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Thursday, 20 November 2008

Economic gloom deepens in Asia

TOKYO - JAPAN'S No. 3 bank joined larger rivals seeking to raise funds to counter growing bad loans, deepening the economic gloom in Asia on Wednesday, as markets fretted over the fate of the sinking US car industry.

The head of Nomura Holdings, Japan's biggest brokerage, offered a glimmer of hope, saying he thought the global liquidity crisis was over.

But he added the world's real economy was now the problem.

'The next issue depends on how the nations of the world supply financial support', particularly in China, Nomura Chief Executive Kenichi Watanabe told a media lunch.

Japan's third-largest bank, Sumitomo Mitsui Financial Group, said it plans to issue preferred securities, becoming the latest Japanese bank to bolster its capital amid the financial crisis.

SMFG said it had not decided on the amount, but the Yomiuri newspaper reported earlier it planned raise about 400 billion yen (S$6.3 billion) to finance the redemption of outstanding preferred securities and beef up a capital base hit by a rise in bad loans.

Once thought to be relatively unharmed by the global credit crisis, Japanese banks are now scrambling to raise cash, as recession and plunging domestic stocks sap their capital.

Share prices in Seoul and Tokyo fell and the yen rose as risk-averse investors worried about the deepening damage to corporate profits and consumer spending despite a late rally on Wall Street.

Japan's Nikkei average fell 0.7 per cent, while MSCI's measure of stocks elsewhere in Asia-Pacific dipped 0.2 per cent.

'Market players are watching how stock markets react to developments (at US automakers)', said Mr Shuichi Kanehira, a senior currency trader at Mizuho Corporate Bank.

'Any negative news or comment about their future will support the yen', Mr Kanehira said.

Carmaker bailout
US 'Big Three' carmakers, facing resistance from the White House and some Congressional Republicans to a Democratic proposal to bail out their ailing industry, warned the US Senate Banking Committee of dire consequences absent a bailout plan.

'This is about much more than just Detroit. It's about saving the US economy from a catastrophic collapse', General Motors CEO Rick Wagoner said in written testimony.

GM, Ford Motor Co and Chrysler have been hit hard by a collapse in consumer spending triggered by the US housing crash and exacerbated by rising unemployment and months of soaring gasoline prices.

Sales are also slumping in the mature markets of Europe and Japan, and growth has slowed significantly in emerging markets such as India, China and Russia.

Japanese carmakers are also feeling the pinch.

Toyota Motor said it would stop production at all of its assembly, transmission and engine factories in the US and Canada for two extra days next month to work down bloated inventory.

Toyota has also cut its sales growth forecasts for China this year by half, to 20 per cent.

Nissan Motor said it was sticking to its slender profit forecast for this business year but CEO Carlos Ghosn warned of more tough times ahead.

'We have to recognise 2009 will be one of the most challenging years for our industry and the whole economy in the last 50 years', Mr Ghosn told the Wall Street Journal. 'I don't think anybody would be expecting peak performance'.

Nissan last month more than halved its net profit forecast for the year to March 31 to 160 billion yen, hit by the slowdown in demand and a stronger yen. -- REUTERS

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