European Business News (EBN), 96-12-17

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updatedDecember 17 1700 CET

CONTENTS

[01] Novartis merger cleared provisionally

[02] Bundesbank hints interest rates will stay in place for the time being

[03] Surge in U.S. housing starts implies economic pick-up

[04] France cuts key intervention rate

[05] U.K. PSBR under control

[06] E.U. court rules UK gave former Guinness chairman `unfair trial'

[07] TRW and Magna form auto-safety alliance focused on Europe

[08] VW willing to review E.U. subsidy dispute

[09] Skandia calls off Stadshypotek bid

[10] Former Daiwa Bank trader sentenced to four years for fraud

[11] Intel builds supercomputer that breaks speed records

[01] Novartis merger cleared provisionally

But to complete the deal, the two companies had to provide details of licenses and divestments in certain product areas recommended by the FTC - gene therapy, corn herbicides and flea-control operations.

In a press release, Novartis said under the FTC agreement, Sandoz' North America corn herbicide and animal health business will be divested. In the gene therapy area, Novartis agreed to provide access to the following discoveries: the HSV-tk (herpes simplex virus thymidine kinase) technology, ex-vivo gene therapy covered by a broad U.S. patent, Factor VIII for hemophilia gene therapy, and cytokines for use in cell expansion for ex- vivo gene therapy. But Novartis retains royalty rights and will have a cross-license option from potential licensees in HSV-tk gene therapy and cytokines. The FTC proposed the company license specified gene therapy technology and patent rights to Rhone-Poulenc Rorer.

The merger will create the world's second-largest pharmaceutical company after Britain's Glaxo-Wellcome. Ciba-Geigy and Sandoz said shares in the new entity Novartis to be created by their merger, will start trading in Switzerland on December 23.

The long-awaited decision from the FTC removes the last obstacle to creating the new Novartis AG. The drug giant would have annual sales of about 35 billion francs ($6.7 billion).

Earlier in the day, the experienced mixed trading ahead of the FTC announcement. Volumes in shares of merger partners Ciba and Sandoz jumped in trading late Tuesday morning, only to retrace gains since. Early afternoon, Ciba rose 2 francs to 1,623 francs and Sandoz was unchanged at 1, 529 francs from Monday's close.

[02] Bundesbank hints interest rates will stay in place for the time being

The central bank also suggested that it won't be changing rates anytime soon. `'Interest rates appear to be appropriate for the macro-economic situation,' the Bundesbank said, asserting that there shouldn't be any stronger use of monetary policy to stimulate economic growth.

The central bank also said that Germany's budget deficit for 1997 is liable to overshoot its target if unemployment continues to rise next year. The Bundesbank said that in order to ensure meeting the Maastricht Treaty's fiscal entry conditions for economic and monetary union, it will be paramount 'to aim to ensure that the projected level of spending isn't exceeded.' On the rate front, the report says that the lack of inflationary pressures comes despite the fact that money supply growth remains relatively strong and over target.

In discussing the interest-rate environment, the Bundesbank said that `to use monetary policy more strongly in the service of stimulating economic growth would increase risk premiums in long-term interest rates and heighten the danger of speculative (shocks) in financial markets,' the Bundesbank warned.

German M3 grew at a seasonally adjusted and annualized 8.4% in October from the fourth quarter of last year. That was a rate unchanged from September but well above the Bundesbank's 4%-7% annualized growth target for 1996.

But from a medium-term prospective, M3 has been growing relatively moderately, the Bundesbank said, citing the fact that in the past three years, M3 has grown just at an annualized rate of 5.5%, a level it termed 'not inappropriate.'

'Despite the present slight strengthening of money supply growth, there aren't any further extraordinary inflationary risks to be found from the monetary side,' the Bundesbank said.

[03] Surge in U.S. housing starts implies economic pick-up

'It gives rise to the question (that) maybe the economy is picking up a little steam,' said Stuart Hoffman, chief economist at PNCBank. November housing starts rose 9.2% to a 1,514,000 unit rate, reversing much of September and October's combined decline. The rise is the biggest for one and a half years.

'These numbers are pretty firm,' said Anthony Chan, chief economist at Banc One Investment Advisors. 'Right now, it appears as though it will be a positive contribution' to fourth-quarter gross domestic product.

Although a single housing starts report isn't enough evidence to firmly show the economy is growing faster, and Monday's strong industrial production report can be explained partly by the end of the General Motors strike and colder-than-normal weather, the information bodes well for the expected small increase in fourth-quarter economic growth.

Combined with reports of increases in holiday sales, larger-than-expected gains in industrial production and capacity utilization and the first upturn in seven months in the National Association of Homebuilders housing market index, the strong housing starts data at least say the economy is maintaining its current pace and has reversed any signs of a slowdown.

However, although housing figures show a marked upturn, many analysts believe the December figures will be weaker and could still subtract from fourth-quarter GDP.

[04] France cuts key intervention rate

The move, together with a cut to the 5-to-10 day rate from 4.75% to 4.60%, is seen by economists as a speedy vote of confidence in last weekend's deal on the control of public deficits when the euro single currency is created.

The announcement of the cuts, effective from Thursday, follows a meeting of the Bank's monetary policy council. The reductions slightly surprised economists even though the continuance of small, gradual cuts in the short term had been expected.

Bank of France Governor Jean-Claude Trichet, looking ahead to the central bank's policy plan for the new year, said France's gross domestic product could grow by more than 2.5% in 1997. He added that, in determining its monetary policy strategy over the coming year, the central bank's monetary policy council will look at a variety of leading price indicators, including production capacity use, production costs, changes in income and raw material prices. The policy-setting group will also take into consideration the evolution of long-term rates and France's balance of payments.

While the change in the intervention rates will have little or no beneficial impact on the economy, they do indicate that the Bank is confident in the 'stability pact' struck by European Union leaders at their weekend Dublin summit on deficit control once the 'euro' comes into being.

'This is a very good sign the Bank of France is sending us. It's really telling us it's happy with the stability pact, which nobody doubted, but it shows they've resumed easing,' said David Naude, economist at U.S. investment bank JP Morgan.

As long as people don't believe that this is the start of a devaluation, which I don't believe for a moment, it could have a positive effect on markets,' Naude added.

On Monday, French commercial banks said they would lower their base lending rate to 6.30% from 6.55% to keep up with a recent drop in French market rates. Economists said that move was a reflection of renewed confidence that French official interest rates would continue to fall. Easing by the Bank of France was in line with its recent policy of trimming official rates in small steps.

Since January 1, the intervention rate has fallen to 3.15% from 4.20%, while the 5-to-10 day rate has dropped to 4.60% from 5.60%. Lower rates have been made possible by a relatively good performance of the franc. At 1249 GMT, the mark was trading at 3.3766 francs, compared to 3.3740 francs late Monday in Paris.

[05] U.K. PSBR under control

Analysts predict that so long as the Bank of England remains on course with its program for funding the deficit then the supply will pose few problems for the gilt market going into 1997.

The public sector borrowing requirement totalled £2.61 billion ($4.35 billion) in November, in line with market expectations for a 2.75-billion- pound shortfall, according to data released today. This took the cumulative budget deficit in the first eight months of the financial year to $13.9 billion, well below the $22.4 billion borrowed in the same period a year earlier. Excluding proceeds from the sale of state-owned industries, the cumulative PSBR was £17.8 billion, down from £22.5 billion a year ago.

In connection with last month's budget presentation, Chancellor of the Exchequer Kenneth Clarke lowered modestly the PSBR forecast for the current financial year, which ends in March, to £26.4 billion from £26.9 billion.

'These (today's) figures make the target very achievable and they even give the government a chance to undershoot,' said Tom Rayner, U.K. economist at Societe Generale. He suggested the PSBR for 1996/97 could end up between £24 billion and £25 billion, which should easily be covered by the planned funding program.

[06] E.U. court rules UK gave former Guinness chairman `unfair trial'

The European Court of Human Justice ruled that Britain had denied him a fair trial, and ordered the British government to pay Saunders, who was sacked by Guinness in 1987, £75,000 ($124,500) in legal costs.

'The court stressed that the right not to incriminate oneself, like the right to silence, was a generally-recognised international standard which lay at the heart of the notion of a fair procedure,' a Council of Europe statement said.

But the court refused Saunders compensation because they claimed it was uncertain whether the violation had affected the outcome of his trial. Saunders had accused Britain of violating his right to a fair trial, saying evidence obtained from him by Department of Trade and Industry inspectors - who can legally oblige suspects to reply to questions or face fines or jail - was later used against him in a criminal prosecution.

Now 61, he was convicted in 1990 on 12 counts including false accounting and theft for inflating Guinness' share price to help its 1986 takeover of whisky group Distillers Plc prevail against rival bidder Argyll. A British Crown Court sentenced him to five years in jail but his term was halved in 1991 after doctors found he was suffering from an Alzheimer-type disease. He is now free.

The E.U. court ruling, by 16 votes to four, is an embarrassment for Britain which is already smarting from a string of recent court judgements, including the condemnation of the killings of three Irish guerrillas in Gibraltar in 1988. And it is certain to leave Britain questioning the right of European courts in Strasbourg and Luxembourg to overrule British justice in the name of European treaties and conventions.

As it stands, today's ruling could lead to actions by the other members of the 'Guinness Four' convicted with Saunders - businessmen Gerald Ronson and Jack Lyons, and financier Tony Parnes.

[07] TRW and Magna form auto-safety alliance focused on Europe

In the first of two deals, U.S.-based TRW, the world's fourth-largest automotive components group, will acquire an 80% equity stake in two Magna operations based in Germany for a cash payment of 650 million Deutsche marks ($420.4 million).

The arrangement will leave TRW with control of MST Automotive and Temic Bayern-Chemie Airbag, two companies with expertise in air bag and other automotive technology.

In addition, TRW and Magna, a $5 billion diversified supplier based in Canada, will build a European technical centre to offer all-around safety system integration to auto makers world-wide.

The alliance follows a merger of U.S.-based Morton International's Automotive Safety Products unit and Autoliv of Sweden, a leading air-bag maker. That merger created the world's largest automotive safety equipment company.

MST and TBCA will have combined sales in 1996 of 1.07 billion marks and employ around 2,500 people.

Joseph Gorman, chairman and chief executive officer of TRW, said the two companies are a 'good fit' for TRW. 'We were relatively weak in Europe where Magna was strong, and where they were weak, we were strong,' he said of the two companies' safety systems activities.

TRW's automotive components business was valued at around $6.7 billion last year and included 44 manufacturing facilities in Europe out of 134 world- wide.

[08] VW willing to review E.U. subsidy dispute

E.U. competition commissioner Van Miert disputed the state of Saxony's award to VW of 240 million marks ($372 million) in investment help for the construction of two car plants. Some of that aid has been frozen by the German federal government, but a VW spokesman indicated the company would not draw on it until an agreement is reached with Brussels on the issue.

The spokesman described as 'interesting' suggestions made publicly by Van Miert that further investments in east Germany could justify state aid. Reducing capacity at other plants was another option, although less favourable, Van Miert had said.

VW said it would review its investments at its Mosel plant in the east German state of Saxony in January.

[09] Skandia calls off Stadshypotek bid

Skandia, wanting to gain a 90% stake in the bank, pulled out after a competing bid from Handelsbanken was accepted by the state for 34% of the shares. Handelsbanken last week bid 23 billion krionor ($3.37 billion) in cash for Stadshypotek. Skandia will continue to look for expansion opportunities in the Scandanavian markets in a bid to be the region's leading company in insurance and saving products.

Its banking unit, SkandiaBanken, will play an important role for Skandia in traditional banking and plans to launch new low-cost products. The company said it will continue to expand the global unit linked operations through the Assurance & Financial Services, AFS.

Financing the expansion does not require an issue of new shares in the next few years, said Skandia, but the company 'will take advantage of market opportunities as and when deemed appropriate,' according to a statement.

[10] Former Daiwa Bank trader sentenced to four years for fraud

Daiwa trader Toshihide Iguchi has confessed to secretly racking up and concealing the losses over an 11-year period. He pleaded guilty to six counts of fraud in October 1995, including misappropriating $1.1 billion in Daiwa funds, embezzling more than $500,000, falsifying bank documents and money laundering.

Daiwa itself pleaded guilty in February to charges that it conspired to hide Iguchi's losses; the bank paid a $340 million fine and was forced to pull out of its U.S. operations. In addition, Masahiro Tsuda, Daiwa's former New York general manager, was sentenced in October to two months in prison and fined $100,000 after he pleaded guilty to helping Daiwa hide the losses.

The U.S. Attorney's office had no immediate comment on the four-year prison sentence and $2.6 million in penalties levied on Iguchi. Vincent Briccetti, Iguchi's attorney, he was ''disappointed'' the judge didn't sentence Iguchi to the 15 months in prison already served, as Briccetti had requested.

According to Iguchi, his scheme began in 1983, when he racked up $50,000 in trading losses and used unauthorised trades in U.S. Treasury notes to try to recoup them. As time went on and his losses mounted, Iguchi has admitted he falsified records to hide the losses, a move made possible because he was in charge of both securities trading and record-keeping at Daiwa's New York branch.

But after Iguchi told Daiwa officials about the losses, the bank waited nearly two months before notifying U.S. regulators. Iguchi and Tsuda, the Daiwa manager, have both said other bank officials were involved in concealing the losses, and Tsuda has said the bank was under pressure from the Japanese Ministry of Finance, which had said premature disclosure of the losses would have harmed Japan's economy.

A spokesman for the U.S. Attorney's office in Manhattan said its investigation of the Daiwa matter is continuing, although no one else has been charged.

In sentencing Iguchi, the judge also blasted Daiwa, which he said has refused to cooperate with authorities throughout their investigation. He granted Daiwa's request for restitution of $570,000 that Iguchi admitted embezzling, but rejected Daiwa attempts at further restitution.

Daiwa, he said, ''has acted with exceptional contempt of U.S. law and U.S. regulatory authority ... It has little claim on the sympathy of an American court.''

A spokesman for Daiwa in New York declined to comment on the judge's remarks or on Iguchi's sentence.

[11] Intel builds supercomputer that breaks speed records

The $53 million machine, which crunches numbers with a technique called massively parallel computing, was built by connecting thousands of the same kind of Intel Pentium Pro microchips found in standard computers.

It was developed under contract with the U.S. Department of Energy as part of its Accelerated Strategic Computing Initiative, to allow the government to help maintain its nuclear arsenal without detonating test weapons.

The Intel machine, still under construction, will be used by Sandia National Laboratories in Albuquerque, New Mexico, to simulate nuclear explosions. Eventually, it will connect more than 9,000 Pentium Pro chips and run at about 1.4 teraflops. Initially, the computer will be used to simulate the moment-to-moment eruption of vast amounts of energy during a nuclear explosion.

For example, scientists will use it to simulate explosions of existing nuclear weapons that will show whether their circuits have begun to oxidize in storage -- without blowing up a bomb. 'It doesn't get us there entirely, but it gets us a lot closer,' said a Sandia spokesman.

Commercially, the technological breakthrough should provide the computing power to speed up everything from weather forecasting to genetic mapping.

Intel officials said the ultra became the first computer to break the teraflop barrier and did it using only about three-quarters of its microprocessors. By using technology that allows clustering microprocessors into modules, Intel hopes to make computers running off its Pentium Pro the basic platform for heavy-duty applications such as airline reservation systems and automatic teller machines. These now require large mainframe computers.

Intel can link several large personal computers known as servers, which can each hold up to four Pentium Pros working side by side. Ultra technology will allow large PC networks to use far more chips, vastly increasing their computing power, experts said.

To achieve that speed, however, companies must still develop the software to take advantage of massively parallel processing. Intel may have to wait through several generations of microprocessors to achieve that.

From the European Business News (EBN) Server at http://www.ebn.co.uk/

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