself with that pessimistic view which makes
it sound as though there is no future for the Japanese economy,'' he
said.
Japan hopes to spur corporate activity by making some 840 billion yen
($6.36 billion) worth of cuts in corporate, securities transaction and
land holding taxes, as well as taking financial stability steps, he
said.
He said further structural reforms are needed for Japan to let domestic
demand lead its economic growth.
Japan will also include in its extra budget for this fiscal year about
one trillion yen ($7.5 billion) of public works projects for rebuilding
after disasters and about 1.5 trillion yen ($11.3 billion) of
front-loading of some public projects planned for next fiscal year.
Up to 30 trillion yen ($227 billion) of public funds will be made
available for the protection of all deposits, and legal steps would be
considered for the protection of securities investors and insurance
policy holders, Hashimoto said.
The public funds will be used to strengthen and expand the present
deposit insurance system as well as to purchase banks' preferred shares
to boost their capital, he said.
The government will also ease a credit crunch by making more loans
available from state-affiliated banks and to introduce flexibility on
the capital adequacy ratio for banks operating domestically, he said.
``These measures were taken with the utmost consideration for the
economy. I believe these measures, together with the financial
stabilisation steps, will bring about strong recovery for our economy,''
Hashimoto said.
``I will strongly urge Japanese financial institutions to improve their
disclosure of business activities to match global standards, and to
rationalise their operations further,'' he said.
($1 equals 132 yen)
___________________________________________________________________
Monday January 12, 1:53 am Eastern Time
MOF to unveil Japan bad loan data under new system
TOKYO, Jan 12 (Reuters) - Japan's Ministry of Finance (MOF) said on
Monday it will announce bad loans data held by banks calculated under a
new, stricter bank supervision system at 4.30 p.m. (0730 GMT).
Finance Minister Hiroshi Mitsuzuka said last week his ministry would
release an assessment of the bad loans as reckoned under the new
``prompt corrective action'' (PCA) system on Monday.
Under the PCA system -- designed as an early warning mechanism for
financially troubled banks -- financial institutions are required to
make stricter risk assessments of each customer's financial situation
based on advice from auditors. They must unload potentially risky loans.
Under a different calculation system crafted by the Federation of
Bankers' Associations of Japan, problem loans held at all Japanese
deposit-taking financial firms totalled 28 trillion yen as of the end of
last September. Of that, 21.73 trillion yen was held by banks.
Analysts said bad loans calculated under the PCA system may be as much
as three times that amount.
___________________________________________________________________
Saturday January 10, 8:55 am Eastern Time
FOCUS-Heat builds on Indonesia's Suharto to quit
(Adds Suharto's decision to delay 15 big projects)
By Raju Gopalakrishnan
JAKARTA, Jan 10 (Reuters) - Pressure mounted on Indonesian President
Suharto on Saturday as the country's best-known opposition figure
demanded the former general quit at the end of his term in March for
leading the nation toward economic chaos.
Megawati Sukarnoputri, daughter of the man Suharto replaced when he took
power in Indonesia in 1965, said the 76-year-old president should not be
allowed to stand for re-election.
She said she was willing to take the helm.
In the English text of a speech, Megawati told a chanting crowd of 500
people in the garden of her residence on the outskirts of Jakarta:
``Suharto's rule as president for 32 years is quite enough.''
``I hereby take this opportunity to declare my determination to become
the leader of our nation and our people if this is indeed the real
consensus of the people,'' she said as supporters chanted ``Long Live
Mega.''
Earlier on Saturday, shoppers thronged markets to stock up on essentials
for the third day running as Indonesia reeled under the twin onslaught
of financial turmoil and fears that food would either be in short supply
or hit by hyper-inflation.
U.S. and International Monetary Fund (IMF) officials were heading to the
country to help defuse the crisis, sparked by perceptions that Suharto's
government was backsliding out of commitments made to the IMF in
exchange for a $43 billion bail-out plan in October.
But late on Saturday -- in an apparent reaction to stinging
international criticism -- Suharto ordered the postponement or review of
15 major infrastructure projects worth several billion dollars due to
the crisis.
State Secretary Murdiono, quoting Suharto, told the official Antara news
agency that the projects to be reviewed included a number of power
plants and toll-roads.
Megawati said the financial disaster was the work of ``economic
criminals.''
``If the nation ends up having to bear this burden then striped prison
uniforms should be sewn for the economic criminals who have destroyed
our nation and our economic future,'' she thundered to loud applause.
What would just be political rhetoric in any other nation carries deep
significance in Indonesia.
Suharto, a former army general, has ruled the mainly Moslem nation of
200 million people with an iron grip since he took over from founding
president Sukarno, Megawati's father, and has brooked little dissent.
Criticising him is a criminal offence.
Megawati, ousted as leader of the minority Indonesian Democratic Party
(PDI) by a government-backed faction in June 1996, is considered the
only significant opposition figure.
In July that year, Jakarta was hit by its worst riots in more than two
decades after supporters of Megawati were evicted from their party
headquarters for refusing to give way to her government-backed rival who
replaced her as head of the PDI.
At least five people were killed, more than a hundred injured and
buildings and cars set ablaze by angry mobs after her supporters were
attacked by police and rival partisans.
Suharto is widely expected to seek a seventh five-year term of office in
March presidential elections but Megawati said he should not be allowed
to do so.
A diplomatic analyst questioned whether Suharto would heed the calls to
step down. ``Suharto is known to be a fighter,'' he said.
Suharto's half-brother was quoted in the Kompas daily on Saturday as
saying the former general wanted to retire but would only do so when he
was assured that any successor could shoulder the responsibilities of
leadership.
It was a dramatic end to a day when Indonesia was looking forward to a
weekend breather from the punishment its rupiah currency and stock
market have been taking.
But the focus shifted to food markets earlier in the day as crowds
bought up rice, sugar, flour, cooking oil and milk.
Analysts said the situation was potentially explosive, since any paucity
of food had even greater potential than the monetary crisis to trigger
social unrest.
They said shortages of essentials in the Islamic holy month of Ramadan
and the festival at the end of it could have dangerous implications for
social stability.
The government signalled it was aware of the danger.
State news agency Antara said the government had raised short-term rice
imports to two million tonnes from 1.5 million and that controlled
prices of rice and flour would not be raised.
U.S. President Bill Clinton intervened in the crisis on Friday, telling
Suharto that Indonesia had to comply with the IMF reforms and announcing
he would send Deputy Treasury Secretary Lawrence Summers to the region
this weekend.
Separately, IMF Managing Director Michel Camdessus and First Deputy
Managing Director Stanley Fischer are also visiting Jakarta from early
next week.
Indonesia has long been a major regional ally of the United States. The
sprawling archipelago straddles the equator for some 3,000 miles (5,000
km) and major trade routes from the Far East to the West pass through
its waters.
Until last week calls for his removal were unthinkable, but there are
now public appeals for a change in government.
But what many analysts fear is the unrest that could accompany such
change.
The only political transition since Indonesia gained independence from
Dutch colonial rule over half a century ago was when Suharto took power
from Sukarno in 1965 after what the government claims was an abortive
Communist coup. Some 500,000 people were later killed in anti-Communist
pogroms.
___________________________________________________________________
Copyright ) 1998 Reuters Limited. All rights reserved. Republication or
redistribution of Reuters content is expressly prohibited without the
prior written consent of Reuters. Reuters shall not be liable for any
errors or delays in the content, or for any actions taken in reliance
thereon
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