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News Summary
Hello from Hong Kong believe it or not, we are talking

Greek! Headline from Sunday Observer said Greece on brink
of chaos as refugees riot over forced return to Turkey. But
we are not talking refugees.
WikiLeaks published a transcript between IMF head of
European bureau, Poul Thomsen and Delia Velkouleskou, the
IMF mission chief for Greece. The note said IMF anticipates a
possible Greek default on its bailout will coincide with the
UK's referendum on Europe. It showed IMF was planning to
tell Germany it will abandon the Troika if the IMF and the
Commission fail to reach an agreement on Greek debt relief.
In other words, the Fund is forcing Germanys leadership to
quickly grant wide-ranging debt relief for Greece or allow
the Fund to exit Athens bailout programme. Response from
Greek officials - Olga Gerovasili, a Greek government
spokesman, said the statement showed Mr Thomsen was
pushing for a Greek default before the British referendum in
June. Greek PM Alexis Tsipras reacted swiftly to the
allegations, demanding explanations from the chief of the
IMF. His office stated: "The Prime Minister will immediately
send an official letter to Christine Lagarde over the issue."
(See page 2-3).
Next Tata Steel. The Telegraph revealed Tata Steel Tata is in
talks to buy the steel assets of Germanys ThyssenKrupp.
Analysts speculated that Tatas possible entry into the
German market was linked to its decision to sell its UK
assets. One story in FT said the Indian steel giant expects to
shut its British plants and is only going through the
motions of a sale. It seemed that Tata Steel has not
formally appointed advisors. In The Sunday Times, Tata Steel
in negotiations with the UK government and the Pensions
Regulator over putting the scheme, which has about 130,000
active and retired members, into the Pension Protection
Fund (PPF), which would mean workers suffer cuts to their
retirement savings of as much as 20%. The newspaper said
the company said it does not plan to continue supporting the
pension fund once it has quit UK steel. Sunday Telegraph has
revealed a possible white knight. It said Sanjeev Gupta of
Liberty House, is in the early stages of drawing up a plan to
save the bulk of the Indian giants operations, including Port
Talbot (page 4-7).
On topic of Brexit The Times understands that international
banks have warned the Bank of England that they may
relocate significant parts of their UK operations to elsewhere
in Europe if Britain were to vote to leave the European
Union. These banks have sent reports to BOE, setting out
how they would respond if Britain left the EU (page 5).
Economist Liam Halligan wrote no one knows what will
happen in event of Brexit. The opinion polls are clearly very
close. If UK leaves, UK then enters an Article 50
negotiation named after the relevant EU Treaty clause.
This discussion between UK/EU could take up to 2 years. So
nothing would immediately change if we vote Leave
putting paid to some of the more disingenuous scare stories
telling of post-referendum chaos. BUT, voters in other EU
nations not least Finland, Sweden and Holland could
easily demand their own membership referenda. Liam
Halligan admits he is voting for exit. Brexit vote sends
shockwaves across Europe, finally sparking meaningful EU
reform (page 7).
undecided, while 1% refused to say. The report in Sunday

Observer spotted that decision over whether the UK remains
inside the EU could depend on whether young people 18-34
years old. But a more interesting result - some 54% of voters
aged 55 and over said they wanted to leave. If you look at
the British population about 64.67 million of which, more
than 20 million are above 55 (page 8).
Federal Reserve chairwoman Janet Yellen was super dove at
the Economic Club of NY and she has every reason to do so.
She said shes in no rush to tighten amid a sluggish global
economy. But Irwin Stelzer said Yellen will need to raise
rates but again, cautiously. One need not be a dyed-in-thewool Keynesian to recognise that leaving the central bank
without support from a coordinated fiscal policy is not a sure
way to get the growth rate closer to 3% than zero. She has
moved the goalposts 3 times; wanted jobless rate to drop
and it has from 6% to 5%; labour force participation rate to
increase; waiting for wages to turn up: they have (see page
10)!
Lots of reports on 1MDB you can read that on page 13.
The Nikkei reported Japan Post Bank plans to start buying
real estate investment trusts as soon as this fiscal year (page
15).
Nikkei on Sunday said Nomura Asset Management and Daiwa
Asset Management have finished developing their new ETFs,
which will incorporate stocks of companies that are willing
to raise wages, expand employment and boost capital
spending. BOJ in December decided to add the new-type ETF
purchase plan to its ETF-buying program, which operates at
an annual pace of Jpy3 trillion (page 17).
PBOC will reveal its March FX Reserves on Thursday.
Previously at $3.2 trillion, a break below the critical $2.8
trillion level would nevertheless set off market turbulence,
likely reigniting Yuan-selling (page 17).
In The Week Ahead, Avery Shenfeld wrote oil-shocked
Canada is outpacing the US economy by a wide margin. First
quarter growth in Canada should be near-3% annualized,
even if, as we expect, theres a deceleration in its final two
months. The Bank of Canada will be lifting its forecast for
2016 due to both upside data surprises and fiscal stimulus.
While we wont be as optimistic, Governor Poloz will have to
be looking at something close to 2% real GDP growth for
2016. Avery said there is no reason to begin hiking rates.
http://research.cibcwm.com/economic_public/download/a
pr01_16.pdf
A survey by Opinium puts the Leave side on 43%, four points

ahead of Remain, on 39%. Some 18% of voters said they were
These information have been obtained or derived from sources believed to be reliable, but I make no representation or warranty as to their accuracy or completeness.
Copyright 2013 The Poon Report by Vincent Poon. All rights reserved.
Greece The Never Ending Story
IMF weighing exit from Greek bailout
IMF predicts Greek default will coincide with

EU referendum, claims WikiLeaks
The International Monetary Fund is considering forcing

Germanys leadership to quickly grant wide-ranging debt
relief for Greece or allow the Fund to exit Athens bailout
programme after six years, according to a transcript of an
internal IMF teleconference published by WikiLeaks.
The teleconference, between the head of the IMFs European
operations and its top Greek bailout monitor, is the clearest
sign to date that the Fund wants to leave Greeces 86bn
rescue to the EU alone and wash its hands of a programme
that has led to a torrent of criticism.
During the call, which occurred just two weeks ago, Poul
Thomsen, head of the IMFs European bureau, notes that
Berlin is under intense political pressure because of the
refugee crisis and suggests confronting Angela Merkel, the
German chancellor, to either agree to debt relief or allow
the IMF to exit.
German officials have repeatedly said they could not
participate in Greeces bailout without the IMF on board,
and senior members of the Bundestag have warned Ms
Merkel they would reject new eurozone loans to Greece if
only EU authorities were monitoring the programme.
Look, you Ms Merkel, you face a question, you have to think
about what is more costly: to go ahead without the IMF?
Would the Bundestag say, The IMF is not on board? the
transcript quotes Mr Thomsen as saying to his staff. Or
[does Ms Merkel] pick the debt relief that we think that
Greece needs in order to keep us on board? Right? That is
really the issue.
The IMF said it would not comment on supposed reports of
internal discussions. But it noted that it has long pushed for
a credible set of reforms matched by debt relief from
[Greeces] European partners.
One official involved in the talks said the transcript
accurately reflected Mr Thomsens private and publicly
stated views, albeit in more direct and colourful language.
Many of the points raised by Mr Thomsen in the call have
been made publicly on his IMF blog.
Greek officials, however, reacted angrily to the
revelation, arguing it was evidence the IMF was
blackmailing Germany on the debt relief issue.
We will not allow anyone to play with fire and blackmail
Greece or Germany or Europe, said a senior Greek official.
Alexis Tsipras, the Greek prime minister, was meeting with
his cabinet on Saturday to decide how to respond and was
expected to talk to Christine Lagarde, the IMF managing
director, later in the day.
The IMF teleconference came just days after Wolfgang
Schuble, the powerful German finance minister, publicly
said he was opposed to Greek debt relief despite the fact
eurozone leaders agreed to restructuring last July at a highdrama EU summit that agreed to a third bailout programme.
The transcript shows IMF officials fretting that despite public
claims eurozone leaders want to move quickly to agree debt
relief which has long been an IMF demand, since Mr
Thomsen believes Greece cannot survive economically
without a large-scale restructuring a decision will probably
be delayed until July, when Greece is faced with its next big
debt payment.
What is going to bring it all to a decision point? In the past
there has been only one time when the decision has been
made and then that was when they were about to run out of
money seriously and to default, Mr Thomsen is quoted as
saying. And possibly this is what is going to happen again. In
that case, it drags on until July.
But Mr Thomsen notes that in addition to causing instability
in Greece, a drawn-out deliberation on debt relief is
Taken from the Independent Saturday, 2 April 2016
Whistle-blowers say meeting showed the IMF was planning to

tell Germany it will abandon the Troikla if there is no
agreement on Greek debt relief
The International Monetary Fund anticipates a possible
Greek default on its bailout will coincide with the UK's
referendum on Europe, according to a leaked transcript.
WikiLeaks said it had obtained details of a discussion last
month between the top two IMF officials in charge of
managing the Greek debt crisis - Poul Thomsen, the head
of the IMF's European Department, and Delia
Velkouleskou, the IMF mission chief for Greece.
The whistle-blowing organisation said the discussion showed
that the IMF was planning to tell Germany it will abandon
the Troika (composed of the IMF, European Commission
and the European Central Bank) if the IMF and the
Commission fail to reach an agreement on Greek debt
relief.
The IMF officials say that a threat of an imminent financial
catastrophe was needed to force other players into
accepting its measures such as cutting Greek pensions and
working conditions, but that the UK referendum on June 23
will paralyse European decision making at a critical moment,
according to the records.
The IMF officials said a threat of an imminent financial
catastrophe was needed to help reach a decision point,
convincing German chancellor Angela Merkel on debt relief
and Greece into accepting IMF measures against pensions
and working conditions, said the transcript.
The UK referendum was said to add a complication that
needed to be negotiated around - delaying a possible
moment of truth until after the June 23 Brexit vote.
Greek finance minister Euclid Tsakalotos has accused the IMF
of imposing draconian measures, including on pension
reform.
The transcript quotes Ms Velkouleskou as saying: What is
interesting though is that (Greece) did give in... they did
give a little bit on both the income tax reform and on the....
both on the tax credit and the supplementary pensions.
Mr Thomsen's view was that the Greeks are not even getting
close (to coming) around to accept our views.
Ms Velkouleskou argued that if (the Greek government) get
pressured enough, they would... But they don't have any
incentive and they know that the Commission is willing to
compromise, so that is the problem.
WikiLeaks said, in the meeting, Ms Velkouleskou revealed
that the IMF is strategising about whether it should release
its updated report on the crisis.
The details were released by WikiLeaks, whose founder
Julian Assange has been living inside the Ecuadorian Embassy
in London for over three years to avoid being extradited to
Sweden where he is wanted for questioning over a sex
allegation, which he denies.
He believes if he leaves the embassy he will be taken to the
United States to be quizzed over the activities of WikiLeaks.
(Full article click - Independent)
---
Taken from the Times Saturday, 2 April 2016
politically dangerous for the EU because it will coincide with

strife prompted by the refugee crisis and play out at the
same time as Britains June 23 referendum on EU
membership.
Clearly the Europeans are not going to have any discussion
a month before the Brexit [vote] and so, at some stage, they
will want to take a break and then want to start again after
the European referendum, Mr Thomsen says.
Olga Gerovasili, a Greek government spokesman, said the
statement showed Mr Thomsen was pushing for a Greek
default before the British referendum in June.
"The Greek government asks the IMF for explanations
whether pursuing the creation of bankruptcy conditions in
Greece, just before the British referendum, is the Fund's
official position, Ms Gerovasili said.
A spokeswoman for Ms Merkel declined to comment. Berlin is
likely to play down the reported remarks and avoid inflaming
the political tensions surrounding the Greek rescue. The
government is expected to remain very sceptical about deep
debt cuts for Athens: it has repeatedly argued that these do
not have to be on the immediate agenda as Greece has
already been granted debt relief for the next few years.
Berlin will however be keen for the IMF to stay involved in
the rescue, as the Bundestags support for the package
depends on continued IMF financial backing.
Ms Merkel is also concerned to avoid undermining support for
the EU in the UK in the run-up to the referendum. She has
said that British membership is not only in UKs interest but
also Germanys and the whole EUs.
Although much of the transcript reiterates well-known IMF
positions on Greece, it lays out in clear detail the profound
differences between Mr Thomsen and the European
Commission, and highlights the IMFs belief that Brussels no
longer has any credibility in judging Greeces fiscal and
economic performance. The IMF and the commission are the
bailouts two leading monitors and have clashed for months
over how to proceed with the programme.
Delia Velculescu, who oversees the Greek programme for the
IMF, is quoted showing frustration with the European
Commissions backsliding on reforms required by Athens and
says eurozone finance ministers should be forced to decide
whether to accept the IMFs pessimistic view of the bailouts
likelihood of success or a more optimistic view from
Brussels.
They need to take a stand on whether they believe our
projections or the commissions projections, Ms Velculescu
says.
Despite Greek anger over the disclosure, the transcript also
shows the IMF arguing on Greeces behalf, saying it wants to
ease off tough budget surplus targets and grant Athens
significant debt relief both policies Mr Tsipras has long
asked for.
I hope for the sake of the Greeks we are going to find a
solution soon, Mr Thomsen says.
(Full article click - FT)
---
Greece challenges
revelations
IMF
over
WikiLeaks
Taken from the Sunday Telegraph 3 April 2016
Greece has demanded "explanations" from the

International Monetary Fund after WikiLeaks made public
a transcript suggesting that the organisation was pushing
for a crisis or "event" to force the country into deciding on
new reforms.
On Saturday, the whistleblowing website published the
transcript of an internal IMF teleconference between the
head of the IMFs European operations and the executives
representing the IMF in the negotiations with Greece. In it,
the IMF states that an "event" was required to force the
debt-laden country to implement financial reforms.
The transcript does not specify what kind of "event" is
implied but suggests that the threat of default is
necessary to make Athens act decisively.
Prime Minister Alexis Tsipras reacted swiftly to the
allegations, demanding explanations from the chief of the
IMF. His office stated: "The Prime Minister will
immediately send an official letter to Christine Lagarde
over the issue."
"The Greek government is demanding explanations from the
IMF over whether seeking to create default conditions in
Greece, shortly ahead of the referendum in Britain, is the
fund's official position," added spokeswoman Olga
Gerovassili.
The IMF said it did not comment on "supposed reports of
internal discussions" but issued the following statement:
"We have stated clearly what we think is needed for a
durable solution to the economic challenges facing Greece one that puts Greece on a path of sustainable growth
supported by a credible set of reforms matched by debt
relief from its European partners."
The WikiLeaks transcript shows the IMF's growing
frustration at the lack of progress being made by Greece
on its reforms. Poul Thomsen, director of the Fund's
European Department, is quoted as saying: "In the past there
has been only one time when the decision has been made
and then that was when (the Greeks) were about to run out
of money seriously and to default."
Delia Velculescu, who oversees the Greek bailout for the IMF,
later says: "I agree that we need an event, but I don't know
what that will be."
"[Greek ministers] don't have any incentive and they know
that the (European) Commission is willing to compromise, so
that is the problem," she adds.
Chiefs from the European Union, IMF, European Central Bank
and European rescue fund are due to resume talks on
Monday.
(Full article click - Telegraph)
UK News
Tata only going through motions of UK steel
sale
Taken from the FT Saturday, 2 April 2016
The Indian steel giant Tata expects to shut its British

plants and is only going through the motions of a sale,
according to several people close to the top of the company.
The group has privately given up any hope that a white
knight will emerge to save the jobs of 15,000 steel
workers and could mothball plants in as little as six weeks.
Tata has been trying to sell this for the last 18 months and
they simply cannot find a buyer, said one person familiar
with the companys internal plans. They are now going to
shut it down.
They have to go through the motions, said a second
person. But if they have not found a buyer by the next
board meeting at the end of April they will close it and they
are not expecting anyone to come forward now.
He said it would then take two weeks after the board
meeting for the plants to be shut down. This period could be
extended depending on government support.
The companys efforts to date to sell the British business
have not included formally appointing advisers. A person
close to the company said it would appoint bankers in the
next few days to run a formal process but that it would be
tough at this stage.
The company might consider keeping some of its specialty
steel plants after it closes the bulk of its UK operations.
Government officials continued to insist publicly on Friday
that Tata would carry out a full competitive sales process.
Speaking in Port Talbot, business secretary Sajid Javid said
the government was poised to appoint its own financial
advisers. I want to make sure that we gain the fullest
information and were able to engage with any potential
buyer at all levels, he said.
But privately, one senior government figure said there were
growing fears that Tata would rather close the business,
which it has already written off, rather than let it become a
competitor to its highly efficient Dutch plant.
A third person close to Tata confirmed that the company is
now exploring a combination of its Dutch plant with the
German firm ThyssenKrupp.
Earlier, analysts at Jefferies had speculated that Tatas exit
from its UK businesses would help free up IJmuiden for a
deal with ThyssenKrupp.
A combination should bring strong industrial benefits with
potential capacity closures/cost-cutting and improved
pricing power as a leading number two player in the broader
EU steel market, said a note from Jefferies.
One of the people close to Tata said that the UK business
might have been sellable if the Dutch plant was for sale as
well. But no one wants the UK business on its own.
One significant obstacle to a sale is the onerous pension
liability of the 15bn former British Steel pension fund,
which covers 130,000 current and former steelworkers. Tata
has committed to putting 125m into the fund over the next
two years and the deficit was 485m in March.
But the company has not said what will happen to the fund if
it closes the UK plants and pensioners could lose up to a
quarter of their entitlement.
Even if the British plants are put into administration, Tata
may not be able to walk away from their enormous
environmental liabilities. Cleaning up the sprawling Port
Talbot site alone could cost more than 1bn, according to an
industry expert.
A person close to the company said the liabilities were

carried by Tata Steel Europe, rather than by Tata Steel UK.
A member of the Welsh government also said he had known
since Christmas that Tata had little intention of keeping its
UK steel business going and was planning to shut it.
---
Tata in talks over German buy-out after quitting

Britain
Taken from the Telegraph Saturday, 2 April 2016
Tata is in talks to buy the steel assets of one of Germanys

largest producers after quitting its operations in the UK.
The Indian steel giant has entered discussions to merge its
steel business with ThyssenKrupp, to create one of
Europes biggest industrial companies, according to reports
in Germanys Rheinische Post.
ThyssenKrupps share price soared by as much as 8.3pc on
the news.
Talks between the two companies have been ongoing for
nearly a year, according to Reuters. Any joint company would
become the continents second largest steel producer after
ArcelorMittal.
Analysts speculated that Tatas possible entry into the
German market was linked to its decision to sell its UK
assets, which were bleeding the company nearly 1
million a day.
Tatas planned exit from the UK was a prerequisite to any
potential deal with Thyssenkrupp said Credit Suisse.
This scenario in turn could lead to the creation of a 20
million tons high quality steel producer in Europe, and the
eventual exit of steel for Thyssenkrupp, said the Swiss
bank.
Tatas only existing European steel production outside of the
UK is in the Netherlands, which remains profitable despite a
collapse in global prices caused by huge overproduction
emanating from China.
Tata's decision to sell off its British business has sent
shockwaves through UK industry, threatening up to 44,000
jobs.
News of a possible merger with ThyssenKrupp came as Sajid
Javid, business secretary, visited the Port Talbot plant in
South Wales, Britains biggest steelworks which employs
4,000 people.
Mr Javid, who was forced back from holiday in Australia to
address the crisis, said there would "most certainly be
willing buyers for Port Talbot, having ruled out the prospect
of a government nationalisation of the steel industry.
I cant name people who are expressing interest, for
commercial reasons he said.
But the process is just beginning. And the unions will be
fully involved. We have worked really hard with Tata for a
long time, making sure we can find a new buyer.
The Government has also not ruled out paying the wages of
Port Talbot's workers as it seeks a potential buyer, he said.
Mr Javid added that he expected Tata to behave
"responsibly" during the process to offload its operations.
"Finding a buyer is not a straightforward process because any
potential buyer wants to do due diligence and from the UK
government perspective, we realise that a potential buyer
may require the help of the UK government."
The global steel industry is now poised for a wave of
consolidation as major producers seek to cut costs and slim
down their operations in the face of a massive supply glut.
A potential consolidation between the two companies
European steel assets ... would give the combined entity
more pricing power and better market coverage, said
Alessandro Abate at Berenberg.
Commerzbank said a merger would save both Tata and

ThyssenKrupp 300m a year in efficiency costs.
A spokeswoman for Tata refused to comment on the reports
---
Fury as China puts up price of UK steel

Fresh blow to hopes of saving Port Talbot jobs

David Cameron was strongly criticised over his handling of
trade with China last night after it emerged that Beijing
will apply huge tariffs on steel produced by a Welsh plant
threatened with closure.
The move represents a humiliation for the government,
coming after a week in which it has been roundly attacked
for blocking efforts by the European Union to stop China
flooding the market with cheap steel. The prime minister
confronted President Xi Jinping over the issue during a
summit in Washington yesterday.
MPs accused the government of being more concerned
with gaining favour with China than tackling the crisis in
the British steel industry. The leading steel union said that
its approach resembled an April Fool joke.
Ministers appeared to be caught out by Chinas
announcement that it was imposing new tariffs of 46 per
cent on some steel products produced in Japan, South Korea
and the European Union.
Union sources confirmed that one of the products covered is
produced in Newport by Tata Steels subsidiary, Cogent,
which employs hundreds of workers. The revelation led to an
immediate outcry.
Stephen Kinnock, the Labour MP for Aberavon who has
been holding talks with Tata, said that it was shocking to
discover that China is imposing anti-dumping tariffs on
British and Welsh products.
He added: Given that the massive dumping of Chinese steel
has been crippling the British steel industry for the last five
years, it beggars belief that we can allow this to happen.
The government must now pick up the phone to Beijing and
resolve this issue.
Mr Cameron said last night: Its a very difficult situation,
and people who pretend theres some simple answer in a
world of massive overproduction and collapsing prices are
not playing straight with you.
Ministers have been scrambling to deal with the fallout from
Tatas announcement that it was putting its British steel
operations up for sale, putting up to 40,000 jobs at risk. The
company has accused the government of sleepwalking into
the steel crisis by helping China to block attempts to
increase tarrifs on its steel.
The EU imposes tariffs of 9 per cent on Chinese cold rolled
steel. Tariffs increase the price of an imported product,
helping to protect domestic manufacturers.
In a further blow, it came to light that Tata was considering
a merger with a German engineering conglomerate,
Thyssenkrupp.
Sajid Javid, the business secretary, flew home early from a
trip to Australia yesterday to meet unions and face workers
at the companys biggest plant, in Port Talbot, which
employs 4,000 workers. He fuelled hopes of a rescue
package after signalling that there would be expressions of
interest in buying the plant.
Mr Javid also told workers that the plant remained
absolutely vital to British industry and again ruled out its
temporary nationalisation.
He denied that Britain had prevented the EU raising tariffs
on China for dumping steel on the market. However,
European officials are privately critical of Britain over its
reluctance to back a plan that would have allowed more

action to be taken.
Sarah Champion, Labour MP for Rotherham, where 490
steelworkers were made redundant in December and
hundreds more face redundancy, said: The UK has been
refusing to put any sort of tariffs on Chinas steel, but China
is still putting tariffs on UK steel. The government is not
standing up for the people its supposed to be supporting.
Chris Bryant, Labour MP for the Rhondda, said: It feels to
me that [George] Osborne and Cameron have sold their souls
to the Chinese for a mess of pottage.
The government attempted to mount a fightback yesterday.
It published a plan, first announced in the autumn
statement, to give the steel industry help with energy costs.
An exemption for energy intensive industries from renewable
electricity costs could save the steel industry more than
400 million by the end of the decade.
Roy Rickhuss, general secretary of the steelworkers union
Community, called for an end to false claims from ministers
that they have done all they can for the UK steel industry.
(Full article click - Times)
---
Banks set to desert City for Europe under

Brexit
Jobs at risk as international lenders plan to relocate

International banks have warned the Bank of England that
they may relocate significant parts of their UK operations
to elsewhere in Europe if Britain were to vote to leave the
European Union.
Wall Street banks, as well as continental and Japanese
investment banks, have sent reports to the Bank setting
out how they would respond if Britain left the EU.
It is understood that the banks have outlined to officials
their contingency plans that, in some cases, would see them
relocate some of their business activities to other EU
countries where they already have established operations.
It looks really bad for the UK. This exercise is about
showing how European business is structured and where we
could move should Brexit occur, a London-based senior
financial executive at a big international bank, said.
Many of the large investment banks run their European,
Middle East and African businesses from London, but most
also operate subsidiaries in other EU states, including
France, Germany and the Republic of Ireland.
Deutsche Bank, for example, runs its investment bank from
London but maintains substantial operations in Frankfurt.
Credit Suisse is one of the Citys biggest employers, but has
been hiring more staff in Ireland.
In the event of Brexit, some firms are understood to have
told the Bank that they could shift assets and where they
book trades, potentially setting a trend for further City
job losses.
The contingency plans submitted to the Bank are believed to
contain a detailed breakdown of just how this might happen,
as well as general comments on the wider impact of Brexit.
Any new job cuts would be bad news for the City, which has
been hit already by a recent wave of redundancies. Credit
Suisse, Deutsche Bank and Standard Chartered are among
the banks to have begun laying off thousands of staff and
more redundancies are expected as lenders look to automate
jobs or move more staff to cheaper locations either in the
UK or abroad, to countries such as Poland and India.
The Bank has said little about Brexit and it was embarrassed
when a memo about its confidential planning team was
accidentally leaked last year. Mark Carney, the Banks
governor, was criticised by Jacob Rees-Mogg, a Conservative
MP, last month for saying that Brexit was the biggest risk to
the economy. The Banks financial policy committee said

that the risks around the EU referendum were the most
significant near-term domestic risks to financial stability.
Analysts at Bank of America Merrill Lynch said yesterday that
there were signs of a buyers strike and pointed to the
record current account deficit as a potential weakness
should overseas investors begin shunning UK.
The emerging funding stresses on the financial account
supports our view for renewed sterling weakness as we
approach the EU referendum. We think the environment is
likely to remain challenging until political uncertainty has
been lifted, analysts said in a note to clients.
The Bank declined to comment.
Foreign investors increasingly concerned about the
possibility of Britain voting to leave the European Union
dumped 3 billion-worth of UK government bonds in
February, taking the total gilt sell-off since the start of the
year to more than 9 billion, according to figures from the
Bank of England.
---
Tata in talks to dump 15bn steel pensions

Taken from the Sunday Times 3 April 2016
Indian giant seeks to tip 130,000-member scheme into statebacked lifeboat

Tens of thousands of steelworkers could have their
pensions slashed under plans by Tata to wash its hands of
the 15bn British Steel retirement scheme.
The Indian conglomerate is understood to be in negotiations
with the government and the Pensions Regulator over
putting the scheme, which has about 130,000 active and
retired members, into the Pension Protection Fund (PPF),
which would mean workers suffer cuts to their retirement
savings of as much as 20%.
Last week Tata said the UKs largest steelworks, at Port
Talbot in South Wales, was no longer viable and put its entire
British steel operation up for sale, leaving 15,000 jobs
hanging in the balance.
Sources close to the company said it does not plan to
continue supporting the pension fund once it has quit UK
steel. There is no possibility whatsoever [it will retain
the pension scheme], said one source. Legally it can do
it. The scheme is one of Britains biggest a throwback to
when the industry employed hundreds of thousands of
workers. It has a deficit of 485m, but with assets of almost
14bn, it is in fairly healthy shape.
Amid the pension talks, Sanjeev Gupta, the steel tycoon, has
made an alternative proposal to replace Port Talbots blast
furnaces with more efficient electric arc furnaces. The plan
from his company Liberty House, which recently bought
assets from Tata and the failed Caparo Industries, is seen as
a longshot that would require vast government support.
Tata bought the Anglo-Dutch steelmaker Corus in 2007 in an
ill-fated 6.7bn deal. It believes it has a strong case for
disposing of the pension scheme after propping up the lossmaking British operations for years. It has pumped in 1.5bn
and written down the value to zero.
It is working with PwC on the pension plan. While Tata could
put its British arm into administration to shed the liabilities,
it is unwilling to do so because of the huge risk to its
reputation.
Instead, it is likely to offload the scheme through a
compromise deal with the Pensions Regulator. That would
entail it pumping in hundreds of millions of pounds to partly
plug the schemes estimated 2bn buyout deficit the cost
of transferring it to an insurer.
The Community union, which represents steelworkers, said:
Our members would be extremely concerned for their
pensions. Tata needs to be a responsible seller of its business

and honour its moral and social duties . . . That includes its
obligations to the thousands of members of the pension
scheme.
The PPF generally pays full pensions to those who have
retired but reduces payouts by 10% for those who retired
early or are still in work of which there are more than
40,000 in the steel scheme. Independent pensions consultant
John Ralfe said: It seems certain that the scheme will enter
the PPF. Although [it] is much better funded than most
schemes, even a small percentage loss would be a huge hit
to the PPF because of its sheer size.
After a week of dithering, the government is desperate to
prevent the steel industry imploding before the June Brexit
vote. It is likely to announce a temporary bailout possibly
this week that would allow the steelworks to remain open
for several months. But any plan will fall short of
nationalisation.
Tata is close to appointing an adviser to sell Port Talbot,
although there are few buyers for the site. It may combine
its Dutch steelworks with Germanys Thyssenkrupp but
only once British steel has been cut loose. It remains in talks
to sell its Scunthorpe steelworks.
Tata declined to comment on the pension talks. We speak
to a wide variety of stakeholders daily about a range of
issues, it said.
The Pensions Regulator said: We are aware of the situation,
and in relation to the pension scheme, we are ready to work
with the trustee and employer.
The Department for Business said: The steel industry is vital
to the UK. That is why we continue to work closely with the
industry to help deliver a long-term sustainable future.
---
Bank of England to hold rates for three more

years
Fears over global growth and the EU vote prompt investors

to ditch bets on rise this year
Investors are betting that the Bank of England will keep
interest rates at historic lows for a further three years, as
slowing global growth and the uncertainty of the EU
referendum cast a shadow over the economy.
Some are even wagering that the next move will be a cut,
a dramatic turnaround from December when traders were
banking on a rise by November this year.
Market predictions on borrowing costs can be calculated
from the overnight deposit rates that banks are charged to
park their cash. These show a small chance of a rate cut
during the next couple of years and that there will not be a
rise until the middle of 2019.
The Bank has kept its benchmark interest rate at a record
low of 0.5% since March 2009. But despite solid economic
growth and steadily falling unemployment, inflation remains
far below the Banks 2% target, clocking in at just 0.3% in
February, according to the most recent figures.
A market slump early this year, sparked by fears that
Chinas economic growth is slowing rapidly, has dampened
expectations that inflation will pick up any time soon.
Bank governor Mark Carney last week warned that a
victory for the leave campaign in the referendum could
hurt the economy a signal he is in no hurry to lift rates.
The EU referendum is just another reason to be cautious,
said Simon Derrick, chief currency analyst at BNY Mellon.
Weve already had more than half a decade of low rates. I
wouldnt be surprised if we stayed where we are for the
next few years.
Carney said in February that the Bank could push rates down
to zero to deal with a downturn in the economy, but
wouldnt follow the likes of the eurozone, Japan and
Switzerland in having negative interest rates.
Treasury watchdog the Office for Budgetary Responsibility
said last month that its latest growth forecasts assumed
rates would dip below 0.5% in the next two years. The pound
has fallen sharply this year as the prospect of higher rates
faded into the distance. Sterling traded at $1.42 on Friday,
down from above $1.50 as recently as December.
But some economists predict that a weaker currency, which
makes British exports more competitive, and a recent
rebound in commodity prices could mean inflation rises
sooner than investors expect.
Michael Saunders, UK economist at Citigroup, said the
domestic economy remains resilient to the global slowdown,
and investors have gone too far in betting that rates will stay
on hold.
The period in which inflation is super low is coming to an
end. I think theres a decent chance they will hike rates next
year, he said.
---
Ta-ta, Tata, as another Indian tycoon prepares

to step into the breach
The most obvious saviour would be one of the so-called

turnaround funds that specialise in rescuing troubled
companies, but even these seem reluctant to take on a
challenge of this scale. However, that does not mean there is
no hope for the future of steelmaking in South Wales or at
Tatas other plants that are dotted around Britain.
As we report, one man, Sanjeev Gupta of Liberty House, is
in the early stages of drawing up a plan to save the bulk of
the Indian giants operations, including Port Talbot.
It is highly ambitious and will rely on significant financial
support from the Government and Tata, but Gupta is a man
who should be taken seriously for several reasons.
First, he is an experienced industrialist who is quickly
establishing a proper record of turning round moribund steel
operations. He is also one of the very few investors with an
appetite for taking on steel assets at a time when the
industry is mired in its greatest ever crisis.
While the likes of SSI, Tata and Caparo have all been hit hard
by competition from China, Liberty has seemingly prospered.
Last year, with the crisis at its peak, Guptas company fired
up a hot strip mill in Newport, south Wales, which had sat
idle for two years.
In the following months, Liberty snapped up Caparos tube
business and advanced engineering arm, safeguarding
close to 1,000 jobs. Then, a fortnight ago, it capped a
remarkable spree with the purchase of Tatas mothballed
Clydebridge and Dalzell steel mills in Lanarkshire.
Guptas plan is simple but compelling. He believes the UKs
ailing steelworks can survive by installing furnaces that
recycle scrap steel, rather than producing it from raw
materials. He points to the 7m tonnes of scrap steel the UK
exports to back up his vision.
Gupta has already publicly expressed an interest in picking
up some of Tatas so-called downstream assets, but the
revelation that he has begun talks about the possibility of
salvaging Port Talbot is huge news.
He believes the plants costly traditional blast furnaces
could be replaced with electric arc furnaces, which use
recycled scrap to make steel.
It is hugely ambitious and he says it cannot be done without
the backing of both Tata and the Government. Gupta may be
mistaken in his vision of a future where UK steelmakers can
prosper. However, Westminster should take his proposal

seriously.
Right now, it may be the best chance there is of ensuring
centuries of British steelmaking heritage is not lost forever.
---
Liam Halligan
A Brexit vote may be the only way to get real
EU reform
Over six weeks have passed since David Cameron confirmed

the date of the UKs historic referendum on European Union
membership and its now less than 12 weeks until June 23.
As a card-carrying economics nerd and news junkie, I follow
the increasingly febrile debate on British EU membership
very closely. Doing so involves countless conversations with
politicians, business leaders and strategists about the
referendum and the aftermath of a potential Brexit vote.
While political insiders obsessively trade the pros and cons
of the EU, most voters currently feel, if anything, frustrated
and confused by a discussion long on arguments and insults
but short on facts.
So, heres a column making a series of points about the
upcoming referendum which, while vital to understanding
whats happening in my view, are rarely stressed in print.
Firstly, no one knows what will happen. The opinion polls
are clearly very close. While some surveys suggest Remain
is ahead and others tip Leave, almost all polls put less
than five percentage points between the two camps with
around a third of voters undecided.
Thats why the debate is already so vicious, as it could easily
go either way.
And unlike a general election, decided in a few dozen
marginal constituencies, every vote is of equal significance
in a referendum. And every vote could count.
The second point is that while much public debate on EU
membership uses remote economic concepts such as trade
rules and customs unions, voters will be swung far more by
what actually happens in Europe over the next 12 weeks.
Politicians and pundits swap predictions about the EU being
good or bad for jobs and house prices, but such arguments
are largely lost on voters not because they dont care
about such matters (they care very much) but because the
rhetorical exchanges cancel each other out. The public
anyway (rightly) concludes that most economic predictions
(whoever makes them) are self-serving. Europes migrant
crisis, in contrast, is tangible and in front of our faces.
As refugees and economic migrants have streamed into
Europe from North Africa and the Middle East, millions of
British voters have become alarmed. Record UK annual net
immigration 323,000 on the latest figures, over three
times David Camerons 2011 no ifs no buts pledge has
already been met with record levels of immigration-related
public concern.
And if, in the run-up to June 23, our TV screens show more
pictures of families desperately crossing the Mediterranean,
and bursting out of squalid camps, that will encourage
millions of wavering UK voters to leave the EU. Immigration
will play a pivotal role in the referendum, then, especially if
June brings calm weather to the Med, encouraging more
migrant crossings. Its naive to think it wont.
The linking of Europes open borders to terrorist atrocities in
Paris and Brussels, rightly or wrongly, has also brought the
EUs free movement of people into sharp focus, and not
just in the UK. Several member states, inundated with
migrants and trying to suppress public outrage, have
temporarily
suspended
the
Schengen
open-border
agreement, which is among the EUs most cherished

principles.
Then theres the single currency. Were often told the
eurozone crisis, which brought turmoil to global markets
during the summers of 2011 and 2012, is over.
Thats not true.
The euro remains an economic powder keg.
In the absence of a significant deepening of political union,
including the pooling of a sizeable share of government
spending across member states, it will ultimately break up.
This notion, a heresy when some of us ventured it as the
euro was launched in the late 1990s, is now widely
accepted. Could there be another eurozone crisis this
summer?
If there were, the resulting financial turmoil and endless
emergency EU summitry could easily influence UK voters.
Another bout of euro-induced financial contagion would
associate the EU with economic incompetence in voters
minds, while reminding them once more of the grotesque
extent to which the reach of the European project
overextends its grasp.
If the eurozone crisis is solved, why has the European
Central Bank just jacked-up its programme of quantitative
easing, already over a year old, from 60bn to 80bn a
month?
Why are several of the regions sovereign bond markets
propped up by printed money and the endless promise of yet
more printed money aka ECB supremo Mario Draghis
whatever it takes pledge?
Any kind of continental bond-market meltdown between now
and the UKs EU vote would be a disaster for the European
project.
I see few reasons why some traders wont want to test that
resolve over the coming months.
Back in 1975, the UK economy was the sick man of
Europe. That helps explain why voters strongly backed our
continued European Community membership by a factor of
two-to-one. This time its different.
Although Britain has economic problems, were growing
faster and creating far more jobs than our EU counterparts.
The eurozone economy, meanwhile, is flying on one engine
and fighting for altitude according to a report last week
from Standard and Poors. The ratings agency points to the
impact on the euro of recent hints Americas Federal
Reserve wont be raising rates any time soon, causing the
dollar to fall and making eurozone exports less
competitive.
On top of that, a new official EU survey puts economic
confidence across the region at a 13-month low and that
was based on research conducted before the latest terrorist
atrocities.
Despite the relative strength of the UK economy, we simply
dont know what happens if Leave prevails. Thats because,
having voted for Brexit, the UK then enters an Article 50
negotiation named after the relevant EU Treaty clause.
During these discussions, which could last up to two
years, all existing laws and agreements between the UK
and EU would still apply. So nothing would immediately
change if we vote Leave putting paid to some of the
more disingenuous scare stories telling of postreferendum chaos.
The Remain camp insists, though, that the UK would be in a
weak position during an Article 50 negotiation. Why should
France or Germany do us any favours if weve opted to
leave? is the common refrain. To me, this argument makes
no sense.
On the latest figures, we buy 60bn a year more in goods
and services from EU nations than we sell them, adding to
our large trade deficit. Powerful French and German

carmakers, along with Italian furniture manufacturers, would
exert considerable political muscle to ensure free trade
continues between the EU and a non-EU UK.
Consider, also, that if the UK chooses Brexit, voters in
other EU nations not least Finland, Sweden and Holland
could easily demand their own membership referenda.
Such votes could take place during the UKs Article 50
discussion.
My strong suspicion is that the EU would cave in to all
manner of UK demands, in a bid to convince Britain to vote
again to stay in and to prevent the broader EU project, as
discontent spreads, from unravelling completely. Which
brings us to another hot topic that barely gets any airplay
there could be two referenda.
The Government doesnt want this idea gaining traction as
that would remove the fear factor of voting Leave. But I
genuinely believe, as do many other close observers, that
if we do vote to quit, the subsequent Article 50
negotiation will be so significant the UK will end up voting
again on whether or not to accept it.
I believe in a EU but not this EU so am voting leave. But I
also hope a Brexit vote sends shockwaves across Europe,
finally sparking meaningful EU reform.
---
EU referendum: poll shows young voters could

hold key in June vote
Taken from the Sunday Observer 3 April 2016
Leave campaign four points ahead in survey that shows just

half of 18-34s are certain to cast their vote on 23 June
The decision over whether the UK remains inside the
European Union could depend on whether young people
shake off their apathy and vote in sufficient numbers on
23 June, a revealing opinion poll conducted for the
Observer shows.
In a blow to David Cameron and the pro-EU camp, the online
survey by Opinium puts the Leave side on 43%, four points
ahead of Remain, on 39%. Some 18% of voters said they
were undecided, while 1% refused to say.
While most of the dont knows said, when pushed, that
they were leaning towards Remain, offering hope to the proEU side, the survey will serve as a wake-up call to leaders of
all four main Westminster parties, who are urging people to
back their calls for continued membership.
Above all, it will be deeply worrying for Cameron, who will
almost certainly have to resign as prime minister in the
event of a vote to leave. But it also adds to pressure on
Labour leader Jeremy Corbyn. Only 47% of those asked said
they identified him as being in favour of remaining in the
EU, while 40% said they did not know his view and 12%
believed he wanted to leave. Some 78% knew that Cameron
wanted to remain in.
Government strategists and pollsters privately admit that
the central problem for the Remain side is that its support
for staying in the EU is strongest among young people, the
group least likely to vote. Opinium found that in the 18-34
age group, 53% said they backed staying in, against 29%
who wanted to leave. But only just over half (52%) in this
age group said they were certain to actually go out and
vote.
Among voters in the 55-and-over category, support for
leaving was far stronger, as was their certainty to vote,
offering a huge advantage to the Leave side.
Some 54% of voters aged 55 and over said they wanted to
leave against 30% who wanted the UK to remain in the EU.
But in stark contrast to younger voters, 81% of this group
were certain to vote.
Adam Drummond of Opinium said the results showed the

coalition of support for Remain looked far less solid than
that for Leave: This shows how important turnout levels are
going to be, particularly given the disparity between how
likely the young and the old are to vote. Young people are
much more pro-EU but much less likely to bother voting,
meaning that a key element of Remains coalition is looking
flaky.
The Remain camp is aware of the need to mobilise young
people behind the campaign. Last week, in a sign of growing
concern, education secretary Nicky Morgan made a speech
saying it would be young people who would suffer most if
the UK left the EU.
Her message was aimed not only at mobilising young people
to vote but also at focusing parents and grandparents on the
danger of Brexit to the next generation. Its clear that if
Britain leaves Europe, it will be young people who suffer the
most, left in limbo while we struggle to find and then
negotiate an alternative model, she said. If parents and
grandparents vote to leave, theyll be voting to gamble with
their children and grandchildrens future.
But the findings will add to concern that Britain could head
out of the EU because the youngest voters fail to turn up.
Today the Electoral Reform Society warns of a worrying
generation gap as it publishes details of a survey showing
that 21% of 18- to 24-year-olds say they are very interested
in the EU referendum, compared with 47% of those over 65.
Katie Ghose, its chief executive, said: It seems like young
people havent been engaged in a debate which has so far
focused on personalities rather than the real issues which
affect them. Not only do young people feel less interested,
but they are, as we know, far less likely to vote.
We know this is likely to be a once-in-a-lifetime vote for
most people the last referendum was in 1975 so its all
the more important that young people, who will be most
affected by this decision in years to come, turn out. This will
take effort just 43% of 18- to 24-year-olds voted in last
years general election but it is vital.
A spokesman for Britain Stronger in Europe said it was
working extremely hard with young people and had
established groups in more than 50 universities which were
backing the cause. But he admitted that it was a challenge:
Young people have the most at stake in this referendum. It
is their futures that are on the ballot paper. We will leave no
stone unturned in our bid to get young people out to vote.
(Full article click - Observer)
News Americas
Crude Oil Prices Sink as Saudis Balk at
Production Curbs
Taken from the WSJ Saturday, 2 April 2016
Doubts about the deal to curb output had already halted an

oil price rebound
U.S. oil prices tumbled to their worst losses in a month
Friday, bringing a six-week winning streak to an end on signs
that the worlds biggest exporters may fail to complete a
deal to cap their output.
Saudi Arabias deputy crown prince, Mohammed bin
Salman, said in an interview with Bloomberg that the
kingdom will freeze its oil output only if Iran and other
major producers agree to curb theirs. That makes a
tentative deal between Saudi Arabia, Russia and others
look much less likely, weakening one of the major sources
of support for a rally that had pushed oil prices up 50% in
about a month, brokers and analysts said.
U.S. prices are now off more than 11% since they settled at a
four-month high on March 22, and global prices are down
more than 7% from then. Between March 22 and 29, money
managers started to dive back into bearish bets and get out
of bullish bets, the first time they have trimmed their netbullish position on U.S. oil since early February, according to
data released late Friday by the Commodity Futures Trading
Commission.
Those same money managers had helped push oil in February
and March to rally at a faster pace than any stretch since its
recovery from the financial crisis. But analysts and traders
repeatedly warned that a deal between the worlds biggest
producers was just speculation, and that the oversupply that
had crashed the oil market for two years had not abated. For
many, this weeks events reinforced those warnings, undoing
the rally.
U.S. stockpiles rose again and stocks are near record highs
around the world. Yet the biggest producers, Saudi Arabia,
Russia and the U.S. are all still pumping at a near-record
pace. The Iranians havent embraced talk of cooperating on
cuts, sticking to plans of increasing production by 1 million
barrels a day by years end. On Tuesday, Kuwaits oil minister
talked about restarting an idled oil field. And the Saudi
crown prices comments Friday are more evidence Saudi
Arabia and its allies wont cap output without Iran.
It is shocking. I thought that they had softened their tone
somewhat and were willing to work out some sort of deal,
said Bob Yawger, director of the futures division at Mizuho
Securities USA Inc. The crown prince threw cold water on
that assumption.
Light, sweet crude for May delivery settled down $1.55, or
4%, at $36.79 a barrel on the New York Mercantile Exchange.
Brent, the global benchmark, fell $1.66, or 4.1%, to $38.67 a
barrel on ICE Futures Europe. Both lost around 6% for the
week, their worst weekly performances in more than a
month.
Saudi Arabia and Russia announced in February a tentative
deal to freeze output at current levels, but it was
conditional. The Organization of the Petroleum Exporting
Countries and non-OPEC producers had a meeting planned
for April 17, with some anticipating it could lead to a deal
being signed. Instead, the latest news could mean the
meeting gets postponed, and the deal could fall through like
similar attempts during past oil crises, said Dominick
Chirichella, analyst at the Energy Management Institute.
It looks like the freeze deal may be starting to fall apart,
he said.
After selling off in early trading, oil prices largely stabilized

through the rest of the day, holding to losses of more than
3% even during brief rebounds. Traders largely ignored new
data about the economy and cutbacks in U.S. oil drilling that
may have helped prices go higher on other days.
Nonfarm U.S. payrolls rose by a seasonally adjusted 215,000
in March, the Labor Department said Friday. More jobs often
mean more drivers and demand for gasoline.
The weekly count of working oil rigs from Baker Hughes Inc.
also showed that numbers fell by 10 to 362 last week. That is
just more than a fifth of its high from less than two years
ago.
Oil producers had, however, taken advantage of the recent
surge in prices to sell long-term production, raising questions
about whether those cutbacks will continue, said Tariq Zahir,
who oversees $6 million as managing member of Tyche
Capital Advisors LLC. Irans plan to ramp up production now
that economic sanctions have ended also undermines any
rallies, Mr. Zahir added.
Whatever production declines we do expect to happen, its
going to be picked up by Iran, he said.
Many were skeptical about the impact of a deal even if it did
get completed. Both Russia and Saudi Arabia have hit recordhigh production in the past year and stockpiles around the
world are holding near record levels, too. Merely holding
output at those elevated levels wouldn't likely shrink the
oversupply, essential for prices to rebound, many analysts
have said.
Hopes have been running high about the potential bullish
impact of [the deal] but it is hard to see how sticking to the
January output level would be supportive for oil prices,
said Tamas Varga of oil brokerage PVM. Maintaining this
level is a tall order in itself as Iran will almost surely not be
part of any agreementThere will be no rebalancing this
year.
In refined-product markets, gasoline futures fell 3.1% to
$1.4016 a gallon, while diesel futures fell 4.5% to $1.1317 a
gallon.
(Full article click - WSJ)
---
The World Still Loves the Dollar

The U.S. dollar continued to be the worlds favorite reserve

currency in 2015, while the euros share of reserves fell to
its lowest level since 2002.
The data, known as Cofer for Currency Composition of
Official Foreign Exchange Reserves, is released on the last
business day of every quarter with a three-month lag.
The dollars status as the most-held reserve currency has
been the subject of much debate. When the euro was
introduced, some predicted it could someday challenge the
greenbacks status as the worlds top reserve currency. After
its share of reserves peaked at almost 28% in 2009, the
euros use as a reserve currency has dropped off in recent
years.
In the fourth quarter, the euro made up 19.9% of reserve
currencies reported to the IMF, its lowest share since
2002.
Even when taking into account the decline in the euros
value versus the dollar in the fourth quarter, Scotiabank
analysts said the data suggests investors sold eurodenominated reserves in the quarter. Central banks have
been trimming their share of the euro in recent years as the
European Central Bank ventured into negative interest rates.
Sterling, meanwhile, made up 4.9% of reserves at the end of
the year, up from 4.7% in the third quarter and a new high
for the currency.
---
Irwin Stelzer
An American Account: Yellen is right to fear
raising rates, yet she must do it
I must do it. But I fear to do it. Upon my soul I do.

So said Alec Guinnesss Prince Faisal to Peter OTooles
Lawrence in Lawrence of Arabia when faced with demands
to place his Bedouin fighters under British command. And so
spoke Federal Reserve chairwoman Janet Yellen to the
Economic Club of New York when faced with the prospect
of raising interest rates a full point in four steps this year,
as she had quasi-promised a forecast, not a plan set in
stone. She is right on both counts: she must end the
distorting effect of near-zero interest rates, and it is
reasonable to fear to do it.
Yellen finds herself a dove increasingly faced with the need
to don the feathers and attitude of a hawk. She flirted with
such a metamorphosis in December, when the Feds
monetary policy committee raised rates by 0.25% and
indicated it would institute similar increases three more
times this year, a programme now evolved into wait-andsee.
Consider how often she and colleagues have come to the
brink of a systematic increase in interest rates, only to
recoil. She was waiting for the unemployment rate to drop
to 6%: according to Fridays jobs report, it is now 5%. Then
for the so-called U-6 rate (which includes workers too
discouraged to job-hunt and unable to find full-time work)
to drop, which it has to the lowest level since 2014. Then
she was waiting for the labour force participation rate to
increase: it has. Then serial interest-rate increases would
have to wait for inflation to turn up. It has. Then she moved
the goalposts again, waiting for wages to turn up: they
have, with average hourly earnings up 2.3% in the past year.
The 215,000 jobs created in March push average job creation
in the past 12 months above 200,000, which, as we say in
New York, aint chopped liver. Yet she still fears to do it.
For three basic reasons. First, the pace of global
growth, and especially Chinas economic woes, are roiling
financial markets, raising risk, creating the possibility that
investors will demand higher returns, causing financial
conditions to tighten. That would likely slow US economic
activity. Second, there is a hard-to-explain dichotomy
between the cheering jobs data and the failure of the
economy to break out of an unimpressive 1% growth rate.
More jobs, not much more output, means productivity
what workers produce in an hour is declining. Unless, as
some experts argue, the figures fail to capture the value of
the output of an economy that now relies more on the
creation of apps than on the rolling of countable tons of
steel. If productivity is to rise, businesses will have to invest
in the capital that workers need to be efficient. But
corporate boards arent likely to come up with the cash
soon: such investment fell in February.
Thomson Reuters I/B/E/S forecasts that by the time earnings
season ends it opens the week of April 11 first-quarter
earnings of S&P 500 companies will be shown to have
dropped almost 7% on last year (almost 2% if we exclude the
tanking energy sector). That makes three consecutive
quarters of decline, a profits recession. The Fed is
reluctant to create a new disincentive to invest in
productivity-enhancing capital by raising interest rates
during such a profits recession, and after such investment
fell in February.
Finally, the economic tealeaves, or the entrails of a duck, or

whatever other forecasting tools the central bank uses, are
proving difficult to read.
The manufacturing sector is expanding for the first time in
seven months, led by new orders.
Housing continues to pull its weight, with construction
starts rising at a surprising rate.
But the bloom might be off the motor industrys rose.
Although new cars continue to move off showroom floors,
discounting is increasing and many purchases are financed
with 72-month sub-prime loans.
Consumers are enjoying rising incomes but are not
spending: the savings rate is up to 5.4%, its highest level
since late 2012. In an effort to get consumers to open their
wallets and purses, business-hungry banks are once again
urging them to borrow against the equity in their homes,
which is rising with house prices. TD Bank is sending an iPadladen tour bus to DIY stores to make it easier for customers
to apply for loans to spiff up their homes. Shades of 2007.
None of this should be taken to mean Yellen might not be
right to be cautious when, as the Lindsey Group puts it,
the fundamentals of economic growth continue weak,
and when the Fed is under enormous pressure. For one
thing, bills are bubbling up in Congress to strip the Fed of its
independence. For another, globalisation has made the
American economy more dependent than ever on factors
beyond the ability of anyone to forecast: want to guess
whether Xi Jinping will try to reform his economy or
continue to shore up bust banks and state-owned
enterprises? Whether Saudi Arabia will persist in attempting
to destroy Americas fracking industry by pumping more oil
than the market can absorb at existing prices? Whether
Japanese and European central banks will move interest
rates from merely negative to very negative? Yellen has to
cope with all of that, not to mention publicity-seeking
colleagues who know that disagreement with the
chairwoman will garner the largest headlines and the most
interview time on business cable channels.
Finally, monetary policy is being called upon to do more
than should reasonably be demanded of it. Because our
national debt is crowding
$20 trillion, and rising, and because Republicans do not trust
the president to use efficiently any additional spending it
might authorise, fiscal policy is neutered and will remain so
until and possibly after the November elections. That leaves
Yellen & Co all alone in the recession-fighting, growthinducing firing line. One need not be a dyed-in-the-wool
Keynesian to recognise that leaving the central bank
without support from a coordinated fiscal policy is not a
sure way to get the growth rate closer to 3% than zero.
---
Alaska Air Nearing Deal to Acquire Virgin

America
Taken from the WSJ Sunday, 3 April 2016
JetBlue Airways would lose out, with Alaska Air expected to

pay upwards of $2 billion if its bid succeeds
Alaska Air Group Inc. has emerged as the likely winner of
an auction for Virgin America Inc.
The company is nearing a deal to buy Virgin America after
beating a rival bid by JetBlue Airways Corp., people familiar
with the situation said.
There is no guarantee Alaska Air ultimately will clinch the
deal, but if it does, an announcement could come Monday,
they added.
Alaska Air is expected to pay upwards of $2 billion for
Virgin America, which has a market value of about $1.5
billion, following a surge sparked by recent news that the

company was in play, one of the people said.
Virgin America is 54%-owned by Richard Bransons Virgin
Group Ltd. and New York-based Cyrus Capital Partners LP.
It went public in November 2014.
The combination would become the No. 5 airline in the U.S.
by traffic, eclipsing JetBlue, which currently holds that spot.
Alaska Air Group, parent of Alaska Airlines, is currently the
No. 6 U.S. airline by traffic. The company, which has been
consistently profitable since 2009, has a market
capitalization of about $10 billion.
Based in Seattle, Alaska Airlines has been in existence for 84
years and is one of the few pre-deregulation carriers to have
avoided bankruptcy court protection. The company has been
winnowing costs over the past 15 years or so to fight
incursions into its West Coast base by discounter Southwest
Airlines Co. and others.
Dubbed a hybrid by some industry experts, Alaska Airlines
has low costs but still offers passengers some perks, without
a plethora of fees. The company formerly flew up and down
the West Coast, from Alaska to Mexico. But it has filled out
in its route map over the past decade and now serves most
major markets in the East and Midwest and made a big bet
on Hawaii a few years ago. Flights to that state now account
for 20% of its capacity.
Currently the company is contending with a substantial
buildup in capacity at its Seattle hub by erstwhile partner
Delta Air Lines Inc., but it still hasnt lost market share in
that city.
The company has long said publicly that it wants to remain
independent. It hasnt made any acquisitions since the late
1980s, when it bought Horizon Air and, a year later, a rival
called Jet America Airlines, which was based in Long Beach,
Calif.
But a Virgin America take over would be the biggest deal in
Alaskas history.
The company uncharacteristically raised concerns to the
U.S. Transportation Department after Virgin America was
founded, claiming foreign ownership of the company
exceeded federal guidelines. That forced a revamp of Virgin
Americas ownership structure.
People familiar with the matter said the addition of Virgin
America would vault Alaska to 15% of the seats offered out
of San Francisco International Airport, Virgin Americas base,
from its current 4%. Alaskas position at Los Angeles
International Airport also would rise substantially, said
people familiar with the matter, to 11% of seats from 5%.
Alaska Airlines and Virgin America have only six routes that
overlap, these people said. As measured by capacity, the
number of seats times miles flown, that overlap amounts to
just 6.6% of Alaskas capacity.
Based in Burlingame, Calif., Virgin America is the ninthlargest U.S. airline by traffic. Launched in 2007, it only
achieved profitability in 2013, after slowing its breakneck
growth and starting to fill seats at higher fares.
Virgin America Chief Executive David Cush has complained
that the company cant get the gates or slots it needs to
grow freely. Part of the problem, he has said, is that all the
mergers have winnowed opportunities for smaller carriers.
A takeover of Virgin America would suggest consolidation in
the industry is moving to the regional carriers and
ultradiscounters, after mergers between 2008 and 2013
combined eight big carriers into four, which now control
more than 80% of the U.S. domestic market.
U.S. airlines are putting up their best financial results in
history, partly helped by low fuel prices, the industrys move
away from ruinous market-share wars that used to hurt the
industry and by the fact that the sector is riding on one of

the longest economic upcycles in recent history.
---
Brazil Investigator Alleges Connection Between

Murder and Corruption Scandal
Taken from the WSJ Sunday, 3 April 2016
Judge Sergio Moro alleges money siphoned from Petrobras

may have been used to cover up death of Celso Daniel
The Brazilian judge leading the nations largest-ever graft
investigation on Friday alleged that the 14-year-old
murder of a member of the ruling Workers Party may be
connected to the corruption scandal.
Judge Sergio Moro, in documents released Friday as part of a
new phase in the so-called Operation Car Wash, suggested
that allegedly fraudulent loans obtained for Workers
Party, or PT, may have been used to buy the silence of a
person with knowledge relating to the death of Celso
Daniel, one of the partys founders.
In January 2002, Mr. Daniel, the former mayor of Santo
Andr, a suburb of So Paulo, was found shot to death a few
days after being kidnapped. Six men were convicted and
sentenced to prison, but the case has been reopened and
closed several times since.
Mr. Moro on Friday alleged funds siphoned from the stateowned oil company at the center of the complex web of
bribery and coverups, Petrleo Brasileiro SA, or Petrobras,
could have been used to pay hush money related to Mr.
Daniels murder.
It is possible this criminal scheme has some relation with
the January 2002 homicide ofCelso Daniel, Mr. Moro said
in one of the documents released Friday.
Also on Friday, Brazilian federal police arrested Ronan Maria
Pinto, an entrepreneur whose bus company operated in
Santo Andr around the time of Mr. Daniels death, in
connection with the case. Investigators allege Mr. Pinto was
paid 6 million reais by Jos Carlos Bumlai, a wealthy rancher
who is close to former President Luiz Incio Lula da Silva, in
2004, money they suspect may have been intended to buy
Mr. Pintos silence regarding the circumstances of Mr.
Daniels death.
Mr. Pinto was sentenced last year to 10 years in prison on
separate charges of embezzlement. He is currently
appealing that sentence.
In a statement, Mr. Pinto denied wrongdoing and said he is
cooperating with Operation Car Wash authorities.
The police on Friday also detained two former high-level PT
officials, former general secretary Silvio Pereira and former
treasurer Delubio Soares, on suspicion of accepting illegal
campaign funds from Mr. Bumlai.
Federal prosecutors allege Mr. Bumlai, who was jailed last
year on suspicion of corruption, money laundering and fraud
in connection with Operation Car Wash, served as an
intermediary to pass millions in bribes to PT coffers. The
illicit funds were disguised as bank loans from the Schahin
Group, a So Paulo-based conglomerate, according to
authorities. Mr. Bumlai, the PT and the Schahin Group have
all denied wrongdoing.
The renewed attention to Mr. Daniels murder could open up
another potentially damaging line of investigation into the
conduct of the leftist PT, which has been the main target of
the bid-rigging-and-bribery probe.
President Dilma Rousseff, who is battling impeachment
charges on a separate matter, hasn't been implicated in the
Car Wash scandal. But many top PT leaders have been,
including Ms. Rousseffs mentor and predecessor, Mr. da
Silva, who has denied any wrongdoing.
Rafael Cortez, a political scientist at So Paulo-based

consulting firm Tendncias Consultoria, suggested that
Fridays disclosures will amplify the governments legal
difficulties and add to Ms. Rousseffs challenges in trying to
stave off impeachment.
Each new phase of Operation Car Wash means a new
grenade thrown into the intentions of the Dilma government
to avoid impeachment, Mr. Cortez said.
Mr. da Silvas think tank, the Instituto Lula, strongly
condemned Mr. Moros implication that the PT and its allies
may have had a connection with Mr. Daniels death. The
judge and Mr. da Silva have sparred repeatedly, most notably
after Mr. Moro last month released wiretapped conversations
between Mr. da Silva and political associates, including Ms.
Rousseff.
This is more arbitrariness committed by Judge Sergio Moro
against former President Lula, the organization said. Judge
Moro is trying to involve Lula in his conspiracy theories.
Carlos Melo, a political scientist at Insper business school in
So Paulo, said that the issue of Mr. Daniels murder rightly
or wrongly has long cast a shadow over the PT that refuses
to go away.
The PT has already been quite targeted, it is already
fragile, this is going to make it worse, Mr. Melo said.
News Asia
Global regulators press banks for information in
1MDB case
International investigators are seeking information from

banks as part of a widening probe into the financial
scandal around Malaysias 1MDB state investment fund.
Officials from the US Department of Justice have asked
Deutsche Bank and JPMorgan for records giving details of
transactions involving 1MDB, as part of the US regulatory
inquiry into the fund.
The global banks are not accused of any wrongdoing,
according to people familiar with the matter, but have been
asked to disclose information as big providers of
international payment transactions. Both these banks
facilitated transfers for 1MDB and linked entities, along
with other foreign financial institutions. Deutsche Bank
and JPMorgan declined to comment.
Luxembourg has opened a probe into a case already being
investigated in at least four other countries, while
Singapore said it had asked for data from a number of
institutions as part of its inquiry.
The news highlights the complex international dealings
linked to 1MDB that have spawned corruption claims and
embroiled Najib Razak, prime minister and chair of the
funds advisory board. Swiss investigators have said they
found serious indications that $4bn had been
misappropriated from Malaysian state companies. Both the
fund and Mr Najib deny wrongdoing.
The Luxembourg state prosecutor said late on Thursday
that it had launched an investigation after finding
concrete clues of misappropriation of 1MDB-related
funds through accounts in Singapore, Switzerland and
Luxembourg. It said it was probing four transfers from 2012
and one from 2013, which totalled several hundred million
dollars and ended up in the Luxembourg bank account of an
offshore company. The transactions were linked to two bond
issues in May and October 2012.
The Monetary Authority of Singapore said it had asked
several institutions for information as part of a review of
fund flows suspected of being linked to the 1MDB affair. It
said it was co-operating with overseas authorities in the
case, which is also being probed in the US and Hong Kong.
1MDB has said its internal investigations have uncovered no
evidence of crimes. Malaysias attorney-general has said Mr
Najib has no case to answer over transfers in 2013 of $680m
to his personal bank account, adding that the money was a
donation from the Saudi royal family. The prime minister has
denied the money is linked to 1MDB.
The fresh front opened by Luxembourg underscores the
many unanswered questions about 1MDBs worldwide
dealings from the Gulf to the Cayman Islands. The fund ran
up more than $11bn in debts and sold off much of its power
and property assets last year to resolve a cash flow crisis.
Goldman Sachs had the most high-profile involvement of any
bank with 1MDB, arranging $6.5bn of bond deals for the fund
in 2012 and 2013. US authorities are investigating Goldmans
role in financial transactions linked to 1MDB as part of a
broader probe into payments made to Mr Najib and property
sales in New York and elsewhere, people familiar with the
matter say. Goldman has not been accused of any
wrongdoing.
The wider trail of money linked to 1MDB runs through many
other leading international banks. BSI, the Swiss private
bank whose Singapore unit held accounts for 1MDB and
related organisations, this week said it was co-operating
with investigators. The bank, which has not been accused of

wrongdoing, said it had withdrawn from its Malaysia
business.
BSI this week announced it would scale back its Malaysian
business in the latest corporate fallout from the 1MDB affair.
But Stefano Coduri, chief executive, gave no further details
of the official investigations. BSI has no office in Malaysia
but serves customers from other locations.
Mr Coduris comments came in a briefing on BSIs planned
acquisition by EFG International, a rival Swiss bank, from
Brazils BTG Pactual. As part of the deal, EFG has secured
protection against possible risks, with an unspecified amount
set aside in an escrow account.
---
Authorities Investigating Malaysias 1MDB Fund

Focusing on Bond Proceeds
Investigators in three countries studying trail of cash from

Malaysia to Abu Dhabi, offshore bank accounts
Authorities in three countries investigating a Malaysian
government investment fund appear to be focusing on
what happened to the proceeds of $3.5 billion in bonds
sold by the fund in 2012, according to people familiar with
the matter.
Investigators in the United Arab Emirates, Luxembourg
and Switzerland are looking at the trail of cash from
Malaysia to Abu Dhabi and to offshore bank accounts for a
portion of the bond proceeds that appears to have gone
missing, the people said.
Authorities in the U.A.E. have frozen the personal assets of
and issued travel bans to two former executives of an Abu
Dhabi sovereign-wealth fund that had extensive dealings
with the Malaysian fund, 1Malaysia Development Bhd.,
known as 1MDB, the people said.
The UAEs actions indicate authorities have moved ahead
in their probe into the dealings of Khadem Al Qubaisi and
Mohammed Badawy Al Husseiny, both of whom had close
connections to 1MDB, the people said. Mr. Al Qubaisi is an
Emirati who was the managing director of an $80 billion Abu
Dhabi investment fund, International Petroleum Investment
Company. Mr. Al Husseiny, an American, was chief executive
of another government investment company, Aabar
Investments PJS, which is owned by IPIC.
The U.A.E.s central bank issued the asset freezes, the
people said, though it isnt clear which U.A.E. government
agency is running the investigation.
Lawyers for both men and a spokesman for IPIC and Aabar
declined to comment.
Separately, the Luxembourg unit of Edmond de Rothschild
Group, a private bank that manages money on behalf of
wealthy clients, said it is cooperating with a government
probe into money that may have flowed from 1MDB.
The prosecutor in Luxembourg, a tiny European country that
is a hub of private banking, said in a statement that its
probe is focused on the movement of funds, related to two
bonds 1MDB issued in 2012, through a number of accounts of
offshore companies in Singapore, Switzerland and
Luxembourg. 1MDB, in a statement, said it had not been
contacted by authorities in Luxembourg.
In its statement, the Luxembourg prosecutor said its case
was connected to Swiss investigations. The Swiss attorney
generals office in January said it believed money
misappropriated from 1MDB could amount to $4 billion.
1MDB at the time said it had not been contacted by any
foreign legal authorities on any matters relating to the
company, but remains committed to fully cooperating with
any investigation.
The 2012 bond sales, each for $1.75 billion, were meant to
fund the purchase of power plants in Malaysia. The bonds
were guaranteed by Abu Dhabis IPIC. After the offering,
1MDB sent a $1.4 billion collateral payment to Aabar,
according to 1MDB financial statements.
Investigators in Abu Dhabi believe that money and a later
transfer by 1MDB of an additional $1 billion never got to
Aabar but instead went to an almost identically named
company set up in the British Virgin Islands, called Aabar
Investments PJS Ltd. The firm with the similar name was set
up by Messrs. Al Husseiny and Al Qubaisi, according to people
familiar with the matter.
The U.A.E. probe is focusing on whether Messrs. Al Qubaisi
and Al Husseiny used the British Virgin Islands Aabar to
funnel money from 1MDB into various accounts and
companies around the world, some of them connected to
Malaysians, the people said.
Executives at IPIC have been examining the activity of
Messrs. Al Qubaisi and Al Husseiny since last summer,
according to people familiar with the matter. U.A.E.
authorities got more involved in the investigation earlier this
year, spurred in part by the Swiss investigation, the people
said.
The probes into the 2012 bonds are one of several strands of
global investigations into 1MDB, which was set up by the
Malaysian Prime Minister Najib Razak in 2009 to develop the
countrys economy but has accumulated debts of $11 billion
that it has struggled to repay.
Authorities in Malaysia and at least six other nations
including the U.S. are investigating the fund, including the
transfer of more than $1 billion into the prime ministers
bank accounts. Some of the money was used to help the
ruling party during a tight national election and some was
spent on personal luxury items, The Wall Street Journal
reported Thursday. About $620 million was transferred back
to the same shell company that sent the $681 million into
the accounts in 2013. It is unclear what happened to the
money that was sent back.
Mr. Najib and his supporters have maintained the money in
his accounts was a legal donation from the Saudi royal family
and have denied the allegations. Mohamed Apandi Ali,
Malaysias attorney general, cleared the prime minister of
wrongdoing in January.
1MDB has denied wrongdoing and pledged to assist with any
investigations. The fund has said it had not paid any funds to
the personal accounts of the Prime Minister.
Separately, U.S. investigators probing 1MDB have traveled to
Malaysia to interview banks, including Deutsche Bank AG and
J.P. Morgan Chase & Co., and ask for documents related to
their interactions with 1MDB, according to people familiar
with the matter. Neither is a focus of the Justice
Departments probe, they added.
Deutsche Bank, as 1MDBs banker, was involved in sending $1
billion of the funds money out of the country in 2009 as part
of a joint venture with a Saudi Arabian company, according
to documents that form part of a probe into 1MDB by
Malaysias auditor general. Some of the funds have gone
missing, people familiar with the matter said. J.P. Morgan
was the banker for 1MDBs joint venture with the Saudi
company.
Both J.P. Morgan and Deutsche declined to comment.
The U.A.E. probe, according to people familiar with the
matter, is focusing on Messrs. Al Qubaisi and Al Husseiny,
who, until last year, were two of 1MDBs most important
contacts in Abu Dhabi. The men are both living in the U.A.E.
Mr. Al Qubaisi was involved in the multibillion-dollar bailout
of Barclays PLC during the financial crisis in 2008 as well as
several high-profile deals for IPIC and Aabar, including

investments in Daimler AG and Virgin Galactic LLC.
Both men have been replaced in their positions. The mens
names disappeared earlier this week from the website of
Bahrains First Energy Bank, where they were previously
listed as board members. A spokesman for the bank declined
to comment.
Mr. Al Qubaisi also resigned within the last several weeks as
a director of Tasameem Real Estate Co. LLC, the personal
investment company of Sheikh Mansour bin Zayed Al Nahyan,
according to the people familiar with the matter. Sheikh
Mansour is chairman of the Abu Dhabi sovereign-wealth fund
IPIC and deputy prime minister of the U.A.E. Sheikh Mansour
had declined multiple requests for comment and made no
public remarks about 1MDB or the men being replaced at
IPIC and Aabar.
---
Chinas steelmakers face own trouble at mill

This year, the future looked bleak for Baosteel, the listed
arm of Chinas state-owned Baosteel Group, the countrys
second-largest producer.
It was little more rosy for Britains biggest producer of the
metal: Tata Steel.
At Baosteel, net profits dropped 82.5 per cent in 2015,
from Rmb9.4bn ($1.45bn) to Rmb1.04bn, as the
companys aggressive expansion in the mid-2000s proved
costly in the face of declining Chinese demand.
More than 5,000 miles away, Tata announced in January that
it would lay off 750 workers in a desperate attempt to
salvage its ailing Port Talbot steel plant in South Wales, the
UKs biggest.
But their fates appear to have diverged from that point on.
This week, Tata said it was putting its entire UK operation up
for sale, throwing the survival of Britains steel industry into
doubt. The prime minister returned from holiday to conduct
emergency talks about saving a further 15,000 jobs.
On the very same day these talks were being held,
however, Baosteel board member Zhu Kebing revealed
that the company expected its output to rise 20 per cent
this year to 27.1m tonnes, as a new mill in the coastal
Guangdong province bean full operation.
This tale of two industries seems to suggest Chinas favoured
steelmakers may continue to enjoy better times.
Over the past decade, Chinas appetite for steel grew as its
economy churned out infrastructure, housing, ships, cars and
power stations at a blistering pace. Chinas output of steel
more than doubled in the 10 years to 2015, and today
accounts for almost half of total global tonnage. As its
steelmakers expanded, exports soared, too: they were up 20
per cent last year alone, leading to the imposition of tariffs
on Chinese steel by America and Europe and widespread
complaints about Chinas dumping of excess output at low
prices.
And China has itself just imposed anti-dumping duties on
under-priced steel from the EU, Japan and South Korea,
claiming domestic producers had suffered substantial
damage from under-cutting.
The ministry of commerce said imports of grain-oriented
flat-rolled steel, a type also made in Tatas Port Talbot works
in the UK, will be charged duties ranging from 14.5 to 46.3
per cent.
Tata and other western producers blame Chinas own
dumping for a collapse in prices. Between January and
December last year, global finished steel prices fell 30 per
cent, according to independent metals analysts CRU Group.
This is not the full story, though.
Chinese steelmakers also face threat closer to home: from

their domestic market. Even last years export surge has
failed to make up for slumping domestic demand as the
countrys construction boom comes to an end, pushing
more than half of the countrys major producers into the
red.
Now Beijing is pushing Chinese producers to restructure,
and is willing to cut production targets and curb lending to
safeguard national champions and make uncompetitive
companies fail.
At present, Chinas top 10 steel producers, mostly stateowned enterprises, account for around a third of total
output. But the government is dissatisfied with this low
proportion and hopes a production slowdown will mean the
small private mills that are responsible for half of total
capacity make losses that force them out of the market.
As part of a sweeping plan, the central government has set a
target of cutting steel production capacity by 100m150m
tonnes in the next five years, equivalent to nearly one-fifth
of current output, and pledged Rmb100bn to help resettle
some of the 500,000 steel workers who will lose their jobs.
Some estimates put Chinas excess annual steelmaking
capacity at more than 300m tonnes.
These policies should act as a salve to state-owned giants
such as Wuhan Iron & Steel Co, Chinas first major steel
producer, which made losses nearing Rmb7bn in 2015. In
order to meet the capacity reduction target, Wuhan plans to
resettle half of its work force, some 50,000 people.
New plans also involve clumping more efficient mills into
larger, more competitive groups, according to Tomas
Gutierrez, Asia Editor at Kallanish Commodities. By the end
of 2017 when these bunks [of steel mills] are coming online,
they will be lower cost and they will be able to export, he
says.
This explains why Wuhan, while organising job fairs for its
soon-to-be former employees, was also producing the first
batch of higher grade cold-rolled steel at a new
Fangchenggang plant in the coastal Guangxi Province.
What Chinese policymakers are thinking is that in five
years time we want a much more competitive steel
industry, says Mr Gutierrez.
But Beijings record on reining in industrial excess does
not give cause for encouragement. Past attempts to
encourage consolidation in the steel industry started at
the top, by having banks dole out loans to big producers,
in the hope they would form supergroups.
Results were poor. Many steel giants simply over-reached.
Baosteel acquired a number of fund-sapping entities such as
Xinjiang Bayi Iron & Steel Co, which reported losses of
Rmb2.5bn in 2015.
Regional concerns also proved an obstacle to central
government plans. In provinces such as Hebei, where a
quarter of all Chinese steel is produced, the steelmakers are
a crucial source of employment and tax revenue and local
governments are experts at ensuring they stay afloat.
Sebastian Lewis, a Shanghai-based metals analyst for Platts,
points out that a government policy of banning bank loans to
steel mills has minimal effect as the mills can access credit
by issuing their own super-short-term bonds, or by delaying
payments to suppliers until business picks ups. This enables
them to stay alive and keep producing.
In addition, a recent increase in Chinese steel prices has
outstripped raw material costs, boosting mills profitability
which runs the risk of encouraging producers to ramp
up production to cash in. When the margins are good
people will try to produce more, says Mr Lewis.
As a result, zombie steel companies persist. These
state-backed underperformers, weighed down with losses
but staying alive, are responsible for a build-up of debt

worth Rmb8tn in the coal and steel industries alone.
Beijings latest reforms are focused on tackling such
zombies, by banning credit for lossmaking companies and
shutting down low-quality or polluting mills. Cutting off
finance is the most important measure, according to Li
Xinchuang, head of the China Metallurgical Industry Planning
and Research Institute. [Under-performing] companies
used to close temporarily but still believed they had the
chance to recover from losses and make profits again, he
says. Now the losses are too big, some of them will have
to stay closed.
Colin Richardson of Platts believes Beijing is getting real
about its capacity issues. A small state-owned speciality
steelmaker recently defaulted on a bond payment and said it
may miss another one of the first zombie steel
companies to get the bullet? he wonders.
At the same time, according to Mr Li, Chinas most
superior steel companies will be helped to upgrade their
production and find opportunities abroad through such
initiatives as the New Silk Road of international trade
diplomacy.
Lossmaking subsidiaries of steel giants may get around the
restrictions, though. Baosteel-owned Xinjiang Bayi Steel is
restructuring in an attempt to avoid a third year of losses,
which would officially define it as a zombie. But, given its
strategic proximity to Central Asia, Baosteel is unlikely to
pull out of its investment in Bayi.
And as the restrictions focus on addressing domestic
overcapacity, they may be of limited help to steelmakers
elsewhere, given Chinas massive overhang of underused
factories.
Hebei Iron and Steel Group, Chinas largest producer and the
only top six company to increase profits in 2015, is already
forging ahead with international expansion, including a
recently approved plan to build a new 5m tonne a year plant
in South Africa.
Any notion that a European or international backlash might
foil such plans is brushed aside by Beijing, which claims
Chinas global exports are a product of competitiveness and
strong end user demand.
As Mr Li put it: If the [end users of Chinese steel] were
unhappy, then [China] would lose a lot of lawsuits.
---
Japan Post Bank looks to REITs in hunt for yield

Taken from the Nikkei Saturday, 2 April 2016
Japan Post Bank plans to start buying real estate

investment trusts as soon as this fiscal year, joining life
insurers and other institutions taking on riskier assets as low
bond yields and negative interest rates make safe traditional
strategies untenable.
The bank established a REIT-centric real estate investment
department in February, advancing preparations to obtain
permission for property investment. The Financial Services
Agency intends to grant approval.
Japan Post Bank has 205 trillion yen ($1.83 trillion) in
assets under management. High-yield foreign debt and
other relatively risky instruments now account for 59
trillion yen of the total. Japanese government bonds made
up around 40% of the bank's holdings at the end of
December, falling below 50% for the first time.
The bank's target of 60 trillion yen in risk investment by
March 2018 has already been met. How much of that amount
REITs will account for has yet to be determined. The bank
looks to include in its mix more assets seen gaining value in
the medium term.
Nothing ventured, nothing gained
Negative interest rates at the Bank of Japan have only

compounded the pressure put on banks' and other
institutions' balance sheets by falling bond yields due to
monetary easing. That has made branching out into new
investment areas a necessity.
Life insurers, too, are beginning to explore higher-risk,
higher-return strategies. Dai-ichi Life Insurance in February
made its first venture investment in six years. The insurer is
believed to have put some 1 billion yen into Beyond Next
Ventures, a firm investing in companies that have come out
of Japanese universities.
Dai-ichi froze its venture investments following the 2008
financial crisis. But poor returns of late have led it to rethink
that strategy. The insurer invested more than 50 billion yen
in fiscal 2015 in shares of growth enterprises and funds
supplying capital to unlisted companies -- over 30% more
than in fiscal 2014. Dai-ichi also looks to invest in a fund
managed by Topaz Capital, which provides growth funding to
small and midsize businesses.
Sumitomo Life Insurance, meanwhile, began investing last
July in foreign-currency-denominated corporate bonds,
putting around 50 billion yen into the instruments in the
fiscal year ended Thursday. The insurer looks to grow that
figure to several hundred billion yen this fiscal year. U.S.
bonds are currently the core of these investments. But debt
from Europe and elsewhere will be included going forward.
Broader horizons
A group of seven regional banks including Yamaguchi
Financial Group will team up to create an asset-management
company in April, while Shizuoka Bank in March decided to
put 100 million yen into a fund under SBI Holdings group
member SBI Investment.
Regional banks had around 7 trillion yen invested with assetmanagement companies as of September 2015, the Nomura
Research Institute reports. That figure is about three times
the level from three years ago.
"A number of regional banks have an insufficient
understanding of exactly what the funds they are invested in
are doing with their money," NRI's Takamitsu Baba said.
Institutions will need to ensure robust systems are in place
to handle the new risks raised by higher involvement in
companies, real estate and other investments.
(Full article click - Nikkei)
---
Japan's new government pension fund chief

stresses long view
Taken from the Nikkei Saturday, 2 April 2016
A diversified approach to asset selection can ensure safe,

effective investment performance over the long run, the
new head of Japan's massive Government Pension Investment
Fund told reporters Friday, indicating that he favors
maintaining its current mix of stocks and bonds.
Norihiro Takahashi hails from Norinchukin Bank, which serves
Japan's agricultural cooperatives.
The GPIF doubled its weightings in foreign and domestic
equities in an October 2014 portfolio overhaul. Given the
turmoil in global stock markets and a rising yen, the fund is
seen logging several trillion yen in investment losses for the
fiscal year ended Thursday.
Such short-term volatility in performance is unavoidable,
Takahashi said.
Markets remain unsettled, with the Nikkei Stock Average
tumbling nearly 600 points Friday. Takahashi described the
turmoil as "divorced from economic fundamentals."
Takahashi's career includes a stint as the head of bond
investment at Norinchukin. He is well versed in asset
management, according to a senior Financial Services Agency
official.
But the GPIF operates under far tighter constraints than

private-sector financial institutions. One of its biggest
limitations is the inability to manage its own stock
investments directly. The welfare ministry considered
lifting this ban but backed down amid opposition from both
business leaders and labor organizations.
"There are always constraints on asset management,"
Takahashi told the news conference, suggesting he would not
seek to change the rule.
One challenge he singled out is disclosure. With opposition
parties upset that the GPIF has decided to release fiscal
2015 results on July 29 -- in all likelihood after this summer's
upper house election -- his stance on accountability may
soon be put to the test.
---
Bank of Thailand to loosen forex regulations

Taken from the Bangkok Post Saturday, 2 April 2016
The Bank of Thailand will ease foreign exchange rules to

let individuals invest in products linked to foreign
exchanges and buy foreign currency of up to US$5 million
per person.
The move, part of the second phase of the Capital Account
Liberalisation Master Plan, aims to broaden investment
alternatives for retail investors and diversify risks. The
second phase of the master plan, which began last year, runs
until 2017.
The new regulations will take effect from April 18, the
central bank said in a release.
Under the eased regulations, local commercial banks are
permitted to offer structured notes, whose returns are
linked to exchange rates, to retail investors.
Individuals are also allowed to engage in derivatives
transactions linked to foreign exchange rates but not
involving the baht.
Money transfer agents' qualifications have also been relaxed
to widen people's choices in transferring money overseas
through electronic channels.
Telecom operators, money changers, those who hold
payment licences under the law regulating e-payment, and
companies in which three-quarters of shareholders are
money changers are eligible to be money transfer agents,
the central bank said.
Candidates must have a minimum paid-up capital of 100
million baht and they must have a trustable money transfer
network internationally.
Authorised money transfer agents are able to offer the
service through electronic channels such as websites or
mobile- phone apps.
The central bank will also raise the cap on overseas money
transfers to 200,000 baht a day per person from $2,000.
Meanwhile, securities brokers are required to seek Bank of
Thailand approval for netting in foreign exchange with
commercial banks for their customers' investment on a caseby-case basis to increase stockbrokers' flexibility in providing
services to customers.
The master plan's first phase began in 2012, with the aim of
encouraging Thai companies and depositors to diversify
investments and upgrade business efficiency by creating a
supporting environment, as well as increasing the flexibility
of Thai residents in overseas investment and in foreign
exchange risk management.
(Full article click - BP)
New-type ETFs linked to BOJ policy to debut

Taken from the Nikkei Sunday, 3 April 2016
A new type of exchange-traded fund will make its debut

on the Tokyo Stock Exchange as early as next month in
response to a recent monetary easing initiative by the
Bank of Japan.
Nomura Asset Management and Daiwa Asset Management
have finished developing their new ETFs, which will
incorporate stocks of companies that are willing to raise
wages, expand employment and boost capital spending.
The BOJ plans to purchase the ETFs at an annual pace of 300
billion yen ($2.68 billion) as part of its monetary easing
policy. The Japanese central bank hopes the purchases will
support companies aggressively investing in plants,
equipment and human resources.
On April 1, Nomura Asset Management and Daiwa Asset
Management filed applications with the TSE for listing of
their new-type ETFs. If the necessary proceedings go
smoothly, they will be listed and start trading in mid-May.
Nikko Asset Management and DIAM, another asset
management firm, will likely see their new-type ETFs listed
on the TSE sometime between late May and June. Mitsubishi
UFJ Kokusai Asset Management is developing a similar
instrument.
The BOJ in December decided to add the new-type ETF
purchase plan to its ETF-buying program, which operates
at an annual pace of 3 trillion yen. The BOJ currently
purchases only ETFs linked to the JPX-Nikkei Index 400.
Based on newly developed stock indexes, asset management
companies will decide what company stocks should be
incorporated in their respective new-type ETFs.
Daiwa Asset Management will develop a new stock index in
partnership with MSCI, a major U.S. index provider, while
Nomura Asset Management will do so jointly with other
Nomura group firms.
---
China's currency reserves could break $3tn

floor
Taken from the Nikkei Sunday, 3 April 2016
Chinese foreign-currency reserves threaten to dip below $3

trillion, keeping observers on edge for any hint of renewed
yuan market turbulence.
The People's Bank of China reports on the nation's
reserves as of the end of March on Wednesday or
Thursday. The balance stood at $3.2 trillion at the end of
February, down $28.6 billion from January and around $600
billion from a year earlier. Spending has likely slowed over
the past month. But the psychologically important barrier
draws ever nearer.
Calm for now
Pressure in China toward capital outflows is clearly easing,
Wang Yungui of the State Administration of Foreign
Exchange, or SAFE, said in a March 22 press briefing. The
yuan reached its strongest level against the dollar in around
three months March 18, signaling that the market has
regained composure after a rough start to the year. The
central bank's guidance rate for yuan-dollar trading on March
31 had the Chinese currency at its strongest level since Dec.
15.
China has recently used vast amounts of its dollar reserves
to buy up yuan and halt the currency's slide, spending
around $100 billion a month through January. The falling
balance fanned distrust in the economy, inviting further yuan
outflows. Only on March 16, when the U.S. Federal Reserve
indicated that it would raise interest rates just twice this
year, did the yuan regain its footing.
With its Qualified Domestic Institutional Investor scheme,

China strictly limits the number of parties it allows to invest
abroad. The domestic bond market, on the other hand, has
been thrown wide open to foreign investors to help draw in
capital from overseas. But as long as prospects are dim for a
rapid Chinese economic recovery, a surge in expectations of
another U.S. rate hike would likely reignite fears of capital
flight. Many market players view the yuan's stability as
temporary.
Chinese authorities are thus on high alert for speculative
yuan-selling by foreign traders. Famed investor George Soros'
comment in January that a "hard landing is practically
unavoidable" for China's economy was a particularly sore
point. In response, SAFE's Wang said in March that the
regulator is studying a Tobin tax, which would penalize
short-term speculative trading.
Nearing limits
Based on the value of China's trade and other
International Monetary Fund indicators, Societe Generale
reports that $2.8 trillion is about as low as the country's
currency reserves can go without endangering the
economy. This level is only around $400 billion under
February's balance -- four months away, if spending
continues at the clip seen through January.
A lack of transparency as to how the reserves are managed is
creating further unease. A portion of the fund is rumored to
be locked away in relatively illiquid foreign investments,
indicating that the amount of available capital could be a
good deal less than the reported balance.
Central bank Deputy Gov. Yi Gang has said he believes the
majority of China's dollar reserves to be held by the Chinese
people. But a drop below the critical $2.8 trillion level
would nevertheless set off market turbulence, likely
reigniting yuan-selling.
The yuan is already steadily losing value against currencies
other than the dollar -- the yen, in particular. A yuan fetched
around 17.4 yen (around 15 cents for both currencies) on
Thursday, over 10% less than it did at the 20.2 yen high
reached in June. The slide has made Chinese exports to
Japan more competitive but has cut the buying power of
Chinese visitors to that country.
Beijing continues to insist that China does not and will not
engage in competitive currency devaluations, leaving
authorities with little choice but to intervene if such triggers
as U.S. rate hikes cause the yuan to tumble once again.
Investors worldwide are watching anxiously to see how long
China can keep its reserve spending reined in.

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