European Business News (EBN), 97-08-26

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

Page last updated Tue, August 26 5:07 PM CET

CONTENTS

[01] Weak US durables data surprise analysts

[02] German inflation exceeds Bundesbank target

[03] Florida wins $11.3 billion settlement with tobacco industry

[04] UBS buys Lloyds TSB stake in Schroeder Muenchmeyer

[05] FMC and Harsco to sell United Defense to Carlyle for $850 million

[06] Dow Corning proposes $3.7 billion reorganisation

[07] Strauss-Kahn says a delay in the start of EMU will mark the end of the project

[08] Danish draft budget posts first surplus since 1987

[09] Corporate and Economic Briefs

[10] World Briefs

[01] Weak US durables data surprise analysts

The 0.6% fall, to a seasonally adjusted $180.5 billion, was much sharper than market expectations and was the second time in the past three months that the Commerce Department reported a decrease.

However, year to date, new orders were 5.7% above the same period a year ago. Electronic and other electrical equipment, down four of the last five months, had the largest decrease, $4.1 billion or 13.6% to $26 billion.

Shipments of durable goods in July, up six of the last seven months, increased $3.1 billion or 1.7% to $183.6 billion, following a 2.6% June increase. Year to date, shipments are 7.5 percent above, $1.8 billion or 4.1% to $44.2 billion, due to motor vehicles and partnt June increase.

Primary metals, up three of the last four months, increased $0.3 billion or 1.2% to $29.2 billion.

The dollar was slightly lower following the report, trading at 1.7935 Deutsche marks and 117.94 yen, compared with 1.7945 marks and 118.00 yen just before the release of the indicator at 1230 GMT.

US Treasurys meanwhile edged lower following the release of the data, as the markets took various interpretations of the mixed picture of growth the data painted.

[02] German inflation exceeds Bundesbank target

The comments came after the government said western German inflation accelerated to 2.3% in the six months through August, exceeding the 2% rate the Bundesbank has set as the country's highest tolerable rate of price increases.

In the preceding six months, consumer prices rose at an annual rate of 1.6%.

Guenter Albrecht, chief economist of the group, said the central bank won't necessarily raise interest rates immediately, but added that if 'the Bundesbank truly wants to take measures to tackle inflation, it has to do it early, with the proper lead-time.'

Nevertheless, Albrecht added that a policy of gradual interest rate increases would be bad for the German economy right now. The economy has only shown a feeble recovery thus far in 1997. Albrecht also said inflationary pressure is growing and called for the German government to pursue a more deflationary spending policy.

In addition, Albrecht called for moderate growth in wage increases as well as a cut in public spending, especially in social insurance costs.

'One thing is clear - the phrase 'inflation is dead' is no longer acceptable. The rising price indexes are now calling for heightened attention,' he said.

Meanwhile, Germany's trade surplus expanded by a third in June, while the country's current account swung to a surplus, both exceeding analysts' expectations.

The unpleasant inflation figure comes amid a growing assortment of data pointing to higher inflation in Germany that has sparked market speculation the Bundesbank may consider raising interest rates in the near future.

On Monday, the Federal Statistics Office reported that western German consumer prices rose a preliminary 0.2% in the month to mid-August and 2.0% from the same period last year.

On the trade front, the country's trade surplus widened to 13.4 billion Deutsche marks ($7.28 billion) in June from an unrevised 9.8 billion marks in May.

The current account, meanwhile, swung to a surplus of 4 billion marks from a deficit of 2.6 billion marks in May. The May deficit was revised up from 2.5 billion marks.

German exports in June were 23% higher than the year before, the National Statistics Office said, while imports rose 14%.

Economists had anticipated the German trade surplus expanded to 10 billion in June, while the current account was expected to have swung to a surplus of 300 million marks. Western German inflation accelerated to 2.3% in the six months through August, exceeding the 2% rate the Bundesbank has set as the country's highest tolerable rate of price increases.

In the preceding six months, consumer prices rose at an annual rate of 1.6%.

The unpleasant inflation figure comes amid a growing assortment of data pointing to higher inflation in Germany that has sparked market speculation the Bundesbank may consider raising interest rates in the near future.

On Monday, the Federal Statistics Office reported that western German consumer prices rose a preliminary 0.2% in the month to mid-August and 2.0% from the same period last year.

[03] Florida wins $11.3 billion settlement with tobacco industry

Florida Governor Lawton Chiles said that under the 25-year accord, the tobacco industry would pay the state 'at least $11.3 billion, and the first payment, $1 billion, is due within the next 12 months.' State officials also said the industry agreed to pay millions to cover Florida's legal costs.

Under the deal all cigarette advertising billboards in the state would have to be taken down within six months. The accord also bans cigarette advertising in sports arenas, kiosks and mass transit stations, including trains.

'During the last year we forced the industry to reveal its dark and dirty secrets and lies .... They have admitted for the first time that smoking might have killed hundreds of thousands of our people ... that the industry purposely misled the public to make a profit,' Chiles said.

Many of the industry's previously unpublished internal documents would be released as part of the deal, he said.

The tobacco industry said, however, that a national accord was still needed, and that the so-called 'global' industry settlement between the industry and state attorneys general reached on June 20 would largely supersede the Florida pact.

[04] UBS buys Lloyds TSB stake in Schroeder Muenchmeyer

Alan Moore, deputy group chief executive of Lloyds said: 'We have decided to dispose of Schroeder Muenchmeyer Hengst as it no longer fits with our overall business strategy.'

The profit before tax on the sale of approximately $40 million will be included in its accounts for the year ended December 1997, the bank said.

The Swiss and German banks said the change of ownership would put SMH in a better position to develop as an investment bank and give UBS a strengthened position in the German market.

'The acquisition is an important step on the way to the realisation of strategic goals in private and institutional asset management business,' they said.

SMH was formed in 1969 in a merger of three private German banks -- Schroeder Gebrueder, Muenchmeyer and Friedrich Hengst-- and was taken over by Lloyds in 1984.

The bank, which employs 400 workers and has a capital of 180 million marks, has recently transformed to become a pure investment bank.

[05] FMC and Harsco to sell United Defense to Carlyle for $850 million

In a press release, FMC said it owns 60% of the venture and Harsco owns the remaining 40%. The venture company, which had 1996 sales of $1 billion, supplies ground combat and naval weapons systems.

FMC expects to complete the transaction, which was approved by both its board and Harsco's board, within 90 days.

FMC said the sale will lead to higher earnings growth and increased shareholder value. In 1996, FMC reported income from continuing operations of $218.1 million, or $5.73 a share, on revenues of $5.08 billion.

FMC said its cash flow currently exceeds its needs, so it will search for ways to return funds to its shareholders while maintaining its investment grade rating.

In a separate press release Tuesday, Harsco said the sale of its stake in the venture reflects its ongoing restructuring.

Carlyle Group, Washington, is a private investment firm. Harsco is an industrial services and products company. FMC produces chemicals and machinery.

[06] Dow Corning proposes $3.7 billion reorganisation

The reorganisation plan will provide $2.4 billion for resolving breast implant and other product liability claims through several settlement options.

The company said $1.3 billion of the total $3.7 billion plan will be used to satisfy commercial claims.

Dow Corning said the plan still needs to be confirmed in a hearing before US Bankruptcy Judge Arthur Spector to review and approve the disclosure statement, which describes the plan in detail. Dow Corning expects Spector to conclude the confirmation hearing by mid-1998.

'The growing body of comprehensive and respected medical studies along with numerous court decisions support the view that implants do not cause disease,' Dow Corning said. However, the company said the plan is an effort to 'conclude the breast-implant controversy and offer women settlement options while also preserving the right for both sides to vigorously argue the merits of the scientific evidence in court.'

The Dow Corning plan comes just a week after a New Orleans jury found that Dow Chemical negligently conducted research on silicon that went into breast implants. In the second stage of the trial, to begin Sept. 29., plaintiffs and Dow Chemical will argue before the same jury whether silicone caused the specific injuries and illnesses suffered by eight women.

Dow Chemical and Corning both took large charges in 1995 and haven't booked earnings from the Dow Corning joint venture since it filed for court protection from its creditors.

In 1996, while Dow Corning was under the protection of the bankruptcy court, the silicon producer netted income of $220 million. Had Corning been able to record its share of that profit, it would have added 48 cents a share to its 1996 total of $1.50 a share, said NatWest Securities Corp. analysts Andrew Sutphin.

Similar to Corning, which took an after-tax charge of $365.5 million related to the Chapter 11 filing, Dow Chemical in the second quarter of 1995 took a pre-tax charge of $330 million and afterward no longer recorded its 50% share of Dow Corning's earnings.

Dow Chemical, which earned $1.9 billion, or $7.71 a share, in 1996, will be able to book its 50% share of Dow Corning once the joint venture gets out of bankruptcy, said Deutsche Morgan Grenfell analyst Paul Leming.

[07] Strauss-Kahn says a delay in the start of EMU will mark the end of the project

Strauss-Kahn told Germany's Deutschlandfunk radio in a telephone interview: 'I would remind you that a delay is not legally possible.

The earlier we start with the euro the better it will be. It must come in 1999.'

The Finance Minister also reiterated that Europe's single currency will be introduced as planned on Jan. 1, 1999.

Asked on German radio station Deutschlandfunk of his opinion regarding calls to delay currency union until 2001, Strauss-Kahn said a delay isn't legally possible.

'Furthermore, it's important to me that the earlier the euro comes, the better it will be for us,' he said.

'The euro must come on Jan. 1, 1999, and it must be introduced under the stability conditions stated in the Treaty. I believe this is the common will of both the Germans and the French.'

[08] Danish draft budget posts first surplus since 1987

The ministry also forecast sound economic growth despite shrinking current account surpluses. 'The recovery of the Danish economy is now entering its fifth consecutive year and prospects continue to look bright,' it said in its budget document, which predicted 3.1% GDP growth this year and 3% in 1998.

The draft is now subject to long and tough negotiations with opposition parties, whose support the minority centre-left government needs to pilot the package to parliamentary approval by Christmas. One aspect of the budget already criticised by the main opposition Liberals is its dependence on one-off revenues, notably a 15 billion crown ($2.2 billion) sell-off of shares in partially state-owned businesses, to achieve surplus.

Analysts were in broad agreement with the government's budget, but voiced reservations over its short-term nature.

'The problem with this budget is that it there are no measures to take care of the long-term and structural issues of the Danish economy,' Per Hvid, Den Danske Bank first vice-president, economics told Reuters Financial Television in an interview.

He agreed with the government that there was no immediate danger of overheating in the economy, which is forecast to grow by 3.1% this year and 3% in 1998, but said that now was the time to consider possible problems further ahead.

[09] Corporate and Economic Briefs

Sweden's producer price index rose 0.1% in July from June 1997, according to figures released by SCB, the national statistics agency. The rise in producer prices brought the annualized change in the index to a rise of 1.9% from a rise of 1.7% in June. Market economists were expecting a 0.2% rise on the month and a 2.0% rise on the year.

The Swedish state-owned power concern Vattenfall has signed an agreement with Swedish municipality-owned power company Gestrikekraft to supply power and energy services, Vattenfall said in a press release. Gestrikekraft is Sweden's eighth-largest power concern with annual power sales of about 1.3 terawatt hours. The agreement, which also includes marketing and information technology services, will allow Gestrikekraft to more effectively compete within the deregulated Nordic power market, said Gestrike vice president Erik Danver.

Irish Permanent, Ireland's largest residential mortgage provider, reported pretax profit for the six months to June 30 rose to 25.9 million punts ($37.28 million) from the 23.3 million punts recorded in the corresponding 1996 period. The profit performance slightly bettered the consensus 25.5 million punts profit expected by analysts.

[10] World Briefs

Former President F.W. de Klerk, the pragmatic reformer who negotiated the end to apartheid, has resigned as head of the National Party and quit politics. De Klerk, a Nobel laureate, announced his resignation after a meeting of the former ruling party's executive committee, the Federal Council. National Party spokesman Jan Bosman said de Klerk's successor likely would not be named for one to two weeks.

China, warily watching a meeting of Taiwan's ruling party, demanded less talk of independence and more sincerity from the island's leaders as a condition for smooth relations. Foreign Ministry spokesman Tang Guoqiang greeted Lee Teng-hui's re-election as chairman of the Nationalist Party with studied indifference.

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

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