Japan posts a rare trade deficit

Japan's trade gap slipped into the red in August as oil imports surged but exports fell, official figures show.

Excluding January - when exports usually slow in the New Year holidays - it was the country's first trade deficit since November 1982.

Imports outpaced exports by 324bn yen ($3.09bn; £1.65bn) in August.

The news has heightened fears Japan may be on the brink of recession as it comes hot on the heels of a sharp contraction in economic growth.

Figures released earlier this month showed economic output shrank at an annualised rate of 3% between April and June - its sharpest fall in almost seven years - as a result of falling exports and domestic demand.

Price pressures

The latest trade gap figures showed the resource-poor country was hit heavily by surging raw material costs.

Rising prices of oil, coal and natural gas drove import costs 17.3% higher to 7.38 trillion yen. Import costs for coal alone jumped 121% and petroleum products by 64%.

By contrast, exports grew just 0.3% to 7.56 trillion yen - mainly as a result of falling automobile shipments.

A record 21% drop in exports to the US, blamed on the current financial crisis, did little to ease fears about a looming downturn in Japan.

'Faltering'

"The data really showed that economic conditions both in Japan and overseas are weakening," Credit Suisse strategist Satoru Ogasawara said.

"Demand from not only the United States but also Europe and Asia has been faltering, and it is likely to continue at least until the end of this fiscal year."

Meanwhile, companies at home have been battling low domestic demand.

Looking ahead, economists believe the news does not bode well for the Tankan report, due out next week.

The closely-watched survey of business conditions is expected to "underscore that the economy is in a recession", said JP Morgan Securities economist Masamichi Adachi.

A country is generally considered to be in recession when it sees two consecutive quarters of declining economic output.

AIG contemplating sale of 15 buisnesses

In a bid to secure its future as an independent company, the beleaguered insurance major American International Group is contemplating sale of its 15 businesses in order to repay the USD 85 billion government loan, media report says.


"AIG, is considering selling more than 15 businesses, including its aircraft leasing unit, a stake in a large US reinsurer and billions of dollars in properties in an effort to repay USD 85 billion government loan and secure its future as an independent company," a leading financial daily reported.



The board of AIG met in New York yesterday to discuss the radical plan for asset disposals aimed at helping the company emerge from its crisis.



AIG, was de facto nationalised this month when the US administration stepped in with an emergency loan after AIG collapsed under credit related losses.



The extended government loan would give Washington the right to buy majority stake in the company.



With the US Federal Reserve's rescue loan of up to USD 85 billion to save AIG from bankruptcy, the US government will get an equity stake of 79.9 per cent of the insurance titan under the agreement.



Quoting people close to the situation the daily said, AIG, led by its new chief executive Edward Liddy, wanted crucial businesses such as its international life insurance unit and its US pension businesses to be at the core of the "new AIG".



"But apart from those, AIG was prepared to consider selling most other operations. The company and its advisers, led by Blackstone and JPMorgan Chase, are believed to have drawn up a list of about 15-20 large businesses that could be sold," the daily added.



Among the units that are most likely to be sold are International Lease Finance Corp, one of the world's largest aircraft leasing businesses, which is expected to fetch about USD 10 billion.



AIG is believed to have received expressions of interest from Asian and Middle Eastern buyers, the daily said.



AIG's 59 per cent stake in Transatlantic Holdings, a listed reinsurer, is also believed to be on the block, as are its huge property portfolio and private equity investments including one in Londons City Airport.



Bermudian reinsurers are expected to be interested in AIG's stake in Transatlantic, the daily said quoting analysts and insurers.



However, AIG, Blackstone and JPMorgan, were all unavailable for comments, the daily reported.

B&B nationalisation is confirmed

Mortgage lender Bradford & Bingley (B&B) is to be nationalised, the government has confirmed.

The government will take control of the bank's £50bn mortgages and loans, while B&B's £20bn savings unit and branches will be bought by Spain's Santander.

Under the move, all B&B savings accounts are protected, and taxpayers are being shielded from any losses.

B&B is just the latest bank that has needed rescuing in a turbulent period for British financial institutions.

It follows after the announcement two weeks ago that HBOS is being bought by Lloyds TSB, and Nationwide's takeover of smaller building society rivals Derbyshire and Cheshire.

Prime Minister Gordon Brown said the move showed the government would "do whatever it takes to ensure the stability of the UK financial system".

The move also came on another eventful day of global financial turmoil:


Wachovia, the fourth-largest US bank, was bought by larger rival Citigroup in a rescue deal backed by US authorities

Benelux banking giant Fortis was partially nationalised by the Dutch, Belgian and Luxembourg governments to ensure its survival

The Icelandic government took control of the country's third-largest bank, Glitnir, after the company had faced short-term funding problems

Shares in Europe and Asia fell sharply, while in the US, Congress voted on a $700bn (£380bn) plan which aims to bail out Wall Street and ease the credit crisis.
'Lost confidence'

"Following recent turbulence in global financial markets, Bradford & Bingley has found itself under increasing pressure as investors and lenders lost confidence in its ability to carry on as an independent institution," said the Treasury.

It added that the move would protect savers' money and that B&B's branches, call centres and internet operations would "be open for business as usual to provide continuity of service to customers".

BBC business editor Robert Peston said it was a good deal for taxpayers, and that the risk was "quite close to nil".

Under B&B's nationalisation, taxpayers are being protected from any losses because of the Financial Services Compensation Scheme.

This means that if B&B's remaining assets prove insufficient, the balance will ultimately be paid by the wider UK banking sector, although Chancellor Alistair Darling said that possible scenario remained a long way down the line.

Shadow Chancellor George Osborne told the BBC that he would study the exact details of the deal, but that protecting taxpayers had to be the main priority.

'Good news'

Abbey, which is part of Spanish banking group Santander, is paying £612m to buy B&B's savings business and 197 branches.

Abbey chief executive Antonio Horta-Osorio said the acquisition of B&B's bank's savings account was "good news" for customers.

"They can be certain that their hard-earned savings are with a bank they can trust."

To help facilitate Abbey's takeover of B&B's savings business and branches, it has been paid £14.6bn from the Financial Services Compensation Scheme - funded by the Bank of England - and a further £4.5bn from the Treasury.

This £19.1bn is to guarantee that Abbey could pay back all B&B savings account customers, if need be.
The government says it will get the money back - starting with the Treasury's £4.5bn - following the redemption and sale of B&B's mortgages, that are now in public hands.

A spokeswoman for Abbey said while it was "business as usual" for B&B's branches, it was too early to say whether any would close in the long term.

However, with Santander already owning both Abbey and Alliance & Leicester, it appears likely that there will be some branch closures.

And the B&B, which currently has about 3,000 staff, has for the time being stopped offering any new buy-to-let or self-certified mortgages through its internet business Mortgage Express.

The company told mortgage brokers it was "working through the full ramifications" of the nationalisation.

Funding problems

B&B is the second UK bank to be nationalised since the start of the global credit turmoil, following Northern Rock's move into state ownership in February this year.

Speculation had intensified in recent weeks that B&B was approaching a funding crisis, leading to a growing number of customers withdrawing their funds.

B&B got itself into financial difficulty as a result of the credit crunch removing the option of raising funds through the global wholesale money markets.

Its problems were then further intensified by its focus on the buy-to-let market, which has seen a large rise in bad debts as UK house prices have fallen.

B&B has also struggled to fund a number of takeovers.

Citigroup to buy US bank Wachovia

Wachovia, the fourth-largest US bank, is being bought by larger rival Citigroup in a rescue deal backed by US authorities.

Wachovia customers were told the action would provide "full protection for all their deposits", and that the bank would continue to operate as normal.

Under the deal, Citigroup will absorb up to $42bn (£23bn) of Wachovia losses.

US authorities said the decision to back the sale had been made "under extraordinary circumstances".

The comment came from the Federal Deposit Insurance Corporation (FDIC), the government body that guarantees the safety of banking deposits.

"This action was necessary to maintain confidence in the banking industry given current financial market conditions," said FDIC chairman Sheila Bair.

Mortgage debt

Citigroup is taking on $312bn of Wachovia loans.

Any debts on these loans above the $42bn Citigroup will absorb will be taken on by the FDIC in return for $12bn in Citigroup stock and other share options

Wachovia is just the latest bank that has needed to be rescued as a result of high levels of bad mortgage debt and the wider turmoil in the global financial sector.

Analysts said much of its problems were caused by its 2006 purchase of mortgage lender Golden West for $25bn at the height of the then US housing boom.

Rose Grant, of Eastern Investment Advisors, said it seemed a good deal for Citigroup.

"One thing that Citigroup has been wanting to do for a while is to expand its retail operations because they are in very limited areas so this would basically allow them to do that," she said.

Treasury Secretary Henry Paulson said the sale of Wachovia was necessary as its failure "would have posed a systemic risk".

Wachovia's sale comes just days after fellow US lender Washington Mutual was seized by regulators before its assets were sold to JPMorgan Chase.

US politicians have begun voting on a $700bn deal to rescue the US financial system which was agreed by negotiators on Sunday.

India-EU to ink trade pact by 2009; set 100 bl Euro target

India and the European Union (EU) on Monday agreed to conclude a broad-based Trade and Investment Agreement by 2009 and double their trade turnover to 100 billion Euros in the next five years, giving a fresh impetus to their strategic partnership.


The decision was taken during the Ninth India-European Union(EU) summit which was attended by Prime Minister Manmohan Singh and French President Nikolas Sarkozy in his capacity as chairman of the rotating presidency of the 27-member EU in this resort town of French Riveira.

Addressing a joint press conference with Sarkozy and European Commission President Manuel Barrosa at the end of the day-long summit, Singh announced that the world's two largest trading partners are expected to wrap up the ambitious Trade and Investment Agreement by 2009.

A Joint Press Communique issued at the end of the Summit said EU and India recognised the importance of conclusion of the trade agreement to fulfill the expectations of businesses on both sides and to further strengthen the bilateral economic relationship.

Towards this end, the communique said they will endeavour to achieve a balanced and ambitious outcome.

While welcoming the signing of a landmark horizontal civil aviation agreement which will allow more airlines to operate flights between India and EU countries, the communique said they are working on a maritime transport agreement that will be mutually beneficial.

Sarkozy at a joint press conference with Singh and European Commission President Barrosa said trade expansion and a new trade agreement will be important pillars to give a new dimension to Indo-EU strategic partnership.

US lawmakers publish rescue deal

House Speaker Nancy Pelosi announces bail-out package
US politicians have announced a $700bn deal to rescue America's financial system and end the credit crunch.

The move, backed by both Republican and Democratic leaders, allows the Treasury to spend up to $700bn (£380bn) buying bad debts from ailing banks in the US.

President George W Bush urged lawmakers to support the bill, which needs approval by both houses of Congress.

Some Republicans have voiced objections to massive state intervention in the financial sector.

The deal was announced after days of high-level wrangling between Republicans and Democrats in Congress over the content of the bill.

Both parties had vigorous objections to a proposal submitted last week by Treasury Secretary Henry Paulson that would have given him sweeping powers over how the money was spent.

His plan was prompted by a string of failures in large US financial institutions, including the government bail-out of insurance giant AIG.

If approved by the Senate and House, the revised plan will lead to the biggest intervention in the markets since the Great Depression in the 1930s.

Nancy Pelosi, the Democratic Speaker of the House of Representatives, said the agreement was "not a bailout of Wall Street", but designed to ensure pensions, savings and jobs would be safe.

Democratic Senate leader Harry Reid said the deal was a big improvement on the initial proposal.

"They wanted a blank cheque and we couldn't give them one... Now we have to get the votes."

'Necessary tools'

The negotiations had lasted all weekend and were so intense that at one point Treasury Secretary Hank Paulson suffered what was described as a "woozy spell".

After senior members of Congress announced the agreement, President Bush gave his backing to the draft legislation.

He said the bill would send a strong message that the US was serious about restoring confidence in its financial markets.

"This bill provides the necessary tools and funding to help protect our economy against a system-wide breakdown," he said in a statement.

The US administration had wanted a deal to be announced before markets opened in Asia, but Asian investors appear yet to be convinced about the rescue plan's impact.

By Monday afternoon trading in Japan, Tokyo's main Nikkei 225 index was down 118 points or 0.8% to 11,776.

The fall on Hong Kong's Hang Seng was even more pronounced, down 383 points or 2% to 18,230.

No golden parachutes

The deal addresses several of the key concerns raised by both Democrats and Republicans:

The government will get the money in tranches - $250bn straight away, and $100bn at the request of the White House; Congress can veto the release of the remaining $350bn
Banks that accept bail-out money will have to hand over shares in return, which allows tax payers to benefit from the banks' recovery
Top bankers, meanwhile, will see their pay limited, and "golden parachutes" - huge payments when they leave the firm - will be banned
The banking industry will have to help finance the bail-out if the money can not be recovered from the struggling banks themselves
Four agencies will monitor the deal, including an independent Inspector General and a bipartisan oversight board
Banks will be obliged to join an insurance programme to protect them against the losses of mortgage-backed securities
The bill, called the Emergency Economic Stabilization Act of 2008, faces its first hurdle later on Monday when the House votes on it, says the BBC's Justin Webb in Washington.

It goes before the Senate later in the week.

The proposed legislation was now "frozen", said Ms Pelosi, which means critics can not strike out individual provisions that they do not like.

However, several key critics of the deal called on their fellow legislators to block it.

Financial woes

The Bush administration submitted its initial proposal after several financial institutions got into trouble - unable to free up the money to keep their daily business going.

The liquidity problems have not been limited to the US.

In the United States' largest bank failure, Washington Mutual was taken over by regulators and sold on to JPMorgan Chase
Lehman Brothers collapsed, Merrill Lynch sought refuge in a takeover by Bank of America and Morgan Stanley secured a large capital injection from a Japanese rival
US insurance giant AIG had to be bailed out by the US government, which in effect took an 80% stake in the firm
In the UK, meanwhile, mortgage lender Bradford & Bingley is set to be nationalised, with the savings part of the business to be sold to Spanish banking group Santander
The governments of Belgium, Luxembourg and the Netherlands agreed late on Sunday evening to invest 11.2bn euro in huge financial services group Fortis, in effect nationalising it.