Financial Stocks Rally in Japan

123jump.com Staff
27 Nov, 2001
New York City

Stocks in Japan rebounded from the morning slump of 2.2% to close up 0.6% on the news that Abu Dhabi Investment Authority plans to buy 4.9% stake worth $7.5 billion in the troubled Citigroup. The rate of interest that the bank is willing to pay to seek capital reflects its dire need of capital. Only ten days ago, Citigroup sold 10-year bonds at interest rate of 6.125%. The news lifted stocks in Japan. Nikkei 225 recovered as financial stocks retraced most of the losses.

[R]6:00AM New York, 7:00PM Tokyo- Abu Dhabi investment in Citigroup leads Tokyo rebound. Corporate Service Price Index firms 1.4% in October.[/R]

Japan’s stock index rebounded from a 2.2% slump in the morning session on news that Abu Dhabi Investment Authority plans to buy a $7.5 billion stake in troubled bank Citigroup Incorporated.

In Tokyo trading Nikkei 225 rose 0.58% or 87.64 to 15,222.85, while the broader Topix Index gained 11.75 to 1,478.78.

In the first section of the Tokyo Stock Exchange 8.7 billion shares worth 1.0 trillion yen traded and 364.3 million shares valued at 6.5 billion yen changed hands.

Of the Nikkei 225 stocks 144 gained, 72 declined, and 9 were unchanged.

Sanyo Electric Co led the gainers with a rise of 8.47% after the company reported first half net income increase to 16 billion yen from a 6.2 billion yen loss in the previous year.

Exporters also gained as yen declined against the dollar. Canon firmed 0.54%, Toyota Motor Corporation gained 1.84% and Sony Corporation spiked 4.55%.

Citigroup agreed to sell $7.5 billion of equity to Abu Dhabi Investment Authority, adding that the units will convert into common shares. Abu Dhabi also agreed not to own more than 4.9% equity and will not have rights to nominate a board member and nominate management of the company. The equity unit will earn 11% interest rate and will have a conversion feature to purchase equity in the bank between $31.83 and $37.24 a share. The high rate of rate that the bank is willing to pay shows the plight of Citigroup and its need of capital.

Separately, Goldman, Sachs analyst said that HSBC might have to add $12 billion more in bad debts at its sub-prime lender Household International Incorporated.

Bank of Japan reported in its monthly Corporate Service Price Index today that the index edged higher to 1.4% in October from 1.3% in September. The domestic Corporate Goods Price Index also gained 2.4% in October for the year compared to 1.7% in September.

Statistics for the indexes for major groups and subgroups showed that the finance and insurance industries index slipped 0.6% from 97.0 to 97.4 from a year ago and gained 0.4% in September from 0.1% in October. Retail estate services also rose 1.1% from 91.2 to 91.3 a year ago and slipped 0.1% in October compared to 0.3% in September.

Transportation services index gained 7.1% for the year and 2.1% for the month, while communications and broadcasting services were unchanged at 83.8 in October. Furthermore, advertising services slumped 1.3% in October from 8% in September and leasing and rental services gained 0.2% for the months from a 0.2% retreat in the previous month of September.

Separately, Bank of Japan Governor Toshihiko Fukui said today in a press conference in Tokyo the sub-prime woes would have a negative impact on banks, adding that the central bank needs to consider long-term risks in determining interest rate policy.

The Ministry of Economy Trade and Industry said today loans guaranteed for small and midsized companies in construction industry had been expanded by 400 million yen for secured loans and 160 million yen for unsecured loans. The temporary relief program will start today and will run until the end of March next year. Housing starts dropped 37.1% in the third quarter, while investment in housing dropped 7.8%.

Japan’s Economy and Fiscal Policy Minister Hiroko Ota said today that the country’s deflation pressures plaguing the economy are waning even though global competition is preventing companies from raising prices of both goods and services.

Finance Minister Fukushiro Nukaga also announced today at a press conference in Tokyo that tax revenue for the fiscal year ending March from the initial forecast of 53.5 trillion yen. The revenue target might be revised downwards for the first time in five years.

The yen however gained to 107.99 from 108.01 against the dollar at the close of trading.

Of the Nikkei 225 index shares, Sanyo Electric Company led the advancers with a rise of 8.47%, followed by increases of 6.86% in Nippon Suisan, in Kajima Corp of 6.80%, in Mitsubishi UFJ Nicos 6.45%, and in Shimizu Corp of 4.55%.

Sanyo Electric rose after the company’s first half net income rose to 16 billion yen from a 6.2 billion yen loss a year ago. The company left its full year net income forecast unchanged at 20 billion yen on projected sales of 2.23 trillion yen. However, operating profit is forecasted to rise to 50 billion yen from 45 billion yen at the end of the year.

Mitsui Chemicals led the decliners in the index with a fall of 4.58%, followed by declines of 4.19% in Sumco Corporation, 4.08% in Mitsui Engineering & Shipbuilding, 4.04 in Mitsubishi Materials, and 3.67% in Sumitomo Corp.

IHI Corporation said today it is planning to sell its property to Dai–ichi Mutual Life Insurance Company, gaining up to 77 billion yen this business year. The gain is also included in earnings forecast made in September. An operating loss of 17 billion yen is expected for the year. IHI Corp closed up 4.50%.

Bloomberg reported today Seiko Epson President Seiji Hanaoka said the company would reorganize its factory operations as sales of screens are shrinking.

[R]5:00AM New York - Target Corporation third quarter earnings fell 4.5% on disappointing sales on high-margin merchandise.[/R]

Target Corporation ((TGT)) third quarter revenue increased 9.3% to $14.83 billion from $13.57 billion in the year ago quarter.

Same-store sales increased 3.7% with higher contribution from new stores and credit card operations.

Revenue from credit card operations gained 19% to $493 million from $414 million in the corresponding period in 2006.

The discount retailer said net earnings in the third quarter slipped 4.5% to $483 million from $506 million a year earlier. Earnings per share fell 5.1% to 56 cents per share from 59 cents per share last year. Analysts surveyed by Thomson Financial had forecast earnings of 62 cents per share on revenue of $14.83 billion.

Target stock dropped 4.1% or $2.21 to $51.69 after the earnings release on the short fall.

For the quarter, earnings before interest and income taxes rose marginally to $958 million from $957 million.

Chief executive and chairman, Bob Ulrich said the below forecasts earnings were the result of disappointing sales on high-margin products such as clothing and home furnishings.

Credit card operations chipped in with $157 million to EBIT, up 17.1% from prior year. The increase was driven by strong revenue growth, offset by higher bad debt expense.

Average receivables in the third quarter increased 19.6% from a year ago, partially driven by a product change from proprietary Target Cards to higher-limit Target Visa cards for a group of higher credit-quality Target Card customers.

Net interest expense increased $28 million compared with the third quarter in 2006 primarily due to higher average debt balances, including the debt to fund growth in accounts receivable.

In the nine months ending on November 3rd, Target Corp reported net revenue increase of 9.3% to $43.49 billion from $38.60 billion last year. Earnings gained 9.1% to $1.82 billion or $2.11 per share from $ 1.66 billion or $1.92 per share posted in the same period a year ago.

Target said it might not sell its credit card operations, which it expects to contribute $600 million to full-year earnings. Target has been reviewing its strategic operations with the credit card division.
Chief financial officer, Doug Scovanner said, """"""""at this point in the review, it is clear that if a transaction occurs, it would involve sharing a meaningful portion of our future pre-tax credit card contribution with a new partner.

""""""""As a result, we are continuing to evaluate whether the benefits of a potential transaction outweigh its expected dilutive impact on earnings per share. Regardless of the outcome, we remain committed to maintaining our core financial services operation.""""""""

In the quarter, Target said its board had authorized a new $10 billion share repurchase scheme, replacing the previous authorization, representing nearly 20% of total outstanding share repurchase. Debt will partially be used to fund the program.

The company acquired 3 million shares for $172 million in the quarter bringing the total for the nine months to $1.2 billion spent on 19.7 million ordinary shares. Since the share-repurchase program started in 2004, Target Corp has acquired 90.7 million shares for $4.6 billion.

Target Corp said on a conference call that fourth quarter same-store sales growth is estimated to rise between 3% and 5%. Net earnings are expected to rise ahead of the third quarter and earnings per share are not expected to rise faster than last year''s 22% growth.

Target stock ((TGT)) has traded lower in the last two weeks and recently dropped as low as $51.25 before the earnings release. In the last 52-weeks, the stock has touched a high of $70.75, and a low of $50.25.

At the end of the third quarter, Target Corporation operated 1,591 Target stores in 47 states.