実行する前にやっておくべきこと： UCIデータセットの「Reuters-21578 Text Categorization Collection Data Set」をダウンロードして、このノートブックから相対パス「./reuters」に展開しておくこと。
# ディレクトリの中身の確認
!ls reuters
README.txt reut2-007.sgm all-exchanges-strings.lc.txt reut2-008.sgm all-orgs-strings.lc.txt reut2-009.sgm all-people-strings.lc.txt reut2-010.sgm all-places-strings.lc.txt reut2-011.sgm all-topics-strings.lc.txt reut2-012.sgm cat-descriptions_120396.txt reut2-013.sgm feldman-cia-worldfactbook-data.txt reut2-014.sgm lewis.dtd reut2-015.sgm reut2-000.sgm reut2-016.sgm reut2-001.sgm reut2-017.sgm reut2-002.sgm reut2-018.sgm reut2-003.sgm reut2-019.sgm reut2-004.sgm reut2-020.sgm reut2-005.sgm reut2-021.sgm reut2-006.sgm
import pandas as pd
import numpy as np
from scipy import sparse
import os
from glob import glob
import re
from html.parser import HTMLParser
# This function is copied from
# http://scikit-learn.org/stable/auto_examples/applications/plot_out_of_core_classification.html
class ReutersParser(HTMLParser):
"""Utility class to parse a SGML file and yield documents one at a time."""
def __init__(self, encoding='latin-1'):
HTMLParser.__init__(self)
self._reset()
self.encoding = encoding
def handle_starttag(self, tag, attrs):
method = 'start_' + tag
getattr(self, method, lambda x: None)(attrs)
def handle_endtag(self, tag):
method = 'end_' + tag
getattr(self, method, lambda: None)()
def _reset(self):
self.in_title = 0
self.in_body = 0
self.in_topics = 0
self.in_topic_d = 0
self.title = ""
self.body = ""
self.topics = []
self.topic_d = ""
def parse(self, fd):
self.docs = []
for chunk in fd:
self.feed(chunk.decode(self.encoding))
for doc in self.docs:
yield doc
self.docs = []
self.close()
def handle_data(self, data):
if self.in_body:
self.body += data
elif self.in_title:
self.title += data
elif self.in_topic_d:
self.topic_d += data
def start_reuters(self, attributes):
pass
def end_reuters(self):
self.body = re.sub(r'\s+', r' ', self.body)
self.docs.append({'title': self.title,
'body': self.body,
'topics': self.topics})
self._reset()
def start_title(self, attributes):
self.in_title = 1
def end_title(self):
self.in_title = 0
def start_body(self, attributes):
self.in_body = 1
def end_body(self):
self.in_body = 0
def start_topics(self, attributes):
self.in_topics = 1
def end_topics(self):
self.in_topics = 0
def start_d(self, attributes):
self.in_topic_d = 1
def end_d(self):
self.in_topic_d = 0
self.topics.append(self.topic_d)
self.topic_d = ""
def stream_reuters_documents(data_path=None):
"""Iterate over documents of the Reuters dataset.
The Reuters archive will automatically be downloaded and uncompressed if
the `data_path` directory does not exist.
Documents are represented as dictionaries with 'body' (str),
'title' (str), 'topics' (list(str)) keys.
"""
DOWNLOAD_URL = ('http://archive.ics.uci.edu/ml/machine-learning-databases/'
'reuters21578-mld/reuters21578.tar.gz')
ARCHIVE_FILENAME = 'reuters21578.tar.gz'
if data_path is None:
data_path = os.path.join(get_data_home(), "reuters")
if not os.path.exists(data_path):
"""Download the dataset."""
print("downloading dataset (once and for all) into %s" %
data_path)
os.mkdir(data_path)
def progress(blocknum, bs, size):
total_sz_mb = '%.2f MB' % (size / 1e6)
current_sz_mb = '%.2f MB' % ((blocknum * bs) / 1e6)
if _not_in_sphinx():
print('\rdownloaded %s / %s' % (current_sz_mb, total_sz_mb),
end='')
archive_path = os.path.join(data_path, ARCHIVE_FILENAME)
urllib.request.urlretrieve(DOWNLOAD_URL, filename=archive_path,
reporthook=progress)
if _not_in_sphinx():
print('\r', end='')
print("untarring Reuters dataset...")
tarfile.open(archive_path, 'r:gz').extractall(data_path)
print("done.")
parser = ReutersParser()
for filename in glob(os.path.join(data_path, "*.sgm")):
for doc in parser.parse(open(filename, 'rb')):
yield doc
docs=[]
for d in stream_reuters_documents("reuters"):
docs.append(d)
def tokenize(text):
return [token for token in simple_preprocess(text) if token not in STOPWORDS]
from gensim.utils import smart_open, simple_preprocess
from gensim.parsing.preprocessing import STOPWORDS
import itertools
tokens=[]
words=set()
for d in docs:
t=tokenize(d["body"])
tokens.append(t)
words.update(t)
words=list(sorted(words))
word2id=dict(zip(words,itertools.count()))
from collections import Counter
corpus=[]
for i,d in enumerate(tokens):
counter=Counter()
for w in d:
j=word2id[w]
counter[j]+=1
corpus.append(list(counter.items()))
from gensim.matutils import Sparse2Corpus
from gensim.models import ldamodel
from gensim.corpora import indexedcorpus
id2word=dict(zip(itertools.count(),words))
model=ldamodel.LdaModel(corpus,id2word=id2word,num_topics=20,random_state=0)
model.print_topics()
[(0, '0.036*"said" + 0.018*"gulf" + 0.017*"ec" + 0.012*"iran" + 0.011*"west" + 0.011*"iranian" + 0.009*"reuter" + 0.007*"attack" + 0.006*"china" + 0.006*"war"'), (1, '0.052*"said" + 0.031*"company" + 0.024*"reuter" + 0.022*"president" + 0.021*"board" + 0.020*"stock" + 0.019*"share" + 0.017*"chairman" + 0.017*"executive" + 0.016*"chief"'), (2, '0.035*"said" + 0.019*"billion" + 0.019*"bank" + 0.010*"dollar" + 0.010*"pct" + 0.009*"economic" + 0.009*"banks" + 0.008*"year" + 0.007*"foreign" + 0.007*"government"'), (3, '0.054*"said" + 0.011*"company" + 0.010*"offer" + 0.010*"court" + 0.008*"stock" + 0.007*"market" + 0.007*"reuter" + 0.005*"spokesman" + 0.005*"new" + 0.004*"comment"'), (4, '0.050*"pct" + 0.034*"said" + 0.033*"mln" + 0.025*"year" + 0.010*"reuter" + 0.010*"rose" + 0.009*"billion" + 0.009*"dlrs" + 0.008*"loan" + 0.008*"stg"'), (5, '0.076*"dlrs" + 0.048*"said" + 0.026*"billion" + 0.025*"year" + 0.024*"quarter" + 0.019*"mln" + 0.018*"trade" + 0.015*"company" + 0.013*"earnings" + 0.010*"reuter"'), (6, '0.050*"said" + 0.035*"dlrs" + 0.030*"mln" + 0.021*"corp" + 0.019*"company" + 0.019*"debt" + 0.017*"reuter" + 0.008*"cash" + 0.007*"unit" + 0.007*"bank"'), (7, '0.027*"dlrs" + 0.021*"said" + 0.018*"pct" + 0.016*"mln" + 0.011*"reuter" + 0.009*"notes" + 0.008*"company" + 0.008*"offering" + 0.007*"corp" + 0.007*"yield"'), (8, '0.029*"said" + 0.018*"tonnes" + 0.016*"union" + 0.013*"wheat" + 0.011*"reuter" + 0.011*"soviet" + 0.010*"agriculture" + 0.009*"workers" + 0.009*"department" + 0.009*"strike"'), (9, '0.029*"said" + 0.023*"pct" + 0.015*"trading" + 0.014*"market" + 0.014*"exchange" + 0.014*"futures" + 0.013*"bond" + 0.013*"reuter" + 0.012*"stock" + 0.009*"new"'), (10, '0.034*"said" + 0.018*"pct" + 0.016*"rate" + 0.014*"market" + 0.013*"gold" + 0.011*"rates" + 0.010*"reuter" + 0.008*"new" + 0.007*"dealers" + 0.007*"days"'), (11, '0.034*"said" + 0.012*"reagan" + 0.010*"president" + 0.009*"house" + 0.008*"reuter" + 0.007*"new" + 0.005*"chairman" + 0.005*"federal" + 0.005*"financial" + 0.005*"united"'), (12, '0.030*"said" + 0.013*"tax" + 0.013*"tonnes" + 0.012*"government" + 0.009*"mln" + 0.008*"reuter" + 0.008*"minister" + 0.007*"party" + 0.006*"nakasone" + 0.005*"prime"'), (13, '0.037*"said" + 0.024*"prices" + 0.020*"year" + 0.016*"production" + 0.014*"oil" + 0.012*"price" + 0.010*"reuter" + 0.009*"pct" + 0.007*"world" + 0.007*"stocks"'), (14, '0.087*"cts" + 0.054*"reuter" + 0.052*"record" + 0.045*"april" + 0.039*"pay" + 0.034*"prior" + 0.032*"div" + 0.028*"qtly" + 0.027*"vs" + 0.021*"june"'), (15, '0.162*"vs" + 0.131*"mln" + 0.076*"cts" + 0.062*"net" + 0.053*"dlrs" + 0.050*"shr" + 0.040*"loss" + 0.029*"reuter" + 0.026*"revs" + 0.026*"profit"'), (16, '0.044*"said" + 0.018*"corp" + 0.016*"sales" + 0.014*"reuter" + 0.014*"company" + 0.010*"new" + 0.009*"year" + 0.007*"technology" + 0.007*"cars" + 0.007*"computers"'), (17, '0.056*"said" + 0.049*"shares" + 0.029*"stock" + 0.025*"company" + 0.023*"reuter" + 0.022*"common" + 0.022*"dlrs" + 0.020*"mln" + 0.018*"pct" + 0.016*"share"'), (18, '0.046*"oil" + 0.034*"said" + 0.016*"texaco" + 0.013*"opec" + 0.010*"bpd" + 0.010*"crude" + 0.008*"saudi" + 0.007*"day" + 0.007*"pennzoil" + 0.007*"barrels"'), (19, '0.053*"said" + 0.025*"reuter" + 0.023*"company" + 0.014*"corp" + 0.013*"systems" + 0.011*"contract" + 0.010*"new" + 0.008*"agreement" + 0.008*"mln" + 0.008*"dlrs"')]
dist=model.inference(corpus)[0]
dist_sorted=(-dist).argsort(axis=0)
len(docs)
for j in range(model.num_topics):
print("*"*50)
print("Topic",j)
print("*"*50)
for i in dist_sorted[:10,j]:
print("Title:",docs[i]["title"])
print(docs[i]["body"])
print("="*50)
************************************************** Topic 0 ************************************************** Title: IRAN REPORTS HEAVY FIGHTING IN IRAQI KURDISTAN Iran said its troops repulsed heavy Iraqi counter-attacks and continued their advance through the rugged mountains of Iraqi Kurdistan in overnight fighting on the northern war front. Iran launched the new offensive, codenamed Karbala-7, on Tuesday night among the snow-capped peaks of the Haj Omran border area of northeast Iraq. The Iranian news agency IRNA, received in London, said the troops "continued their successful advance ... With more thrusts into enemy positions." It said "remnants of Iraqi Brigade 604 was shattered and 200 of its personnel killed or wounded." One battalion of the 25th Division's Third Brigade thrown into counter-attacks today suffered 70 pct losses, the agency added. Some 208 prisoners of war had been taken from the front. IRNA said the Iranian forces backed by heavy artillery fire were continuing to advance. No Iranian casualties were given. The area between Haj Omran and the Kurdish town of Rawandiz some 65 km inside Iraq was the scene of heavy fighting in 1983. Iran has backed dissident Kurds in the area in attacks on government positions and installations in northern Iraq. IRNA said the Iranian forces captured large amounts of munitions in the latest fighting. The Iraqis have made no comment so far on the Kurdistan fighting, or on advances Tehran reported yesterday on the southern war front east of the strategic Iraqi port of Basra. IRNA said today a group of its reporters visited newly-captured areas on the southern front and found the battlefield littered with the bodies of Iraqi soldiers and burnt military equipment. They quoted an Iranian soldier, Hamid Dehqani, as saying heavy rainfall during the past few days "had paralysed the Iraqi enemy from embarking on any action" against the attacking Iranians. IRNA referred to the "Fish Canal" -- the man-made Fish Lake -- made by the Iraqis as a defensive barrier on the eastern side of the Shatt al-Arab waterway. The agency yesterday said infantry and armour of the Revolutionary Guards had captured strong defences west of the canal in bitter fighting with Iraqi troops. REUTER ================================================== Title: ECONOMIC SPOTLIGHT - ASIAN DROUGHTS Three geographically diverse droughts in Asia are being linked by some scientists to a reintensification of the complex and little-understood El Nino weather pattern, <Accu-Weather Inc>, a commercial weather forecasting service, said. Rice and wheat farmers in China, wheat and sugarcane growers in Australia and tea planters in Sri Lanka all face serious losses to their respective harvests unless rains arrive in time to break the droughts, offical reports, government officials and meteorologists said. Wen Wei Po, a Hong Kong daily with close Peking links, said the drought is the worst in over 20 years and some provinces have been without adequate rainfall for more than seven months. Rice planting is threatened in eight provinces, it added. Rainfall in the key farming provinces of Henan and Sichuan was 70 pct below average during February, the lowest figure for over 20 years, the paper said. The dry weather has cut stored water volumes by over 20 pct compared with last March and lowered the water levels of many rivers, it added. This has resulted in reduced hydro-electric power, causing shortages to industry and households. The upper reaches of the Yangtze are at their lowest levels in a century, causing many ships to run aground, Wen Wei Po said. Unusually high temperatures have also been reported across China, media reports said. The People's Daily said Sichuan has recorded temperatures three degrees Celsius higher than average since early February. The New China News Agency said the average December temperature in Harbin in the northeast was six degrees higher than last December and 14 degrees higher than December 1984. Severe drought is affecting about one-third of Sri Lanka and threatens to reduce the country's tea crop, Ministry of Plantation Industries officials told Reuters In Australia, concern is growing about below-average rainfall levels in parts of the sugarcane belt along the Queensland coast and in Western Australia's wheat belt, local Meteorological Bureau officials said. For many farmers and government officials the fear is that while the present low rainfall does not yet pose a major threat, the prospect of a dry autumn/winter season when the wheat crop is in its early stages certainly does, they added. Concern is heightened by the memory of the 1982/83 drought which devastated the wheat crop and coincided with the occurrence of the barely understood weather phenomenon known as El Nino, they said. Although meteorologists are cautious about linking the Asia-Pacific region's disrupted weather patterns to any single cause, El Nino's role is being closely studied, they said. Accu-Weather Inc, which specialises in providing data for agriculture and shipping interests, said each El Nino 'event' was unique. The El Nino does not always produce the same effects and the present occurrence is much less pronounced than the last major event in 1982/83, it said. El Nino, Spanish for "Christ Child" because it appears around Christmas, is formed by the action of warm air, bearing clouds and rain, shifting from the Indonesian archipelago to the coast of Peru, where it mingles with the cold waters associated with the Peru current and returns across the Pacific as the trade winds, meteorologists said. The winds, strengthened by El Nino's "pump" effect, raise the sea level off Australia and Indonesia, they said. When the winds drop, the ocean, seeking equilibrium, sends a surge of warmer water back across the Pacific where it collides with the cold seas off Peru, they said. One effect of this heat exchange is to deflect the rain-bearing clouds away from Australia and Indonesia into the Pacific, where they further disrupt other weather patterns. The prospects for an end to the droughts vary, Accu-Weather said. China, where the affected areas have received between 40 and 75 pct of normal rainfall, will have to wait for the May-September rains, it said. The May-September rains normally provide the drought-striken areas with 80 pct of annual rainfall. In Australia, areas of Queensland's coastal strip have received less than half the normal rainfall during the current wet season, but prospects for increased rains are diminishing as the rainy season draws to an end. In Sri Lanka, the drought has come when rainfall should be at its maximum for the year. The year's secondary rains usually occur between April and June, although it is not possible at this stage to forecast whether they will arrive as usual. REUTER ================================================== Title: EC MINISTERS BID TO SAVE DAIRY ACCORD European Community (EC) farm ministers were fighting hard early today to prevent a deal on cutting overflowing milk production from turning sour before trying to agree widescale reforms in other surplus sectors. Meanwhile, protests from angry European farmers over successive attempts to scale down unwanted Community food production appeared to be gathering strength. In the northeastern Spanish city of Saragossa thousands of Spanish farmers battled with police during a march to demand a better deal from Brussels. The farmers traded stones for tear gas and rubber pellets and occupied local government buildings while in the southern city of Malaga, citrus growers dumped more 20 tonnes of lemons on the streets in protest at EC duties. Towards the end of last week, about 10,000 angry West German farmers marched through the streets of Hanover burning effigies of Agriculture Minister Ignaz Kiechle while in France pig-farmers barricaded roads in protest at falling prices. Europe's 12 mln farmers are furious over plans by the European Commission to cut subsidised prices and severely limit farmers' automatic right to sell unwanted food into public stores at high guaranteed EC prices. In the toughest-ever proposals for the annual price review, at which EC ministers set the levels of subsidies, Agriculture Commissioner Frans Andriessen has included measures that could result in price cuts for some products of up to 11 pct. The plans form part of an on-going campaign to reform surplus-creating farm policies that have become a political embarrassment at home and commercial flash-point abroad and threatened to leave the Community with no cash for other areas. Andriessen's latest package comes only months after a decision to cut dairy production by 9.5 pct over two years and to slash beef prices by around 10 pct. That decision, agreed in outline last December after virtually nine days of non-stop negotiations, was hailed as the most significant step yet in the reform offensive, but has since run into difficulties over the fine print. West Germany and Ireland are objecting to the new rules governing the sales of surplus butter into cold stores, but the Commission is loathe to abandon its position as the accord has been used as the inspiration for Andriessen's latest package. Ministers failed yesterday to overcome the problem, and resumed negotiations in a bid to finalise the details before starting the price review which is confidently predicted to last many months. EC farm spending currently swallows two thirds of an overall annual budget of around 40 billion dlrs and is almost entirely blamed for a projected budget shortfall later this year of some 5.7 billion dlrs. Reuter ================================================== Title: TWA <TWA> TANGLES PIEDMONT <PIE> SITUATION Trans World Airlines Inc complicated the bidding for Piedmont Aviation Inc by offering either to buy Piedmont suitor USAir Group or, alternatively, to merge with Piedmont and USAir. Piedmont's board was meeting today, and Wall Street speculated the board was discussing opposing bids from Norfolk Southern Corp and USAir. The TWA offer was announced shortly after the Piedmont board meeting was scheduled to begin. TWA offered to buy USAir for 52 dlrs cash per share. It also said it was the largest shareholder of USAir and threatened to go directly to USAir shareholders with an offer for 51 pct of the stock at a lower price. TWA also said it believed its offer was a better deal for USAir shareholders than an acquisition of Piedmont, but it said it alternatively would discuss a three-way combination of the airlines. Market sources and analysts speculated that TWA chairman Carl Icahn made the offer in order to put his own airline into the takeover arena. "We're just wondering if he's not just trying to get TWA into play. There's speculation on the street he just wants to move onto somthing else," said one arbitrager. "We think TWA might just be putting up a trial balloon." Analysts said the offer must be taken seriously by USAir, but that the airline will probably reject it because the price is relatively low compared to other airline deals. They also said Icahn must prove his offer credible by revealing financing arrangements. "They need to show their commitment and their ability to finance. I think it's a credible offer," said Timothy Pettee, a Bear Stearns analyst. "I think it's certainly on the low end of relative values of airline deals," said Pettee. Pettee estimated 58 dlrs would be in a more reasonable range based on other airline mergers. USAir stock soared after TWA made public its offer. A spokesman for USAir declined comment, and said USAir had not changed its offer for Piedmont. USAir offered of buy 50 pct of that airline's stock for 71 dlrs cash per share and the balance for 73 dlrs per share in USAir stock. USAir closed up 5-3/8 at 49-1/8 on volume of 1.9 mln shares. Piedmont, which slipped 1/2 to close at 69-5/8, also remained silent on the TWA action. Piedmont has an outstanding 65 dlr cash per share offer from Norfolk Southern Corp. Norfolk Southern declined comment, but said it stuck with its offer for Piedmont. Norfolk owns about 20 pct of Piedmont and opened the bidding when it said it would propose a takeover of Piedmont. Some analysts said Icahn may be trying to acquire USAir to make his own airline a more attractive takeover target. "Icahn I think had wanted to sell his airline and there were no takers. I think the strategy might have called for making his investment more attractive. One way to accomplish that specific objective is to go out and acquire other airlines," said Andrew Kim of Eberstadt Fleming. "I don't know whose going to buy them, but at least this way it becomes a much more viable package," said Kim. But Icahn's financing ability for such a transaction remains in doubt, in part because of TWA's heavy debt load. Wall street sources said TWA has some cash with which to do the offer. The sources said Icahn has not lined up outside financial advisers and plans to make his own arrangements. Icahn earlier this year abandoned plans to buy USX Corp <X> and still retains 11 pct of that company's stock. Some Wall street sources said the financier's USX plan was impacted by the cloud hanging over his adviser, Drexel Burnham Lambert Inc, because of Wall Street's insider trading scandal. Industry sources also predicted USAir might reject the TWA offer on price and financing concerns. "It's littered with contingencies and it doesn't even have a financing arrangement," said one executive at another major airline. But the executive conceded a merged TWA-USAir would be a strong contender with USAir's east coast route system and planned west coast presence from PSA. USAir could feed the intenrational flights of TWA, which has a midwest presence in its St. Louis hub. Adding Piedmont, dominant in the southeast, to the mix would develop an even stronger force. The combined entity would also have TWA's pars reservation system. Such a merger would be complex and analysts said it would result in an airline iwth an 18 pct market share. Reuter ================================================== Title: TALKING POINT/PIEDMONT <PIE> Carl Icahn's bold takeover bid for USAir Group <U> has clouded the fate of Piedmont Aviation Inc, which was being courted by USAir. Yesterday, Icahn's Transworld Airlines Inc <TWA> made a 1.4 billion dlr offer for USAir Group. The move complicated a USAir takeover offer for Piedmont, which was believed to be close to accepting the bid. Today, USAir rejected Icahn's 52 dlr per share offer and said the bid was a last-minute effort to interfere in its takeover of Piedmont. Icahn was unavailable for comment. Piedmont fell one to 68-5/8 on volume of 963,000. TWA was off 3/8 to 31-1/2. USAir fell 1-3/8 to 47-3/4 as doubt spread it would be taken over. Analysts and market sources view the TWA bid as an attempt to either trigger a counter offer from USAir or to attract a suitor who might want both airlines once they merged. "The next move is either Icahn starts a tender offer or Piedmont and USAir announce a deal," speculated one arbitrager. Some arbitragers said there is now some risk in the current price of Piedmont since it is not clear that USAir's bid will succeed. Piedmont's largest shareholder and other suitor, Norfolk Southern Corp <NSC> has offered 65 dlrs per share for the company. USAir offered 71 dlrs cash per share for half of Piedmont stock, and 73 dlrs per share in stock for the balance. Some arbitragers, however, believe the depressed price of Piedmont offers a buying opportunity since the airline is destined to be acquired by someone. USAir, they said, is the least likely to be bought. Icahn, who has long talked about further consolidation in the airline industry, also offered USAir the alternative of a three-way airline combination, including TWA and Piedmont. But Wall Street has given little credibility to Icahn's offer, which lacked financing and was riddled with contingencies. Still, he has succeeded in holding up a merger of two airlines - both of which analysts said would fit well with TWA. "You can't discount him," said one arbitrager. Analysts, however, said Icahn would have to prove he is serious by following through with his threats or making a new offer. In making the offer for USAir, Icahn threatened to go directly to shareholders for 51 pct of the stock at a lower price if USAir rejected his offer. "It's clear Icahn wants to sell and he's bluffing," said one arbitrager. Analysts said the 52 dlr per share offer was underpriced by about six dlrs per share. Some analysts believe Icahn's proposed three-way airline combination might face insurmountable regulatory hurdles, but others believe it could be cleared if the companies are acquired separately. "TWA would have to be the surviving company for the deal to work," said one analyst. Analysts said such a merger would be costly and complicated. TWA has the best cost structure, since Icahn succeeded in winning concessions from its unions. In order for the other carriers to come down to TWA's wage scale in a merger, TWA would have to be the surviving entity, analysts said. Such a move does not necessarily free Icahn of TWA, they said. They said he showed skill in reducing Ozark Airlines' costs when he merged it into TWA last year, and he might be a necessary ingredient for a merger to work. However, other analysts speculated the managements of Piedmont and USAir would not tolerate Icahn as head of a new company. They said a USAir acquisition of TWA might be a way for him to exit the company if USAir's airline is then merged into TWA. Reuter ================================================== Title: IRAQ SAYS IT CRUSHED IRANIAN ATTACK IN NORTH Iraq said today its forces had crushed an Iranian attack on a strategic mountain peak in a rugged and snow-clad area of Iraqi Kurdistan. The official Iraqi news agency INA said the attack was repelled yesterday by the Fifth Army Corps' 96th Brigade on "Karda Ku" peak, overlooking the northern post of Haj Omran and 340 kms north of Baghdad. INA said hundreds of Iranians were killed and large quantities of armour and weapons were left behind. It did not give Iraqi casualties. The Iranian news agency IRNA said yesterday that Iraqi troops had suffered 3,000 casualties in Iran's week-old offensive in northeast Iraq. Iran attacked across snow-capped peaks of northeastern Iraq last week in an area which saw heavy fighting in mid-1983. The thrust followed fierce battles near Basra, Iraq's second city on the southern front of the 6-1/2-year-old conflict, after an Iranian cross-border offensive launched on January 9. The political department head at Iraq's Defence Ministry, Abdul Jabbar Muhsen, said on Monday fighting was continuing in the north but that Iran had exaggerated battle reports. He said Tehran had done this "to make up for failure in the south and to encourage anti-Baghdad Kurdish rebels to support its troops." Tehran has supported anti-Baghdad Kurdish guerrillas in operations against government positions and installations in northern Iraq. REUTER ================================================== Title: IRAQ SAYS IT CRUSHED IRANIAN ATTACK IN NORTH Iraq said today its forces had crushed an Iranian attack on a strategic mountain peak in a rugged and snow-clad area of Iraqi Kurdistan. The official Iraqi news agency INA said the attack was repelled yesterday by the Fifth Army Corps' 96th Brigade on "Karda Ku" peak, overlooking the northern post of Haj Omran and 340 kms north of Baghdad. INA said hundreds of Iranians were killed and large quantities of armour and weapons were left behind. It did not give Iraqi casualties. The Iranian news agency IRNA said yesterday that Iraqi troops had suffered 3,000 casualties in Iran's week-old offensive in northeast Iraq. Iran attacked across snow-capped peaks of northeastern Iraq last week in an area which saw heavy fighting in mid-1983. The thrust followed fierce battles near Basra, Iraq's second city on the southern front of the 6-1/2-year-old conflict, after an Iranian cross-border offensive launched on January 9. The political department head at Iraq's Defence Ministry, Abdul Jabbar Muhsen, said on Monday fighting was continuing in the north but that Iran had exaggerated battle reports. He said Tehran had done this "to make up for failure in the south and to encourage anti-Baghdad Kurdish rebels to support its troops." Tehran has supported anti-Baghdad Kurdish guerrillas in operations against government positions and installations in northern Iraq. REUTER ================================================== Title: EC COMMISSION DEFENDS FARM PROGRAM The European Community's (EC) executive Commission defended attacks on major elements of its ambitious program to rid the EC of its controversial farm surpluses, after strong attacks from northern states. Britain and West Germany, backed by the Netherlands and Denmark, opposed a proposed tax on edible oils and fats which has already sparked strong protest from exporters to the EC led by the U.S. and from EC consumer groups, diplomats said. But EC Agriculture Commissioner Frans Andriessen told journalists he had warned ministers that failure to agree the tax, proposed last month as part of the Commission's annual farm price package, would leave a large hole in the group's budget. He added that he hoped states had not yet made their mind up for good. "I hope the debate is still open, if not there will be a formidable hole in the budget," he said. The shortfall could reach two billion dollars in 1988 and would be only slightly less this year, he said. Foreign ministers were taking a first look at the tax ahead of farm ministers in a move described by diplomats as unprecedented and welcomed by Andriessen as a sign ministers recognised the importance of reforming the EC's farm policy. The proposed tax is designed to provide the EC with extra cash to finance community oilseed crops at their current levels and to brake a dramatic decrease in olive oil consumption by making it more competitive with other oils. Andriessen noted the EC has over two mln olive oil producers, mostly small farmers, who could be helped by the tax. "What we are suggesting is reasonable, it should be better understood not just outside the community but at home," he said. Britain, normally a keen advocate of radical changes in the EC's costly farm subsidies system, warned the proposal to impose the tax on both domestic and imported oils and fats could seriously damage the EC's trade relations with other countries. Britain also warned that the tax could hit developing countries already receiving aid from the EC, they said. The Commission also defended proposals to dismantle Monetary Compensatory Amounts (MCA) -- a system of cross border subsidies and taxes to level out foreign exchange fluctuations for farm exports -- against harsh West German criticism. In a letter this weekend from Chancellor Helmut Kohl to EC executive Commission President, Jacques Delors, Kohl made clear such a dismantling would mainly hit West German farmers. Diplomats said West Germany again repeated its criticism at the talks here but Andriessen told journalists that Germany had been alone in its opposition. The question was a key aspect of the Commission's farm price proposals, he added. Ministers also agreed a 3.5 billion dlrs scheme to rid the EC of its butter mountain, despite Spanish and Portuguese opposition. The scheme will pay for the disposal of one mln tonnes of unwanted butter, by selling it at knock-down prices, turning it into animal feed or exporting it at subsidised prices. National capitals are due to be reimbursed later out of savings from another plan to curb milk production. Diplomats said Spain and Portugal have been angered by the scheme, which they feel forces them to pay for massive surpluses built up before they joined the community last year, but the two countries did not block today's vote. Reuter ================================================== Title: U.S. PREPARED TO ESCORT KUWAITI TANKERS The United States has offered Navy warships to escort Kuwaiti oil tankers into and out of the Gulf where they could be threatened by new Iranian anti-ship missiles, U.S. defense officials said today. "We believe the Kuwaitis have also approached the Soviet Union about the possibility of using Soviet tankers" to ship their oil, one of the officials told Reuters. "But if there is superpower protection, we would rather it come from us," the official said. The officials, who asked not to be identified, said Kuwait had asked about possible protection for a dozen vessels, most of them oil tankers, which could be supplied by three U.S. Navy guided missile destroyers and two guided missile frigates now in the southern part of the Gulf. "We told them we would give them help and we are waiting to hear the Kuwaiti response to our offer," one official said. In addition to a half dozen ships in the U.S. Navy's small Mideast Task Force near the Straits of Hormuz, the Pentagon has moved 18 warships -- including the Aircraft Carrier Kitty Hawk -- into the northern Indian Ocean in the past month. White House and defense officials said today that massing of the fleet was routine and had nothing to do with the Iran-Iraq war or Iran's recent stationing of Chinese-made anti-ship missiles near the mouth of the Gulf. The land-based missiles have increased concern in Kuwait and other Middle East countries that their oil shipments might be affected. Several hundred vessels have been confirmed hit in the Gulf by Iran and Iraq since early 1984. White House spokesman Marlin Fitzwater told reporters today that it was in the U.S. strategic interest to keep the free flow of oil in the gulf and through the Straits of Hormuz. But he said U.S. ships in the region were on routine maneuvers. Defense Secretary Caspar Weinberger on Sunday declined to discuss specifics, but said the United States would do whatever was necessary to keep the Gulf shipping open in the face of new Iranian anti-ship missiles in the region. "We are fully prepared to do what's necessary to keep the shipping going and keep the freedom of navigation available in that very vital waterway of the world," he said on NBC television's "Meet the Press." The State Department said Friday Iran has been informed about U.S. concern over the threat to oil shipments in the Gulf. The communciation was sent through Switzerland, which represents American interests in Iran. Iran on Sunday denied as baseless reports that it intended to threaten shipping in the gulf and warned the United States that any interference in the region would meet a strong response from Tehran, Tehran Radio said. An Iranian Foreign Ministry spokesman, quoted in a broadcast monitored by the BBC in London, said reports that Iran intends to threaten shipping in the Gulf were baseless. "In conjunction with this misleading propaganda, America has already paved the ground to achieve its expansionist and hegemonistic intentions, aiming to build up its military presence in the region," he was quoted as saying. Reuter ================================================== Title: NORWAY OFFERS 11TH LICENCE ROUND OFFSHORE BLOCKS Norway has offered 10 new offshore blocks to foreign and domestic applicants in the first phase of the country's eleventh concession round, government officials said. Company shares in each of the licences proposed by the Oil and Energy Ministry are not final. The ministry has given the companies 10 days to accept or decline the proposed shares. French companies Ste Nationale Elf Aquitaine <ELFP.PA> and Total Cie Francaise des Petroles <TPN.PA>, which were expected to receive operatorships following France's agreement last autumn to purchase gas from Norway's Troll field, were not offered operatorships in this round, industry sources said. Three eleventh round blocks were awarded in the Haltenbanken exploration tract off central Norway, including the Smoerbukk West field where Den Norske Stats Oljeselskap A/S <STAT.OL> (Statoil) was appointed operator. Statoil will share the licence with subsidiaries of U.S. Oil companies Tenneco Inc <TGT.N> and Texas Eastern Corp <TET.N> and the Italian oil company <Agip SpA>'s Norwegian subsidiary. E.I. Du Pont de Nemours <DD.N> subsidiary Conoco Norway Inc was named operator on Haltenbanken block 6406/8 and will share the licence with Statoil. Norsk Hydro A/S <NHY.OL> will operate nearby block 6407/10 with partners Statoil, Norsk Agip A/S, Royal Dutch/Shell Group's <RD.AS> A/S Norske Shell and <Deminex> unit Deminex (Norge) A/S. Statoil has been offered the operatorship on a new block in the relatively unexplored Moere South exploration area south of Haltenbanken, with A/S Norske Shell, Texas Eastern and <Petroleo Brasileiro SA> (Petrobras) also offered stakes in the block. Norwegian companies landed operatorships on all six blocks opened in the Barents Sea area off northern Norway. The blocks were awarded in three licenses, each covering two blocks. Statoil will head exploration on blocks 7224/7 and 7224/8, sharing the licence with Exxon Corp's <XON.N> Norwegian subsidiary Esso Norge A/S, The British Petroleum Co PLC's <BP.L> BP Petroleum Development (Norway) Ltd, Shell, Norsk Hydro and Saga Petroleum A/S <SAGP.OL>. Blocks 7219/9 and 7220/7 were awarded to Norsk Hydro, the operator, Statoil, Mobil Corp's <MOB.N> Mobil Exploration Norway, Petrofina SA's <PETB.BR> Norske Fina A/S and BP. The third Barents Sea licence, covering blocks 7124/3 and 7125/1, went to Saga Petroleum A/S, the operator, Statoil, Atlantic Richfield Co's <ARC.N> Arco Norge A/S, Total Marine Norge A/S and Amerada Hess Corp <AHC.N>. The oil ministry withheld awards on four strategic blocks included in the eleventh round's second phase. The ministry is accepting applications for phase two blocks until early April and the awards will likely be announced this summer, officials said. REUTER ================================================== ************************************************** Topic 1 ************************************************** Title: SAN MIGUEL DEAL HIT BY MORE LAWSUITS A bid by San Miguel Corp (SMC) <SANM.MN> to buy back 38.1 mln sequestered shares from United Coconut Planters Bank (UCPB) has been hit by two new lawsuits, sources in the Philippine food and brewery company said. A Manila court yesterday issued an injunction barring UCPB from selling the shares, which represent 31 pct of SMC's outstanding capital stock of 121 mln shares, until hearings on April 21 on a petition filed by Eduardo Cojuangco, a former chairman of both SMC and UCPB. Cojuangco said the Coconut Industry Investment Fund (CIIF) and 1.4 mln farmers were the rightful owners of the shares. Cojuangco said the shares were held in trust by UCPB and represented a blue chip investment. His petition said UCPB's plans to sell the shares to SMC were "a serious breach of fiduciary duties." The SMC sources said the proposed share sale could also be held up by a second derivative suit filed before the Securities and Exchange Commission (SEC) by Eduardo de los Angeles, a government nominee on the company's board. De los Angeles, who represents SMC's minority stockholders, asked the SEC to block the transaction, approved last week by the company's board. On April 2 the board sanctioned the repurchase of the sequestered shares for 4.79 billion pesos at 126 pesos per share. De los Angeles told the SEC the company's retained earnings of 1.33 billion pesos would be wiped out by the purchase of the shares and would prevent the declaration of dividends. De los Angeles said the share purchase would also violate an SMC agreement with its creditors to maintain a 2.2-to-1 debt to equity ratio. He quoted SMC's chief financial director Ramon del Rosario as telling the board that the transaction would boost the ratio to 2.5-to-1. In petitioning the SEC, de los Angeles amended an earlier suit two weeks ago in which he charged SMC Chairman Andres Soriano III and nine other directors of violating their duties. De los Angeles' earlier complaint related to SMC assuming last December a 26.5 mln dlr loan contracted by SMC's Hong Kong subsidiary <Neptunia Corp> for a down payment on the shares. The loan assumption was again ratified by last week's board meeting. An arbitration panel set up by President Corazon Aquino to resolve the ownership issue is expected to submit its report by April 15. "The amended suit filed by Eduardo de los Angeles is part of a continuing attempt by certain elements, in complete disregard of the facts and with questionable motives, to delay an early disposition of the sequestered shares," San Miguel Corp said in a statement. "Coming as it does, when San Miguel Corp and UCPB have reached agreement on the price of the shares and the method of payment, this suit is in direct contravention of the government's expressed desire to reach an amicable settlement of the controversy by April 15," the statement added. A San Miguel spokesman said he had no comment on Cojuangco's court petition, adding: "Any statement coming from us might be interpreted as adversarial." Meanwhile, Ramon Diaz, the head of a government panel which sequestered the shares last year, said Soriano was not eligible to buy the major portion of the shares because he was a United States citizen. The sequestered shares are split into 24 mln "A" shares, which can only be owned by Filipinos, and 14 mln "B" shares which are available to foreign buyers. SMC sources said Soriano personally was not among prospective buyers. They said the shares would be purchased by the <A.Soriano> group of companies, SMC, Neptunia and unnamed institutional investors. Soriano was named as one of the buyers in a bid in March 1986 for 33 mln shares controlled by UCPB. The sale was aborted when Diaz's Presidential Commission on Good Government sequestered the shares on suspicion they were owned by Cojuangco, a close associate of former President Ferdinand Marcos. Cojuangco lives in self-imposed exile in the U.S.. The shares grew to 38.1 mln after a 15 pct stock dividend announced last June. "We have no objection to Soriano buying the "B" shares," Diaz told Reuters. "But everything is on hold now." The SMC spokesman said he did not know if the controversy would be resolved before the company's annual stockholders' meeting, scheduled for May 14. San Miguel Corp reported sales revenue of 12.2 billion pesos in 1986, 11 pct above its 10.9 billion peso sales in 1985. It said unaudited net profit was in the neighbourhood of 700 mln pesos, an increase of about 50 pct over 1985. REUTER ================================================== Title: BOSTON FIVE <BFCS.O>, NEWORLD <NWOR.O> TO MERGE Boston Five Cents Savings Bank said it and Neworld Bank for Savings have agreed to merge, forming a new holding company, Boston Five Bancorp. Boston Five said the proposal calls for its holders to receive 1.163 shares of the new company's stock for each share now held and for Neworld Bank holders to recieve one share for each share held in a tax free exchange. Boston Five said the planned merger with Newworld Bank for Savings Will create the largest savings bank in Massachusetts and the third largest in New England with combined assets of 3.1 billion dlrs. Boston Five chairman Robert J. Spiller said "There is a natural fit between both banks. We consider this to be a merger of equals." Spiller will become Chairman of Boston Five Bancorp and Neworld president James M. Oates will be president and chief executive officer. Boston Five said its President, Peter J. Blampied, will become vice chairman and chief operating officer of the holding company. The board of the holding company will have an equal number of directors from each institution. "Unlike many recent combinations, this merger has no acquisition premium associated with it," Blampied said. Boston Five has assetsof 1.9 billion dlrs and 35 officers. Neworld has assets of 1.2 billion dlrs and 24 officers in Massachusetts. It also has a loan center in New Hampshire. Reuter ================================================== Title: RESORTS INT'L <RT.A> RECEIVES TAKEOVER OFFER Resorts International Inc said it received a proposal from <KSZ Co Inc> under which holders of Resorts class B stock would receive 140 dlrs a share in cash and one share of common stock in a new company to be formed through the takeover. Under the offer, Resorts said holders of its class A shares would receive 15 dlrs a share in cash and three shares of common stock in the new company. Resorts said the offer from KSZ calls for a merger of Resorts with RI Acquisition Co Inc, a newly formed Delaware corporation. Resorts said that prior to the merger, RI Acquisition would be capitalized with about 100 mln dlrs of debt and about 220 mln dlrs of equity. It said 200 mln dlrs of the equity would be in the form of special preferred stock. The KSZ offer, Resorts said, indicates that KSZ has a commitment from <M. Davies Cos> to buy all of the special preferred stock. Resorts said the offer will expire at 1700 EST on March 27. It said it asked its investment advisor, Bear, Stearns and Co, to advise its board on the offer. Earlier this month, the estate of James M. Crosby and certian members of his family agreed to sell their class B shares to New York real estate tycoon Donald Trump for 135 dlrs a share. The estate and family members hold 78 pct of the 752,297 class B shares outstanding. Trump also agreed to pay 135 dlrs a share for the remaining class B shares outstanding. Resorts also has about 5,680,000 shares of outstanding class A stock. These shares carry one one-hundredth the voting power of the class B shares. Trump's offer beat out a rival bid of 135 dlrs a share made by Pratt Hotel Corp <PRAT>. Resorts said that under the proposal made by KSZ, existing class A and class B shareholders would control about 96 pct of the outstanding common of the new company formed to acquire Resorts. Resorts said the new company, upon completion of the merger, would hold the 220 mln dlrs of debt and that the special preferred stock would immediately be converted into exchangeable participating preferred of the new company. This preferred, Resorts said, would pay a dividend based on the net cash flows from the new company's Paradise Island operations. A Resorts spokesman said the KSZ offer was made in a two-page letter and that Resorts could not comment on it because it did not contain enough information. Resorts has asked Bear, Sterns to obtain complete data, he said. The spokesman said Resorts is not familiar with KSZ but that it believes the company is controlled by Marvin Davis, the Denver oilman. Calls to Davis were referred to Lee Solters, who handles public relations for Davis. Solters, said to be travelling, was not immediately available for comment. Donald Trump was also unavailable for comment, as was a spokesman for the Crosby estate. Reuter ================================================== Title: DEUTSCHE BANK SAYS NO SUPPORT FOR VW MANAGEMENT West Germany's biggest bank said it would withhold support from Volkswagen AG <VOWG.F> management at next month's annual meeting because of the VW currency scandal. Deutsche Bank AG <DBKG.F> said it would abstain in votes exonerating VW management and the supervisory board, which represents shareholders and employees, unless an auditor's report on the currency scandal is published before the July 2 annual meeting and either clearly absolves or blames the management and board. Several shareholder groups have said they will vote against management at what promises to be a stormy annual meeting. If a majority of shareholders back these groups, the top management of Europe's biggest carmaker could be dismissed. Deutsche said it expected the results of the auditor's report on the currency fraud, which cost VW some 260 mln dlrs, to be published before the annual meeting. But in a letter to Deutsche customers depositing their VW shares at the bank, Deutsche wrote: "Without knowledge of these results, we do not think we are in a position to make you a suggestion for or against exoneration of the management board and supervisory board." "Unless you give us instructions to the contrary, we will abstain with your shares ... but we reserve the right to vote for or against exoneration of the management board and supervisory board, if this seems in your interest in line with the results of the auditor's report," it added. A strong shareholder vote against the management would empower the supervisory board to dismiss the management if it chooses, though such a move would not be mandatory. A member of the supervisory board who does not receive exoneration at an annual meeting may have to step down. An abstention or no-vote by banks on behalf of customers against management would in itself be a vote of no confidence. German banks traditionally use their huge proxy votes at annual meetings to support the management of the company, in which they are often represented on the supervisory board. VW management board chairman Carl Hahn said in April that 1986 profits had been hit by the scandal, in which documents relating to currency arbitrage were allegedly faked, but profits for 1987 would not be affected. Following the scandal, finance director Rolf Selowsky resigned, and former chief dealer Bobby Junger was arrested. Deutsche represents 8-10 pct of VW's share capital, the sources said, and F. Wilhelm Christians, one of the bank's two management board spokesmen (chief executives) is on the VW supervisory board. Banking sources said Deutsche was furious with VW after the bank led an international placement of VW shares from the company's record rights issue last September. Less than two months later VW announced a sharp fall in interim profits, bashing its share price and severely denting confidence in the German share market generally. A spokesman for the Savings Bank Association said that German savings banks would vote not to discharge Selowsky, and depending on whether the auditor's report was published would abstain on the vote for other management board members. The federal government and the state of Lower Saxony together have 40 pct of VW shareholders' votes. It is still unclear how they will vote. Associations representing small shareholders will also ensure the annual meeting is heated. The Protective Association for Securities Ownership has said it will vote against the entire management board, and the Protective Society for Small Shareholders will also vote against the supervisory board. A spokeswoman for Deutsche Treuhand-Gesellschaft AG, the auditors commissioned by VW in March to investigate the scandal, declined to comment when its report would be issued. Reuter ================================================== Title: ATT <T> TO REDEEM 15.5 MLN PREFERRED SHARES American Telephone and Telegraph said that, effective May 1, it will spend 775 mln dlrs to redeem 15.5 mln shares of the outstanding 16.7 mln shares in two publicly held preferred stock issues. The two issues have a stated value of 50 dlrs per share and pay 3.64 dlrs and 3.74 dlrs in annual dividends, respectively, ATT said, adding it will redeem 7.9 mln shares of its 3.64 dlrs pfd stock and 7.6 mln shares of its 3.74 dlrs pfd stock. ATT's corporate vice president and treasurer S. Lawrence Prendergast said ATT expects to finance the redemption with cash. "The redemption is part of our continuing efforts to reduce ATT's financial risk," Predergast said. "In 1986 we reduced our outstanding debt and preferred stock by a total of 1.6 billion dlrs. As a result our annual fixed charges were reduced by almost 200 mln dlrs and our ability to service our existing debt was strengthened." The May one preferred stock redemption will save about 50 mln dlrs in dividends annually and will bring ATT's total debt and preferred stock reduction to more than 2.5 billion dlrs since the beginning of 1986, Predergast said. ATT said it is required by the issues' terms to redeem 300,000 shares each year as well as providing for the optional redemption of additional shares. The company said it will redeem 600,000 shares of the 3.64 dlrs preferred issue for 50 dlrs per share and 7.3 mln shares of the issue for 50 dlrs per share plus a premium of 2.18 dlrs per share. ATT said it will redeem each of the 3.74 dlrs preferred shares 50 dlrs a share plus a premium of 2.35 dlrs a share. After the redemption, 600,000 shares of each issue will remain outstanding, ATT said. ATT said it will select the redeemable shares by lot according to the issues' terms, adding that the record date for determining the redeemable shares will be March 26, 1987. The company said it will pay the May 1 dividend for all preferred shares, including those being redeemed, in a normal way to shareholders of record as of March 31, 1987. ATT said no transfer of the shares being called for redemption will be made after March 26, 1987 and the transfer books will close for those shares on that date. American Transtech Inc, the paying agent for the shares, will send notices of the redemption on March 30 to the preferred shareholders who were selected by lot, ATT said. Reuter ================================================== Title: MAXWELL FILES SUIT TO STOP HARCOURT <HBJ> Publisher Robert Maxwell's British Printing and Communicaton Corp PLC said it filed a lawsuit in U.S. district court against Harcourt Brace Jovanovich Inc, its directors and advisers to stop, among other things, payment of the special dividend Harcourt is paying as part of its recapitalization. The suit, filed in Manhattan, also names First Boston Corp <FBC> and seeks to void the issue by Harcourt of 40,000 shares of super voting preferred stock to First Boston Securities Corp and the issue of convertible voting preferred stock with 4,700,000 votes in the Harcourt employee stock ownership plan. The preferred shares to be issued to First Boston have 8,160,000 votes. The suit, brought derivatively on behalf of Harcourt and individually in British Printing's capacity as a substantial holder of Harcourt common shares and 6-3/8 pct convertible debentures. The suit alleges Harcourt's special dividend exceeds by more than one billion dlrs Harcout's surplus available for dividends under New York law and contstitutes a fraudulent conveyance. The lawsuit also alleges that Harcourt failed to disclose that one consequence of the payment of the dividend, which it terms illegal, will be that shareholders will be liable to repay it. Harcourt last week said it would pay 40 dlrs per share to stockholders as a special dividend. Harcourt also announced an extensive recapitalization plan, which analysts said was aimed at thwarting a takeover effort by British Printing. British Printing last week withdrew its 44 dlr per share, or two billion dlr offer for Harcourt because of the recapitalizaton plan. At the time, it said it was reviewing its alternatives. British Printing said it filed the suit after consultation with its advisers. Its lawsuit also alleges that Harcourt failed to disclose the effect of the special dividend on Harcourt 6-3/8 pct convertible debentures. British Printing alleges the effect will be an enormous increase effective on the June eight record date for the dividend in the number of Harcourt common shares issuable upon conversion of the debentures. British Printing also charged Harcourt is unlawfully coercing debenture holders to convert denbentures before the record date because Harcourt may not have enough authorized common shares to honor conversion after the date. British Printing holds 460,600 shares and 5.6 mln dlrs worth of debentures. The suit also alleges that management, the board of directors, and First Boston engaged in an illegal scheme of entrenchment through a combination of selling to First Boston Securities Corp the super voting preferred at a bargain price, the grant to the company employee stock plan of convertible voting preferred, the six mln share open market repurchase program and the manner in which its financing has been structured. Reuter ================================================== Title: MANHATTAN NATIONAL <MLC> NAMES NEW CHAIRMAN The board of directors of Manhattan National Corp said it has named Charles Hinckley chairman and chief executive officer of the life insurance holding company, replacing Wilmot Wheeler Jr, who returns to his former position of vice chairman. Hinckley is also president and chief executive officer of <Union Central Life Insurance Co>, a mutual insurer that on March 31 acquired 3.6 mln shares of Manhattan National's common stock for 43.2 mln dlrs, or 12 dlrs a share, a spokesman for Manhattan National said. The spokesman said the purchase, coupled with the 900,096 Manhattan National shares Union Central already owned, brought Union Central's Manhattan National stake up to 52.2 pct of the outstanding common shares. Manhattan National said it also named five others from Union Central to its board of directors. The spokesman said Union Central now holds seven of Manhattan National's thirteen seats on the board of directors. The company also said it named Paul Aniskovich Jr president and chief executive officer of its Manhattan Life Insurance Co and Manhattan National Life Insurance Co units. Aniskovich, who fills a vacancy at the units, formerly was executive vice president of Union Central Life. Reuter ================================================== Title: NATIONAL HEALTHCARE <NHCI.O> CHAIRMAN RESIGNS National Healthcare Inc said Stephen L. Phelps resigned as chairman of the board of directors effective October 19, to pursue other business interests. In addition, Joseph D. Bohr Jr., Anders K. Brag and Robert E. Johnstone have resigned as directors, the company said. National Healthcare said James T. McAfee Jr., president and chief executive officer, was elected to the additional post of chairman. Robert M. Thornton Jr., executive vice president, chief financial officer and treasurer, was also elected a company director, the company said. In addition, Charles E. Baxter, executive vice president and secretary, William H. Cassels, senior vice president, and Bohr, executive vice president, resigned as officers of the company effective October 19. Phelps, Baxter, Bohr and Cassels have agreed to perform consulting services for the company after their resignations, the company said. National provides integrated health care services. Reuter ================================================== Title: COMPROMISE CITED ON SAN MIGUEL SHARES <San Miguel Corp>, SMC, and <United Coconut Planters Bank>, UCPB, have reached a compromise on a disputed block of 38.1 mln shares of SMC, the head of a government panel that controls the sequestered shares said. Ramon Diaz, Chairman of the Presidential Commission on Good Government (PCGG) told Reuters SMC had offered a price of 126 pesos per share for the block, held in trust by the UCPB. "It looks good," Diaz said. But he added several issues, including the identity of the ultimate buyers of the shares, had to be resolved before the PCGG gave its approval to the sale. The PCGG's sequestration last year of 33 mln shares aborted SMC's bid to buy them back from 14 trading companies in the UCPB group. The commission said it suspected the shares were actually controlled by Eduardo Cojuangco, an associate of former President Ferdinand Marcos. Cojuango, who headed the boards of both SMC and UCPB when he fled last year after Marcos was toppled, personally owned 24 mln shares in SMC. His holdings are also under sequestration. "The shares that SMC now proposes to buy from the UCPB are owned by 1.4 mln coconut farmers," Diaz said. "Naturally we do not want them to go back into the hands of Marcos cronies." PCGG sources said a compromise would end a row over a down payment of 500 mln pesos made by SMC's Hong Kong subsidiary Neptunia Corp Ltd in a bid to buy back the shares last year. The UCPB had said the 500 mln peso payment would be forfeited because SMC Chairman Andres Soriano III had failed to fulfil his commitment to buy back the shares at an originally negotiated price of 3.3 billion pesos. PCGG sources said SMC, the Philippines' largest food and beverage manufacturer, has agreed to sell 14 mln "B" class shares from the 38.1 mln shares to Australian brewer Alan Bond at a price of 150 pesos per share. The PCGG sources said of the proposed 4.79 billion peso transaction, 1.6 billion pesos would be offset against the 500 mln peso down payment, the 500 mln pesos worth of preferred shares in UCPB held by SMC, 210 mln pesos in uncollected dividends on the UCPB shares and 400 mln pesos advanced to UCPB-controlled trading companies. The UCPB rejected an original offer of 100 pesos per share made by SMC for 33 mln shares, which grew to 38 mln after a 15 pct stock dividend declared in June last year. A spokesman for SMC said the company's 15-member board met today to discuss the proposed compromise. The spokesman declined comment on the outcome of the board meeting, saying the dispute was under arbitration. President Corazon Aquino last month asked SMC and UCPB to set up a three-man arbitration panel to resolve the ownership issue. The panel is due to submit its report by April 15. Eduardo de Los Angeles, a government nominee in the SMC board, filed a formal complaint before the Securities and Exchange Commission last week, accusing Soriano and eight other directors of violating "fiduciary duty." De Los Angeles was said to have opposed a decision by SMC's board last December to assume the 500 mln peso Neptunia loan. REUTER ================================================== Title: CENTRUST SAVINGS <DLP> TO RECAPITALIZE STOCK Centrust Savings Bank said it will recapitalize its common stock at the close of business today, converting each share of outstanding common into 0.5 share of common and 0.5 share of series one participating stock. Centrust said its shareholders previously approved the recapitalization at a meeting held on February 20, 1987. Centrust said the series one stock, a newly created series of Centrust's capital stock, has enhanced voting rights versus the common stock. Series one holders generally will vote to elect 75 pct of the board of directors, while common shareholders will elect 25 pct, Centrust said. CenTrust added that the common stock will have the right to vote along with the series one as a single class for the election of 75 pct of the board only if the number of outstanding "high voting stock," including the series one, falls below a certain percentage of outstanding shares of all classes and series of voting stock. CenTrust said the common stock gets one vote per share, the series one gets ten votes per share and there is separate class voting on some matters. CenTrust said series one dividends will be lower than common stock dividends until April 1, 1992. Also the series one will have limited preferential dividend and liquidation rights and will be convertible into common stock. Both series one and the recapitalized common stock shares are scheduled to begin trading on the American Stock Exchange on March 23, 1987. Reuter ================================================== ************************************************** Topic 2 ************************************************** Title: LOWER MARK RATE SPECULATION NOT SHARED IN GERMANY Speculation abroad that the Bundesbank will steer money market rates lower, opening the for interest rate cuts around Europe, is not shared by many economists and money market dealers within Germany. Speculation has developed that the Bundesbank would engineer lower rates to take pressure off the dollar/mark. A strong rise in U.S. Market rates this month, prompting speculation the Fed would raise its 5-1/2 pct discount rate, has raised the question whether Germany and Japan would also broaden interest rate differentials to support the dollar. The U.S.-Japanese trade dispute is the key to the interest rate outlook, money market dealers in Paris said. Talks this week between Japanese Prime Minister Yasuhiro Nakasone and President Reagan, if successful, could take pressure off the dollar, dealers and economists said. Short term interest rates would be likely to ease if the trade dispute is solved and the dollar steadies, they said. But if no solution is found, the Paris dealers said, a renewed dollar fall would put strains on the mark/French franc rate and force the Bank of France to raise short-term rates. The three-month U.S. Treasury bill rate rose to six pct this week from 5.6 pct at the start of April, and the yield on the 30-year benchmark treasury bonds rose this week in Tokyo to a 14-month high of 8.86 pct from 7.66 pct in late March. The dollar stabilized today just below 1.80 marks and above 140 yen, underpinned by higher U.S. Rates and the Fed discount rate speculation. But most dealers expect it to weaken further, which would put pressure on the Bundesbank to ease interest rates. Japanese Finance Minister Kiichi Miyazawa said yesterday the U.S. Had requested Japan to cut short-term interest rates. The Bank of Japan was making efforts to do this, he said, adding the U.S. Had not asked for a cut in Japan's 2.5 pct discount rate, a move which Bank of Japan Governor Satoshi Sumita said was not under consideration. A call for a German move came yesterday from Dutch central bank president Wim Duisenberg, who said the Dutch central bank favoured a cut in West German interest rates and would follow suit if it happened. Citibank AG said in its April report that another expected phase of dollar weakness would prompt the Bundesbank to cut key money market rates in the next three to six months. The Bundesbank has set a fixed rate of 3.80 pct on repurchase pacts since February, with call money trading around 3.70 pct for much of April. Phillips and Drew senior European economist Richard Reid said the Bundesbank would allow interest rates to ease further, either with a lower fixed rate tender, or a tender by interest rate, allowing the market to set the rate. "I'm fairly confident we'll see lower rates," he said. Reid said taking 30 basis points off the repurchase rate would have little impact on the German economy or fundamental exchange rates, but could change market currency perceptions. "A cut in German rates wouldn't be bad for the dollar, but I think its effect would be limited in duration unless it was accompanied by other measures elsewhere," he said. Money market dealers here noted the speculation abroad that the Bundesbank would push down repurchase rates, but said the Bundesbank had little reason to cut rates further at the moment, despite the liquid market seen for most of this month. The dealers said the Bundesbank was likely to move to an interest rate tender for its repurchase pacts next month. That should not be seen as a sign of easing monetary policy however, they said. The Bundesbank would merely be experimenting with interest rate tenders, following the introduction of a new system to speed up the tender process at the start of April, they said. Reinhard Pohl, head of the monetary policy section at the DIW economic research institute in West Berlin, said the Bundesbank would probably not cut rates on repurchase pacts. "I don't think that if they cut the repurchase rate a little it would stop a wave of (currency) speculation," he said. But a sharp and sudden deterioration in the dollar could force the Bundesbank to take some action, he said. Pohl said the Bundesbank was concerned that a cut in interest rates would accelerate excessive monetary growth. Some Bundesbank officials have argued recently that the monetary overshoot was due to strong currency inflows rather than credit growth, and therefore a more appropriate response to excessive money supply growth would be to cut rates, to make the mark and mark investments less attractive. Pohl said the Bundesbank was hoping that domestic investors would switch funds parked in liquid short-term accounts, which have swollen central bank money stock, into securities, which would take them out of the Bundesbank's key monetary measure. A cut in interest rates at this stage however would lead investors to assume that rates had bottomed out and the next move would be upwards. They would therefore hold off buying bonds, leaving central bank money stock swollen. There are so far no signs that German investors are switching funds into long term securities as the Bundesbank hopes they will, Berliner Handels- und Frankfurter Bank economist Hermann Remsperger said. But Phillips and Drew's Reid said prospects of lower rates and a strong currency would attract foreign investors into German bonds, which would in turn attract domestic investors. Werner Rein, chief economist at Union Bank of Switzerland in Zurich, said he thought it likely that interest rates would continue to drift lower in many European countries. "The scope for lower rates is probably greatest in Britain but more limited in West Germany, where we could see some consolidation," he said. Switzerland could be forced to match any cut in German rates to prevent the franc rising further against the mark, he said. Currency dealers in London said another half-point cut in U.K. Bank base rates was likely in the next few weeks as the pound had shrugged off yesterday's cuts and was still rising. REUTER ================================================== Title: FEW EXPECT NEW ECONOMIC INITIATIVES IN VENICE The Venice summit on June 8-10 is likely to disappoint those hoping for new policies to whip up flagging world growth, according to officials from summit countries. Worries over protectionist threats and the Third World debt crisis are also unlikely to be assuaged, they added. The talks may yield agreed statements on the military situation in the Gulf, co-operation in the fight against the killer disease AIDS or on East-West relations, they said. But most summit participants have made it clear that major new initiatives on economic issues must not be expected. West German Chancellor Helmut Kohl said in a recent interview that "the translation of previous announcements into policy is more important than new declarations and commitments." The main goal at the summit would be to strengthen existing agreements to secure steady medium term growth and avoid "the danger of a further devaluation of the dollar" via close co-operation on economic and financial policies, Kohl added. Critics challenged this view. They pointed to the worrying background of slower growth, especially in Japan and Germany, amid fears about a pickup in inflation in the U.S. Which could lead to higher interest rates and exacerbate the debt crisis. The marginal impact that the major shifts in dollar, yen and mark exchange rates have had on the Japanese and German trade surpluses and U.S. Trade and fiscal deficits since the September 1985 Plaza agreement was also a cause for concern. Economists said the recent rise in the dollar was likely to be quickly reversed in the absence of new commitments in Venice. But government officials do not expect summit delegations - from the U.S., Japan, Germany, Britain, France, Italy, Canada and the European Community - to go much beyond restating policy goals enshrined in the February Louvre agreement of Group of Seven finance ministers and central bankers. Under the agreement, aimed at halting the dollar's 20-month decline and at fostering balanced growth, Japan and West Germany would work to eliminate their trade and payments surpluses in return for a U.S. Pledge to reduce fiscal deficits. A 6,000 billion yen package announced by Prime Minister Yasuhiro Nakasone last week went some way towards that goal and appeared to have saved Japan from a widely anticipated summit attack on its economic policies, officials said. The package, featuring government spending and tax cuts to stimulate demand, drew a cautious welcome in European capitals but its reception in the U.S. Was much more enthusiastic. Treasury Secretary James Baker commented, "Of course, implementation is the key, but this is clearly forward movement toward fulfillment by Japan of its commitments." With Japan signalling its willingness to boost domestic demand rather than rely on exports for growth, the U.S. And other summit countries were now set to shift their attention to West Germany and press Kohl for similar action, officials said. U.S. Assistant treasury secretary David Mulford said there was worldwide concern that German economic growth has flagged, and the U.S. Would demand that Kohl confirm a commitment that policies would be reviewed if growth continued sluggish. But West German officials said Kohl would fiercely resist any such pressure. One senior Bonn official said, "There is just no room for manoeuvre for any economic moves." Finance minister Gerhard Stoltenberg has problems finding cash to finance tax cuts promised for 1990, and is reluctantly letting government borrowing rise, Bonn officials said. Citing fierce opposition by West Germany and Britain, European officials also ruled out progress on U.S. Plans for a more formal strategy for coordinating economic policies, based on a series of economic indicators. The U.S. Wants other Group of Seven countries to agree to high level consultations when the indicators, including trade, growth, interest and exchange rates, inflation and fiscal deficits, show members are not living up to economic commitments. But Germany and Britain fear the plan would undermine economic sovereignty, and Britain also feels the proposals are too complicated and too rigid, officials said. Recent developments on Third World debt, including moves by two of the largest U.S. Banks to set aside billions of dollars to cover bad loans, will feature prominently in the talks. U.S. And Japanese officials said they would seek to reactivate the Baker initiative at the summit and renew a call to commercial banks to come up with a "menu of alternatives" to restore some new bank lending to debtor countries. Officials said there was also scope for agreement on a Franco-British plan aimed at alleviating the burden for the world's poorest debtor countries through concessional rescheduling of their sovereign debt at the Paris Club. The talks would also include plans to dismantle runaway farm subsidies all summit nations pay to guarantee the income of their farmers and secure a share of world markets, they said. The 24 members of the Organisation for Economic Cooperation and Development (OECD) last month supported a gradual decoupling of farm production subsidies from income support for farmers. The U.S., Canada and Britain in particular are keen to move quickly after the OECD breakthrough, officials said. "What we want is not for treasuries to compete as they do now. We want to see to it that our farmers will be able to compete in international markets," Canadian Prime Minister Brian Mulroney said. The U.S. Intends to table specific proposals on the issue at GATT, the world trade body, immediately after the summit to signal that it wants negotiations on farm trade to take precedence over the other trade issues included in the new GATT round of talks launched last year in Punta del Este, Uruguay. "We won't have much tolerance for delay," U.S. Agriculture Secretary Richard Lyng said. But European officials said they would resist such moves, making an agreement at the summit unlikely. France and other EC countries insist that farm trade disputes be resolved as part of a wider trade settlement within GATT, they said. REUTER ================================================== Title: BRAZIL SEEN AS VANGUARD FOR CHANGING DEBT STRATEGY Brazil's hard-line debt stance, though meeting creditor resistance, is boosting political initiatives in Latin America aimed at broadening the global strategy, regional debt officials and economic analysts say. "Now more than ever it is clear that Latin America cannot pay, under present conditions, without sacrificing growth," Peruvian President Alan Garcia said, referring to Brazil. And, as debtors and creditors prepare for their annual meeting at the Inter-American Development Bank in Miami next week, the region's debt crisis is clearly coming to a head. Around 200 billion dlrs in commercial bank debt have been rescheduled since 1983, with interest rate margins now below one pct, multi-year accords a norm and no financial crash in sight, but a lasting solution seems no nearer. Virtually all Latin American leaders backed Brazil's suspension of interest payments on 68 billion dlrs of private bank debt last month, though prospects of a chain default are still remote. Mexico, Colombia, Argentina and others rejected such action and Mexican finance minister Gustavo Petricioli merely said, "Brazil is having problems we are sure will be temporary." But Brazil's action has had an impact on other debt negotiations, speeding agreement for Chile and Venezuela last month and influencing current talks with Argentina. Pressure for new solutions has built up on several fronts, with the Philippines joining Brazil in seeking interest relief and Ecuador announcing force majeure on debt payments following a serious earthquake. Private banks are being increasingly urged to renew lending and accept innovative repayment schemes, not only by debtors but also by official agencies which have stepped up their own credit flows as part of the U.S.-inspired plan. One Latin American debt official said he saw the Brazil and Ecuadorean announcements as spurring moves by other debtors to link debt service payments to macroeconomic indicators such as export earnings, GDP or raw materials prices. Despite this, debtor countries continue to accept the case-by-case approach, and Cuba's call for a joint negotiating front is not being promoted by Brazil or even defended by Peru, the region's flag-bearer in unilateral payment decisions. "Each nation must negotiate its debt independently, according to its own needs," Brazilian foreign minister Ramiro de Abreu Sodre said in Caracas at the weekend. Venezuela's rapid agreement with its creditors, soon after Brazil's move, had been seen by the political opposition as a betrayal of debtor solidarity, but de Abreu praised the Venezuelan negotiators for achieving a favourable deal. Argentina, Bolivia, Costa Rica and others are also pursuing normal negotiations with creditor banks, while at the same time pressing hard for better terms, particularly lower interest rate spreads. Latin American officials say that while the debt should be negotiated case-by-case, their governments are promoting a general framework for talks based on growth and development priorities, lower interest payments and new financing. "The Brazilian and Ecuadorean experience shows orthodox solutions to debt cases don't work," said a senior Peruvian government official responsible for debt affairs. He saw a growing likelihood that other countries would follow Peru's action in setting a 10 pct debt payment limit in the face of trade and other factors beyond debtors' control such as minimal bank lending. These factors have contributed to a 130 billion dlr net outflow from Latin America in the last five years, and Brazilian Finance Minister Dilson Funaro says Brazil alone paid back 45 billion dlrs in this time and received just 11 billion in loans. Latin American debtors feel they have complied with their side of the bargain, slashing public spending, devaluing currencies, cutting inflation, privatizing state enterprises and introducing debt equity schemes. Brazil, as the region's biggest debtor and its most diversified economy, has now apparently adopted the principle that a tough position with its creditors will avoid a more serious crisis later on. "We are negotiating so that the debt question should not be one of continuous crisis," Funaro told a conference in Rio de Janeiro this week. billion dlr debt burden this year are slim, with coffee prices plunging, oil prices up but still well below 1985 levels and interest rates beginning to rise. Mexico expects one to two pct growth instead of the two to three pct projected earlier, and inflation near 80 pct after 105 pct last year. Brazilian officials expect growth of only two pct after eight pct last year and a 30 pct drop in the projected trade surplus, while independent estimates put inflation at 200 pct. Political and economic analysts in Brazil believe the payment suspension will give new impetus to tackling the regional crisis though they expect protracted negotiations, a view echoed by senior international bank officials. Some banks, including Citibank, Morgan Guaranty and Bank of America are already preparing to downgrade their Brazil loans. Brazil's refusal to accept an IMF program, a condition set by many banks for new lending, meanwhile reflects the view of most Latin American governments that equate the Fund with recession. But Brazil and Venezuela are the only countries in the region to have rescheduled debt without an IMF program. REUTER ================================================== Title: U.S. SAID TO VIEW G-7 MEETING AS MAJOR SUCCESS The United States, which has long sought Japanese action to stimulate its economy, appears to be satisfied Tokyo's latest package is a major development and allows leading industrial nations to reaffirm their agreement to stabilize currencies. Monetary sources said they believed that U.S. Treasury Secretary James Baker considered Tokyo's package, announced yesterday, to be a major stimulation of the Japanese economy. But yesterday's statement by seven leading industrial powers endorses the yen's rise from around 153 to the dollar, the level at the February 22 Paris Accord, to about 145 today. And the initial reaction of currency markets in the Far East demonstrates that financial markets are unconvinced that currencies yet reflect economic fundamentals, even though the countries appear to do so. The yen sank below 145 at one point despite intervention by the Bank of Japan. Kiichi Miyazawa, Japan's Finance Minister, said the movement since Paris was consistent with currency trading ranges the nations agreed to defend in the February talks. "I would say that what has happened (to the yen) in the past several weeks was not outside the range we agreed to in the discussions in Paris," Miyazawa said yesterday. The supplementary budget worth about 34.48 billion dlrs was announced by the ruling Liberal Democratic Party on the eve of Miyazawa's departure for Washington, to attend yesterday's meetings of leading industrial nations. In a strongly worded statement terming the Japanese action "extraordinary and urgent", the meeting reaffirmed the Paris Accord by noting that current exchange rates are within ranges broadly consistent with fundamentals, or economic reality. The Group of Seven -- the United States, Japan, West Germany, France, Britain, Italy and Canada -- therefore repeated their willingness to continue close cooperation to foster exchange rate stability. The cooperation agreement has resulted in concerted central bank intervention of 8 billion to 9 billion dlrs to halt the dollar's fall. While relatively unsuccessful, the scale of intervention between so many nations is unprecedented in recent years. Monetary sources also said they understood that Secretary Baker considered the meeting to be extremely successful in the light of the Japanese announcement. They also said there was a growing feeling among the finance ministers and central bankers that cooperation over medium-term policies has replaced the bickering over short-term differences in past meetings. West Germany, whose currency has not risen anything like the yen since the Paris Agreement, appears from the face of yesterday's statement to have won acceptance from other countries that its exchange rate is acceptable. Bonn's finance minister Gerhard Stoltenberg argues that major currency shifts needed to remedy the huge imbalance between West Germany and Japan's trade surpluses and America's trade deficit have already taken place. No mention was made, however, of the U.S. commitment to cut the budget deficit even though it is implied in the reafffirmation of Paris. European nations and Japan believe deficit cuts are essential to curbing the record U.S. trade shortfall that reached nearly 170 billion dlrs last year. A similar argument was made on Capitol Hill earlier this week by Federal Reserve Board chairman Paul Volcker. A further sharp fall to redress trade imbalances would "clearly pose substantial risks of renewed inflationary momentum and could undermine confidence in future financial stability," he said. Volcker warned a further dollar fall might force the politically independent Fed to drive up interest rates. Monetary sources said that, privately, West Germany welcomed the rise in the yen against the dollar while its own currency remained relatively stable against the U.S. unit. Bonn and other European nations worry that once the weak dollar blunts Tokyo's export drive to the United States, the Japanese monolith will concentrate on European markets. The ministers, meanwhile, also continued talks on making their policy coordination more binding and one, Canadian Finance Minister Michael Wilson, said good progress was made. Wilson said they will meet before the June Economic Summit to prepare a report for the leaders of the seven nations. The United States and France, backed by the International Monetary Fund, want the seven to agree on ranges or "norms" for a limited number of economic objectives such as growth, inflation, monetary conditions, trade balances and current account balances. Sharp deviations from these guidelines would result in consultations between the countries on whether corrective action should be required. But the inclusion of currencies as one of the objectives has Bonn and London worried, monetary sources say, because it implies Washington is moving in the direction of target zones. The sources said the Reagan administration unsuccessfully sounded out its allies on a system of target zones to limit currency fluctuations just before the February meeting. The concept is a much more rigid one than the secret ranges of the Paris Accord and would mark a sharp departure from the relatively free currency markets of recent years. Reuter ================================================== Title: ECONOMIC SPOTLIGHT - DUTCH EXCHANGE RATE POLICY Recent slackness on Dutch capital markets has led some bankers to question the Central Bank's policy of pegging the guilder firmly to the West German mark and to ask for more flexiblility in exchange rate policy. While agreeing with the Bank's commitment to defend the guilder strongly, some bankers want the Bank to make more use of the range within which the guilder and the mark can fluctuate against each other in the European Monetary System (EMS). Roelof Nelissen, chairman of Amsterdam-Rotterdam Bank NV (Amro) said the Central Bank's policy was overcautious. "I would like to suggest that the Bank use more freely the range given to the guilder in the EMS," Nelissen said at the presentation of Amro's 1986 annual report last week. Within the EMS, the mark is allowed to fluctuate against the guilder between 110.1675 and 115.235 guilders per 100. The Central Bank maintains a stricter policy and tries to keep the mark below the 113.00 guilders per 100. It regards a stable exchange rate as its main target, using interest rate policies to influence the exchange rate. The preference of exchange rate goals above interest rate aims goes almost undisputed in the Netherlands. Critics say the Bank keeps the reins unnecessarily short. Rabobank Nederland said in its latest economic bulletin: "By maintaining the 113.00 limit, the Central Bank raises the expectation it will always intervene above that level. If it suddenly needs more flexibility it will find it very hard to obtain." Amro's Nelissen said relatively small changes in interest rates and exchange rates could cause substantial flows of securities business and sharp fluctuations on the Dutch capital market. Large interest rate changes were often needed to bring about small changes in the guilder/mark exchange rate, he added. Unlike Amro, Algemene Bank Nederland NV (ABN) says this is a price the Dutch have to pay. It fully agrees with the Central Bank's policy, director-general Julien Geertsema told Reuters, noting a 1983 decision not to revalue the guilder fully with the mark in the EMS hurt confidence in the Dutch currency. "It is a pity we need such a wide interest rate difference between West Germany to maintain the exchange rate," he added. Interest rate differentials between West Germany and the Netherlands are the main factors that trigger capital flows between the two countries, as the economic performance of the two does not differ much, economists said. Data on 1986 capital flows between West Germany and the Netherlands have not yet been released, but in 1985 they accounted for only 10 pct of total trade flows between the two countries, put at 110 billion guilders for 1986 by the Dutch-German Chamber of Commerce earlier this month. Economists say capital flows are more sensitive to interest and exchange rates. West Germany is the Netherlands' largest single trading partner, taking 28 pct of Dutch exports and providing 26 pct of imports in the last quarter of 1986, Central Bureau of Statistics figures show. At the moment, the rates for three month euromark deposits trade around 4.0 pct while the same deposits in guilders have a rate of around 5-7/16 pct. Amro bank argues that the Dutch real interest rate will even rise further because of expectations of deflation here in 1987, contrasting with slight inflation in West Germany. In the Netherlands, the cost of living is expected to decrease by 1.5 pct at a GNP growth rate of two pct, the Dutch Central Planning Agency said in its 1987 forecast last month. German GNP is seen rising by two to 2.5 pct, but with inflation between zero and 1.0 pct, according to most German forecasts. But despite this upward push on real Dutch rates, money dealers do not expect the Central Bank to cut official rates independently without prior moves by the Bundesbank. Following the West German interest rate cuts on January 22, the Dutch Central Bank did not lower its rates but set a 0.5 pct lower tariff for special advances and abandoned its credit surcharge. Most traders were surprised by this move as they had expected the Bank to follow suit unconditionally, they said. The Bank said it lowered the rate with the largest impact on the money market as far as the exchange rate permitted. While not entirely unsympathetic to critics of its policies, the Central Bank keeps its grip firm and the range narrow. "The European Monetary System is not only a relationship between the guilder and the mark. Many times widening of the margin between the two would implicate we have to buy or sell large amounts of a third currency," Central Bank vice-director Jan-Hendrik Du Marchie Sarvaas said. "If we allowed the guilder to become a little cheaper, the markets would start to believe it was weak. We don't want that. We want to make clear that the guilder is just as strong as the mark," he said. REUTER ================================================== Title: U.S. APPEARS TO TOLERATE FURTHER DLR DECLINE In a bid to hasten Japan's promise to speed up its economic growth and open markets to foreign trade, top U.S. officials appear once again to have signaled their tolerance of a lower dollar. Treasury Secretary James Baker and one of his top aides, Assistant Secretary David Mulford, said last week there was no target for the dollar, a statement that sent the yen soaring against the dollar, despite massive central bank intervention. "That was no slip of the tongue," said one western monetary official, who asked not to be identified. For now, the strategy appears to be working. Japanese officials said late last week a package to bolster domestic demand will be ready in early April. Until last week, there were few indications the package would be ready anytime soon. The Reagan administration, facing an uproar in Congress over the apparent lack of progress in cutting the 169.8 billion dlr trade deficit, is learning now that to extract results from Japan, dramatic action is required. Last week the White House imposed unprecedented tariffs on certain Japanese electronic goods after Tokyo failed to adhere to a semi-conductor pricing accord between the two countries. The shift in U.S. strategy, in part designed to appease mounting Congressional anger over Japanese policies, comes just two weeks before industrial nations reconvene here to review the Paris agreement to stabilize currencies. And news that Japan earned a record 18 billion dlr trade surplus in the first two months this year just underscored the need for urgent action, in the view of U.S. officials. Nonetheless, U.S. officials see signs of improvement in the deficit. "I'd be stunned if we were not going to derive some benefits (from the lower dollar) soon," said one. In Paris, leading industrial nations agreed to cooperate closely to foster currency stability within ranges reflecting "underlying economic fundamentals" or economic reality. The agreement envisages those fundamentals to include Japan and West Germany stimulating their economies and the United States cutting its budget deficit. The three nations, joined by France, Britain and Canada, agree these policies are essential to redress huge global trade imbalances. But analysts say markets have signalled the underlying fundamentals imply a lower dollar, rather than a stable one. Markets, in effect, are less confident than governments that these measures -- including U.S. budget deficit cuts agreed by Congress and the White House --will be carried out. Nonetheless, the dollar's sharp fall has not undermined cooperation. A U.S. economic policymaker said the accord was on track and Tokyo and Bonn seem "to want more stimulative measures which is what the Paris accord calls for." International monetary sources said exchange market developments generally have not unsettled policymakers, although Japan is an obvious exception. "Everybody feels it can still be managed," one source said of market developments. But last week, the Bank of Japan spent an estimated five billion dlrs intervening to halt the rise in the yen, and other central banks about one billion dlrs. Another monetary source said Japan was upset with America's half-hearted attempt to halt the falling dollar, flouting the Paris accord outright. The source, close to the top levels of Japanese economic policymaking, said Japan's understanding of the accord was that the yen would be kept at around 154 to the dollar, the level it stood at when the accord was struck. The source said Tokyo was extremely worried by Washington's use of the exchange rate to change Japanese policies. It was a "pointed reminder" to Japan to do something about the trade issues, the source said of the dollar's fall against the yen. By departing last Sunday from the language of the Paris accord -- that nations agreed to foster currency stability around current levels -- Baker triggered a run on the dollar. Later in the week, Mulford too said there was no target for the dollar and called on Japan and West Germany to live up to their international responsibilities and stimulate growth. But U.S. officials said recent market developments will not unravel the spirit of the Paris agreement. "There's a realisation now that you cannot leave things alone, everyone agrees that the external (trade) imbalances ought to be adjusted," one official said. "While no-one is going to cede national sovereignty, we certainly seem to be moving towards much closer co-operation," another U.S. official said. The officials said the meeting here, where the six will be joined by Italy, will be a status report. "Japan will have to explain what the state of their program is and Germany will report on its plans. Maybe there's a need to move faster," one source said. Mulford told Congress last week the Paris accord called, in effect, for currency stability for several months. This would buy time for Japan and West Germany to speed up their economic growth and help bring down the U.S. trade deficit. His comments appeared to serve notice on other major nations that Washington cannot wait too long for action to reduce the gap between the Japanese and German trade surpluses and the U.S. trade deficit. Reuter ================================================== Title: BRAZIL CRITICISES ADVISORY COMMITTEE STRUCTURE Brazil is not happy with the existing structure of the 14-bank advisory committee which coordinates its commercial bank debt, Finance Minister Dilson Funaro said. U.S. Banks have 50 pct representation on the committee while holding only 35 pct of Brazil's debt to banks, he said, adding "This is not fair with the European and Japanese banks." The committee had played a useful role in 1982 and 1983, however. Noting the often different reactions of U.S., Japanese and European banks, Funaro told journalists that Brazil might adopt an approach involving separate discussions with the regions. Since debtor nations' problems were normally treated on a case-by-case basis, "Perhaps the same principle should apply to creditors," central bank president Francisco Gros said. Brazil on February 20 suspended indefinitely interest payments on 68 billion dlrs owed to commercial banks, followed last week by a freeze on bank and trade credit lines deposited by foreign banks and institutions, worth some 15 billion dlrs. Funaro and Gros spent two days at the end of last week in Washington talking to government officials and international agencies and will this week visit Britain, France, West Germany, Switzerland and Italy for discussions with governments. Funaro and Gros are today meeting British Chancellor of the Exchequer Nigel Lawson, Foreign Secretary Geoffrey Howe and Governor of the Bank of England Robin Leigh-Pemberton. Bankers have estimated that Brazil owes U.K. Banks around 8.5 billion dlrs in long and medium term loans, giving the U.K. The third largest exposure after the U.S. And Japan. The crisis began when Brazil's trade surplus, its chief means of servicing its foreign debt, started to decline sharply and the problem was compounded by a renewed surge in the country'sate of inflation. Reserves were reported to have dropped below four billion dlrs. Funaro envisaged that any eventual solution to problems with Brazil's 108 billion dlr foreign debt would involve only partial servicing of the debt. "What we propose is to arrive at a mechanism of refinance for part of the service, because we cannot service all that," he said. "I really think we have to change the old rules." Asked why Brazil was first approaching governments, rather than the commercial banks themselves in its search for a solution to the crisis, Funaro said "We must first talk to the governments and then we can talk to the banks, because the banks have some limits." "It is a political discussion from our point of view," he said. Funaro said he hoped next week to travel to talk to Japanese and Canadian government officials. He would then talk to the commercial banks "If I've got some solution from the governments. I can't take the burden only to the banks." He was not sure how long it would take to reach a solution. In discussions with governments Brazil would review the mechanisms whereby finance was made available to nations in need. Finance from official lending agencies had been virtually closed since 1982. "You must open these mechanisms," he said. He said that while the U.S. Officials had been disturbed by Brazil's suspension of interest payments, they understood Brazil had no other choice, as it had to protect its reserves. Also the financing mechanisms had to be discussed "because we can't stay as we were the last few years." "I'm trying to put the problem on the table.... All of us would like to have a kind of equilibrium." he said. Although Brazil has rejected a substantive role for the International Monetary Fund (IMF) in managing its economy, Funaro paid a call in Washington to IMF Managing Director Michel Camdessus and to World Bank President Barber Conable. Funaro noted that inflation in February had started to decline again and he expected Brazil to achieve a minimum eight billion dlr trade surplus in 1987. Banking sources noted that Brazil's monthly surplus had declined to some 150 mln dlrs in the final three months of last year, against a monthly one billion in the first nine months. Brazil had the third largest trade surplus in the world, Funaro said, although its share of international trade was only one pct. "The solution is linked with growth, not recession," he said, noting an IMF program would involve promoting exports and inducing an internal recession in order to service debt. Banking sources said Brazil's debts to foreign governments, as opposed to commercial banks, now benefit from a sounder structure following last month's rescheduling by the Paris Club of creditor nations of 4.12 billion dlrs of official debt. REUTER ================================================== Title: GERMAN BOND YIELDS SEEN FALLING IN NEAR TERM West German bond yields could decline over the next few months if recent efforts to stabilize exchange rates, as seen in last month's Paris pact, extend to keeping down European interest rates, banking economists said. But in the longer term domestic yields could rise under agreements to stimulate West Germany's economy, they said. The Paris agreement has so far successfully stabilized currencies with the threat of central bank intervention, economists said. Economists speculated that G-7 countries may try to bolster the pact by uncoupling U.S. and West German interest rates further when they meet for the IMF Interim Committee in April. "The recent round of monetary accommodation by the Bundesbank and the Bank of Japan and the firming of the Federal Funds rate are significant. They mark an uncoupling of movements in U.S. and foreign interest rates," Salomon Bros Inc said in a recent study. It said narrowing of international interest rate spreads was a major factor in the dollar's fall. These spreads will have to be widened if the dollar is to be stabilized. West German Bundesbank President Karl Otto Poehl encouraged the U.S. not to cut interest rates in January when the Bundesbank cut its own rates by half a point, to avoid weakening the dollar. West German economists see room for further cuts in leading West German rates if the dollar resumes its decline. "It's not a taboo," Peter Pietsch, spokesman for Commerzbank AG said. But most economists see room for a cut in West German rates only in the first half of the year, as re-emerging inflation will limit room for manoeuvre later in the year. The Bundesbank's average yield of public paper is already nearing last year's low. Last week, yields fell to around 5.50 pct, not far from the 1986 low of 5.35 pct posted in mid-April. Economists said the trend may cause domestic investors to shift some funds from short to longer-term paper. Such a move would tend to flatten the yield curve between short and long-term rates, which has become more pronounced since the Bundesbank lowered its discount rate. It might also facilitate a further cut in leading rates, as the shift out of savings accounts into securities would slow growth of the Bundesbank's central bank money stock aggregate. But conflicting with this trend are plans to increase West German tax cuts, part of the Paris currency pact designed to meet U.S. demands for faster West German growth. This move may force interest rates up by creating a revenue vacuum which must be filled by higher government borrowing. This may not occur if private sector demand for credit remains weak, but demand could emerge if rates begin rising. Economists said it appeared the government had already stepped up borrowing this year to accomodate revenue loss from other sources, including tax losses resulting from weaker than expected economic growth, and higher than expected spending. Josef Koerner, chief economist of the West German Ifo-Institut, said in a newspaper interview he expected 1987 tax revenue to be some 11 billion marks below estimates by the West German government in November. Any tax shortfall in itself is unlikely to push yields up. But coupled with other factors such as waning foreign speculative buying of mark bonds on the dollar's decline, long term yields may to have to rise, economists said. Public authority borrowing in 1988 may also rise owing to increases in the second phase of Bonn's tax reform package. The West German government is raising its total tax cuts in 1988 by 5.2 billion marks to 14.4 billion. West German chancellor Helmut Kohl said last week increased borrowing to finance the tax reform is acceptable. Finance minister Gerhard Stoltenberg said last Thursday he was looking for other ways to finance the reform, such as raising indirect taxes. But few economists believe the government will be able to go through with its tax measures without increasing net borrowing. The Bundesbank said in its February report that it was wrong to believe that the first stage of the tax reform in 1986 could be managed without increasing deficits. The Bundesbank said West German public authorities borrowed a large 21.9 billion marks in credit markets in the 1986 final quarter compared with 14.8 billion in fourth quarter 1985. The federal government took up nearly 10 billion marks of the fourth quarter 1986 figures, and also drew on two billion marks of Bundesbank advances at the end of the year, when it had not required such a credit in the 1985 quarter. Reuter ================================================== Title: LATIN DEBTORS MAKE NEW PUSH FOR DEBT RELIEF Rising interest rates and protectionist trade policies had prompted a new push by Latin American nations to win debt relief, regional foreign and finance ministry officials said here. Officials of the Cartagena group of 11 debtor nations met here this week to draw up new proposals in reaction to what they called a deteriorating world panorama, and Citicorp's decision to create reserves against third world loans. (SEE ECRA FOR SPOTLIGHT HEADLINES) "We are looking at trade, interest rates and financial flows.....In order to put forward a basis for some permanent solutions," Mexico's public credit director Angel Gurria said. Recent developments have led to moves for a summit of Latin American presidents and debate on new solutions. Ideas include schemes to link debt payments to trade, and proposals for stable interest rates. The latter was proposed in a letter this week from Cartagena to G-7 leaders who are due to attend a summit in Venice this month. Another idea is to include debt under Gatt negotiations, but Cartegena ministers have yet to endorse any proposals. Speaking earlier in New York, Uruguay's Foreign Minister and Cartagena group chairman Enrique Iglesias said Citicorp's decision could discourage new lending. But it might help Cartagena's bid to have old and new debt treated separately. The Cartagena group, which has not met at ministerial level for over a year, wants to repay debt contracted before the debt crisis at the low interest rates prevailing in the 1970s. It would pay new loans at current market rates. "Many countries fear that what they have gained in months of arduous debt negotiations they can lose at a stroke with a one point rise in interest rates," one official here said. "The new increase in interest rates has come precisely when we thought they had still not come down enough," Iglesias said. Latin American officials are also concerned that varying interest spreads granted to different debtor nations could generate discord, as with the Philippines' recent protest at being given less favourable terms than Argentina. There has been speculation Venezuela would demand a cut in its 7/8 pct spread, but public finances director Jorge Marcano said here there were no plans to renegotiate terms. This week's meeting came after three Latin American presidents meeting in Montevideo called for stable interest rates on the region's 380 billion dlr foreign debt. It was called to review developments since the last ministerial meeting in February 1986 and to think up new ideas. Since the last ministerial meeting there have been some advances, such as Mexico's growth-oriented 77 billion dlr loan and refinancing package agreed last September. But there have also been setbacks, like Brazil's payments moratorium. The loans expected in the Baker plan have not materialized and debtors have been forced to browbeat reluctant banks. "We have clearly stretched the restructuring process to its limits and and the question is now where do we go from here?" a senior Mexican foreign ministry official said. Existing debt strategy has been based on nursing debtor economies back to a position where they can again service their debts and qualify for new loans. But after five years of economic adjustment, Latin American debtors are currently unable to raise voluntary credits, with the exception of Colombia. Only Venezuela is paying back principal. Most countries have no prospect of paying their debts in the foreseeable future. Citicorp has made clear its decision to move three billion dlrs to reserves does not mean it is writing-off the loans. Latin American officials here said Citicorp's move would probably boost trading of discounted third world debt in the secondary market, implicitly downvaluing the amount owed. But they said it might make new lending even more remote. Discounted debt can be bought by foreign investors through debt-equity schemes that generate new resources for debtor economies. Chile and Mexico are currently front-runners in this field, but most Latin American officials see these schemes as limited and no panacea for the overall problem. Most Latin officials set greater store on building up export income than on debt-equity schemes. Exports hit 97.7 billion dlrs in 1984, cutting the region's debt service ratio to 36 pct, but they fell to 78.3 billion last year. So, even though interest rates had dropped the ratio hardly changed. The Cartagena group has called for the debt-trade link to be recognized before, but has not made detailed proposals. Officials said initiatives discussed here would be submitted to foreign and finance ministers of the 11 nations, before IMF and World Bank annual meetings later this year. REUTER ================================================== Title: BAKER/STOLTENBERG MEETING SOOTHES MARKETS News of a meeting between U.S. Treasury Secretary James Baker and West German Finance Minister Gerhard Stoltenberg on Monday soothed currency markets, allowing the dollar to recoup much of the day's losses, dealers said. News of the meeting, which took place in Frankfurt in great secrecy, came after the dollar fell sharply on criticism by Baker of West German monetary policy, which had provoked fears that the Louvre pact on currency stability was in jeopardy. The dollar reacted immediately to the news, rising over two pfennigs in after hours New York trading, dealers there said. The announcement of the meeting, also attended by Bundesbank President Karl Otto Poehl, was made simultaneously in Bonn and Washington, timed for after the closure of New York markets. Baker, Stoltenberg and Poehl agreed to pursue the policies accepted under the February Louvre accord, a finance ministry spokesman in Bonn said. The dollar rose to 1.7970/90 marks from New York's close of 1.7730/40. It had closed there on Friday at 1.7975/85 marks. The dollar had tumbled nearly three pfennigs as the market reacted to Baker's criticism of rising West German interest rates, and stock markets crashed worldwide. Baker had said that West Germany was apparently breaching the Louvre accord. Under the accord, leading industrial democracies pledged to coordinate economic policies to foster currency stability, with the surplus countries, West Germany and Japan, stimulating their economies and the U.S. promising to cut its budget deficit. West German government sources said rising West German money market rates could not be seen as a breach of the Louvre pact. They were rather a direct reaction to higher interest rates in the United States. U.S. Bond yields have been rising since May on inflationary fears and in early September the Fed raised the discount rate to 6.00 pct from 5.50. German yields have also risen over this period, but less markedly, and since late September the Bundesbank has nudged up short-term rates by changing the terms on its security repurchase pacts, its principal instrument for steering the money market. The allocation rate on the last facility was 3.85 pct, compared with 3.60 pct. This was partly due to West Germany's inability to uncouple itself from U.S. interest rate trends, but also reflected concern among monetary conservatives in the Bundesbank central bank council about excessive monetary growth, which raised fears of domestically produced inflation, bank economists said. This monetary tightening reflected a switch from the pragmatic line pursued by Bundesbank President Karl Otto Poehl since early this year to stabilise the mark externally, to the more cautious approach of Vice President Helmut Schlesinger. In an apparent gesture to Baker, coinciding with his visit, the Bundesbank repeatedly added money market liquidity this morning. Dealers said this was clearly a move to appease U.S. anger over the most recent West German interest rate rises. "They (the Bundesbank) just don't want to come too much under American fire," said Chris Zwermann, currency adviser at Swiss Bank Corp here. "It seems to me that this is the Bundesbank beating quite a significant retreat from its position," added Giles Keating, economist at Credit Suisse First Boston Ltd in London. The significance that retreat will emerge from the terms of the Bundesbank's next tender for a securities repurchase pact on Tuesday, and its result on Wednesday, money market economists said. Today's injection of liquidity shows that the Bundesbank does not want a further strong rise in the tender allocation rate, which is likely to turn out at between 3.80 and 3.90 pct, little changed from the 3.85 pct on the last facility. The Bundesbank and Finance Ministry had given no indication that the meeting would take place, although the Finance Ministry spokesman said it had been arranged last week. Earlier on Monday the Finance Ministry spokesman, asked to comment on the apparent U.S.-German clash over the Louvre accord, went no further than quoting Stoltenberg as saying he assumed monetary cooperation would continue. The spokesman said he believed Baker had already left West Germany for Sweden on Monday. This week he is also due to visit Denmark and Belgium. Reuter ================================================== ************************************************** Topic 3 ************************************************** Title: SEC DETAILS CHARGES AGAINST JEFFERIES Federal regulators said Boyd Jefferies, who resigned as head of his Los Angeles brokerage firm, took part in schemes to manipulate the price of a stock and in a stock "parking" plot with inside trader Ivan Boesky. In a civil complaint filed in U.S. District Court in New York, the Securities and Exchange Commission said Jefferies agreed with an unidentified person to have his firm buy up a large chunk of stock being issued in a public offering. Under the agreement, the firm, Jefferies and Co, drove the price of the stock up by one-eighth point by buying four blocks of the stock at or near the close of trading, the SEC said. Jefferies and Co's purchases of the unidentified stock accounted for 66 pct of the total trading volume of the stock on that day and were aimed at manipulation, the SEC said. The complaint did not identify the company whose stock was being traded, but said that the Jefferies and Co purchases took place sometime last year when another unidentified company, which owned a controlling interest in the company, sold several million shares of the stock in a secondary public offering. The stock purchases were made on the New York Stock Exchange and the Pacific Stock Exchange, the SEC said. The person who made the alleged stock manipulation agreement with Jefferies was also not identified. But the person was later billed by Jefferies and Co in a phony invoice marked for investment banking services for the exact amount the firm lost on the deal when it later sold the stock on the open market, the SEC said. The payment, the amount of which was also not revealed in the complaint, was made later by another unidentified person after Jefferies sent a second invoice for a lesser amount, the SEC said. The firm recorded the payment as "other income," it said. William McLucas, associate director of enforcement at the SEC, declined to say why the agency decided against revealing the identities of other persons and companies involved in the stock manipulation scheme. "We just made a determination that this was the way to go at this time," McLucas told Reuters. The complaint went into far greater detail in its charges that Jefferies agreed with Boesky to "park" stock at each other's firms. Parking, or warehousing, stock, refers to deals where stock is held by one person or firm under an arrangement where it is actually under the control of someone else. Under the agreement between Jefferies and Boesky, Jefferies and Co would hold stock owned by Seemala Corp, one of Boesky's brokerage firms, for 31 days, after which Seemala would "buy" the stock back, the SEC said. Seemala realized all gains and sustained all losses on the stock held by Jefferies and Co during the period, agreed to compensate Jefferies and Co for carrying the stock and to pay more than twice Jefferies and Co's usual commission, it said. Seemala then agreed to hold stock owned by Jefferies and Co for a month under terms about the same as the deal in which Seemala agreed to park its stock at Jefferies and Co, it said. The agreement, which violated several securities laws, allowed Seemala to create a false appearance that no longer held the stock and could meet the SEC's net capital requirements, the SEC said. Jefferies wanted Seemala to hold some of its stock, the SEC said, so that Jefferies and Co could meet its net capital needs, the agency said. On March 12, 1985, Seemala "sold" Jefferies 810,000 shares oc Cooper Laboratories Inc for 11.7 mln dlrs, 600,000 shares of Southland Financial Corp for 17.3 mln dlrs and 500,000 shares of G.D. Searle and Co for 27.1 mln dlrs, it said. On March 20, Jefferies and Co "sold" Seemala 185,500 shares of American Broadcasting Co for 19.6 mln dlrs, 210,000 shares of Ideal Basic Industries Inc for 2.9 mln dlrs, 300,000 shares of ITT Corp for 9.8 mln dlrs, 105,000 shares of Phillips Petroleum Co for 4.0 mln dlrs, 70,000 shares of Pioneer Corp for 2.1 mln dlrs and 300,000 shares of Texas Oil and Gas Corp for 5.3 mln dlrs, the SEC said. The value of Seemala's stock at the time of the transfers was 56 mln dlrs, while Jefferies and Co's stock was worth 43 mln dlrs at the time, the SEC said. Within a month, Seemala and Jefferies and Co unwound most of the stock transfers with each others firms, the SEC said. But a major hitch developed in the deal when the price of Searle stock, which Jefferies and Co was holding for Seemala, dipped sharply, it said. On March 26 Seemala "bought" back its Searle stock for 23.4 mln dlrs, resulting in a 3.6 mln dlr loss for Jefferies and Co, the SEC said. Seemala then allowed Jefferies and Co to "buy" back some it the stock Seemala was holding for it at a 647,812 dlr gain and Boesky's firms later paid the Jefferies firm three mln dlrs, which it called "fees," it said. Among the violations Jefferies committed in the schemes, were net capital, record keeping, public disclosure and margin requirements, the SEC said. Under the settlement of the civil SEC's charges, which was announced simultaneously with the filing of the complaint, Jefferies and his firm did not have to admit or deny guilt. But they agreed to a court order barring them from further securities law violations. Jefferies also agreed to get out of the securities business for at least five years. Reuter ================================================== Title: TEXACO (QTX) MAY BENEFIT FROM SEC BRIEF The Securities and Exchange Commission's entry into the battle between Texaco Inc and Pennzoil Co <PZL> could affect the outcome of the 10.3 billion dlr legal saga, some analysts said. Texaco today said the SEC would file a "friend of the court" brief on the tender offer rule as it pertains to the case. Some analysts construed this as positive for Texaco since they said it is alleged by Texaco that Pennzoil violated the rule, and the issue was not thoroughly addressed in lower Texas courts. Texaco's stock rose 1-1/2 to 39-3/8 and Pennzoil fell four to 78-7/8. A Pennzoil attorney would not comment. He said the SEC rule, 10b-13, is part of Texaco's argument in its request for a Texas Supreme Court case, and that the matter has been previously addressed in court. Pennzoil said it knew of the SEC brief but it did not know whether the brief would support the view of one litigant or be an inquiry and request for clarification of the reasons for two lower state court decisions. Texaco today said the SEC would urge the Texas Supreme Court to accept the case for review with respect to the issue. Texaco has alleged Pennzoil violated the rule when it had a tender offer for Getty Oil Co outstanding and then made an alleged agreement on January 3, 1984, to buy Getty shares. Analysts said the SEC tender offer rule prevents those making the offer from entering into contracts for the target company's stock. Frederick Leuffer of C.J. Lawrence believes SEC intervention could be meaningful but acknowledged it could also have no affect. "If this friend of the court brief is potent and clearly pro-Texaco, and is taken into account by the Texas Supreme Court, there is a chance the entire judgment could be reversed and Pennzoil gets nothing," Leuffer said. Texaco and Pennzoil have been locked in a bitter legal battle over Texaco's acquisition of Getty Oil. A Texas court awarded Pennzoil a record 10.53 billion dlrs in damages, later reduced by two billion dlrs. With interest, the award now totals 10.3 billion dlrs. Texaco filed for protection under chapter 11 of the federal bankruptcy laws earlier this year. Its action was designed to avoid having a Texas appeals court order it to post a security bond for the entire amount of the Pennzoil judgement. Texaco earlier said the SEC will file its brief the week of July 20. In his comments, Leuffer also reflected the views of other analysts who believe are not convinced the SEC will play a significant role. "The other argument is the court will ignore it (the SEC brief) as it has all the other friend of the court briefs," he said. Kidder Peabody and Co analyst Marc Cohen said he does not expect the SEC's brief to change the direction of the case. "Everyday, you're going to see something like this," Cohen said. Texaco lawyer Jim Sales said it was only logical to believe that the SEC would have sought to intervene in the case if it believed the 10b-13 rule was involved. "I think what the market sensed today is that there is a reminder here for Pennzoil that they may reach for the stars and fall on their face," Sales said. "They (Pennzoil) have won every case in Texas," said Joel Fischer of Drexel Burnham Lambert. But Fischer and other analysts said SEC involvement may raise questions of federal law that could help Texaco take its case to the U.S. Supreme Court if the Texas court does not reverse the lower opinions or refuses to hear its case. Analysts said the lower courts did not give much weight to the 10b-13 issue. Sales said the point was argued and the courts "acknowledged that it was there but they really ignored the legal affect of what the regulation required, and we hope we can correct that misimpression". Wall Street analysts and arbitragers speculated on many possible outcomes. One arbitrager said there was concern that Texaco and Pennzoil could settle for a lower sum than demanded by Pennzoil. "The SEC stepping in on this issue as an amicus curiae (friend of the court) has a lot of arbitragers a little bit disturbed," said Cohen. "What you're seeing is a continual chess game. Every slight move down the road could have a multiplying effect," he said. Reuter ================================================== Title: SEC ASKS NYSE TO TIGHTEN TRIPLE WITCHING PROCESS The Securities and Exchange Commission asked the New York Stock Exchange to tighten an experimental procedure used in the past six months to dampen volatility linked to the so-called "triple-witching hour." The Big Board has been collecting and publicizing information on large imbalances of "market-on-close" (MOC) orders placed on 50 major stocks one-half-hour before closing on so-called expiration Fridays in September and December. Expiration Fridays, or triple witching hours, occur every three months when stock options, stock index options and futures on index options expire simultaneously. As aribrageurs liquidated their futures and options on previous expiration Fridays, they sold huge amounts of stock which they had used to offset their positions. The huge sell orders, which usually entered the market in the final frantic minutes on expiration Fridays triggered wild price swings in the 50 stocks which serve as the basis for the options and futures. The gyrations prompted the SEC last September to request that the Big Board ask its members submit all MOCs by 1530 hrs on expiration Fridays, which would then be made public, giving the market a half-hour to settle order imbalances. But in a March 12 letter to NYSE President Robert Birnbaum, SEC Director of Market Regulation cited problems in the experimental procedure during the Dec 19 expiration Friday. A large number of MOC buy orders were not placed until after 1530 EST on Dec 19, which helped send the Dow Jones Industrial Average up 21 points in the final minutes of the day to a 14.20-point gain on the day, Ketchum said. Citing the SEC's concern about such trading, Ketchum asked the exchange to tighten its procedure by not accepting any pre-existing MOC orders after 1530 if they could have been placed earlier. The new restriction, which SEC officials said merely clarifies the terms of the existing experimental procedure, would bar the liquidation of stocks through MOC orders for arbitrage purposes after 1530 hrs, even if they offset other reported order imbalances in those stocks. The only MOC orders the SEC will allow to be placed after 1530 EST on March 20, the next expiration Friday, are those that are received by Big Board member firms after 1530 EST and which help reduce existing order imbalances, Ketchum said. If there are no published imbalances in a particular stock, no MOC orders will be accepted in that stock, he said. "If dissemination of MOC orders is to provide an accurate indication of true order imbalances, then all existing MOC orders must be submitted by 3:30 p.m. and only those new MOC orders responding to reported imbalances can be permitted," Ketchum said. The letter did not say how the SEC or the NYSE would determine the difference between pre-existing MOC orders that would be barred, and new MOC orders that would be allowed to reduce imbalances. But an SEC official said the agency hopes the NYSE and its members would adhere to the rules "in a spirit of cooperation." REUTER... ================================================== Title: PENNZOIL <PZL> PLOTS STRATEGY TO FIGHT TEXACO Pennzoil Co, frustrated by Texaco Inc's <TX> decision to seek bankruptcy protection from its 10.3 billion dlr court judgment, is preparing to launch a new assault that may include investigating assets Texaco transferred from its corporate parent to subsidiaries, legal experts said. Joe Jamail, a Houston lawyer for Pennzoil, said the company would file a challenge to Texaco's bankruptcy petition sometime this week accusing the oil giant of bad faith and ignoring its fiduciary responsibilities to shareholders. The action is almost certain to ignite a new round of debate between the two companies stemming from Texaco's 1984 acquisition of Getty Oil Co for 10.2 billion dlrs, a company Pennzoil believed it had an agreement to buy. "We're going to be doing a lot of things they may not like," Jamail said, referring to the bankruptcy court proceeding in New York. Some legal experts suggested that a mud-slinging battle in bankruptcy court between the two companies might also provoke Congressional interest in whether the bankruptcy code is too lenient because it permits a profitable firm to freeze debts. Texaco, which has assets totaling 34.9 billion dlrs, sought protection Sunday under Chapter 11 of the federal bankruptcy code rather than risk having a Texas appeals court order the company to post a security bond for the entire amount of the Pennzoil judgment. Gerald Treece, dean of the South Texas College of Law and an observer of the litigation during the past three years, said Pennzoil was unlikely to prove Texaco is not qualified to be in bankruptcy court simply because the giant oil company has a positive cash flow and assets that far exceed its liabilities. But Pennzoil may be successful in raising the issue of whether Texaco improperly transferred certain assets from the corporate parent into subsidiaries unaffected by the bankruptcy filing, Treece said. "Pennzoil's lawyers are going to be like dogs barking at the heels of Texaco wherever they go," Treece said, "I think people are going to be surprised at the level of intensity that Pennzoil will use in searching for hidden Texaco assets." Jamail said Pennzoil objected to Texaco's transfer of an oil refinery and chemical plant in Port Arthur, Texas from its corporate parent to a subsidiary on Dec. 9, 1985, one day before a state court judge entered the record jury award against Texaco. Jamail suggested that the refinery and chemical plant, valued at about 1.1 billion dlrs, were deliberately placed out of reach of the Texas jury judgment. But Richard Lieb, an attorney with Kronish, Lieb, Weiner and Hellman in New York, said Texaco could elect to place additional subsidiaries into bankruptcy if necessary. In the petition filed Sunday, only Texaco Inc, the corporate parent, and two financial subsidiaries were included in the bankruptcy case. The businesses account for only about four pct of Texaco's total revenues. Mickey Sheinfeld, a Houston lawyer who represented Continental Airlines in an historic bankruptcy case that set aside labor union agreements, said the track record of the bitter Texaco-Pennzoil struggle indicates that the two companies could spend two or three years fighting in bankruptcy court. "The courts have been very interested in the issue of good-faith bankruptcy filings. This may prove to be a landmark case in developing that issue," Sheinfeld said. Texaco, he said, was following the example set by Manville Corp, A.H. Robins Co and other firms that fell into bankruptcy expressly to avoid paying large legal judgments. Bankruptcy laws were relaxed in 1978 so that a company no longer needed to prove it was insolvent in order to seek protection from creditors. Texaco lawyers bristle at the suggestion that the company entered bankruptcy to spite Pennzoil. Gibson Gayle, a Texaco lawyer, said the company had every right to seek protection from creditors, and that Texaco had embarked on an internal restructuring plan in December 1984 that required transferring various assets among subsidiaries. But Treece said the high profile of the Texaco bankruptcy case may also put the company under an uncomfortable spotlight. "What seems fair and what may be legally correct may be two entirely different things," Treece said. "This may be a signal to Congress to do something about tightening the bankruptcy laws. You are either a chicken or a duck, just like you are either bankrupt or you're not." Reuter ================================================== Title: TWA <TWA> TANGLES PIEDMONT <PIE> SITUATION Trans World Airlines Inc complicated the bidding for Piedmont Aviation Inc by offering either to buy Piedmont suitor USAir Group or, alternatively, to merge with Piedmont and USAir. Piedmont's board was meeting today, and Wall Street speculated the board was discussing opposing bids from Norfolk Southern Corp and USAir. The TWA offer was announced shortly after the Piedmont board meeting was scheduled to begin. TWA offered to buy USAir for 52 dlrs cash per share. It also said it was the largest shareholder of USAir and threatened to go directly to USAir shareholders with an offer for 51 pct of the stock at a lower price. TWA also said it believed its offer was a better deal for USAir shareholders than an acquisition of Piedmont, but it said it alternatively would discuss a three-way combination of the airlines. Market sources and analysts speculated that TWA chairman Carl Icahn made the offer in order to put his own airline into the takeover arena. "We're just wondering if he's not just trying to get TWA into play. There's speculation on the street he just wants to move onto somthing else," said one arbitrager. "We think TWA might just be putting up a trial balloon." Analysts said the offer must be taken seriously by USAir, but that the airline will probably reject it because the price is relatively low compared to other airline deals. They also said Icahn must prove his offer credible by revealing financing arrangements. "They need to show their commitment and their ability to finance. I think it's a credible offer," said Timothy Pettee, a Bear Stearns analyst. "I think it's certainly on the low end of relative values of airline deals," said Pettee. Pettee estimated 58 dlrs would be in a more reasonable range based on other airline mergers. USAir stock soared after TWA made public its offer. A spokesman for USAir declined comment, and said USAir had not changed its offer for Piedmont. USAir offered of buy 50 pct of that airline's stock for 71 dlrs cash per share and the balance for 73 dlrs per share in USAir stock. USAir closed up 5-3/8 at 49-1/8 on volume of 1.9 mln shares. Piedmont, which slipped 1/2 to close at 69-5/8, also remained silent on the TWA action. Piedmont has an outstanding 65 dlr cash per share offer from Norfolk Southern Corp. Norfolk Southern declined comment, but said it stuck with its offer for Piedmont. Norfolk owns about 20 pct of Piedmont and opened the bidding when it said it would propose a takeover of Piedmont. Some analysts said Icahn may be trying to acquire USAir to make his own airline a more attractive takeover target. "Icahn I think had wanted to sell his airline and there were no takers. I think the strategy might have called for making his investment more attractive. One way to accomplish that specific objective is to go out and acquire other airlines," said Andrew Kim of Eberstadt Fleming. "I don't know whose going to buy them, but at least this way it becomes a much more viable package," said Kim. But Icahn's financing ability for such a transaction remains in doubt, in part because of TWA's heavy debt load. Wall street sources said TWA has some cash with which to do the offer. The sources said Icahn has not lined up outside financial advisers and plans to make his own arrangements. Icahn earlier this year abandoned plans to buy USX Corp <X> and still retains 11 pct of that company's stock. Some Wall street sources said the financier's USX plan was impacted by the cloud hanging over his adviser, Drexel Burnham Lambert Inc, because of Wall Street's insider trading scandal. Industry sources also predicted USAir might reject the TWA offer on price and financing concerns. "It's littered with contingencies and it doesn't even have a financing arrangement," said one executive at another major airline. But the executive conceded a merged TWA-USAir would be a strong contender with USAir's east coast route system and planned west coast presence from PSA. USAir could feed the intenrational flights of TWA, which has a midwest presence in its St. Louis hub. Adding Piedmont, dominant in the southeast, to the mix would develop an even stronger force. The combined entity would also have TWA's pars reservation system. Such a merger would be complex and analysts said it would result in an airline iwth an 18 pct market share. Reuter ================================================== Title: MERRILL LYNCH U.K. EXECUTIVE CHARGED BY SEC The Securities and Exchange Commission said it charged a managing director of <Merrill Lynch, Pierce, Fenner and Smith Ltd> in London with masterminding "a massive insider trading scheme." Nahum Vaskevitch, the managing director of the Mergers and Aquisitions Department of the broker's London office, was charged in a civil complaint by the SEC filed in Manhattan Federal Court. The complaint said Vaskevitch leaked information about 12 companies that were involved in a merger or aquisition which resulted in more than four mln dlrs in profit for himself and others involved in the scheme. Besides Vaskevitch, who is a British and Israeli citizen who lives in London, others named as defendants in the suit were David Sofer, an Israeli citizen living in Jerusalem, and two corporations, <Plenmeer Ltd>, a British company, and <Meda Establishment>, a Lichtenstein corporation. The scheme, which covered a two year period, allegedly involved Vaskevitch leaking information to Sofar about looming takeovers and mergers, some of which he worked on, according to the complaint. The SEC secured a temporary restraining order freezing all the assets of the defendants in the United States. A hearing is set for March 20. Merrill Lynch, Pierce, Fenner and Smith is a subsidiary of Merrill Lynch and Co Inc <MER>. According to the court documents, Sofer is a principal in both Plenmeer and Meda Establishment and Vaskevitch has an interest in Plenmeer. The suit was filed in New York because trading allegedly took place here. One of the deals in which an insider profit was alleged was the 1984 merger of K-Mart Corp <KM> with <Pay Less Drug Stores>. Another deal was the sale by W.R. Grace and Co <GRA> of its holdings in <Hermann's Sporting Goods Co>. An SEC official in Washington said the Vaskevitch case is unrelated to the agency's widening investigation into Wall Street's insider trading scandal involving Ivan Boesky and Dennis Levine. Neither Vaskevitch nor Sofar are currently living in the United States and cannot be extradited on the basis of the SEC's civil charges filed against them, the official said. Vaskevitch is living in England and Sofar's whereabouts are unknown, he said. "We can't force them to come back," the official said. The agency is moving to seize all U.S. assets of both men, which they could forfeit if they do not contest the case, the SEC official said. Although the SEC recently signed an accord with Britain aimed at improving cooperation between the two countries in investigating securities law violations, the SEC official said it did not need to rely on U.K. authorities in this case. "We were able to make our case against them here," he said. Reuter ================================================== Title: SEC OKAYS BOESKY FIRMS' MOVE TO PROTECT FUNDS The Securities and Exchange Commission approved a request by two firms controlled by inside trader Ivan Boesky that allows them to take steps to protect hundreds of millions of dollars from potential claimants. The SEC granted requests made by Seemala Partners L.P. and IFB Managing Partnership L.P., to withdraw as registered brokers, effective March 12. With the action, the partnerships are no longer subject to the SEC's net capital rules requiring them to remain solvent as brokerage firms. Seemala argued the move would be necessary if noteholders of Ivan Boesky and Co L.P. are to be repaid. In asking the SEC to speed its withdrawal as a registered broker, Seemala said it wold repay to Boesky and Co, which is also controlled by the former Wall Street arbitrageur, 660 mln dlrs in subordinated debt, plus accrued interest. IFB Managing Partners, which was also given approval to withdraw as a broker, has no significant assets, the SEC said. Once it is repaid, Boesky and Co will pay 200 mln dlrs in senior participating notes and 440 mln dlrs in subordinated participating notes of Hudson Funding Corp to certain noteholders, Seemala told the SEC. Under the planned repayment scheme, Seemala told the SEC the noteholders would forgo claims of prepayment penalties and some additional interest amounting to more than 100 mln dlrs. The plan would be in the public interest, Seemala argued, since the noteholders, many of which are savings and loan institutions and insurance companies, would receive repayment of the principal on their notes. Seemala also argued that the plan would help the limited partners of Boesky and Co, who were not charged in the Boesky insider trading scandal, by protecting its remaining equity from the noteholders' claims. Unless the Boesky firms are allowed to complete the repayment plan, Seemala said Boesky and Co noteholders would seek total claims of 116.8 mln dlrs, plus 9.2 mln dlrs to 10.6 mln dlrs a month in addition, in addition to other claims. Such claims could wipe out Boesky and Co's assets before other creditors can establish their claims, Seemala said. The only opposition to Seemala's Feb 12 request to withdraw as a broker came from Berger and Montague P.C., counsel for the plaintiffs in a class action suit against Seemala and other defendants. The suit involves charges stemming from Boesky's insider trading in the stock of several major companies. Berger and Montague told the SEC it opposes the Seemala proposal because it would allow Boesky and Co noteholders to settle their claims ahead of the plaintiffs in the class action and because Seemala did not disclose the total amount of claims against it and what percentage defrauded investors would get. Seemala has said that its repayment scheme would leave a pool of about 278 mln dlrs free of claims from Boesky and Co noteholders which could satisfy other claimants. The pool would be in addition to funds placed in escrow under insider trading settlement agreements, including 11.4 mln dlrs from Dennis Levine and 50 mln dlrs from Boesky. In approving the request, the SEC barred Seemala and Boesky and Co from making any distributions to its limited partners for one year and required limited partners who receive distributions to agree to make themselves liabile up to a point in any case filed the partnerships. The SEC also required Seemala and Boesky and Co to get confirmation of their assets from a nationally recognized accounting firm. The agency said Boesky and Co and existing and potential claimants against it have similar interests in eliminating major creditors and preserving assets for future claims. Reuter ================================================== Title: ECONOMIC SPOTLIGHT - BANKAMERICA <BAC> BankAmerica Corp is not under pressure to act quickly on its proposed equity offering and would do well to delay it because of the stock's recent poor performance, banking analysts said. Some analysts said they have recommended BankAmerica delay its up to one-billion-dlr equity offering, which has yet to be approved by the Securities and Exchange Commission. BankAmerica stock fell this week, along with other banking issues, on the news that Brazil has suspended interest payments on a large portion of its foreign debt. The stock traded around 12, down 1/8, this afternoon, after falling to 11-1/2 earlier this week on the news. Banking analysts said that with the immediate threat of the First Interstate Bancorp <I> takeover bid gone, BankAmerica is under no pressure to sell the securities into a market that will be nervous on bank stocks in the near term. BankAmerica filed the offer on January 26. It was seen as one of the major factors leading the First Interstate withdrawing its takeover bid on February 9. A BankAmerica spokesman said SEC approval is taking longer than expected and market conditions must now be re-evaluated. "The circumstances at the time will determine what we do," said Arthur Miller, BankAmerica's Vice President for Financial Communications, when asked if BankAmerica would proceed with the offer immediately after it receives SEC approval. "I'd put it off as long as they conceivably could," said Lawrence Cohn, analyst with Merrill Lynch, Pierce, Fenner and Smith. Cohn said the longer BankAmerica waits, the longer they have to show the market an improved financial outlook. Although BankAmerica has yet to specify the types of equities it would offer, most analysts believed a convertible preferred stock would encompass at least part of it. Such an offering at a depressed stock price would mean a lower conversion price and more dilution to BankAmerica stock holders, noted Daniel Williams, analyst with Sutro Group. Several analysts said that while they believe the Brazilian debt problem will continue to hang over the banking industry through the quarter, the initial shock reaction is likely to ease over the coming weeks. Nevertheless, BankAmerica, which holds about 2.70 billion dlrs in Brazilian loans, stands to lose 15-20 mln dlrs if the interest rate is reduced on the debt, and as much as 200 mln dlrs if Brazil pays no interest for a year, said Joseph Arsenio, analyst with Birr, Wilson and Co. He noted, however, that any potential losses would not show up in the current quarter. With other major banks standing to lose even more than BankAmerica if Brazil fails to service its debt, the analysts said they expect the debt will be restructured, similar to way Mexico's debt was, minimizing losses to the creditor banks. Reuter ================================================== Title: TALKING POINT/BANKAMERICA <BAC> EQUITY OFFER BankAmerica Corp is not under pressure to act quickly on its proposed equity offering and would do well to delay it because of the stock's recent poor performance, banking analysts said. Some analysts said they have recommended BankAmerica delay its up to one-billion-dlr equity offering, which has yet to be approved by the Securities and Exchange Commission. BankAmerica stock fell this week, along with other banking issues, on the news that Brazil has suspended interest payments on a large portion of its foreign debt. The stock traded around 12, down 1/8, this afternoon, after falling to 11-1/2 earlier this week on the news. Banking analysts said that with the immediate threat of the First Interstate Bancorp <I> takeover bid gone, BankAmerica is under no pressure to sell the securities into a market that will be nervous on bank stocks in the near term. BankAmerica filed the offer on January 26. It was seen as one of the major factors leading the First Interstate withdrawing its takeover bid on February 9. A BankAmerica spokesman said SEC approval is taking longer than expected and market conditions must now be re-evaluated. "The circumstances at the time will determine what we do," said Arthur Miller, BankAmerica's Vice President for Financial Communications, when asked if BankAmerica would proceed with the offer immediately after it receives SEC approval. "I'd put it off as long as they conceivably could," said Lawrence Cohn, analyst with Merrill Lynch, Pierce, Fenner and Smith. Cohn said the longer BankAmerica waits, the longer they have to show the market an improved financial outlook. Although BankAmerica has yet to specify the types of equities it would offer, most analysts believed a convertible preferred stock would encompass at least part of it. Such an offering at a depressed stock price would mean a lower conversion price and more dilution to BankAmerica stock holders, noted Daniel Williams, analyst with Sutro Group. Several analysts said that while they believe the Brazilian debt problem will continue to hang over the banking industry through the quarter, the initial shock reaction is likely to ease over the coming weeks. Nevertheless, BankAmerica, which holds about 2.70 billion dlrs in Brazilian loans, stands to lose 15-20 mln dlrs if the interest rate is reduced on the debt, and as much as 200 mln dlrs if Brazil pays no interest for a year, said Joseph Arsenio, analyst with Birr, Wilson and Co. He noted, however, that any potential losses would not show up in the current quarter. With other major banks standing to lose even more than BankAmerica if Brazil fails to service its debt, the analysts said they expect the debt will be restructured, similar to way Mexico's debt was, minimizing losses to the creditor banks. Reuter ================================================== Title: TALKING POINT/WALL STREET STOCKS Investors who have been riding the bull market in U.S. stocks got a stinging reminder today of how unexpected news can trigger sharp reversals. "The market was ripe for some type of pullback," said Frank Korth, analyst at Shearson Lehman Brothers. He said over the weekend, investors pondered President Reagan's decision to impose tariffs on Japanese electronic goods and some concluded the step could signal the beginning of a trade war. The Dow Jones Industrial Average plunged 79 points in 30 minutes before stabilizing and making a partial recovery. Korth believes there has been an over-reaction and near-term traders might want to step in and buy one-half or one-quarter of new investments they have been considering. "We're still in a bull market," said William Raftery of Smith Barney, Harris Upham and Co. He thinks history has shown such sharp pullbacks are a natural part of bull markets. "The bear usually strikes slowly," he said. Raftery noted that blue chips have been forefront of the rally that took the market to record highs last week. In today's decline, he said, the big name stocks were coming more into a more normal alignment with the general market. Charles Comer of Moseley Securities Corp said ultimately the pullback could prove to be a pre-shock to the long awaited correction. But for now he believes the bull market remains intact. However, it could take several weeks for the market to complete a "distribution process" and along the way there will be rallies. Comer thinks it is premature to conclude that today's action signaled formation of a market top. He thinks the market can hold in the low to mid 2200 area on the Dow index. "This probably is the correction that has been expected," said Crandall Hays of Robert W. Baird Co. Hays noted that market breadth began to deteriorate last week. He said this morning investors saw the dollar down further, interest rates up and gold up. "The trade problem got people spooked and and all the bad things were happening at once," he said. "This correction could take us down 150 points and we're half-way there now," he said early today. He thinks the downward move in stock prices could be over in a couple of weeks. Business conditions seem to be getting better according to what he hears from a broad cross-section of companies, from retailers to machinery manufacturers. "The market was high and people were looking for a correction, so this was an excuse for the market to go down," said Alan Ackerman of Gruntal and Co. He believes investors will be in a mood of extreme caution or slightly negative for the near term. Ackerman thinks the U.S. is attempting to "fire a shot across Japan's bow and let them know we're serious about having closer trade ties." But nevertheless investors have been rattled by "a perception that a full scale trade war is possible." Ultimately, unless there is an accord, the effects could be higher interest rates and unemployment, he said. "I anticipate a further correction later this week," said Harry Laubscher of Tucker Anthony, R.L. Day. He thinks the pullback was "the start of an overdue correction of between six and 10 pct from the market highs." Although investors now have new reason to worry about higher interests rate and a return of inflation, Laubscher says, "it is not the end of the bull market." "The market was looking for a reason to knock itself down a little bit, and with the trade sanctions coming largely as a surprise, this was the think the market attached itself to," said Gary Ciminero of Fleet Financial Group. ================================================== ************************************************** Topic 4 ************************************************** Title: U.S. RETAIL SALES RISE MASKS WEAK TREND - ANALYSTS U.S. retail sales rose sharply in February but many economists said the underlying consumer spending trend remains weak. February retail sales jumped 4.1 pct, more than the 2.5-3.0 pct rise the financial markets had anticipated. But January's sales were revised down to a 7.4 pct drop, from a previously reported 5.8 pct decline. "The trend is toward continued spending but certainly at a much more sluggish pace," said Don Maude of Midland Montagu Capital Markets Inc. Maude averaged out the wide swings in the retail sales data over past four months to show that the pace of consumer spending is slowing. Combining the latest data with a 0.6 pct drop in November and a 4.6 pct gain in December, the average retail sales gain over the four months was 0.2 pct, he said, compared to to a 0.4 pct rise for year-over-year sales through February. "You can see a pattern developing," Maude said. "I wouldn't be surprised to see a fall-off in March, especially since sales probably won't be boosted by auto sales as they were in February." Despite the weak underlying trend, economists were impressed by a robust 1.5 pct gain in total sales excluding autos in February. This compared to a revised 0.4 pct decline in January, previously reported as a 0.1 pct decline. "The increase in non-auto sales was broadbased, with gains in durable goods as well as non-durables," noted Ward McCarthy of Merrill Lynch Capital Markets Inc. "It was a pretty healthy report." He noted that building materials rose 1.8 pct in February after falling 1.7 pct in January. General merchandise store sales gained 1.4 pct after a 1.6 pct rise in January. "There are signs of life in the economy," McCarthy said. "But it's jumping to conclusions to extrapolate this report into the future." A 0.7 pct increase in disposable personal income in January which may be linked to the new tax laws probably helped boost spending in February, he said. "A lot of people may be inadvertently under-withholding taxes from their paychecks," he said. "When people in this country get an increase in disposable income, the inclination is to go out and spend it," he said. Economists said tomorrow's release of U.S. auto sales for the first 10 days of March will be an important indicator of how much this sector will add to first quarter spending. Auto sales accounted for the lion's share of total February sales, rising 14.4 pct. This followed a 27.7 pct drop in January, previously reported as a 22.4 pct fall, due largely to the expiration of the sales tax deduction under new tax laws January 1, the Commerce Department noted. Some economists argued that the because the gain in total sales excluding autos also followed a decline in January, the strength in the February report is less than impressive. "There is strength in the February data, but that's because they were compared to low sales levels in January," said said Beth Reiners of Dean Witter Reynolds Inc. "We don't see it as a precursor of continued strength." Durable goods sales rose 8.8 pct in February, after falling 17.7 pct in January. February non-durable goods sales gained 1.3 pct, after declining 0.2 pct in January. Gasoline service station sales rose two pct in February, following a 1.9 pct gain in January, but economists said higher oil prices rather than an increased volume of gas sales probably accounted for these gains. Reiners also emphasized that the trend in consumer spending is weakening. Total retail sales on average were 123 billion dlrs in the fourth quarter of 1986, she said. In January, they fell to a seasonally adjusted 117.52 bilion dlrs, and in February rose to 122.29 billion dlrs. "On average, it looks like they'll total 120 to 121 mln dlrs in the first quartrer," she said. "We don't look at this as indication that the economy is barrelling along." "The number is not really that problematic for those of us who are constructive on the bond market," agreed Elliot Platt of Donaldsen Lufkin and Jenrette Securities Corp. Platt does not foresee potential for tighter monetary policy on the basis of the latest retail sales report. "The Fed is on hold now because the data have been so confusing," he said. "Before the 337,000 gain in February non-farm payroll employment, I would have looked for a discount rate cut in March," he said. "But now Fed officials will have to wait for the first quarter real U.S. gross national product data in April to sort things out." Reuter ================================================== Title: U.S. JOBS DATA SAID TO RULE OUT FED TIGHTENING A steep drop in goods-producing jobs detracted from U.S. March non-farm payroll employment and makes it unlikely that the Federal Reserve will tighten monetary policy to defend the dollar, economists said. U.S. March non-farm payroll employment rose 164,000, less than the gain of 220,000 to 290,000 the financial markets expected. Manufacturing employment fell 25,000, compared with February's 50,000 gain, while March construction employment dropped 45,000 after being unchanged in February. "The momentum of industrial activity is tapering off as we end the first quarter," said Stephen Roach of Morgan Stanley and Co Inc. "This sets the stage for more sluggish growth in the second and third quarters." "The Fed will view this as a caution flag on the economy," he said. "They will not ease as long the dollar is weak, but clearly they can't tighten." David Wyss of Data Resources Inc said that the downward revision in February non-farm payroll employment to 236,000 from 337,000 means that employment gains in the first quarter were weaker than expected. While Wyss left his first-quarter forecast of real U.S. gross national product growth at 3.5 pct, he said the March jobs data suggested a downward revision in his second-quarter growth forecast to 2.5 pct from 2.8 pct. Bill Sullivan of Dean Witter Reynolds Inc said the average monthly gain in non-farm jobs in the first quarter was only 237,000, compared with 254,000 in the fourth quarter of 1986. "There's momentum in first quarter labor force activity, but less than assumed," he said. "Gains in goods-producing jobs were subdued at best. This rules out any possibilty of the Fed tightening for exchange-related purposes." In March, the average workweek fell back to its January level of 34.8 hours from 35.0 hours in February. Manufacturing hours also fell back to their January level, totalling 40.9 hours in March compared with 41.2 hours in February. The Commerce Department noted that loss of manufacturing jobs in March was concentrated in automobile, electrical and electronic manufacturing. Robert Brusca of Nikko Securities International said that a 13,000 decline in auto manufacturing employment accounted for nearly half of the total drop in manufacturing jobs. Economists said that a build-up in auto inventories resulting from a steep drop in sales has finally caught up with the labor force and may point to slower growth ahead. Most expect an increase in inventories of as much as five pct to offset a steep four to five pct drop in final sales in the first-quarter GNP accounts. Roach said he expects first quarter U.S. GNP to rise two pct, to be followed by a gain of 1.0-1.5 pct at best in the second and third quarters. He said the March drop in industrial activity "is a reasonable response in light of the inordinate contribution inventory accumulation made to GNP." Economists said the employment data also suggest weak gains in industrial production and personal income for March. They expect only marginal gains, if not small declines, for these indicators, compared with a February increases of 0.5 pct in industrial production and 0.9 pct in personal income. Steve Slifer of Lehman Government Securities said the drop in March construction employment may also signal a drop in March housing starts, which rose 2.6 pct in February to 1.851 million units at an annual rate from 1.804 million units in January. The rate of unemployment fell to 6.6 pct, its lowest level since March 1980, from 6.7 pct in February. But Wyss pointed out that this resulted from a drop in the labor force, which fell to 119.2 mln in March from 119.35 mln in February. "This just means that there were fewer people looking for work, so the drop in unemployment doesn't mean much," he said. He said the latest employment report will not concern the Fed because it does points to GNP growth in the first half of 2.5-3.0 pct, but "it does suggest they can't afford to tighten to quickly either." The statistical factors used to smooth out seasonal fluctuations in the jobs data may have understated March labor force gains, just as seasonal factors probably overstated them in January and February, Slifer said, but are consistent with his forecast of 1.8 pct first quarter GNP growth. Economic growth remains sluggish, but Silfer does not think that the Federal Open Market Committee changed policy at their meeting this week. "At some point they will be more inclined to ease," he said. For the time being, however, the March employment report "increases the likelihood they won't tighten, regardless of the dollar." Reuter ================================================== Title: FEBRUARY U.S. JOBS GAINS SHOW STRONGER ECONOMY Momentum in th U.S. economy may be picking up given solid across-the board increases in the February U.S. employment report, economists said. U.S. non-farm payroll employment rose 337,000 in February, twice what the financial markets expected. This follows a 319,000 gain in January, revised down from a previously reported 448,000 increase. "Even if you look at January and February together, this is still a much stronger report than the consensus expectation in the market," said Allan Leslie of Discount Corporation. Economists stressed that gains in hours worked signal much larger gains in February U.S. production and income than previously forecast. The average work week rose 0.2 hours to 35.0 hours from 34.8 hours in January. The average manufacturing work week rose 0.3 hours to 41.2 hours, the longest factory work week since November 1966, the Commerce Department said. "The gains in manufacturing employment point to a very large increase in industrial production of between 0.5 and 0.7 pct," said Joe Carson of Chemical Bank. This compares to a 0.4 pct gain in January U.S. industrial production. Peter Greenbaum of Smith Barney Harris Upham and Co Inc noted that the average wage rate increased to 8.87 dlrs an hour in February from 8.83 dlrs in January. "Combined with the increase in hours worked, this means we'll get a pretty healthy gain in personal income vis-a-vis the wage and salary disbursement," he said. Greenbaum said that February U.S. personal income should rise at least 0.5 pct after being flat in January. He said the February employment gains are consistent with his firm's first quarter U.S. real gross national product growth forecast of 3.7 pct. Economists agreed that the employment data were negative for the credit markets in that they signal a healthier economy and no easing in the Federal Reserve's monetary policy. But most said that the market need not fear tighter policy either. "This report is another reason for the Fed to not consider easing," said Ray Stone of Merrill Lynch Capital Markets Inc. "It gives them more room to address the dollar situation," he said. "If they had to nudge policy tighter, they could do so, but it's most likely they'll sit and wait." "The data have not been uniform," Stone added. "Durable goods were weak in January and now employment is strong." In January, U.S. durable goods orders dropped 7.5 pct, followed by a 4.0 pct drop in U.S. factory goods orders. U.S. retail sales fell 5.8 pct, and the U.S. merchandise trade gap widened to 14.8 billion dlrs. "Things just aren't adding up," said Steve Slifer of Lehman Goverment Securities Inc. "Consumer spending, capital spending, goverment spending, and net exports data show very weak first quarter GNP growth of one pct," he said. "The employment and production data point to a big inventory build-up, but that's what we thought in the fourth quarter and we only got 1.3 pct GNP growth." Manufacturing employment gained 50,000 after falling 15,000 in January. Economists estimated that 30,000 of the gain was accounted for by striking workers in the steel and machinery industries returning to work. Even so, some economists said that the manufacturing gains have resulted from an improving trade outlook. Jason Benderly of Goldman, Sachs and Co noted that the U.S. trade picture improved in the fourth quarter as net exports grew at a 20 pct annual rate while the rate of increase in imports fell to only six pct, and that it continues to improve in the first quarter. "Not only the official statistics for the fourth quarter, but evidence of a pick up in orders from overseas for paper products, chemicals, high-tech goods, and capital goods show that trade is improving," Benderley said. "The economy is moving between extremes," he said. "Some reports are going to look bad and some good, but first quarter GNP is going to grow in the middle at about three pct." A 287,000 gain in services employment comprised the greater part of February's employment gain. Retail services employment rose 129,000 in February, compared to a gain of 117,000 in January, previously reported at 166,000. Construction employment rose a slim 2,000 in February. But this follows a robust 113,000 gain in January, revised down from a previously reported 142,000 gain. The U.S. civilian unemployment rate was unchanged in February at 6.7 pct. This means the jobless rate has stayed at 6.7 pct for three consecutive months, the lowest reading since March 1980, the Commerce Department noted. "The Federal Reserve has to be pleased with this report," Carson said. "This takes away the Fed's flexibility to ease, but there's no reason to tighten. It's way too early for that." Reuter ================================================== Title: U.S. HOUSING DATA FAIL TO CLARIFY ECONOMIC PATH Surprisingly strong U.S. housing statistics for February cannot be taken as an indication that the economy is generating any momentum and are not sufficient cause to start lifting forecasts for first quarter growth, economists said. Building was boosted by two factors last month, unusually mild weather and low mortgage rates. But economists said that seasonal factors make it hard to assess what spur to the economy, if any, will come from housing in coming months. And after a steady retreat, mortgage rates seem to be near bottom. U.S. housing starts rose 2.6 pct in February to a seasonally adjusted annual rate of 1.851 mln units from 1.804 mln in January. It was the highest pace for starts since April 1986. The rate at which permits were issued for future building climbed 4.4 pct to a seasonally adjusted annual rate of 1.764 mln units after dropping 11.52 pct to 1.690 mln in January. "February's weather is usually more adverse for home building. Because of seasonal factors it's difficult to determine what this means for the economy down the road," said Allan Leslie of Discount Corp. The housing report is seasonally-weighted to compensate for weather-related setbacks. As a result, milder temperatures inflate the statistics. Economists said that low mortgage rates also were a spur to building last month. But several believe that rates will now consolidate before edging up in late spring/early summer. "Builders are looking at current mortgage rates and saying 'Let's do it now'," said Mark Obrinsky of the U.S. League of Savings Institutions in Washington, whose members supply much of the financing for home building. But Obrinsky doubts that there is much more downward potential for rates because he foresees higher inflation and some overall improvement in the U.S. economy. He expects rates to gain 50 to 100 basis points in early summer from the 9.50 pct fixed rate effective in February. Last November, fixed rate mortgages were about 10.30 pct. As expected, the strength in housing was concentrated in the single-family sector. The multi-family area -- which typically represents rental units -- remained weak due to high vacancy rates and increased capital costs of such units following tax law changes effective January 1. Single-family starts rose at a 5.6 pct annual pace to 1.317 mln units. Multi-family fell 4.1 pct to a 534,000 rate. "Strength in the single-family sector indicates that low mortgage rates are doing their job. But we're probably not looking at a great deal of growth potential," said Ward McCarthy of Merrill Lynch Capital Markets. McCarthy noted that the housing report, together with larger than expected gains in U.S. employment, industrial output and retail sales in February, may cause some observers to start waving "four pct GNP banners" for the first quarter. Gross national product grew 1.3 pct in the fourth quarter. But McCarthy, who still expects first quarter real GNP to come in at an annual rate of 2.5 pct or slightly above, is not convinced that growth will pick up in future. "The big story is the inventory re-building that's going on now, not all of which is intentional," he said. For example, U.S. automakers, who are already saddled with high stocks, produced at an annual rate of 8.3 mln units in February compared with domestic car sales of 7.3 mln. Thus while inventories could contribute to GNP in the first quarter, they may result in scaled-back production and weaker growth in the second, he said. "If most of the first quarter growth is inventory building and we cannot identify any improvement in export demand, then there is the potential for softness in the second quarter," agreed Allan Leslie of Discount Corp. He is still evaluating first quarter GNP prospects. Federal Reserve chairman Paul Volcker said last week that current data do not show the worsening in trade has reversed. "At the same time that we are pumping up inventories in the first quarter, we could foresee production slowing in the second," cautioned Joe Plocek of McCarthy, Crisanti and Maffei Inc, who expects first quarter growth of about three pct. Reuter ================================================== Title: U.S. ECONOMY SHOWS PROMISING SIGNS OF GROWTH The U.S. economy is showing some promising signs of accelerated expansion despite the sluggishness of the fourth quarter last year, private economists say. Some of the slowness experienced in the October-December period had been expected to spill over into the first quarter this year, as the tax law changes that went into effect in January slowed business and consumer spending. But some of the latest economic data show signs of surprising strength in the U.S. economy, although some economists remain cautious about the outlook. The Commerce Department reported today that new orders for durable goods in February jumped by 5.7 billion dlrs, a six pct rise, to 101.2 billion dlrs. Even excluding volatile defense goods, durable goods orders rose a healthy 3.8 pct, the agency said. The February numbers surpassed the expectations of many financial analysts, whose predictions ranged from flat to increases of up to five pct. The January/February employment statistics suggest the Gross National Product will show a healthy rate of growth for the first three months of this year, said Lyle Gramley, an economist with the Mortgage Bankers Association. The U.S. jobless rate in February and January was 6.7 pct, the lowest rate since March 1980. The number of new non-farm jobs rose by 337,000 in February after a 319,000 gain in January and a 225,000 December increase, the government said. The employment data suggests a GNP annual growth rate of about three to 3.25 pct in the first quarter, said Gramley. Much of that will be attributed to businesses rebuilding their inventories and is not likely to be sustained in the second quarter, Gramley said. He expects a slowdown in the second quarter with smaller increases in personal consumption and government spending. He also sees residential construction declining mostly for multi-family housing units. Fidelity Bank senior economist Mickey Levy said some of the fourth quarter slowness will continue. Levy predicts GNP will grow at a scant 1.5 pct rate in the first quarter of 1987, accelerate during the second quarter and show a brisk 4.5 pct annual rate in the third quarter. The key to both forecasts is a marked improvement in the U.S. trade balance which is expected because of the decline in the dollar's value over the last year and half. "The improvement will be gradual and long lasting," Levy predicted. Most of it will be through import reduction, but at least one-third will be due to a rise in product exports as the prices of U.S. goods become more attractive overseas. The Reagan administration has predicted the trade deficit, which soared to record levels last year, will improve this year and the U.S. economy will grow by a respectable 3.2 pct for the year compared with a 2.5 pct rate last year. As part of the effort to reduce the trade deficit, the U.S. has been pressing West Germany and Japan to stimulate their domestic demand for goods from the U.S. and others. U.S. officials believe that would help take some of the pressure off the United States whose five years of economic growth has been the mainstay of developing countries. The U.S. economy provided them with a giant market for their goods giving them a way to earn income badly needed to service their foreign debt. The government last week said the U.S. economy grew at a modest 1.1 pct annual rate during the fourth quarter. There were indications of improvement in the huge imbalance between the volume of goods imported to the United States and those shipped abroad. The report showed a rising volume of exports corresponding to a decline in imports despite the fact that in current dollar terms, the U.S. trade deficit worsened during the closing three months of 1986. While fourth quarter economic growth was weak, corporate profits jumped a healthy 6.1 pct during the period, the government said. It also reported that inflation, as measured by the GNP price deflator, remained in check, growing a moderate 0.7 pct in the period, the lowest rise in 19 years. The government also reported that consumer spending, a key element of the five year economic recovery, jumped 1.7 pct in February, after falling two pct in January. The Federal Reserve Board also reported that the manufacturing sector, which had been one of the weaker elements of the U.S. economy, was showing signs of recovery. In its latest report on current economic conditions, the Fed said that economic activity in the various regions of the country ranged from uneven or steady to improving. Manufacturing activity showed signs of improvement in most regions except Dallas where orders remained sluggish. Chase Econometrics Chairman Lawrence Chimerine said the pick up in the U.S. manufacturing sector is largely due to the drop in the dollar's value. He said he does not foresee a major pick up in economic activity, but does not believe the economy will slip into recession either. He said higher prices on imported products and wage cuts that have helped the manufacturing sector will squeeze consumers purchasing power. "That pattern is starting and will continue for a number of years," Chimerine said. He sees economic growth hovering around a modest two pct level for the next few years. Reuter ================================================== Title: SEMICONDUCTOR BOOK TO BILL RATIO AT 1.21 PCT The Semiconductor Industry Association put the three-month average book-to-bill ratio at 1.21, which was above analysts' expectations and reflects the sixth straight increase in this indicator of computer industry activity. Average booking in the three month period ended in March totaled 910.8 mln dlrs, up 15.6 pct from a month ago and the highest bookings since September, 1984. March billings, or computer chip sales in the month, totaled 912.1 mln dlrs, up 34.6 pct from a month ago, the association said. The three month average billings totaled 751.3 mln dlrs, up 6.5 pct. March billings were the strongest recorded since November, 1984, the association said. The book to bill ratio, at 1.21, was the highest since May, 1984, it noted. Preliminary total solid state shipments for the first quarter of 1987 totaled 2.25 billion dlrs, up 4.9 pct from last quarter and up 15.9 pct from last year's first quarter. Semiconductor Industry Association President Andrew Procassini said the rise in the book to bill was due to a substantial increase in U.S. bookings during March. "We believe that the bookings increase reflects growing confidence by electronic equipment manufacturers that some end-equipment market segments have improved substantially during the first quarter," Procassini said in a statement. The association also revised its book-to-bill ratio estimate for the three months ended in February to 1.12, from 1.13 earlier. It further revised the January book-to-bill figure to 1.09 from 1.12 estimated earlier. The three-month average book-to-bill ratio of 1.21 for March means for every 100 dlrs worth of product shipped, computer chip maker received 121 dlrs in new orders. Drexel Burnham Lambert Inc analyst Michael Gumport said association numbers indicate March orders were up 20 pct above the normal seasonal level. The association does not break out March orders from its three-month average, which it put at 910.8 mln dlrs. Gumport noted the three-month average bookings were well above the 800-865 mln dlrs anticipated by the industry. He said semiconductor stock could rise five to ten pct on the stock market open tomorrow, due to the positive numbers. "Skeptics are going to have to have some pretty strong reasons not to like this group (of stocks)," Gumport said. Kidder Peabody and Co analyst Michael Kubiak said the ratio indicates March orders at about one billion dlrs, which would be the highest monthly order rate since April, 1984. He predicted at least a five pct rise in semiconductor stocks on the open, and said the stock group could soar as high as 15 pct during the session. "One month does not a boom-time make, but this is very good news," he said. Kubiak attributed the stong semiconductor orders to strength in the personal computer market, inventory restocking and strong buying by distributors. Purchasing managers had been keeping computer chip inventories low, due to the overcapacity in the industry and the slow growth of the economy in general, analysts noted. The semiconductor industry has been in a slump for the past three years. The analysts said the March order and sales numbers are the strongest evidence yet that the trend may be turning. Nevertheless, they do not expect the Administration to retreat from proposed sanctions against Japanese chip makers. They added, however, if the industry continues to improve, it could mean the sanctions will be short term. Jack Beedle, President of In-Stat, an electronics industry research firm, called the March numbers "excellent", but also cautioned against excessive optimism. "I still believe caution should be the word, rather than euphoria," said Beedle, adding that he has yet to see strong indications from the general economy or the computer industry that support a solid, long-term recovery. Beedle said while he thinks the semiconductor industry will have a very good second quarter, he still thinks positive shifts in exports and industrial production are needed to sustain a recovery. Reuter ================================================== Title: FED SEEN CONTENT WITH U.S. FEBRUARY ECONOMY U.S. February reports reflecting slim gains in industrial output and moderating inflation pressures reinforced expectations that the Federal Reserve will continue to follow a stable course of monetary policy, economists said. "If you're the Fed, there's no reason to do anything," said Steve Slifer of Lehman Government Securities Inc. "There are hints that GNP is picking up. On the inflation front, all is well," he said. "Money supply is well under control. It's an absolutely ideal situation." February U.S. industrial production rose 0.5 pct, slightly less than the 0.7 pct gain the financial markets had expected. This compared with a slim 0.1 pct rise in January's production number, previously reported as a 0.4 pct increase. The February U.S. producer price index gained only 0.1 pct, less than a 0.3-0.4 pct expected rise. This followed a 0.6 pct rise in the PPI in January. "The Fed is going to look at this positively," said Allan Leslie of Discount Corporation. "Certainly inflation is not as bad as what Volcker (Fed Chairman) has said lately. Industrial production growth is along the lines of what the Fed wants." The energy products component of PPI rose 4.0 pct in February, after a 9.8 pct increase in January. "This shows that the impact of energy prices on inflation is behind us in terms of the move from 15 dlrs to 18 dlrs per barrel," said Maria Ramirez of Drexel Burnham Lambert Inc. "The trend is still 3.5 pct in the first half of the year." In 1986, declining energy prices contributed to a 2.5 pct decline in the PPI. Economists said that a rise in energy prices was expected, but a sharp drop in auto prices was not. Passenger car prices fell 3.4 pct and light truck prices dropped 1.3 pct. Yesterday, Federal Reserve Chairman Paul Volcker said that a possibility of renewed inflation remains a concern in both the financial markets and the Federal Reserve. "The Fed may be lowering its own inflation expectations today," said Robert Brusca of Nikko Securities International. While low inflation permits the Fed to maintain an easier monetary policy, Brusca said if import prices do not rise this could necessitate a weaker dollar. "The outlook for the dollar is still up in the air," he said. "We need inflation for U.S. producers to compete with foreign producers." Brusca said prices of electronic equipment dropped 0.8 pct in February's PPI. With many electronic goods produced overseas, this may show that foreign producers are not raising prices which bodes ill for U.S. competitiveness, he said. If further dollar declines are needed, this could diminish overseas investment in U.S. debt, Brusca added, which might necessitate higher interest rates and lower bond prices. By contrast, Slifer said imported goods prices rose 11.8 pct from first quarter 1985 to first quarter 1986 reflecting to a large degree a 22 pct drop in the trade-weighted real value of the dollar from February 1985 to February 1987. Slifer said import prices may rise further as manufacturers' contracts put in place before the dollar dropped to current levels expire, and new contracts are made that reflect a weaker dollar. David Wyss of Data Resources Inc noted that imported manufactured goods prices rose 8.5 pct at an annual rate in the second half of 1986, which has contributed to rising U.S. industrial output. "It's the other side of the lower dollar," Wyss said. "Producers are beginning to find themselves more competitive and they are increasing output." Wyss said that the latest data point to an average industrial production gain of 0.3-0.4 pct in the first quarter. "It's an encouraging sign that the manufacturing sector is beginning to revive." But Stephen Roach of Morgan Stanley and Co Inc was not convinced that the February reports portend economic gains. He said much of the strength came from factors that do not point to a sustained rise in industrial output. Roach pointed out that stikers returning to work in farm equipment industries helped account for a one pct rise in February business equipment production. Utilities output rose 0.7 pct in February after gaining 1.2 pct in January, but Roach said it shows mostly that more energy was produced, not that manufacturing activity gained. Finally, he pointed out that auto production accounted for half of the industrial production gain as production of auto assemblies rose to 8.3 million units at an annual rate from 7.5 million units. "In the first quarter, it looks like automakers are producing at an 8.5 mln unit annual rate, but selling at roughly a seven mln unit rate," Roach said. "The disparity between output and sales is showing up in inventories." Economists pointed to sharp rise in January U.S. business inventories as a sign that production may be outstripping demand in the first quarter of 1987. January business inventories rose 0.9 pct, the largest gain since July 1979 when inventories rose 1.7 pct, the Commerce Department said. Business sales dropped 4.5 pct in January, the largest monthly sales drop on record. Nonetheless, economists do not expect the Fed to react to month-to-month changes. "The Fed has been standing pat for the last seven months," Ramirez said. "They will continue to stand pat for at least the next couple of months." Reuter ================================================== Title: U.S. DATA POINT TO CAPITAL SPENDING SLOWDOWN A surprise 7.5 pct drop in U.S. January durable goods orders points to a slowdown in capital spending that could presage lackluster real growth in the U.S. economy in the first quarter of 1987, economists said. With total orders, excluding the volatile defense sector, falling a record 9.9 pct, economists agreed that the report painted a bleak picture for the U.S. economy. But they stressed that the 1987 tax reform laws may be a primary factor behind the drop in orders for business capital investment. "It's a rather gloomy outlook for the economy, said David Wyss of Data Resources Inc. "I'm particularly impressed by the 19.7 pct drop in non-defense capital goods orders because it may be a sign that businesses are reacting more adversely to tax reform than we thought." The Commerce Department pointed out that a record 14.8 pct decline in new orders for machinery was led by declines in office and computing equipment orders. Economists said the drop in computer orders may have been a response to the lengthening of depreciation schedules and the end of the investment tax credit under the new tax laws. "It's more expensive to invest than it used to be, so people just aren't doing it as much," Wyss said. Increases in durable goods orders at year's end reinforced the view that businesses anticipated the changing tax laws, economists said. November durable goods orders rose 5.1 pct and December's increased 1.5 pct, revised upwards from a previously reported 0.9 pct. But most acknowledged that the huge January drop was caused by more than tax reform. "The wash-out that took place in January was far greater than the actual gains that took place in November and December," said Bill Sullivan of Dean Witter Reynolds Inc. "The economy has a weakening bent to it early in the year." "The report definitely points to very sluggish capital spending over the next couple of quarters," said Donald Maude of Midland Montagu Capital Markets Inc. Maude pointed to a continuing decline in order backlogs as evidence that the outlook for new orders is not improving. In November, order backlogs rose 0.6 pct, but in December they fell 0.6 pct and in January 0.7 pct, he said. "It suggests orders in the pipeline are depleting, which may quickly translate to a drop in production," Midland Montagu's Maude said. Wyss cautioned that too much should not be made of January's report, given that other reports have reflected strength. But he acknowledged that the decline occurred despite a 51 pct rise in defense orders, compared with a 57.7 pct decline in December. He also noted that there was a 6.9 pct drop in January shipments, compared with a 5.4 pct rise in December. "Given these numbers, there's no reason for the Fed to tighten," Data Resources' Wyss said. "But there's no reason to ease unless we see more numbers like this. The Fed will wait and see," he added. Sullivan predicted the Fed will ease by Easter. "People aren't talking recession or Fed easing now, but the Fed will have to ease to ensure global growth." Reuter ================================================== Title: HK BANK EXPECTED TO POST 10 TO 13 PCT PROFIT RISE The Hongkong and Shanghai Banking Corp <HKBH.HK> is likely to show a rise in profit of between 10 and 13 pct for 1986, reflecting stronger than expected loan growth, share analysts polled by Reuters said. Their estimates of the bank's net earnings for last year ranged from 2.99 to 3.1 billion H.K. Dlrs. Results will be announced on Tuesday. The 1985 net profit was 2.72 billion. They forecast a final dividend of 29 cents for a total of 42 cents for the year against 38 cents in 1985, adjusted for a one-for-five bonus issue. Analysts said they expected the bank to recommend a bonus issue this year, probably one for three or one for five. The bank's 61.5 pct subsidiary Hang Seng Bank Ltd <HSGH.HK> is to report its 1986 results on Friday. Analysts expect Hang Seng to announce net profit of more than one billion dlrs for the first time, an increase of 10 to 12 pct. They expect Hang Seng to pay a final dividend of 1.37 dlrs for a total of 1.75 dlrs for the year against 1.60 in 1985. Analysts said that while the use of undisclosed inner reserves by banks here makes forecasting very imprecise, Hongkong Bank benefited from the unexpected strength of the Hong Kong economy in 1986, when gross domestic product grew by nearly nine pct against an initial forecast of 4.5 pct. "They benefited considerably from the pickup in loan demand, as their loan portfolio is well balanced," an analyst at Mansion House Securities (F.E.) Ltd said. Government figures show that total loans and advances rose by 13.8 pct in 1986, compared with a 4.5 pct increase in 1985. Loans to finance Hong Kong's visible trade, the mainstay of the local economy, rose by 15.1 pct against a decline of five pct in 1985. Low interest rates also helped the bank. Interest received on loans was low, with the prime rate at 6.5 pct at end-1986, but interest paid on savings was two pct. Hongkong Bank and Hang Seng Bank control half of all deposits in the banking system, giving them access to a large base of low-cost funds. The strength of the real-estate market was another major income source for the bank group. Loans to finance property development and instalment mortgages rose sharply. "The Hongkong Bank group is still the leader in mortgage business despite tough competition from the Bank of China group and other foreign banks," one analyst said. The high level of activity on the capital and equities markets in 1986 contributed to a sharp improvement in Hongkong Bank subsidiaries Wardley Ltd <WAIA.HK> and <James Capel and Co>, analysts said. "Wardley had a tremendous year acting as financial adviser and underwriter," an analyst said. Wardley was underwriter for last year's billion-dlr flotation of <Cathay Pacific Airways Ltd>, of which Hongkong Bank owned 30 pct at the time. The bank's stake has since been cut to 16.4 pct in return for 1.57 billion dlrs. It also sold its entire 48.8 pct stake in <South China Morning Post Ltd>, the larger of two English-language daily newspapers here, for 1.18 billion dlrs. The proceeds will go to reserves for acquisitions and will not show up in the profit and loss accounts, analysts said. Analysts said the bank had also been helped by a reduced need to write off bad debts. "The need for provisions was much lower than the year before," said Tony Measor of Hong Leong Securities Co Ltd. "Last year's profits should have been 2.8 to 2.9 billion dlrs if not for the huge provisions." Former Hongkong Bank chairman Michael Sandberg said the bank wrote off hundreds of millions of dollars against its shipping exposure in 1985. Lesley Nickolds of County Securities Asia Ltd said she saw no major shipping writeoffs in 1986. She forecast profit of 2.99 billion dlrs. The bank's Latin American exposure, mainly through its 51-pct owned Marine Midland Banks Inc <MM>, appears to have improved substantially, analysts said. Marine Midland's 1986 fourth-quarter loan-loss provisions fell to 44.1 mln U.S. Dlrs from 89.2 mln a year before. Its 1986 net profit rose to 145 mln U.S. Dlrs from 125 mln in 1985. REUTER ================================================== Title: MORE HEAVY RAINS IN ARGENTINE GRAIN AREAS Heavy rains fell again in Argentina's main grain growing areas in the week to yesterday, trade sources said. Rains fell heaviest early in the week, and in particularly high volume in Buenos Aires province, Cordoba, La Pampa and Santa Fe provinces. Rainfall totalled between 20 and 290 mm in Buenos Aires, heaviest in western sectors of the province, 20 to 145 mm in La Pampa, 25 to 120 mm in Cordoba, and 10 to 75 mm in Santa Fe. Rainfall was lighter in other provinces. Rainfall totalled from five to 50 mm in Corrientes, five to 31 mm in San Luis, five to 30 mm in Entre Rios, three to 20 mm in Misiones, 11 to 17 mm in Formosa and one to eight mm in Chaco. Growers said it was still too early to tell whether the rains had damaged crops, though they said maize and sunflower crops may have suffered. Harvesting of both those crops and sorghum was paralysed by the bad weather. For harvesting to resume as normal, the rains would have to stop long enough for the soil to dry and allow farm machinery to operate. The rains caused flooding in western and northwestern Buenos Aires, as more than 750 mm have fallen in some areas there since February 23 while the annual average is 1,200 mm. Flooded areas total between 1.2 and 1.5 mln hectares, Buenos Aires province governor Alejandro Armendariz said after flying over the flooded area. Agriculture Secretary Ernesto Figueras said only 500,000 hectares of the area now flooded had been planted, and that 200,000 to 300,000 hectares could be lost. Growers said large parts of the flooded areas were not planted because they are low-lying and flood easily. Trade sources said it was certain crops were damaged by the heavy rains but it was too early to tell the exact extent of the damage. They said it was likely rain combined with high winds uprooted many sunflower and maize plants. The sunflower harvest moved forward in the centre and south of Cordoba and Santa Fe and got underway in a few isolated areas of northern Buenos Aires. Growers have harvested between 15 and 18 pct of total planted area, up from seven to nine pct a week ago. Estimates of the total volume of the sunflower crop were revised downward in light of the bad weather. Estimates for total crop ranged from 2.3 to 2.6 mln tonnes, down from 2.4 to 2.7 mln tonnes estimated last week and down 34.1 to 41.5 pct from last year's record harvest of 4.1 mln tonnes. Maize harvesting also advanced, reaching between 13 and 15 pct of total planted area compared to seven to nine pct a week ago. The maize harvest is expected to total between 10 and 10.2 mln tonnes, down from the 10 to 10.4 mln tonnes estimated a week ago. Last year's maize harvest totalled 12.8 mln tonnes, according to official figures. Soybean production estimates were revised downward, to 7.8 to 8.2 mln tonnes compared to estimates of eight to 8.4 mln tonnes a week ago. Last year's soybean harvest totalled 7.1 mln tonnes, according to official figures. Sorghum harvesting moved slowly forward, reaching between four and six pct of total planted area, compared to two to four pct a week ago. Sorghum production estimates remained steady at 3.2 to 3.5 mln tonnes, down 16.7 to 22 pct from the 4.1 to 4.2 mln tonnes produced in the last harvest. Reuter ================================================== ************************************************** Topic 5 ************************************************** Title: ECONOMIC SPOTLIGHT - U.S. DEFICIT WITH NICs The U.S. trade deficit with Taiwan and Korea is expected to widen this year, despite some economic and currency adjustments by the two newly industrialized countries, economists said. "The surpluses that Taiwan and Korea ran with the U.S. in 1986 will get bigger. This time next year, the U.S. will be screaming at those countries about their exports," said Steve Cerier of Manufacturers Hanover Trust Co. Taiwan is currently the third biggest exporter to the U.S. after Japan and Canada, while Korea is the seventh largest. Faced with heightened protectionist sentiment in Congress, the Reagan administration has been stepping up the rhetoric against Taiwan and Korea, urging those countries to allow their currencies to appreciate and lift impediments to free trade. The thrust has shifted to those newly industrialized countries (NICs) amid signs the dollar's steep drop against the currencies of Japan and most EC nations -- previously the main focus of the U.S. drive to cut its trade gap -- is beginning to close the competiveness gap for American goods. U.S. Treasury secretary James Baker said recently that he expects a reduction in Japan's trade surplus this year. But U.S. manufacturers still are losing markets on their own doorstep to Taiwan and Korea, whose currencies have not risen as much as the yen and the mark. As major beneficiaries of soft oil prices and with low labor costs, Taiwanese and Korean exporters are well-placed to take up the slack. "In 1986, the fashionable comment in Washington was Japan-bashing. Now it's NIC-bashing," said Robert Chandross, of Lloyds Bank PLC. Asia's four main NICs -- Hong Kong, South Korea, Singapore and Taiwan -- accounted for almost one-fifth of the overall 170 billion dlr U.S. merchandise trade deficit for 1986. The U.S. trade gap with Taiwan rose to 15.7 billion dlrs in 1986 from 13.1 billion in 1985, while the bilateral trade deficit with South Korea grew to 7.1 billion from 4.8 billion. And preliminary U.S. data show that the growth trend is continuing. The U.S. trade shortfall with Taiwan was 1.6 billion dlrs in January, up 24.4 pct from a year earlier. The gap with Korea was 700 mln dlrs, up 24.8 pct from a year ago. Lately both nations have said they will take steps to defuse incipient trade tensions. Korea said it is choosing many of the 122 items on which the U.S. wants it to cut import tariffs in order to deflect pressure for currency revaluation. Still, South Korean trade minister Rha Woong Bae said last week that Korea would maintain a trade surplus for three to five years as a way to cut its 44.5 billion dlr foreign debt. For its part, Taiwan said in January that it will cut tariffs on 1,700 goods sometime in the second half of 1987 and try to diversify exports. But vice economic minister Wang Chien-Shien said last month that he still does not expect Taiwan's trade surplus with the U.S. will fall in 1987. The NICs have made deep inroads into markets for textiles and electronic goods. But Korea is raising its profile in the area of "big-ticket" manufactured goods, notably cars. Korea expects its auto exports -- mostly for North America -- to balloon to 675,000 units in 1987 from zero in 1985. "The NICs' exports are almost all manufactured goods. When their exports rise it hits the heart of the U.S. manufacturing base. It cuts directly to us and to our customers," said Bob Wendt, manager for economic studies at Bethlehem Steel Corp. The U.S. takes 90 pct of Korea's computer products exports, 72 pct of its electrical appliances and 65 pct of its telecommunications equipment. A recent study by Morgan Guaranty Trust Co says Taiwan and South Korea are the most pressing trade issue for the U.S. While Hong Kong and Singapore run trade surpluses with the U.S., these are offset by their deficits with other countries. But Taiwan and, to a lesser extent, South Korea, stand in marked contrast. Both of these nations have moved rapidly into large bilateral surplus with the U.S. and major overrall trade and current account surpluses, the Morgan study says. Morgan expects Taiwan's overall trade surplus to grow to 18.5 billion dlrs in 1987 from 15.2 billion last year, and Korea's to increase to 6.5 billion dlrs from 3.5 billion. Concern about the NICs is not confined to the U.S. "A lot of Korea and Taiwan's exports to the U.S. have been at Japan's expense," said Richard Koss at General Motors Corp. February's Paris meeting of six major industrial powers exorted NICs to lower trade barriers and revalue currencies. But this two-pronged approach has drawn little response from the two nations so far and, in any case, will only work with a sizeable lag, economists say. The U.S. has not said how much it thinks the Taiwan's and Korea's currencies should climb. The Taiwan dollar, which is pegged to the U.S. dollar, has risen about 15 pct since September 1985 while the Korean won has risen about five pct. But in real terms the Taiwan dollar has been flat against the U.S. unit and the won has lost seven pct, economists say. "We've not seen any lessening of competition from those countries that we can attribute to currency changes," said Bethlehem Steel's Wendt. And so far, U.S. pleas for Taiwan and Korea to use their hefty export earnings to import more have had little effect. Moreover, it is uncertain how far U.S. protectionism will get given the administration's free-trade stance. "It's hard to see that anything will be passed much before year-end. And then the question is, will it have teeth?" one economist said. Reuter ================================================== Title: U.S. CURRENT ACCOUNT DEFICIT 36.84 BILLION DLRS The U.S. current account deficit widened to a record 36.84 billion dlrs on a balance of payments basis in the October-December fourth quarter of 1986 from a revised 35.29 billion dlrs in the third quarter, the Commerce Department said. Previously, the department said the third-quarter deficit was 36.28 billion dlrs. For the full year 1986, the current account, a broad measure of trade performance, was in deficit a record 140.57 billion dlrs after a 117.68 billion dlr deficit in 1985. The department said an increase in the merchandise trade deficit during the fourth quarter to 38.4 billion dlrs from 37.1 billion dlrs in the third quarter was the main reason for the worsening deficit. Net service receipts declined to 5.5 billion dlrs in the final quarter from six billion dlrs in the third quarter. The current account includes trade in merchandise and services as well as U.S. financial transactions with the rest of the world. The department said the merchandise trade deficit for all of 1986 grew to 147.7 billion from 124.4 billion dlrs in 1985. Net service receipts were 22.3 billion dlrs in 1986, compared with 21.7 billion dlrs in 1985, the department said. Net unilateral transfers during the fourth quarter last year, covering foreign aid and government pensions, were down to 3.9 billion dlrs from 4.2 billion dlrs in the third quarter because of fewer U.S. government grants to Mideast countries. Liabilities to foreigners reported by U.S. banks rose 35.3 billion dlrs between October and December after increasing 30.1 billion dlrs in the third quarter. For the full year, these liabilities grew 77.4 billion dlrs after rising by 40.4 billion dlrs in 1985. The department said inflows were boosted in the fourth quarter by international activities of Japanese banks and strong demand within the United States to finance acquisitions. Net foreign sales of U.S. Treasury securities by foreigners were 2.7 billion dlrs in the quarter after purchases of 500 mln dlrs in the third quarter. Net foreign purchases of securities other than U.S. Treasury securities in the fourth quarter were 11.8 billion dlrs, compared with 17.2 billion dlrs in the third quarter. For all 1986, foreign purchases of securities excluding U.S. Treasury securities were a record 70.7 billion dlrs, surpassing the previous record 50.9 billion dlr total in 1985. Claims on foreigners reported by U.S. banks in the fourth quarter rose 29.9 billion dlrs after a 19.3 billion dlr third-quarter increase. U.S. sales of foreign securities rose to 2.7 billion dlrs from 300 mln dlrs in the third quarter because of a sharp selloff of foreign stocks and bonds, the department said. Outflows for U.S. direct investment abroad fell to 5.7 billion dlrs from eight billion dlrs in the third quarter. Foreign direct investment in the United States increased 14.4 billion dlrs in the fourth quarter, compared with 5.6 billion dlrs in the previous quarter, because of stepped-up acquisitions, the department said. Foreign official assets in the United States increased 800 mln dlrs between October and December after rising 15.4 billion dlrs in the third quarter. For the full year 1986, foreign official assets grew 33.4 billion dlrs after a 1985 decrease of 1.9 billion dlrs as foreign monetary authorities intervened heavily in exchange markets late in the year as the dollar fell, commerce said. Reuter ================================================== Title: UNION CARBIDE <UK> SAYS LONG TERM DEBT RISES Union Carbide Corp said its 1986 long term debt was 3.06 billion dlrs compared to 1.71 billion dlrs in 1985. The company released its audited 1986 results. The company also said its long term debt was reduced by about 1.5 billion dlrs from the third quarter to the end of the year by asset sales and equity offerings. Union Carbide sold its battery products, home and automobile products and agricultural products businesses in 1986. In the fourth quarter, it offered 30 mln shares of stock, raising about 650 mln dlrs. The asset sales and equity offering were part of a recapitalization plan undertaken by the chemicals company last year. Audited net earnings in 1986 of 496 mln dlrs or 4.78 dlrs a share compared to a 1985 loss of 581 mln dlrs or 2.78 dlrs were unchanged from the company's preliminary earnings report made on Jan 28. The earnings results for the fourth quarter were also unchanged. Included in the 1986 numbers are a 564 mln dlr gain from sale of the different businesses, a 270 mln dlr pension credit and a charge of 473 mln dlrs from the purchase of long term debt at a premium under the recapitalization. In the audited results released today, the company broke down results by business segment. Operating profit in the fourth quarter for all of the company's operations on a consolidated basis, before corporate and interest expense and taxes, was 181 mln dlrs against a loss of three mln dlrs in the 1985 quarter. In the year, operating profit was 791 mln dlrs compared to a loss of 253 mln dlrs in 1985. In a statement, the company said it defeated a hostile takeover attempt, by GAF Corp <GAF>, and recapitalized the company, adding, "While all this was going on, our continuing businesses performed very soundly, with substantial operating profit improvement over 1985." Carbon products posted operating profit of eight mln dlrs in the quarter, down from 29 mln dlrs, and 49 mln dlrs in the year against a loss of 146 mln dlrs. Chemicals and plastics had fourth quarter operating profit of 122 mln dlrs compared to a year-ago loss of 49 mln dlrs. In the year, chemicals and plastics earned 472 mln dlrs against losses of 142 mln dlrs in 1985. Operating income at industrial gases rose to 64 mln dlrs from 55 mln in the quarter and to 276 mln dlrs from 222 mln in the year. The company's specialties and services segment cut its losses in the quarter to 13 mln dlrs from 40 mln dlrs and in the year to three mln dlrs from 181 mln dlrs. Eliminations of business conducted between the company's industry segments contributed two mln dlrs to fourth quarter 1985 profits but did not affect the 1986 quarter. The eliminations caused losses of three mln dlrs compared to six mln dlrs in the year. The 1985 operating results include a host of unusual writeoffs and depreciation charges totaling 134 mln dlrs in the quarter and 906 mln dlrs in the year. Capital expenditures rose to 524 mln dlrs in 1986 from 501 mln dlrs. By segment, spending at carbon products fell to 42 mln dlrs from 57 mln dlrs and spending fell at specialties and services to 126 mln dlrs from 143 mln dlrs. At chemicals and plastics, expenditures rose to 147 mln dlrs from 133 mln and at industrial gases they rose to 209 mln dlrs from 168 mln dlrs. The company's cash and equivalents fell to 299 mln dlrs at year end from 430 mln dlrs at year end 1985, after a net decrease of 131 mln dlrs during 1986. Current assets at year-end fell to 2.41 billion dlrs from 4.43 billion dlrs and current liabilities fell to 1.88 billion dlrs from 2.38 billion. Reuter ================================================== Title: U.S. TRADE DEFICIT 38.37 BILLION DLRS IN 4TH QTR The U.S. merchandise trade deficit on a balance of payments basis was a record 38.37 billion dlrs in the October to December fourth quarter, the Commerce Department said. The record trade shortfall came after a revised 37.15 billion dlr third quarter deficit. The department previously reported the third quarter deficit was 37.67 billion dlrs. For the full year 1986, the merchandise trade deficit was a record 147.7 billion dlrs, up from 124.4 billion dlrs in 1985, the department said. During the final quarter last year imports rose 2.78 billion dlrs or three pct to 95.7 billion dlrs, while exports rose 1.56 billion dlrs or three pct to 57.33 billion dlrs. The trade report on a balance of payments basis excludes such factors as military sales and the costs of shipping and insurance. The Commerce Department said non-petroleum imports in the quarter were up 2.7 billion dlrs or three pct to 87.7 billion dlrs, with the largest increases in consumer goods, which rose 1.2 billion dlrs, and in non-monetary gold and passenger cars from Canada, up 900 mln dlrs each. Lumber imports from Canada fell 300 mln dlrs or 33 pct because of a 15 pct duty on imports from Canada, the department said. Passenger car imports fell 600 mln dlrs because of an 18 pct decrease in the number of South Korean-made imported cars and a nine pct decrease from Japan. On the exports side, agricultural exports rose 600 mln dlrs or nine pct to 7.1 billion dlrs, primarily because of a 104 pct or 600 mln dlr increase in soybean exports. Soybean shipments to Western Europe rose sharply because supplies from Brazil, a traditional major exporter, were limited by drought. Commerce said the U.S. trade deficit with Latin America rose 900 mln dlrs to 2.6 billion dlrs, with Japan increased 700 mln dlrs to 14.8 billion dlrs and with Western Europe rose 200 mln to 7.2 billion dlrs in the quarter. The deficit with newly industrialized Far East countries, including Hong Kong, South Korea, Singapore and Taiwan, fell 500 mln dlrs to eight billion dlrs and with Canada the deficit decreased 200 mln dlrs to 3.3 billion dlrs in the quarter. In the full year 1986, imports rose 30.6 billion dlrs or nine pct to 369.5 billion dlrs. Exports increased by only 7.3 billion dlrs or three pct to 221.8 billion dlrs. Commerce said petroleum imports during 1986 fell 16.6 billion dlrs or 33 pct to 33.9 billion dlrs because of lower prices. The average price per barrel decreased to 14.72 dlrs from 26.41 dlrs. Agricultural exports fell by 2.6 billion dlrs or nine pct to 26.9 billion during the year. The average price of rice fell 27 pct, cotton was down 22 pct, corn 18 pct, wheat 16 pct and soybeans nine pct. The trade deficit with Japan for all of 1986 rose 11.1 billion dlrs to 54.6 billion dlrs and with Western Europe increased 7.2 billion dlrs to 28.6 billion dlrs. Reuter ================================================== Title: INDIA STEPS UP COUNTERTRADE DEALS TO CUT TRADE GAP India is searching for non-communist countertrade partners to help it cut its trade deficit and conserve foreign exchange. Wheat, tobacco, tea, coffee, jute, engineering and electronic goods, as well as minerals including iron ore, are all on offer in return for crude oil, petroleum products, chemicals, steel and machinery, trade sources told Reuters. Most of the impetus behind countertrade, which began in 1984, comes from two state trading firms -- the State Trading Corp (STC) and the Minerals and Metals Trading Corp (MMTC). "The two state trading corporations are free to use their buying power in respect to bulk commodities to promote Indian exports," a commerce ministry spokeswoman said, adding that private firms are excluded from countertrading. One trade source said India has targetted countries that depend on an Indian domestic market recently opened to foreign imports. However, countertrade deals still make up only a small part of India's total trading and are likely to account for less than eight pct of the estimated 18.53 billion dlrs in trade during the nine months ended December, the sources said. Countertrade accounted for just five pct of India's 25.65 billion dlrs in trade during fiscal 1985/86 ended March, against almost nothing in 1984/85, official figures show. However, the figures exclude exchanges with the Eastern Bloc paid in non-convertible Indian rupees, the sources said. Total trade with the Soviet Union, involving swaps of agricultural produce and textiles for Soviet arms and crude oil, is estimated at 3.04 billion dlrs in fiscal 1986/87, against three billion in 1985/86. Indian countertrade, which is being promoted mainly to help narrow the country's large trade deficit, is still insignificant compared with agreements reached by Indonesia, Venezuela and Brazil, the trade sources said. The trade deficit, which hit an estimated record 6.96 billion dlrs in 1985/86, is expected to decline to 5.6 billion in the current fiscal year. But the push to include non-communist countries in countertrade is also due to other factors, including the slow growth of foreign reserves, a tight debt repayment schedule, shrinking aid and trade protectionism, businessmen said. One source said India is showing more dynamism in promoting countertrade deals than in the past, when the deals were made discreetly because they break GATT rules. As a member of the General Agreement on Tariffs and Trade (GATT), India cannot officially support bartering. The MMTC's recent countertrade deals include iron ore exports to Yugoslavia for steel structures and rails. "MMTC's recent global tenders now include a clause that preference will be given to parties who accept payment in kind for goods and services sold to India," a trade official said, adding that the policy remains flexible. "We also take into account other factors such as prices at which the goods and services are offered to India," the trade official said. Early this year the commerce ministry quietly told foreign companies interested in selling aircraft, ships, drilling rigs and railway equipment to India that they stood a better chance if they bought Indian goods or services in return, the trade sources said. Illustrating the point, the official said a South Korean firm recently agreed to sell a drilling platform worth 40 mln dlrs to the state-run Oil and Natural Gas Commission. In return, the South Koreans gave a verbal assurance to buy Indian goods worth 10 pct of the contract, against the 25 pct sought by New Delhi, the trade official said. "We selected the Korean firm because its bid was the lowest," he added. Countertrade is helping African countries short of foreign currency to import goods. India has signed a trade protocol to buy up to 15,000 tonnes of asbestos fibre from Zimbabwe in exchange for Indian goods, including jute bags and cars. But despite India's new drive, countertrade has some inherent problems, they added. "It is not always easy to meet the basic requirement that the trade should always be balanced," one trade source said. "The other problem is it is often difficult to supply or buy commodities which the other party wants." Another added, "Barter is also restrictive. We look upon it as a temporary measure to get over the current balance of payments difficulty. "This is why countertrade has not been made a law in India. It does not even figure in the country's foreign trade policy." REUTER ================================================== Title: ENERGY/U.S. PETROCHEMICAL INDUSTRY Cheap oil feedstocks, the weakened U.S. dollar and a plant utilization rate approaching 90 pct will propel the streamlined U.S. petrochemical industry to record profits this year, with growth expected through at least 1990, major company executives predicted. This bullish outlook for chemical manufacturing and an industrywide move to shed unrelated businesses has prompted GAF Corp <GAF>, privately-held Cain Chemical Inc, and other firms to aggressively seek acquisitions of petrochemical plants. Oil companies such as Ashland Oil Inc <ASH>, the Kentucky-based oil refiner and marketer, are also shopping for money-making petrochemical businesses to buy. "I see us poised at the threshold of a golden period," said Paul Oreffice, chairman of giant Dow Chemical Co <DOW>, adding, "There's no major plant capacity being added around the world now. The whole game is bringing out new products and improving the old ones." Analysts say the chemical industry's biggest customers, automobile manufacturers and home builders that use a lot of paints and plastics, are expected to buy quantities this year. U.S. petrochemical plants are currently operating at about 90 pct capacity, reflecting tighter supply that could hike product prices by 30 to 40 pct this year, said John Dosher, managing director of Pace Consultants Inc of Houston. Demand for some products such as styrene could push profit margins up by as much as 300 pct, he said. Oreffice, speaking at a meeting of chemical engineers in Houston, said Dow would easily top the 741 mln dlrs it earned last year and predicted it would have the best year in its history. In 1985, when oil prices were still above 25 dlrs a barrel and chemical exports were adversely affected by the strong U.S. dollar, Dow had profits of 58 mln dlrs. "I believe the entire chemical industry is headed for a record year or close to it," Oreffice said. GAF chairman Samuel Heyman estimated that the U.S. chemical industry would report a 20 pct gain in profits during 1987. Last year, the domestic industry earned a total of 13 billion dlrs, a 54 pct leap from 1985. The turn in the fortunes of the once-sickly chemical industry has been brought about by a combination of luck and planning, said Pace's John Dosher. Dosher said last year's fall in oil prices made feedstocks dramatically cheaper and at the same time the American dollar was weakening against foreign currencies. That helped boost U.S. chemical exports. Also helping to bring supply and demand into balance has been the gradual market absorption of the extra chemical manufacturing capacity created by Middle Eastern oil producers in the early 1980s. Finally, virtually all major U.S. chemical manufacturers have embarked on an extensive corporate restructuring program to mothball inefficient plants, trim the payroll and eliminate unrelated businesses. The restructuring touched off a flurry of friendly and hostile takeover attempts. GAF, which made an unsuccessful attempt in 1985 to acquire Union Carbide Corp <UK>, recently offered three billion dlrs for Borg Warner Corp <BOR>, a Chicago manufacturer of plastics and chemicals. Another industry powerhouse, W.R. Grace <GRA> has divested its retailing, restaurant and fertilizer businesses to raise cash for chemical acquisitions. But some experts worry that the chemical industry may be headed for trouble if companies continue turning their back on the manufacturing of staple petrochemical commodities, such as ethylene, in favor of more profitable specialty chemicals that are custom-designed for a small group of buyers. "Companies like DuPont <DD> and Monsanto Co <MTC> spent the past two or three years trying to get out of the commodity chemical business in reaction to how badly the market had deteriorated," Dosher said. "But I think they will eventually kill the margins on the profitable chemicals in the niche market." Some top chemical executives share the concern. "The challenge for our industry is to keep from getting carried away and repeating past mistakes," GAF's Heyman cautioned. "The shift from commodity chemicals may be ill-advised. Specialty businesses do not stay special long." Houston-based Cain Chemical, created this month by the Sterling investment banking group, believes it can generate 700 mln dlrs in annual sales by bucking the industry trend. Chairman Gordon Cain, who previously led a leveraged buyout of Dupont's Conoco Inc's chemical business, has spent 1.1 billion dlrs since January to buy seven petrochemical plants along the Texas Gulf Coast. The plants produce only basic commodity petrochemicals that are the building blocks of specialty products. "This kind of commodity chemical business will never be a glamorous, high-margin business," Cain said, adding that demand is expected to grow by about three pct annually. Garo Armen, an analyst with Dean Witter Reynolds, said chemical makers have also benefitted by increasing demand for plastics as prices become more competitive with aluminum, wood and steel products. Armen estimated the upturn in the chemical business could last as long as four or five years, provided the U.S. economy continues its modest rate of growth. Reuter ================================================== Title: INDIA STEPS UP COUNTERTRADE DEALS TO CUT TRADE GAP India is searching for non-communist countertrade partners to help it cut its trade deficit and conserve foreign exchange. Wheat, tobacco, tea, coffee, jute, engineering and electronic goods, as well as minerals including iron ore, are all on offer in return for crude oil, petroleum products, chemicals, steel and machinery, trade sources told Reuters. Most of the impetus behind countertrade, which began in 1984, comes from two state trading firms -- the State Trading Corp (STC) and the Minerals and Metals Trading Corp (MMTC). "The two state trading corporations are free to use their buying power in respect to bulk commodities to promote Indian exports," a commerce ministry spokeswoman said, adding that private firms are excluded from countertrading. One trade source said India has targetted countries that depend on an Indian domestic market recently opened to foreign imports. However, countertrade deals still make up only a small part of India's total trading and are likely to account for less than eight pct of the estimated 18.53 billion dlrs in trade during the nine months ended December, the sources said. Countertrade accounted for just five pct of India's 25.65 billion dlrs in trade during fiscal 1985/86 ended March, against almost nothing in 1984/85, official figures show. However, the figures exclude exchanges with the Eastern Bloc paid in non-convertible Indian rupees, the sources said. Total trade with the Soviet Union, involving swaps of agricultural produce and textiles for Soviet arms and crude oil, is estimated at 3.04 billion dlrs in fiscal 1986/87, against three billion in 1985/86. Indian countertrade, which is being promoted mainly to help narrow the country's large trade deficit, is still insignificant compared with agreements reached by Indonesia, Venezuela and Brazil, the trade sources said. The trade deficit, which hit an estimated record 6.96 billion dlrs in 1985/86, is expected to decline to 5.6 billion in the current fiscal year. But the push to include non-communist countries in countertrade is also due to other factors, including the slow growth of foreign reserves, a tight debt repayment schedule, shrinking aid and trade protectionism, businessmen said. One source said India is showing more dynamism in promoting countertrade deals than in the past, when the deals were made discreetly because they break GATT rules. As a member of the General Agreement on Tariffs and Trade (GATT), India cannot officially support bartering. The MMTC's recent countertrade deals include iron ore exports to Yugoslavia for steel structures and rails. "MMTC's recent global tenders now include a clause that preference will be given to parties who accept payment in kind for goods and services sold to India," a trade official said, adding that the policy remains flexible. "We also take into account other factors such as prices at which the goods and services are offered to India," the trade official said. Early this year the commerce ministry quietly told foreign companies interested in selling aircraft, ships, drilling rigs and railway equipment to India that they stood a better chance if they bought Indian goods or services in return, the trade sources said. Illustrating the point, the official said a South Korean firm recently agreed to sell a drilling platform worth 40 mln dlrs to the state-run Oil and Natural Gas Commission. Reuter ================================================== Title: SOUTH KOREA TO MAINTAIN TRADE SURPLUS 3-5 YEARS South Korean Trade Minister Rha Woong Bae said his nation would maintain a trading surplus for three to five years as a way to cut its foreign debt. He said in an interview with Reuters that after a few years it was likely South Korea would drop barriers to foreign goods and move toward a more balanced trade position. He said the present trade surplus was vital if his nation was to reduce its 44.5 billion dlr foreign debt. Rha said that 1986 was the first year South Korea had a trade surplus - 4.5 billion dlrs, against a 1985 deficit of 900 mln dlrs. Asked if South Korea would drop its trade barriers once its foreign debt was substantially reduced, he said "yes, I think so." Rha made his remarks at the end of a two-week trade mission here during which a team he led agreed to buy U.S. products valued at 1.8 billion dlrs. About 800 mln dlrs of the purchases are in goods of the type South Korea normally bought from Japan. Rha was to leave later today for Ottawa for trade talks with Canadian officials and businessmen. He said in the interview the U.S. purchases were to reduce his country's 7.1 billion dlr surplus with the United States and also to cut its 5.6 billion dlr shortfall with Japan. Rha said it was also due to a shift in exchange rates between the U.S. dollar and the yen that made it cheaper to buy U.S. goods than Japanese goods. He said South Korea heavily relied on foreign trade and he hoped the leaders of major trading nations could find a way to resolve the growing trend toward protectionist legislation. Rha said "I hope the leaders can get together to find a solution by making some mutually satisfactory concessions." But he added "the leaders seem hesitant to make concessions because of domestic political reasons." Speaking of his own country, he said "We have made a lot of concessions already." He cited regulations permitting foreign investment in industrial firms, allowing increased foreign banking activity and cracking down on piracy of intellectual property by strengthening protection of copyrights and patents. Rha said South Korea had also lowered many of its tariffs. Asked if South Korea would retaliate against U.S. goods if Congress closed U.S. markets to its products, he said "at this moment, we have no thought of retaliation." South Korea is a major exporter to the United States of textiles and apparel and electronic goods, such as television sets, video cassette records and personal computers. Its puchases from the United States include electronic testing equipment and grains and cotton. The trade mission's purchases here included three Boeing passenger planes for 400 mln dlrs, four McDonnell Douglas planes for 300 mln dlrs; and machinery worth 725 mln dlrs. Reuter ================================================== Title: ICI <ICI> SEEKS GAINS IN SPECIALTY BUSINESSES Imperial Chemical Industries PLC, the largest chemical company in the United Kingdom, will expand its specialty chemicals and drug businesses this year, and better its 1986 results, said chairman-elect Denys Henderson. "We expect to shift our company toward higher value-added businesses and continue to broaden our base," Henderson told reporters at an informal meeting here. ICI today announced the formation of a new U.S. drug company, ICI Pharma, which, with its Stuart Pharmaceuticals unit, it said will double its current pharmaceutical sales to 1.1 billion dlrs by 1990. Henderson said, "Our pharmaceutical business gets lost in the way that Glaxo's (Glaxo Holdings PLC) does not." ICI's pharmaceutical division is the second largest drug maker behind Glaxo in the U.K. Last year U.S. drug sales were about 40 pct of its worldwide drug sales of 1.5 billion dlrs, which in turn brought in 27 pct of its total profits. He estimated that by 1990, ICI's pharmaceutical division would account for about 30 pct of total company profits. "The drug division far and away brings in the highest rate of return," said A.W. Clements, finance director of ICI, who was also at the meeting. Henderson said the new U.S. drug concern would basically act as a second sales force to double the exposure of its drugs to doctors. ICI will hire 145 new salespeople by October one. Henderson said the major new products in the company's pipeline, expected to each bring in sales of over 200 mln dlrs annually, were Statil, a treatment for diabetic complications, Zoladex, a treatment for advanced prostate cancer, and Carwin, a treatment for mild to moderate congestive heart failure. Henderson said U.S. Food and Drug Administration approval to market Statil and Zoladex, both under joint licensing agreements with Merck and Co Inc <MRK>, is not expected until about 1989. ICI expects to file for permission to market Carwin in the U.S. later this year. Henderson said the company's 1987 results would top 1986 income of 888 mln dlrs or 5.45 dlrs per ADR on sales of 15 billion dlrs, but he declined to specify by how much. Henderson said 1987's results would be boosted by Glidden Paints, which ICI bought last November for 580 mln dlrs from a unit of Hanson Industries Inc. Henderson also said that ICI has about nine billion dlrs available for acquisitions. Last year the company made 40 acquisitions, the largest being Glidden. He said that more acquisitions may be made this year but he ruled out an acquisition of a pharmaceutical concern as "too expensive." Henderson said that in his new role of chairman, effective April one when he takes over from Sir John Harvey-Jones who will retire, the biggest challenge ahead lay in continuing the earnings momentum ICI has established over the past few years after restructuring and selling off unprofitable businesses. Reuter ================================================== Title: MEDTRONIC <MDT> SEES 15 PCT EARNINGS GROWTH Medtronic Inc said it sees 15 pct growth in sales and earnings for the year ending April 30, 1988. At an analysts meeting here the company said that for the year ending April 30, 1987 it will earn about 73 mln dlrs, or about 5.15-5.35 dlrs a share on sales of about 500 mln dlrs. In the year ago period, the company earned 53.4 mln dlrs, or 3.65 dlrs a share, on sales of 402.8 mln dlrs. Winston Wallin, Medtronic chairman, said the company will improve market share in fiscal 1988 in cardiac pacemakers and expand its cardiovascular therapeutic product line. Wallin cautioned analysts not to quickly change their per share estimates for the company as he said Medtronic will have heavy sales and marketing expenses in fiscal 1988. He said the company intends to reinvest its earnings in its businesses and not in its dividends. "Shareholders are better off if we grow the business rather than reinvest in dividends or share repurchases," he said. Wallin said he sees Medtronic's share of the total worldwide pacemaker market increasing to 42 pct in fiscal 1988, from 40 pct in fiscal 1987. He said the worldwide market for cardiovascualr therapeutic products, which includes pacemakers, valves, catheters and lasers, will be valued at about 2.5 billion dlrs 1990 and will double that by 1995. Wallin said, "Our objective is to get a hold of new products and start building market share if we have to beg, borrow or steal to get into new markets." In the past, Medtronic's pacemakers have been plagued with a number of problems leading to product recalls. Regulators also have criticized the industry, citing quality problems and a needless overprescription of pacemakers. "We have no knowledge of any major problems in our pacemakers or leads," Wallin said. "We intend to re-establish our company as the quality leader in the industry." Glen Nelson, executive vice president for Medtronics, said the company intends to diversify internally and through acquisitions of companies in areas of Medtronic's expertise, such as drug delivery systems. Wallin said the 15 pct earnings growth for fiscal 1988 does not include dilutions from acquisitions. "We hope to have some safety provisions so that we won't have any major dilutions from an acquisition." Wallin also said the company will have virtual exclusivity in rate responsive pacemakers for all of fiscal 1988. The company markets Activitrax, the first single chamber pacemaker that varies heartrate in response to physical activity. Siemens AG, a West German company, is also developing a rate responsive pacemaker. Reuter ================================================== ************************************************** Topic 6 ************************************************** Title: S/P DOWNGRADES SIX U.S. MONEY CENTER BANKS Standard and Poor's Corp said it downgraded six U.S. money center bank holding companies, affecting about 13.3 billion dlrs of debt securities. They are Chase Manhattan Corp <CMB>, Chemical New York Corp <CHL>, Irving Bank Corp <V>, Manufacturers Hanover Corp <MHC>, Mellon Financial Corp <MEL> and Security Pacific Corp <SPC>. S and P said the action on Chase, Chemical, Irving and Manufacturers primarily reflected continued vulnerability to lesser developed countries and median financial performance. Standard and Poor's said its downgrade of Chemical also reflected that holding company's acquisition of Texas Commerce Bancshares <TCB>, which was just now approved by the Federal Reserve. For Mellon and Security Pacific, S and P cited higher non-performing assets and weaker operating earnings. The rating agency said it completed a review, based on 1986 results, of the largest U.S. bank holding companies. It paid special attention to reassessing the effect of exposures to lesser developed countries on the holding companies' earnings and capital. "Brazil's unilateral moratorium on debt service payments underscored the potential for polarization between bankers and debtor countries," S and P said. S and P noted that while Argentina, Brazil, Mexico and Venezuela each face unique economic problems, the lack of progress toward moderating their debt service burdens has been disappointing. However, the agency pointed out that a substantive improvement in the large banks' financial positions has acted as a counter-balance to the Latin American debt situation. Citing increasing financial strength, S and P said it affirmed the debt ratings of Citicorp <CCI>, Bankers Trust New York Corp <BT>, Bank of Boston Corp <BKB> and J.P. Morgan and Co Inc <JPM>. S and P noted that most U.S. bank holding companies have what it termed easily realizable capital resources available to them, such as undervalued real estate, appreciated portfolio securities and overfunded pension plans. "Most bank managements appear committed to improving the quality of their balance sheets," S and P said, noting many now emphasize long-term strategies over short-term earnings. Standard and Poor's reduced Chase Manhattan's senior debt to AA-minus from AA, subordinated debt to A-plus from AA-minus and preferred stock to A from A-plus. The commercial paper of the parent and its unit Chase Manhattan Bank of Canada were affirmed at A-1-plus. Chase has 3.2 billion dlrs of debt outstanding. It has 6.4 billion dlrs of loans to Argentina, Brazil, Mexico and Venezuela - one of the highest exposures to lesser developed countries among U.S. money centers. Chase's underlying profitability remains at median levels because of its high expense structure, S and P said. S and P cut Chemical's and the unit Chemical New York N.V.'s senior debt to AA-minus from AA and subordinated debt to A-plus from AA-minus. About 1.2 billion dlrs of long-term debt was affected. The agency cited Chemical's relatively large exposure to Latin American borrowers, particulary Brazil and Mexico, continued high levels of nonperforming assets and the pending acquisition of Texas Commerce. Aggregate exposure to Argentina, Brazil, Mexico and Venezuela was almost four billion dlrs at year-end 1986, or 105 pct of equity and reserves, S and P pointed out. Irving's senior debt was reduced to A-plus from AA-minus, with subordinated debt and preferred stock lowered to A from A-plus. Its commercial paper was affirmed at A-111-1plus. Irving has about 500 mln dlrs of debt outstanding. Its approximately 1.4 billion dlrs of loans to the four major Latin debtor countries account for 110 pct of year-end equity and reserves. S and P downgraded Manufacturers Hanover's senior debt to A from A-plus, subordinated debt to A-minus from A and preferred stock to BBB-plus from A-minus but affirmed its A-1 commercial paper. The bank has 3.8 billion dlrs of debt. S and P noted that Manufacturers has about 6.7 billion dlrs of loans to the major Latin debtor nations and has experienced weak earnings. However, the unit CIT Group Holdings Inc's AA-minus senior debt and A-1-plus commercial paper were affirmed. The rating agency cut Mellon's senior debt to A-plus from AA and preferred stock to A from AA-minus. It has 1.1 billion dlrs of debt securities. The commercial paper programs of Mellon Bank Canada and Mellon Australia Ltd, guaranteed by the parent company, were lowered to A-1 from A-1-plus. S and P cited continued lower operating earnings and rising nonperforming assets and charge-offs for Mellon. Security Pacific's 1.7 billion dlrs of debt was downgraded. Cut were its senior debt to AA from AA-plus, and subordinated debt and preferred stock to AA-minus from AA. Security Pacific Overseas Finance N.V.'s debt issues were reduced to AA from AA-plus. Affirmed were the parent's A-1-plus commercial paper and the BBB-rated debt of the unit Security Pacific Financial Systems. These actions reflected Security Pacific's continued high levels of nonperforming assets and charge-offs, S and P said. Reuter ================================================== Title: DOME <DMP> SAYS MOST LENDERS SUPPORT DEBT PLAN Dome Petroleum Ltd said a majority of a group of 56 major creditors support the company's revised proposal to restructure debt of more than 6.1 billion Canadian dlrs. Outlining terms of the plan circulated to the lenders earlier this week, the company said it is seeking approval in principle for the proposal "within the next several weeks" in order to implement the debt rescheduling by June 30, 1987. "Although at today's price levels it only allows the company to struggle on, benefits appear as oil prices rise," Dome chairman J. Howard Macdonald said in a statement. "We believe the plan is a rational one, and will be valid under a range of circumstances," chairman Macdonald said. The lenders previously agreed to an interim debt rescheduling until June 30 to allow Dome time to negotiate a long-term recapitalization. The debt proposal is designed to ensure continued existence of the company, which would see lenders get maximum recovery of their loans, Dome said. The plan would maintain debt levels within Dome's ability to pay, subject to minimum debt service levels for each lender. Dome said the debt proposal offers measures such as equity conversion options and reclassification to lower interest bearing categories of debt to accomplish its objectives. Under certain circumstances, lenders will have the option to convert all or part of their debt to common shares at a pre-determined conversion rate upon plan implementation. The various conversion rates remain to be set through negotiations, and the company said it is impossible to predict the extent to which the conversion option will be exercised and the amount of dilution that may result. Converting debt to common shares after the plan is implemented would be at a much higher conversion price, Dome said. Common shareholders will be asked to approve the plan before it is put in place. Debt that remains after share conversion will either receive scheduled payments based on contract interest rates and a 15 to 20 year pay-out, or interest rates indexed to oil prices. The company will use both an annual security-to-debt ratio test and a monthly cash flow test to classify which interest payments are paid on the different portions of debt. To achieve a stable operating base for the company, the plan provides for deducting operating costs, capital expenditures and general and administrative expenses before the remaining available cash flow is distributed to lenders, Dome said. The proposal also assumes efforts will continue to operate the business as efficiently as possible, it said. As the company previously said, debt payments from cash flow be divided into two broad categories, secured and unsecured creditors. Terms of the debt plan include paying institutional unsecured creditors, comprising mostly banks who hold private debt, from cash flow generated by unpledged assets. This portion will get a fixed low interest rate under a 15-year repayment schedule. Remaining institutional unsecured debt will get paid through convertible, oil indexed unsecured debt that matures in 20 years, or any available excess cash flow, or conversion to equity. Any institutional lender also has the option of taking all or part of its debt in common shares. To offer public unsecured debtholders liquidity, Dome said they can also convert all or part of their debt to common shares when the plan is implemented. Any debt leftover would be exchanged for a convertible debenture with an interest rate linked to oil prices. Secured creditors would get paid from cashflow generated by the assets pledged against their debt under a complex formula, the company said. Any shortfalls under the formula could also be converted to oil-linked debentures. Reuter ================================================== Title: S/P DOWNGRADES FOUR TEXAS BANKS Standard and Poor's Corp said it downgraded four Texas banks in a move that affects a combined 800 mln dlrs of debt securities and preferred stock. Cut were the debt ratings of Allied Bancshares Inc <ALBN>, First Amarillo Bancorp Inc <FAMA>, MCorp <M> and Texas American Bancshares Inc <TXA>. S and P cited continuing asset quality problems. While problem energy loans appear to be abating, real estate problems are mounting, S and P said. The rating agency also said it expects earnings to remain under pressure for the remainder of this year. Standard and Poor's reduced Allied Bancshares' senior debt to BBB-minus from BBB and commercial paper to A-3 from A-2. Issues supported by a letter of credit from lead bank Allied Bank of Texas, and the bank's certificates of deposits, were reduced to BBB-minus and A-3 from BBB and A-2 respectively. Allied has 50 mln dlrs of debt outstanding. S and P said its profitability remains severely depressed. S and P cut First Amarillo's 15 mln dlrs of subordinated debt to CCC-minus from B-minus. The institution's implied senior debt rating is CCC-plus. S and P noted that First Amarillo has had three consecutive years of losses. S and P downgraded MCorp's senior debt to BBB-minus from BBB-plus, subordinated debt to BB-plus from BBB, preferred to BB-minus from BB and commercial paper to A-3 from A-2. That affected 600 mln dlrs of debt. S and P cited rising non-performing loans and high loan-loss provisions. Also, the agency cut to BBB-minus and A-3 from BBB-plus and A-2, respectively, CDs and issues supported by letters of credit from the units MBank Dallas and MBank Houston. S and P cut to BB from BBB-minus Texas American's 65 mln dlrs of senior debt. Lead bank Texas American Bank NV's CDs were lowered to BB-plus/B from BBB-minus/A-3. Reuter ================================================== Title: AUDITORS GIVE FIRST CITY <FBT> QUALIFIED OPINION First City Bancorp of Texas, which lost a record 402 mln dlrs in 1986, said in its annual report it expected operating losses to continue "for the foreseeable future" as it continues to search for additional capital or a merger partner. The Houston-based bank's 1986 financial statements received a qualified opinion from its auditors, Arthur Andersen and Co. The auditors said their opinion was subject to First City eventually obtaining additional capital. "The company believes that in order to address its long-term needs and return to a satisfactory level of operations, it will ultimately need several hundred million dollars of additional capital, or a combination with a more strongly capitalized entity," First City said in a note to its financial statements included in the annual report. "Management believes that sufficient resources should be available to cover interim capital concerns while additional capital is being sought," the bank said. To raise cash in the near-term, First City said it may sell or mortgage non-strategic assets, recover excess contributions to its pension plan and obtain special dividends from some of its member banks. "The losses for 1987 are expected to be substantially less than in 1986," First City chairman J.A. Elkins said in a letter included in the annual report. "However, the ultimate return to satisfactory operating conditions is dependent on the successful resolution of the related problems of credit quality, funding and the eventual need for substantial additional capital." First City said it anticipated that certain covenants of a credit agreement with unaffiliated banks requiring most of First City's excess cash to be applied to debt repayments would be modified by the end of the first quarter in order to avoid default. The banks agreed to similar amendments to the covenants last year and First City has reduced its borrowings from 120 mln dlrs at 1986 yearend to 68.5 mln dlrs in recent weeks. Although the parent company's capital adequacy ratios exceeded regulatory minimum requirements at the end of 1986, First City said its two largest subsidiaries did not. First City National Bank of Houston had a primary capital ratio of 5.34 pct and First City Bank of Dallas had a 4.75 pct ratio. Hard-hit by the collapse in oil and Texas real estate prices, First City's net loan chargeoffs totaled 366 mln dlrs last year, up from 261 mln dlrs in 1985. The bank more than doubled its loan loss provision to 497 mln dlrs at the end of 1986. First City said chargeoffs and paydowns reduced its total energy loan portfolio by 32 pct during 1986, to 1.4 billion dlrs at year-end, adding that future energy chargeoffs "should be more modest." The amount represented 15 pct of First City's total loans. In real estate, First City said its nonperforming assets nearly doubled last year to 347 mln dlrs at year-end. Chargeoffs of real estate loans rose to 32 mln dlrs, or nine pct of total loan chargeoffs, and the bank said the amount could go higher. "The company still faces uncertainties in the real estate market and anticipates further deterioration in the pportfolio so long as the regional recession persists," First City said. "Because the carrying value of many of these loans is collateral dependent, a further decline in the overall value of the collateral base could cause an increase in the level of real estate-related chargeoffs." Reuter ================================================== Title: NATIONAL FUEL <NFG> PROPOSES ARGO REORGANIZATION National Fuel Gas Co said it has proposed a plan of reorganization for <Argo Petroleum Corp>. The proposal calls for National Fuel's Seneca Resources Corp subsidiary to receive 75 pct of Argo's principal producing and undeveloped oil and gas assets in return for refinancing Argo's debt to Seneca. The plan calls for Seneca to made an additional 500,000 dlr advance to Argo, National Fuel Gas said. National Fuel Gas said it reorganzation was proposed in a term sheet signed by Seneca, Argo and representatives of Argo's unsecured creditors committee. Seneca became Argo's principal secured creditor in November when it purchased notes totaling about 40 mln dlrs from Continental Illinois National Bank and Trust Co for about 35 mln dlrs. National Fuel Gas said the additional advance to Argo would allow it to capitalize, together with other assets, a new company for its existing shareholders. National Fuel Gas said the plan calls for Argo's existing secured debt to be refinanced in an 8,875,000 dlr refinancing note and a 75 pct interest in Argo's principal oil and gas properties. Seneca and Argo will enter into a venture to be 75 pct owned by Seneca and 25 pct by Argo to develop their jointly owned properties. In addition to restructuring and refinancing Argo's existing debt, Seneca will provide Argo with a two mln dlr revolving line of credit to finance its 25 pct share of the venture's development costs, National Fuel Gas said. It said the proposed plan calls for Argo oil and gas assets not subject to the venture to be transferred to a new corporation. Existing Argo shareholders will receive all the new company's common stock while its unsecured creditors will receive 100 pct of the new capital stock of Argo in exchange for their claims against the company. Reuter ================================================== Title: MCLEAN'S <MII> U.S. LINES SETS SALE OF ASSETS McLean Industries Inc said its two shipping subsidiaries -- UNITED States Lines Inc and United States Lines (S.A.) Inc -- have agreed in principle to dispose of substantially all their remaining operating shipping assets. The units have been operating under protection of Chapter 11 of the U.S. Bankruptcy Code since last November. McLean said U.S. Lines has a letter of intent with CSX Corp's <CSX> Sea-Land Corp subsidiary to transfer assets of its Transpacific/Hawaii/Guam Service to Sea-Land. McLean said Sea-Land has tentatively agreed to pay 125 mln dlrs for six vessels, certain port facilities, and various other equipment used in U.S. Lines' Transpacific service and theree Lancer class vessels and subsidy rights owned by the two McLean subsidiaries. As previously announced, U.S. Lines (S.A.) will transfer its South American Service to <Crowley Maritime Corp>'s American Transport Lines Inc subsidiary in return for a fixed lease payment for the four Lancer class vessels and a participation based on American Transport's South American revenues. McLean said the agreement also calls for Crowley to release U.S. Lines (S.A.) for any damages and unpaid charter hire for three vessels leased to U.S. Lines (S.A.) by Crowley which have been returned to Crowley. McLean said the minimum lease payments will be seven mln dlrs and estimated revenue participation during the first four years at about 16 mln dlrs. In addition, U.S. Lines (S.A.) subsidiaries in Brazil and Argentina will be sold to American Transport. The company said both agreements in principle have been approved by directors of the companies involved, but still need court, regulatory and lender approval. McLean said it is requesting the bankruptcy court to schedule a hearing on its motion to approve the agreements, adding that the court has granted the company's request to extend for 90 days the period for the shipping companies to file a proposed plan of reorganization. It said the planned transactions will leave McLean with no significant shipping assets except 12 New York class vessels, which are not in operation and are expected to be sold. McLean said its shipping units are returning the vessels operating in foreign commerce to United States ports to permit the planned transfer to purchasers. The company said U.S. Lines will maintain its weekly service from the U.S. West Coast to Hawaii and Guam until the vessels are transferred and the transaction is completed. Reuter ================================================== Title: HOSPITAL CORP <HCA> GETS FINANCING COMMITMENTS Hospital Corp of America said it received financing commitments of about 1.9 billion dlrs to pay for its previously announced reorganization. Hospital Corp said under the reorganization, over 100 hospitals will be spun off to a new, independent company owned by an employee stock ownership plan, ESOP, for 1.8 billion dlrs in cash. Hospital Corp said in addition to the cash payment, it will also receive preferred stock and warrants to purchase up to 34 pct of the fully diluted stock of the new company. According to Hospital Corp, the transaction is expected to be completed in the third quarter of the year, and proceeds will be used to reduce Hospital Corp's debt and to repurchase Hospital Corp common shares. Hospital Corp said the 100 hospitals to be acquired by the new company had net revenues totaling about 1.5 mln dlrs in 1986. Hospital Corp further said the ESOP would initially own 99.5 pct of the outstanding common stock of the new company or about 51 pct on a fully diluted basis. Hospital Corp said the new company's management would initially purchase one-half of one pct of the common stock of the new company, with incentive plans providing management the opportunity to earn up to 10 pct of the stock. According to Hospital Corp, institutions purchasing debt of the new company will receive warrants for the remaining five pct of the new company's fully diluted common stock. Hospital Corp said Drexel Burnham Lambert Inc has agreed to provide bridge financing, or to find buyers for debt of the new company, for an amount of up to 956 mln dlrs. The financing will comprise 270 mln dlrs of senior unsecured ESOP debt and 686 mln dlrs of unsecured subordinated financing for the new company, Hospital Corp said. Additionally, Wells Fargo Bank NA has agreed to syndicate up to 940 mln dlrs of secured bank financing, comprising a 400 mln dlr revolving credit loan and a 540 mln dlr separate ESOP term loan, Hospital Corp said. Wells Fargo has committed itself to fund an aggregate 400 mln dlrs of these loans, Hospital Corp said. Hospital Corp said it will not guarantee any of the debt. Reuter ================================================== Title: MOODY'S DOWNGRADES BANKAMERICA <BAC> Moody's Investors Service Inc said it downgraded BankAmerica Corp and the unit BankAmerica Overseas Finance Corp but affirmed ratings of the units Bank of America N.T. and S.A., Seafirst Corp and Seattle-First National Bank. The actions affect 5.5 billion dlrs of debt. Moody's said the downgrade reflected its concern over prospects for material improvement in the holding company's operating profitability in the medium term. Cut were BankAmerica's senior debt to Ba-1 from Baa-3, subordinated debt to Ba-3 from Ba-1, preferred stock to B-1 from Ba-3 and commercial paper to Not-Prime from Prime-3. BankAmerica is the second-largest bank holding company in the U.S. Moody's reduced the subsidiary BankAmerica Overseas Finance's senior debt to Ba-1 from Baa-3 and subordinated debt to Ba-3 from Ba-1. That debt is guaranteed by the parent. The rating agency also cited the holding company's continuing high level of problem assets, including significant exposure to Latin American debtor countries, that will continue to pressure profitability. However, Moody's noted that BankAmerica Corp remains liquid and owns considerable marketable assets. Moody's said it affirmed the ratings of the Bank of America unit because of that bank's franchise value, significant core deposit base and an expectation of regulatory support if further stresses develop. The agency confirmed Bank of America's Baa-1 long-term rating and Prime-2 short-term rating, as well as Seafirst's Ba-1 senior debt and Seattle-First's short and long-term ratings of Baa-1 and Prime-2 respectively. Reuter ================================================== Title: U.S. CORPORATE FINANCE - S/P CUT HAS NO EFFECT In an unusual move, Standard and Poor's Corp downgraded a U.S. corporate debt issue soon after it was priced for offering late last week. But, unlike a similar action in September 1986, which investment bankers said disrupted the financing, the agency's rate reduction had no effect this time, traders said. S and P announced Friday afternoon that it cut to B from B-plus a 900 mln dlr issue of senior notes due 1994 of Holiday Inns Inc, a unit of Holiday Corp <HIA>. The notes were priced late Thursday by sole manager Drexel Burnham Lambert Inc. In a release, Standard and Poor's said the action reflected a change in the note issue's terms to an unsecured form of debt from secured. That change was made after the agency rated the notes on February 20, S and P stated. "We took action as we became aware that the issue's structure had changed," said Robert Nelson of S and P. "We generally make a distinction between secured and unsecured debt, and this was the key factor in our downgrade." A spokesman for Drexel said the action did not affect the Holiday Inns deal, which had already sold out to investors by late Friday afternoon. "The Holiday notes are trading at 100.50 on a when-issued basis," the Drexel spokesman said soon after S and P's announcement. The 10-1/2 pct notes had been priced at par. That is a far cry from late September, when S and P downgraded a 215 mln dlr issue of subordinated sinking fund debentures due 1998 of New World Pictures Ltd <NWP> just hours after the pricing. Because of the rating cut to CCC-plus from B-minus, the underwriter halted sales and repriced the issue. Sole manager L.F. Rothschild, Unterberg, Towbin initially gave the debentures a 12-1/4 pct coupon and par pricing. It then repriced the issue at 97 to yield 12.74 pct. New World Pictures had increased the issue to 215 mln dlrs from an original offering of 150 mln dlrs, and that brought in S and P. The agency cited the larger financing in its action and said it believed the issuer's cash from existing operations would not be enough to adequately service debt. An officer with S and P said at the time the rating agency was not told beforehand that the issue had been increased in size. Usually, issuers and underwriters alert the rating agencies to any changes in debt offerings, he said. In both cases, Moody's Investors Service Inc declined to follow suit, bond traders noted. Indeed, Moody's announced Friday that its original rating of B-1 for the Holiday Inns notes remained appropriate. Moody's pointed out that while the seven-year notes would be unsecured obligations of Holiday Inns, the issue would benefit from a negative pledge provision and a call for specified collateral under certain circumstances. The agency also said the B-1 rating continued to recognize a highly leveraged debt structure that would result from Holiday's recapitalization program, as well as the company's dependence on property sales to produce adequate cash flow for near-term debt service. "Aside from Holiday Inns and New World Pictures, I cannot remember the last time an issue was downgraded so soon after the pricing," remarked one corporate bond trader. Holiday Inns also sold Thursday via Drexel 500 mln dlrs of subordinated debentures due 1999 with an 11 pct coupon and par pricing. The debentures' ratings of B-2 by Moody's and B-minus by S and P were left unchanged on Friday. The combined offering of 1.4 billion dlrs was the second-largest junk bond deal ever brought to market, underwriters and traders said. They said the biggest was BCI Holdings' 2.35 billion dlr offering on April 10, 1986. That the Holiday Inns deal sold out quickly underscored the appetite of many investors for high-yield securities. "People are hungry for yield. They are not worried about downside risk at all, especially for junk bonds issued by well-known companies," said one portfolio manager. As a result, investors are expected to snap up this week's planned offerings by Allied Stores Corp of 200 mln dlrs of senior notes due 1992, rated B-2/B, and 600 mln dlrs of senior subordinated debentures due 1997, rated B-3/CCC-plus. Lead underwriter First Boston Corp said Friday it has tentatively scheduled the securities for pricing today. Reuter ================================================== Title: MATHEMATICAL APPLICATIONS SETS OPERATIONS SALE Mathematical Applications Group Inc said it has signed a letter of intent to sell all of its operating business and will propose a plan of liquidation following the sale. If the company is unsuccessful in obtaining the approvals needed for the sale and liquidation, it said, the company may be required to initiate reorganization proceedings under federal bankruptcy law to facilitie the distribution of its assets. Mathematical Applications said it tentatively agreed to sell its direct marketing business to Pagex Inc for 400,000 dlrs plus an amount equal to the working capital of the business at closing as well as a 1.7 mln dlr note payable in installments over six years. Mathematical Applications said the business' working capital is estimated to be about 600,000 dlrs. Pagex has been formed by Paul A. Goldner the owner of Pagex Systems Inc, which is also engaged in the direct marketing computer service business. Mathematical Applications said the tentative agreement calls for Pagex to buy substantially all of the assets and liabilities related to the direct marketing business and continue to use the Mathematical Applications name. It said the sale is also subject to renegotiation of a real estate lease and approval of a definitive agreement by the company's board, stock holders and debenture holders. The company said it has obtained waivers from holders of its six mln dlrs principal amount of debentures due March 31, 1993, to defer interest payments aggregating 270,000 dlrs through March 31, 1987. The company said it will seek waivers to defer these interest payments, and those due March 31, for enough time to enable the company to accomplish the proposed sale of its operations. Mathematical Applications said it is talking to debenture holders, its landlord, a lessor of equipment to the marketing operation and holders of other liabilities not being assumed by Pagex to arrange distribution of assets after the proposed sale, adding that these assets will be significantly less than its liabilities. The company said it has obtained waivers from holders of its six mln dlrs principal amount of debentures due March 31, 1993, to defer interest payments aggregating 270,000 dlrs through March 31, 1987. The company said it will seek waivers to defer these payments, and those due March 31, for enough time to accomplish the proposed sale of its operations. Mathematical Applications said it is talking to debenture holders, its landlord, a lessor of equipment to the marketing operation and holders of liabilities Pages is not assuming to arrange distribution of assets after the proposed sale, adding these assets will be significantly less than its liabilities. As part of the distribution of assets, the company said, it expects shareholders to receive an amount based on the bid price of the company's stock, which was 1/16 on March five. Reuter ================================================== ************************************************** Topic 7 ************************************************** Title: U.S. CORPORATE FINANCE - NOVEL GMAC FINANCING Because its novel financing deal sold quickly last week, General Motors Corp's <GM> General Motors Acceptance Corp unit plans to do more multi-tiered financings, said Michael Mangan of GMAC. "We are certainly happy with the transaction. We plan to do more," said Mangan, director of corporate financing. Offered on Wednesday, the 100 mln dlr issue had three price levels to attract a wide range of retail investors and small regional institutions, said officers of P.W. Korth and Co Inc and PaineWebber Inc, which shared bookrunning duties. "We will continue to look at multi-tiered financings," Mangan said. "GMAC plans to talk to Korth and PaineWebber and get their thoughts on the deal. We want to see how it went and where the securities were placed," the GMAC officer added. Mangan and the co-lead managers said the three different pricings enabled the finance arm of General Motors to borrow at attractive rates. "GMAC saved some basis points with this technique," said an officer on Korth's syndicate desk. "Our all-in-cost was comparable. If the deal had not made sense, obviously we would not have done it," Mangan noted. The GMAC seven-year notes were given a coupon of 7.45 pct. For investors buying less than 100,000 dlrs of the notes, the offering was priced at par to yield 45 basis points over comparable Treasury securities. Those buying 100,000 to 250,000 dlrs pay 99.60 for a yield of 7.52 pct, or 53 basis points over Treasuries. For purchases of more than 250,000 dlrs, the notes carried a price of 99.20 to yield 7.599 pct, or 61 basis points over Treasuries. In contrast, Ford Motor Co's <F> Ford Motor Credit Co unit last month sold 300 mln dlrs of same-maturity notes priced to yield 7.62 pct, or 62.5 basis points over Treasuries. "Retail investors generally do not see new issue product," said an officer on PaineWebber's corporate syndicate desk. "They have to buy the securities in the secondary market." Bond traders said many corporates rose well above par in the secondary market this year. They attributed this to a huge number of bond redemptions by the issuing companies. "Institutions and mutual funds are seeing some of their holdings called away. They're scrambling to replace them," said one trader. As a result, underwriters said retail investors would gladly sacrifice some of the yield spread over Treasuries if they could buy debt issues at or below par. "The GMAC financing seemed tailor-made for those retail investors," commented one underwriter away from the syndicate. GMAC's Mangan said his firm also wanted to sell securities that were aimed at the retail sector. "Access to retail investors was the driving force behind the multi-tiered financing. This is a new market for us, so to speak," Mangan said. "There is a lot of GMAC paper out there," the executive added, referring to the unit's past offerings. "One of our basic strategies is to target securities to specific investors and hopefully attain a broader distribution." Officers of Korth and PaineWebber said the GMAC notes were selling quickly last week, although the issue had not sold out by Friday afternoon. "In selling to retail investors or smaller institutions, you have to make a lot more telephone calls," an investment banker pointed out. Underwriters noted that Korth and PaineWebber, along with co-managers A.G. Edwards and Thomson McKinnon, have strong retail bases. "They can carve out a niche here," one said. "We plan to underwrite more of these deals," said a Korth official. An officer with PaineWebber echoed that sentiment. Multi-tiered financings are a relatively new wrinkle on Wall Street. An officer with Korth said he belives his firm underwrote the first such issue eight or nine months ago for Citicorp <CCI>. GMAC's Mangan said his company issued through Korth in October 1986 a 50 mln dlr issue that carried two different price levels. "But the price gap between the first and second tier was large," Mangan said. In our conversations with the underwriters, we thought three different tiers would make more sense because the prices would not be far apart." Meanwhile, underwriting syndicates are scheduled to bid competitively tomorrow for 250 mln dlrs of first and refunding mortgage bonds due 2017 of Philadelphia Electric Co <PE>. Non-refundable for five years, the debt is rated Baa-3 by Moody's and BBB-minus by Standard and Poor's. Southern Railway Co, a unit of Norfolk Southern Corp <NSC>, will hold accept bids on Wednesday for 20 mln dlrs of serial equipment trust certificates. The debt is rated a top-flight AAA by both Moody's and S and P. IDD Information Services said the 30-day corporate visible supply rose to 3.98 billion dlrs from 3.28 billion dlrs. Reuter ================================================== Title: ROCKWELL INTERNATIONAL <ROK> SELLS 10-YEAR NOTES Rockwell International Corp is raising 200 mln dlrs through an offering of notes due 1997 yielding 7.682 pct, said lead underwriter Daiwa Securities America Inc. An officer on Daiwa's corporate syndicate desk said he believed this was Rockwell's first debt offering since 1984, when the company tapped the Euromarkets. Daiwa, the U.S. unit of Daiwa Securities Co Ltd of Japan, has become the first foreign bookrunner in the U.S. corporate debt market this year. The firm is sustaining a trend that first emerged in early 1986, investment bankers said. Daiwa headed a syndicate that won the Rockwell notes in competitive bidding. Rockwell has a net interest charge of 7.722 pct for the issue, the Daiwa officer said. The Japanese firm bid the notes at 98.473 and set a coupon of 7-1/2 pct and reoffering price of 98.75 to yield 46 basis points more than comparable Treasury securities. Underwriters away from the syndicate said they believed the 46 basis point spread over Treasuries was aggressive. They said a premium of 50 basis points or more would have been more appropriate. "It looks like Daiwa submitted a kamikaze bid just to get the business," said one competitor. However, the Daiwa officer defended his firm's pricing of the deal. "Because Rockwell has not floated debt since 1984, the company's note issue is a museum piece," he said. The officer said he believed the Rockwell paper would sell quickly, mostly because the company is well known and has not tapped the debt market in three years. "Investors are hungry for high-grade debt issued by household names," agreed one corporate bond trader. Non-callable for seven years, the issue is rated Aa-2 by Moody's and AA by Standard and Poor's. Daiwa became the second foreign firm to manage an offering in the domestic debt market in September 1986 when it won in competitive bidding 125 mln dlrs of 10-year first mortgage bonds of General Telephone Co of California, a unit of GTE Corp <GTE>. It followed the lead of UBS Securities Inc, the U.S. unit of Union Bank of Switzerland. UBS won its first deal in June 1986 when it bid for, and won, 100 mln dlrs of Allied-Signal Inc <ALD> debentures due 2016. UBS brought two negotiated deals to the marketplace after that. UBS led in late June an offering of 100 mln dlrs of five-year notes issued by Transamerica Financial Corp, a subsidiary of Transamerica Corp <TA>. That following September UBS priced as sole underwriter 100 mln dlrs of Borg-Warner Corp <BOR> notes due 1991. In early December Nomura Securities International Inc became the third, and so far last, foreign securities firm to manage a U.S. offering. The U.S. unit of Nomura Securities Co Ltd of Japan, acting as sole underwriter, won in competitive bidding 250 mln dlrs of extendible notes of General Electric Credit Corp, a subsidiary of General Electric Co <GE>. The Rockwell deal is Daiwa's second as lead underwriter. Last December, Daiwa and Nomura were named primary dealers by the Federal Reserve, along with L.F. Rothschild, Unterberg, Towbin Inc and Security Pacific National Bank. UBS, Nikko Securities Co International Inc and Yamaichi International (America) Inc have also applied to the Fed for primary dealership status. Primary dealers are considered an elite group of firms because they are approved to purchase U.S. Treasury securities directly from the Fed's agent, the Federal Reserve Bank of New York, investment bankers explained. Reuter ================================================== Title: U.S. CORPORATE FINANCE - FINANCING SURGE SEEN U.S. corporate treasurers are expected to race to market this week, propelled by hopes that the recent recoveries of the Treasury market and the dollar will whet investors' appetities for new issues, underwriters said. Underwriters expect to price about 2.3 billion dlrs of new debt issues this week, including an asset-backed debt deal. "Treasurers have been sitting on the sidelines for weeks, waiting to pounce," said an underwriter with a large Wall Street house. "They will hit the market at a fast pace as long as the dollar remains stable." "The financing calendar is the heaviest it has been in weeks," said a trader with a small securities firm. "And there are billions of dollars on the SEC shelf that can come to market at any time," he said, referring to company debt filings with the Securities and Exchange Commission. Investment bankers said last week signaled a surge in financings. New debt offerings rose to nearly 2.8 billion dlrs during the holiday-shortened week from 2.09 billion dlrs in the previous week, they calculated. "And most of (last week's) issues were not even on the calendar," an underwriter remarked. Analysts noted that in the past few months the fixed-income markets became virtually obsessed with the dollar. The currency's sharp drop ignited fears that foreign investors would shun dollar-denominated debt vehicles. Also, many participants believed inflation would gather momentum because of the dollar's fall. Inflation is the number one enemy of fixed-rate investments, analysts explained. But the dollar's recovery last week calmed worries in the Treasury and corporate bond markets over foreign investor demand and inflation. The resulting decline in yields should bring company treasurers to market, traders said. Underwriters are slated to bid competitively tomorrow for 250 mln dlrs of first mortgage bonds due 2017 of Georgia Power Co, a unit of Southern Co <SO>. The issue is rated Baa-1 by Moody's Investors and BBB-plus by Standard and Poor's. This would be Georgia Power's first bond issue in the U.S. since August 1986 when it sold 250 mln dlrs of same-rated, same-maturity 10 pct bonds yielding 250 basis points more than comparable Treasury securities. Tomorrow will see another competitive. Syndicates will bid for 100 mln dlrs of 30-year bonds rated A-1/A-plus of Virginia Electric and Power Co, a unit of Dominion Resources Inc <D>. Virginia Electric last visited the domestic debt market in October 1986 when the utility issued 100 mln dlrs of same-rated, same-maturity 9-1/4 pct bonds. The bonds were priced to yield 9.27 pct, or 141 basis points over Treasuries. The biggest investment grade deal tentatively scheduled for pricing this week is 600 mln dlrs of securities due 1992 backed by the automobile loan receivables of Marine Midland Banks <MM>. Salomon Brothers Inc will head the syndicate. The Marine Midland issue follows last week's offering of 230 mln dlrs of car loan backed debt by RepublicBank Dallas NA, a unit of RepublicBank Corp <RPT>, underwriters noted. Goldman, Sachs and Co led the group for the RepublicBank deal. First Boston Corp and Salomon Brothers, the most active underwriters of asset-backed securities, were co-managers. First Boston has dominated the asset-backed market since introducing the concept of selling these securities in March 1985. It has a commanding 86.1 pct share of the 12.5 billion dlr market, according to figures tabluated by First Boston. Salomon Brothers is in second place with a market share of 8.8 pct, followed by Drexel Burnham Lambert Inc's share of 3.5 pct of the market. Goldman Sachs is next with a 1.6 pct market share that was calculated before the RepublicBank Dallas deal. Indeed, investment bankers say that banks will be the most frequent issuers of asset-backed securities this year. The finance arms of the U.S. automakers accounted for the bulk of last year's offerings, with General Motors Corp's <GM> General Motors Acceptance Corp taking the lion's share of that. The Marine Midland cars deal is rated a top-flight AAA by both Moody's and Standard and Poor's because it is backed by a letter of credit by Union Bank of Switzerland. Recently, Imperial Savings and Loan Association of San Diego filed a registration statement with the SEC covering 100 mln dlrs of credit card backed debt, underwriters noted. Reuter ================================================== Title: U.S. CORPORATE FINANCE - ASSET-BACK MARKET GROWS The U.S. asset-backed debt securities market, which grew explosively last year, is broadening and investment bankers say 1987 could see a variety of issuers. "It is interesting to note that the first two asset-backed deals of the year were done by commercial banks," said Anthony Dub, who heads First Boston Corp's asset-backed group. BankAmerica Corp's <BAC> Bank of America unit last week issued 400 mln dlrs of securities backed by credit card receivables via sole manager First Boston. Dub said the offering sold out quickly, mostly to institutional investors. The Bank of America offering followed a January 16 issue of 200 mln dlrs of similar debt by RepublicBank Corp's <RPT> RepublicBank Delaware unit. Goldman, Sachs and Co ran the books on that deal, with First Boston acting as co-manager. However, Dub said the Bank of America securities were more closely related to the so-called "cars deals" that raced to market last year than were the RepublicBank securities. "The RepublicBank issue was secured by credit card receivables. In contrast, the Bank of America deal was the first public offering of credit card receivables because we used a grantor trust vehicle," he said. In a grantor trust, investors buy asset-backed certificates that represent a specified percentage of an undivided interest in the trust, analysts explained. The Bank of America certificates were issued by California Credit Card Trust A, which the bank established for that single purpose, investment bankers pointed out. The debt has an average life of 1.79 years and matures in 1992. First Boston gave the issue a 6.90 pct coupon and priced it at 99.8125 to yield 6.95 pct, or 65 basis points over comparable Treasury securities. Non-callable for life, the deal was rated AAA by both Moody's and Standard and Poor's. Underwriters away from the syndicate said they believed the Bank of America deal was priced too aggressively. "AAA-rated auto paper was trading about 75 basis points over Treasuries when First Boston priced the deal," one said. However, Dub said the offering sold out quickly anyway. The First Boston executive attributed this to the deal's top-flight rating by both agencies, unlike many of last year's cars deals, which were rated by S and P alone. "Investors receive interest only payments for the first 18 months and then interest and principal payments for the remaining five to seven months," Dub detailed. Investment bankers pointed out that because the Bank of America deal did not pay principal for a year and a half, the issue had a longer average life than some of the cars deals that were brought to market late last year. The collateral for the trust includes a pool of VISA credit card receivables, backed by a letter of credit. Bank of America has about four billion dlrs of credit card receivables, making it one of the biggest in the U.S., analysts said. Last week's deal was Bank of America's second foray into the young asset-backed securities market, analysts noted. In mid-December 1986 Bank of America sold, via California Cars Grantor Trust 1986-A, 514 mln dlrs of certificates backed by automobile receivables through Salomon Brothers Inc. Upcoming asset-backed issues include 200 mln dlrs of notes backed by the car leases of Volvo 1986 Lease Finance Corp, a unit of Volvo Finance North America Inc, via First Boston, and 450 mln dlrs of notes secured by sales contracts of Mack Trucks Receivables Corp, a unit of Mack Trucks Inc <MACK>, via Shearson Lehmand Brothers Inc. The asset backed market, which began in March 1985, totals an estimated 11.9 billion dlrs. Reuter ================================================== Title: TALKING POINT/GENCORP INC <GY> The surprise 2.2 billion-dlr tender offer for Ohio-based conglomerate GenCorp Inc will not be enough to buy the company, analysts said. Analysts estimated the 100 dlr-per-share offer from General Partners is 10 to 20 dlrs per share below the breakup value of GenCorp. However, market sources and analysts said uncertainty surrounds any transaction because of the legal challenges to Gencorp broadcasting licenses. Gencorp's stock rose 15-3/4 to 106-1/4 in heavy trading. "The expectation is either there will be someone else or the bidder will sweeten the offer hoping to get management's cooperation," said Larry Baker, an analyst with E.F. Hutton group. Analysts said there is concern about challenges to Gencorp's broadcast licenses for two television and 12 radio stations. Some of the disputes, dating back about 20 years, were brought by groups that alleged improper foreign payments and political contributions. "I think it kind of muddies an already muddy situation," said Baker of the offer. Some arbitragers said they were concerned the ongoing issue might be a stumbling block or result in a long period of time for any transaction. A source close to General Partners, however, said General Partners would apply to the Federal Communications Commission for special temporary authority to hold the broadcast stations. The source said if approved, the authority would allow a transaction to be carried out. If it received the "short-form" approval, General Partners would set up a trust which would hold the broadcasting properties until the licensing situation is resolved. General Partners is equally owned by investors Wagner and Brown and glass-maker AFG Industries Inc. Some market sources speculated an outside buyer, such as General Partners, might even be be a catalyst to resolution of the challenges since it would carry out GenCorp's plan to sell the stations. GenCorp earlier this month reached an agreement with Walt Disney Co to sell its Los Angeles television station, WHJ-TV. Disney would pay 217 mln dlrs to GenCorp and 103 mln dlrs to a group that challenged the station's license. GenCorp also has a pending agreement to sell WOR-TV in Secaucus, N.J. to MCA Inc for 387 mln dlrs. General Partners said it intends to keep the company's plastics and industrial products businesses and its tires and related products segment. Charles Rose, an analyst with Oppenheimer and Co, said that, on a breakup valuation, the company might be worth as much as 125 dlrs per share. Rose estimated the aerospace business could bring 30 to 40 dlrs per share or one billion dlrs, as would DiversiTech, the plastics unit. Broadcasting, including assets pending sale, might be 30 to 40 dlrs per share, he said. The company, formerly known as General Tire and Rubber Co, also has a tire business Rose estimated would be worth five to 10 dlrs per share. He estimated the bottling business might also be worth several dollars per share, he said. Analysts said GenCorp chairman A. William Reynolds, who became chairman last year, has been emphasizing the company's Aerojet General and DiversiTech General businesses. GenCorp, founded in 1915, became an unfocused conglomerate over the years and analysts believe reynolds has helped it to improve. "The management's doing a very fine job in trying to deal with the non-strategic assets of the company," Rose said. Analysts expect GenCorp to resist the tender offer, but they declined to predict what steps the company might take. They said it would be possible the company might consider a leveraged buyout or restructuring to fend off the offer. General Partners holds 9.8 pct of GenCorp stock, and there was some concern about "greenmail." Greenmail is the payment at a premium for an unwanted shareholders' stock. "I would doubt they would greenmail them, but nothing surprises me anymore," said Rose. GenCorp has not commented on the offer. It has retained First Boston Corp and Kidder, Peabody and Co as advisers. Reuter ================================================== Title: TALKING POINT/BORG-WARNER CORP <BOR> Borg-Warner Corp will vigorously resist GAF Corp's 46-dlr-per-share takeover offer, but the Midwest conglomerate may fall prey to another offer, either from GAF or its own management, analysts believe. Analysts also said Borg-Warner may attempt to escape GAF through a restructuring. The speculation pushed Borg-Warner's stock up 1-3/8 to 48-1/2 in heavy trading. Analysts predicted feisty GAF Chairman Samuel Heyman will stage a tough campaign to gain control of Borg-Warner so he can add its profitable plastics and chemical business to GAF. "It seems from at least their dealing with (raider Irwin) Jacobs that they don't want to be taken over. The question is now do they acquiesce to GAF. I think instinctively, they want to remain independent," said Dudley Heer of Duff and Phelps. Borg-Warner has been under siege by takeover speculation for almost a year. Last week, Jacobs' investment vehicle, Minstar Inc, and an investor group sold its 10.1 mln Borg-Warner shares. The same day, GAF Corp raised its stake by 9.1 mln shares to 19.9 pct of the outstanding. Jacobs was interested in buying the company, but took no steps toward a transaction. "Their (Borg-Warner) policy has been to stonewall them for the last nine months. It's been one of the dullest corporate battles I've seen," said one analyst. The battle, however, has heated up, and the range of breakup values on Wall Street span from the current market price to almost 60 dlrs per share. Most analysts said they think a price in the low 50s would be appropriate. Arbitragers speculate that GAF will not give up easily on its 3.16 billion dlr offer to buy the balance of Borg-Warner. Analysts who know GAF predict Heyman will either end up with Borg-Warner or enrich his chemicals and building materials company in some other way. Heyman two years ago attempted an unsuccessful takeover of Union Carbide Corp, but GAF benefited from that company's restructuring. "Borg Warner can't quibble that it's not a legitimate offer. It seems to me the short of it is Borg Warner is kind of between a rock and a hard place. They either have to accept a 46 dlr proposal or perhaps work a deal where it's sweetened. I personally think the company is (worth) around 55 dlrs per share," said Pershing analyst Richard Henderson. Henderson also speculated the company might attempt a restructuring such as the one carried out by Goodyear Tire and Rubber Co last year when it was being courted by Sir James Goldsmith. The company bought back the financier's stock and carried out a wider share repurchase. Arbitragers, however, said they do not believe Heyman is seeking "greenmail," or the repurchase of his stock by the company at a premium. Analysts noted that Heyman seems to have no problems with financing the transaction. Previously associated with "junk bond" experts, Drexel Burnham Lambert Inc, GAf said it would finance its Borg-Warner takeover with bank financing. GAF said it would make a tender offer following a merger agreement approved by the Borg-WArner board and conditioned on the board's recommendation of the tender offer and merger. Heyman said in a letter to Borg-Warner that he expects a merger would provide job security for Borg-Warner employees since the two companies businesses overlap. Analysts, however, believe Heyman would sell off assets he did not want to repay debt from the transaction. GAF's stock rose 1-5/8 today, to 48-5/8. "I believe, obviously, if GAF takes over Borg-Warner at the level it is proposing it would enhance GAF share values substantially," said Oppenheimer analyst Charles Rose. He said at 46 dlrs per share, Heyman's average cost for the company's stock would be 44 dlrs per share based on GAF's current holdings. Rose said the Borg-Warner plastics and chemical business, which makes thermo-plastics is the asset attracting Heyman. Analysts said it accounts for a third of Borg's earnings. The plastics are used in telephone equipment, office equipment and appliances. "Borg has half the market in the U.S. and is the leading technical player and the leading innovator," Rose said. Its competitors are Dow Chemical Co <DOW> and Monsanto Corp <MTC>, he said. Borg-Warner also has an automotive parts business, and a protective systems business, which includes Wells Fargo security guards. It also has an information services business, and is trying to sell its financial services business. Borg-Warner earned 206.1 mln dlrs or 2.35 dlrs per share on revenues of 3.62 billion dlrs in 1986. Smaller GAF, in 1986, earned on an operating basis 80.7 mln dlrs or 2.22 dlrs per share on sales of 753.8 mln dlrs. GAF's net earnings included an after tax gain of 201.4 mln from its participation in a Union Carbide exchange offer, a special union carbide dividend, and the sale of its Union Carbide shares. Reuter ================================================== Title: TALKING POINT/VIACOM INTERNATIONAL <VIA> A bidding war for Viacom International Inc, one of the largest U.S. entertainment companies, pitted a management group and other investors against National Amusements Inc, a closely held theater operator. Both sides raised their bids over the weekend. A source close to the management side insisted that timing was on his side. He said if outside directors approve the management proposal, a merger plan could be put to a vote of shareholders with proxy material going out late this week. "It would take 20 days from the day we mail," said the source. The source predicted National Amusements, controlled by investor Sumner Redstone, would need "half a year" to complete a tender offer because of the regulatory approvals that must accompany any change in control of Viacom's broadcast licenses and cable television franchises. Redstone was not available for comment. Some of Wall Street's arbitrage players said it was a rare situation that could only be enjoyed - a true bidding war. One said Redstone could begin a tender offer whenever he wanted and if enough people were convinced his proposal was superior to the Viacom management plan, he would have a chance to win. The independent directors of Viacom were called into a meeting today. Word on a decision was expected early tomorrow. Viacom shares climbed 2-1/2 to 50-3/8 by midafternoon. One major Wall Street firm issued a sell recommendation. "We think we're at the end now, in terms of bidding," said the firm's arbitrageur, who spoke on condition he not be identified. Both Redstone's proposal and the management proposal would create a restructured company heavily leveraged with debt. The management plan would result in a balance sheet with about 2.5 billion dlrs in debt and nearly 500 mln dlrs in preferred stock, convertible into 45 pct of the common stock. Redstone's newest proposal offers holders 42 dlrs in cash, a fraction of a share of exchangeable preferred stock with a value of 7.50 dlrs, and one-fifth of a share of common stock stock of Arsenal Holdings, representing 20 pct of the equity interest in the restructured Viacom. One arbitrageur calculated the equity in the Redstone plan was worth 2.50 dlrs making the total package worth 52 dlrs per share. Management offered 38.50 dlrs in cash, exchangeable preferred stock worth 8.50 dlrs and a fractional share of convertible preferred. The arbitrageur said the equity portion was worth about 4.00 dlrs for a total of 51 dlrs. Redstone's newest plan raised the amount of interest he would pay on the cash portion of his offer for every day beyond April 30 that a merger with Arsenal is not consummated. The plan calls for intest to be paid at an annual rate of nine pct during May and 12 pct thereafter. Previously Redstone offered eight pct interest. Other arbitrageurs said both Redstone and the management group, led by president and chief executive Terrence Elkes, were offering high prices. "Redstone really wants to own the company," one said. Another said management seemed to have the edge on the timing issue. Redstone's company owns 19.6 pct ov Viacom's 35 mln shares. A Wall Street analyst said it was hard to determine what the equity in the newly leveraged company would be worth. He noted as an example that new stock in FMC Corp <FMC>, which adopted a highly leveraged structure last year, inititally traded at 12.50 dlrs per share, dipped to nine dlrs, and is now just over 30 dlrs. Last week, Viacom reported fourth quarter earnings fell two two cts per share from 23 cts. The company said interest costs from several acquisitions affected results. Shares of Warner Communications Inc <WCI> rose 7/8 to 31-1/8. Analysts noted Warner owns warrants to purchase 3.25 mln Viacom shares at 35 dlrs and another 1.25 mln shares at 37.50 dlrs. Chris Craft Industries <CCN>, which owns a stake in Warner, rose 1-1/4 to 22-3/4. Viacom was created in 1970 and spun off from CBS Inc <CBS>. The company has 940,000 cable television subscribers, operates nine satellite television services and owns television and radio stations. It is one of the largest distributors of films and other programs for television. Reuter ================================================== Title: TAFT<TFB> BIDDERS WOULD SELL ENTERTAINMENT UNIT A proposed buyout of Taft Broadcasting Co by Dudley Taft and other investors includes a plan to sell the company's Entertainment Group, according to one of the investors. Jonathan Nelson, managing director of Narragansett Capital Corp <NARR>, which is participating in the buyout plan, declined to say if buyers have already been lined up for the Entertainment Group. "We are considering selling the group," Nelson said. Wall Street analysts said any of the Hollywood film studios which might be interested. Taft Broadcasting Co did not comment on the 145 dlr per share offer. Taft has 9.2 mln shares outstanding, of which 12 pct are owned by the Taft and Ingalls families. Dudley Taft relinquished the title of president in July but continues as vice chairman of the company. Taft-Narragansett requsted a response to its proposal by March 12. If the plan is accepted, Taft would be a private company financed by high yield bonds and bank debt, Nelson said. Narragansett is an investment management company specializing in leveraged buyout transactions. Taft shares climbed 19 to 151-1/2, causing arbitrageurs to say investors believe the bidders may raise their price. Robert M. Bass, who controls 25 pct of the stock, and American Financial Corp, holder of 15 pct, did not return telephohe calls seeking comment. But Dennis McAlpine, analyst at Oppenheimer and Co, said "I don't think it's worth 150 dlrs." He noted Taft recently agreed to sell a group of independent television stations at a loss. He said the entertainment group, which includes the Hanna-Barbara animation studios, is currently hampered by a glut of animated product. Taft Broadcasting has never commented on reports that its major stockholders met recently to discuss a break-up of the company. MacAlpine said there are lots of options for reshaping the company with a distribution of various pieces to the major shareholders among the possibilities. Analyst Alan Gottesman of L.F. Rothschild, Unterberg Towbin Inc said the Bass group has been increasing its stake in the belief the company would be worth more with a change in its strategy. He said Bass pushed for sale of the independent television stations because the company paid too much. Reuter ================================================== Title: GTE <GTE> SELLS DEBENTURES YIELDING 8.737 PCT GTE Corp is raising 250 mln dlrs through an offering of debentures due 2017 yielding 8.737 pct, said sole underwriter UBS Securities Inc. UBS, the U.S. unit of Union Bank of Switzerland, won the issue in competitive bidding against syndicates led by such major U.S. houses as First Boston and Morgan Stanley. UBS has become the second foreign firm to manage an issue in the domestic debt market this year, following Daiwa Securities America Inc. However, investment bankers noted that UBS was the first foreigner to break into the U.S. market when it won a competitive bidding in June 1986. An officer on UBS's corporate syndicate desk said the GTE issue is the fourth that the securities firm has managed. UBS bid the GTE debentures at 97.0025 and set a coupon of 8-1/2 pct and reoffering price of 97.50 to yield 112 basis points over the off-the-run 9-1/4 pct Treasury bonds of 2016. Non-refundable for 10 years, the issue is rated A-3 by Moody's and A-minus by Standard and Poor's. GTE last tapped the debt market when it sold on November 20, 1986, 250 mln dlrs of same-maturity, same-rated debt priced to yield 9.388 pct, or 174 basis points over comparable Treasury paper, underwriters noted. Underwriters said that two of the UBS-lead offerings were negotiated deals. UBS won the other two issues in competitive bidding acting as sole underwriter. Daiwa, the U.S. unit of Daiwa Securities Co Ltd of Japan, ran the books for a March 11 offering of 200 mln dlrs of 10-year notes of Rockwell International Corp <ROK>, underwriters noted. Thus far, Nomura Securities International Inc is the only other foreign firm to manage a U.S. debt offering. The U.S. unit of Nomura Securities Co Ltd of Japan, acting as sole underwriter, won a competitive issue in early December 1986. Reuter ================================================== Title: U.S. CORPORATE FINANCE - NEW ZEALAND DLR FRNS Floating-rate notes denominated in a foreign currency, a relatively new wrinkle on Wall Street, will probably be issued infrequently because the so-called "window of opportunity" opens and closes quickly, traders say. "In just two days we had as many issues. As a result, the market became glutted," said one trader. He said the window depends more on supply than on foreign exchange or interest rate risk, at least for the moment. "Obviously, currency risk is important. But there is a limited number of investors right now for the paper," he said. On Thursday, Bear, Stearns and Co sole-managed a 100 mln New Zealand dlr offering of three-year floating-rate notes issued by Ford Motor Credit Co, a unit of Ford Motor Co <F>. The initial rate for the notes will be set on April 15, and quarterly after that, at 200 basis points below the 90-day New Zealand bank bill rate. They are non-callable for life. This followed by a week another Bear Stearns-led offering of the same amount of New Zealand dollar notes for Dow Chemical Co <DOW>. The initial rate was also to be initially set on April 15, and quarterly after that, at 340 basis points below the same 90-day New Zealand rate. Because the Dow Chemical notes carried an interest rate floor of 17 pct, the issue saw strong investor demand, underwriters said. But the Ford Credit notes and Friday's offering of 130 mln New Zealand dlrs of floating-rate notes due 1990 issued by General Electric Co's <GE> General Electric Credit Corp via Prudential-Bache Securities Inc, did not have such a floor. "Obviously, the two firms did not want to issue floaters and face the risk of New Zealand rates falling sharply," an underwriter away from the syndicates said. He and others noted that the New Zealand 90-day rate was 27 pct late last week. An underwriter familiar with the Dow Chemical deal pointed out that because of the interest rate and currency swaps Dow did, the issuer felt comfortable setting a rate floor. Domestic offerings of foreign currency denominated date first surfaced in Fall 1985. By using currency and rate swaps, companies can sell debt that pays a high interest rate in a foreign currency like Australian or New Zealand dollars. But the issuers actually realize savings on borrowing costs. "I would say that every company which issued foreign currency debt saved some basis points when compared to same-maturity plain vanilla U.S. issues," an analyst said. Investors, mainly institutions, were attracted to the early issues because of the high interest rates. They were willing to absorb foreign currency risk until mid-1986, when sharp slides posted by the Australian and New Zealand dollars brought such issuance to a quick halt. It was not until late last year, after the currencies stabilized, that companies again started issuing debt denominated in Australian and New Zealand dollars. But many investors have still shied away from the debt, remembering the mid-1986 downturn of the Australian and New Zealand dollars, analysts noted. To attract some of those investors back to the fold, underwriters like Bear Stearns decided to structure the foreign currency issues as floating rate debt, sources said. This occurred against a backdrop of uncertainty over the course of U.S. interest rates for the intermediate term, and predictions by a number of economists that Treasury yields would rise in the second half of the year, the sources noted. A Bear Stearns officer said more than half of the Ford Credit notes were sold by late Friday afternoon, the second day of offering. "That is quicker than some recent fixed-rate New Zealand dollar note issues," he said. However, underwriters away from the Bear Stearns syndicate said the issue may have sold even faster if Prudential-Bache did not offer the General Electric Credit notes on Friday. They pointed out that the Ford notes were rated A-1 by Moody's Investors and AA-minus by Standard and Poor's, while the General Electric notes, which had the same interest rate terms and were also non-callable to maturity, carried top-flight AAA ratings by both agencies. "We have sold 20 to 25 pct of the GE notes. For first-day sales on a Friday afternoon, I'm happy with the results," an officer on Prudential-Bache's syndicate desk said. Investors pay the U.S. dollar equivalent of the foreign currency-denominated notes, underwriters said. Investment bankers said the next floating-rate issue of New Zealand or Australian dollar-denominated debt is probably a few weeks away. "I would like to underwrite a deal a day. But with the Dow, Ford and GE offerings, the marketplace has had enough for the time being," the Prudential-Bache officer admitted. Meanwhile, IDD Information Services said the 30-day corporate visible supply fell to 3.29 billion dlrs last week from 3.98 billion dlrs in the previous week. Reuter ================================================== ************************************************** Topic 8 ************************************************** Title: U.S. GRAIN TRADE CALLS SHULTZ REMARK SIGNIFICANT A statement yesterday by Secretary of State George Shultz after he met with wheat growers that U.S. agricultural products must be competitively priced was significant in that he recognized the importance of the Soviet market and the need for U.S. prices to be at world market levels, U.S. grain trade industry officials said. They said that Shultz's comments, while not explicitly endorsing subsidized wheat sales to the USSR, were noteworthy because they were not negative towards such action. In response to a query on what the State Department's position is on selling subsidized wheat to Moscow, Shultz told the leaders of the National Association of Wheat Growers that prices must be competitive if the U.S. is going to trade. The Soviet Union, the world's largest grain importer, has bought no U.S. wheat for more than a year, complaining the price was far above world market levels. A U.S. offer last fall to sell the Soviets lower-priced wheat through the export enhancement program, EEP, was also rebuffed due to the price. Shultz was said to be adamantly against the U.S. wheat offer last year and has been reported to be one of the major obstacles in making another subsidy overture to the Soviet Union, grain industry sources said. Intense speculation the U.S. might make a fresh EEP wheat offer to the Soviets has boosted grain prices significantly in recent trading sessions. Kansas City hard wheat futures rose another 2-1/4 cents by midday at 2.88-1/4 dlrs per bushel, while CBT March wheat was up 1-1/2 cents at 2.92-1/2 dlrs. "I'm not sure this is an about-face, but it's clearly a recognition that unless we're competitive, we won't sell to the Soviet Union," said a lobbyst for a major commodity group. "We have to be competitive. It's ridiculous to say that somebody is going to buy your product if they can get the same thing at a lower price somewhere else," Shultz told the farm leaders. "That is our approach in negotiations with the Soviets," he said. If those comments do signal that the State Department is no longer opposed to the U.S. selling wheat to the USSR under EEP, it certainly improves the chances for an EEP wheat offer to Moscow, an industry lobbyst said. National Wheat Grower's officials were taking a cautious attitude towards the secretary's comments. "His comments were not discouraging, but they didn't in our judgment promise any immediate action on EEP," an official with the wheat group said. The Wheat Growers official noted, however, that "there is significance in that fact that we haven't seen any significant negative commentary on the idea of EEP wheat to the Soviets." In a meeting with exporters this week, Secretary of Agriculture Richard Lyng refused to comment on their request that the administration offer subsidized wheat to Moscow, the officials said. An aide to USDA undersecretary Daniel Amstutz, who is reported to be strongly opposed to EEP wheat to the Soviets, said that the Shultz comments "are consistent with what he (Shultz) has taught for years as an economist," but said they don't necessarily relate to the Soviet Union. Amstutz could not be reached for comment, and an aide to Lyng said Lyng would not comment on Shultz's statements. But trade sources were hopeful that the Shultz comments may indicate some movement towards EEP wheat to Moscow. "If he didn't say no, then there's a chance. This is potentially a positive development," a commodity source said. Reuter ================================================== Title: SHULTZ USSR TRIP FUELS TALK OF EEP WHEAT OFFER Speculation the United States will offer subsidized wheat to the Soviet Union appears to have reached a new level of intensity in the run-up to Secretary of State George Shultz' visit later this month to Moscow. Rumors of an impending deal have coursed through wheat markets since officials from the two countries held their customary, semi-annual grain talks in February. Moscow's decision at that time to reenter the U.S. corn market strengthened the perception of warming farm trade prospects. Shultz is set to arrive in Moscow April 13. Shultz' statement two weeks ago that he would not stand in the way of a wheat subsidy offer under the Export Enhancement Program, EEP, coupled with the announcement of his visit to Moscow, was interpreted by many grain trade representatives here as a clear signal that the Reagan administration was preparing an offer. Administration officials -- in and out of the U.S. Agriculture Department -- have been extremely tight-lipped about the prospects of a subsidy offer. But USDA officials for the most part have abandoned the contention the proposal is dormant, suggesting that an offer, while not a "done deal," is a live possibility. Prominent U.S. grain trade representatives -- many of whom asked not to be identified -- continue to maintain that an offer to subsidize four mln tonnes of wheat is imminent. Others, who one month ago claimed a deal was not possible, are saying they would not rule one out. Rep. Pat Roberts, R-Kan., yesterday went so far as to predict a subsidy offer would be made within the next ten days to two weeks. Aides to Roberts said he had spoken to Republican leaders who had been in contact with administration officials. Richard Fritz, director of international marketing at U.S. Wheat Associates, said he was confident an export enhancement offer would be made by the middle of this month. Fritz also said he thought the value of the bonus would end up being close to the offer Washington made Peking earlier this year when USDA approved subsidies to China of around 36 dlrs per tonne on one mln tonnes of wheat. Some grain trade representatives say a four-mln-tonne wheat subsidy offer might help stimulate more Soviet purchases of U.S. corn and open the door to U.S. sales of soybeans. As ever, one of the crucial sticking points in a wheat deal would appear to be price. Last summer the administration took the controversial step of offering the Soviets subsidized wheat -- but were embarrassed when Moscow spurned the proposal on the grounds that the 15-dlr-per-tonne subsidy still left U.S. wheat prices far above world market prices. The administration's decision to set the subsidy level up front instead of accepting bids from exporters appeared to be a means of controlling the price while attempting to dampen criticism, grain trade sources said. Nonetheless, the pricing procedure did not prevent Shultz from saying the Soviets were "chortling" because Washington was offering Soviet housewives cheaper grain than that available to U.S. housewives. The conventional wisdom among grain trade representatives here is that a general warming of relations between the two countries since last summer, combined with continued hard times in the U.S. grain belt, would favor a subsidy offer. In addition, the USSR has made it clear it would consider buying U.S. wheat if it were priced more competitively. However, observers have not forgotten the circumstances surrounding the administration's announcement of the wheat subsidy offer last summer. Up until the time of the announcment, congressional and industry leaders were led to believe the White House had decided to expand the Export Enhancement Program to include not only the Soviets, but also a much broader list of countries. Instead, the administration scaled back the offer to include only the Soviets. That last-minute change of heart adds a measure of uncertainty even to the predictions of those most convinced that the administration will not now pass up the opportunity to sell four mln tonnes of wheat to the Soviet Union. Reuter ================================================== Title: COST OF PIK CERTIFICATES TO BE EYED BY CONGRESS Congress, eager to find budget savings, launches a review of the U.S. Agriculture Department's generic commodity certificate program tomorrow, amid signs USDA and the General Accounting Office, GAO, are at odds over how much the program has cost U.S. taxpayers. The GAO concluded in a preliminary report last week that payment-in-kind, or PIK, certificates cost between five and 20 pct more than cash outlays, administration officials who asked not to be identified said. USDA officials, however, took issue with the report, saying it did not take into account storage, handling and transport savings that accrue to the government. The GAO then decided to re-examine the costs, sources said. The issue is an important one, because congressional budget committees are known to be considering limiting the use of certificates as a means of cutting spending. Agriculture Under Secretary Daniel Amstutz and GAO Senior Associate Director Brian Crowley are set to testify before the Senate Agriculture Committee tomorrow. Amstutz is expected to tell the committee that there are uncertainties in determining the cost of certificates compared to cash outlays, and that savings to the Commodity Credit Corp, CCC, almost equal costs, department sources said. USDA estimates that it costs the government about 75 cents to store, handle and transport each bushel of commodity put in government storage. It was unclear whether the GAO, Congress' investigative arm, would stick by its original analysis that it costs the government more to use certificates instead of cash in farm price and income support programs, Reagan administration sources said. The GAO is expected to point out that use of payment-in-kind, PIK, certificates has helped relieve tight storage by moving grain that otherwise might not have been sold. The testimony by Amstutz and GAO Senior Associate Director Brian Crowley comes as congressional budget committees intensify their efforts to pinpoint ways to cut the federal budget deficit -- including considering limits on the use of PIK certificates. The CCC issues dollar-denominated PIK certificates, or certs, as a partial substitute for direct cash outlays to farmers or cash subsidies to exporters. Certs can be used to repay nonrecourse loans or exchanged for CCC commodities or cash. Between April and December 1986, CCC issued 3.8 billion dlrs worth of certificates, according to USDA. Up to another 6.7 billion dlrs worth could be issued between January and August 1987, according to USDA. Certs can cost the government more than cash primarily because recipients can use the certificates to pay back government loans at levels below the loan rate. Eliminating this practice, called "PIK and roll," would save the government 1.4 billion dlrs between 1988-92, according to the Congressional Budget Office, CBO. That estimate, according to a CBO official, was based on an assumption that certificates cost the government about 15 pct more than cash payments. The Senate and House Budget Committees are known to be considering curbs on PIK-and-roll transactions among other savings alternatives. The GAO last week reached the tentative conclusion that the estimated three billion dlrs of certificates redeemed to date have cost the federal government between 150 mln and 600 mln dlrs, or between five and 20 pct, more than cash outlays, one administration official said. However, the GAO has decided to reassess those estimates based in part on USDA criticism, department officials said. The broad range of the cost estimate is partly attributable to the different effect certificates can have on market prices over the course of a crop year. USDA's Economic Research Service, for example, has found that between June and August last year, the 215 mln bushels of corn exchanged for certificates lowered the price of corn by between 35 and 45 cents per bushel. Between September and November, however, certificates had only a marginal impact on corn prices, according to the ERS study, obtained by Reuters. Reuter ================================================== Title: CONGRESSMEN URGE U.S. SOYBEAN PROGRAM CHANGES Several leading farm-state Congressmen said they will press the U.S. Agriculture Department to implement some kind of marketing loan to make soybeans exports competitive while protecting farm income. Speaking at a House grains subcommittee hearing, chairman Dan Glickman, D-Kan., proposed that Congressmen and representatives of soybean growers meet with USDA on the subject in the next two weeks. "Let's see if we can try to push them (USDA) to do something without legislation," Glickman told the hearing. The current soybean loan rate effectively is 4.56 dlrs per bushel with no income protection, or marketing loan. David Haggard, American Soybean Association, ASA, president said USDA must make changes in the soybean program. The current soybean program "gave us the worst of both worlds," ASA's Haggard told the hearing. The 1987 loan rate is too high relative to corn and is encouraging an expansion of soybean production in South America, he said. At the same time, the U.S. soybean loan rate is too low to provide any income support for soybean farmers, Haggard said. "We need some kind of market loan," he added. The 1985 farm bill provides authority for the Agriculture Secretary to implement a marketing loan for soybeans but USDA so far has resisted pressure to use the authority. Representatives of ASA met earlier this month with USDA, but Haggard said USDA officials gave no indication if they would seriously consider offering a marketing loan. USDA undersecretary Daniel Amstutz yesterday said the soybean situation is a "dilemna" which has been studied extensively by the department. But he did not say what, if any changes, are under consideration. In his testimony, Haggard indicated there are ways other than a marketing loan which should be considered to help soybean growers, such as a so-called producer option payment, or a direct payment program. Haggard said barring any program changes, Commodity Credit Corporation, CCC, soybean stocks, now at 385 mln bu, will rise to 500 mln by the end of August. A further 100 mln bu of soybeans could be forfeited between September and end-year. "Thus, CCC could own the equivalent of Brazil's entire soybean crop by the end of calendar year 1987," Haggard said. However, Haggard said that the U.S. should be cautious in making soybean program changes that might allow the European Community to challenge the U.S. program under the General Agreement on Tariffs and Trade, GATT. He noted that The EC imports one quarter of U.S. soybean production and loss of that market would be devastating. The Reagan administration has given "mixed signals" on whether it believes a marketing loan for soybeans could be successfully challenged in GATT by the EC, Haggard said. While the ASA position is to support a 5.02 dlrs per bu loan rate combined with a marketing loan, Haggard also endorsed a proposal by Rep. Jerry Huckaby, D-La., which would set a six dlrs per bu loan rate and apply a marketing loan. The Huckaby proposal is also supported by the ranking Republican on the House Agriculture committee, Rep. Edward Madigan of Illinois. Subcommittee chairman Glickman endorsed the need to take some action on soybeans, but cautioned that the marketing loan could mean a substantial increase in budget costs. Glickman noted that the Agriculture Committee must cut one to 1.5 billion dlrs from its fiscal 1988 budget and therefore must fit any soybean program changes into the overall budget. Haggard said at a soybean loan rate of six dlrs per bu combined with a marketing loan, the U.S. soybean price might fall to four dlrs per bu initially. This would cost the government a maximum of two billion dlrs. But he said the costs would decline as market prices recovered. Reuter ================================================== Title: EXPORT BUSINESS - GRAINS/OILSEEDS COMPLEX Grain and oilseed complex export business reported since yesterday by government agencies and private exporters - Japanese crushers bought a total of 5,000 tonnes of Canadian rapeseed in export business overnight for late May/early June shipment...Results still awaited on a tender by Jordan for 225,000 tonnes of U.S. hard and soft wheats for various April/Nov shipments under the U.S. Department of Agriculture's (USDA) export enhancement program... (Continued) - Spain will shortly sign with Saudi Arabia an order for an undisclosed amount of barley for April/May delivery...Sesostris, the Spanish subsidiary of the international grain trader Dreyfus, sold 18,000 tonnes of barley to Greece for April 14/30 delivery via Mediterranean ports. Tenders - nil Market talk and comment - Pakistan was rumored to have rejected offers at its tender today for an additional 6,000 tonnes of Malaysian PBD palm oil... Market talk and comment (continued) - Thailand exported 75,160 tonnes of rice in the week ended March 31, down from 88,785 tonnes the previous week, plus concluded advance weekly sales for 22,086 tonnes against 44,483 tonnes the previous week...Pakistan has offered 50,000 tonnes of rice as emergency aid in Bangladesh's current food crisis, Bangladesh commerce ministry officials told reporters...Honduras will tender April 13 under PL-480 for U.S. and non-U.S. flag vessels to deliver approximately 52,500 tonnes of various wheats in bulk with laydays from June 20 through September 25, an agent for Honduras said... Market talk and comment (continued) - The Commodity Credit Corp reallocated 5.0 mln dlrs in credit guarantees previously earmarked for sales of U.S wheat to cover sales of vegetable oil to Bangladesh, plus authorized 2.0 mln dlrs in credit guarantees to cover sales of seeds to Algeria and transferred 21.0 mln dlrs in credit guarantees previously earmarked for sales of U.S. corn and 5.0 mln dlrs for oilseeds to increase available coverage on sales of U.S. poultry meat to Iraq, the USDA said...Japan was rumored to be tendering tomorrow, April 8, for an undisclosed amount of optional origin wheat for June shipment... Market talk and comment (continued) - Tunisia was rumored to have tendered for 100,000 tonnes of optional origin soft wheat for May/June shipments...Egypt was rumored to be tendering tomorrow for 125,000 tonnes of U.S. wheat flour for May/June shipment using PL-480 allocated funds...Morocco was rumored to be tendering Thursday, April 9, for 120,000 to 210,000 tonnes of U.S. wheat for May/June shipment using PL-480 funds...Egypt was rumored to have withdrawn its tender for 200,000 tonnes of U.S. soft wheat for May/June shipment ...North Yemen was rumored to have taken 75,000 tonnes of Australian wheat for April/May shipment and rejected U.S.... Market talk and comment (continued) - Algeria was rumored to be tendering overnight for optional origin corn...Taiwan was rumored to be tendering overnight for 35,000 tonnes of U.S. sorghum...The Philippines were rumored to have rejected offers at a tender for 450,000 tonnes of spring wheat. Reuter ================================================== Title: EXPORT BUSINESS - GRAINS/OILSEEDS COMPLEX Grain and oilseed complex export business reported since yesterday by government agencies and private exporters - Japanese crushers bought 4,000 to 5,000 tonnes of Canadian rapeseed in export business overnight for May shipment...Greece has agreed to buy 27,000 to 33,000 tonnes of Spanish corn for spot shipment, with Italy buying 6,000 to 7,000 tonnes of Spanish corn for last/half April shipment, a spokesman for cargill's spanish unit said...Taiwan bought 54,000 tonnes of U.S. soybeans for April 20/May 5 delivery C and F... (Continued) - The India State Trading Corp bought 20,000 tonnes of optional origin soybean oil for May 20/June 20 shipment and 6,000 tonnes of RBD palm olein for April 25/May 25 shipment at its import tender yesterday...Pakistan rejected offers at its tender for 12,000 tonnes of RBD palm oil, but is expected to retender next week...The U.S. Department of Agriculture (USDA) said it has accepted a bid for an export bonus to cover the sale of 50,000 tonnes of U.S. hard red winter wehat to Sri Lanka for April 8/16 shipment, with an additional 10,000 tonnes of wheat still available to Sri Lanka under the Export Enhancement Program (EEP)... (Continued) - The USDA said it has accepted a bid for an export bonus to cover the sale of 18,000 tonnes of U.S. durum wheat to Algeria for June 20/30 shipment, with an additional 228,000 tonnes still available to Algeria under the EEP. Tenders - Jordan will tender Monday, April 6, for 225,000 tonnes of U.S. hard and soft wheats for various April/Nov shipments under the EEP. Market talk and comment - The USDA said Turkey has been made eligible for the sale of up to 70,000 tonnes of medium grain milled rice under the EEP... Market talk and comment (continued) - The USDA announced Colombia has been made eligible for sale of up to 15,000 tonnes of U.S. barley malt under the EEP...The Canadian Grain Commission reported Canadian wheat exports in the week ended March 29 totalled 447,200 tonnes, compared with 277,700 the previous week, with 1986/87 season exports so far up to 10,228,600 tonnes versus 10,637,500 for the 1985/86 season, with barley exports 38,800 tonnes, 106,700 tonnes, 4,804,500 and 1,892,600 respectively, rapeseed 43,900 tonnes, 50,700 tonnes, 1,292,600 and 920,000 respectively and flaxseed 20,700 tonnes, 13,600 tonens, 450,900 and 392,600 respectively... Market talk and comment (continued) - Pakistan is not emerging as a major wheat exporter as World market prospects are not good enough, a government official said...Active timecharter fixing by Soviet operators to cover USSR grain imprts featured the ocean freight market this morning, ship brokers said...Dry cargo futures on the BIFFEX extended yesterday's strong advance, with sharp gains of 22 to 17 points in response to rumors of higher rates for grain business from the U.S. Gulf to Japan, dealers said. Reuter ================================================== Title: NUMEROUS FACTORS SAID POINT TO USSR CORN BUYING A greater than anticipated need, competitive prices and political motivations could be sparking Soviet interest in U.S. corn, industry and government officials said. As rumors circulated through grain markets today that the Soviet Union has purchased an additional 1.5 mln tonnes of U.S. corn, industry and government sources noted a number of factors that make Soviet buying of U.S. corn likely. First, there are supply concerns. Some trade sources said recent speculation has been that last year's Soviet grain crop be revised to only 190 mln tonnes, rather than the 210 mln announced, therby increasing the Soviet need for grain. A drop in Argentine corn crop prospects could also affect Soviet corn buying, an Agriculture Department source said. Dry weather in Argentina -- a major corn supplier to the USSR -- and reported crop problems prompted USDA to lower its Argentine 1986/87 corn crop estimate this week to 11.0 mln tonnes, down from 11.5 mln. Argentina corn exports were also cut by 500,000 tonnes to 6.8 mln tonnes. Argentina has already committed four mln tonnes of this year's corn for export, a USDA official said, with two mln tonnes of that booked for April-June delivery to the USSR. "Significant downside potential" still exists for the Argentine crop, the official said, which will decrease the amount of additional corn that country can sell to Moscow. "If the Soviet needs are greater than we have been thinking, then they might need more than what Argentina can provide during the April to June period," he said. Current competitive prices for U.S. corn have also sparked Soviet buying. U.S. corn was reported to be selling on the world market earlier this week for around 71 dlrs per tonne, Argentine corn for 67 dlrs -- a very competitive price spread, U.S. and Soviet sources said. "This price difference makes American corn competitive," Albert Melnikov, commercial counselor for the Soviet Union, told Reuters. Impending crop problems in Argentina will likely cause those prices to rise, and with the recently strong U.S. corn futures prices, the Soviets might feel corn prices have bottomed and that this is a good time to buy, sources said. Finally, some industry sources said that by buying the minimum amount of corn guaranteed under the U.S./USSR grains agreement (four mln tonnes), the Soviet Union may be hoping to convince the USDA to offer Moscow a subsidy on wheat. In an inteview with Reuters this week, USDA secretary Richard Lyng said that no decision had been made on a wheat subsidy offer, but that such an offer had not been ruled out. Reuter ================================================== Title: U.S. TO PUSH STRONG SUMMIT AGRICULTURE STATEMENT The United States will push for a strong statement from Western heads-of-state at the June economic summit in Venice, urging "comprehensive" negotiations on agriculture begin immediately to reduce domestic farm subsidies, the senior U.S. planner for the summit said. "Agriculture has really become the number one international economic problem," Allen Wallis, undersecretary of state for economic affairs, told Reuters in an interview. At the Tokyo economic summit last year, western leaders identified agriculture as a major international problem but made no specific recommendations. This year, Wallis said the U.S. will press for a statement instructing trade ministers to begin negotiating on the issue, and include domestic programs. While the Western leaders, including president Reagan, will not conduct specific negotiations, Wallis said they can give a push to the agriculture talks under the General Agreement on Tariffs and Trade (GATT). Wallis said the leaders should endorse a "comprehensive" negotiation, which is interpreted as including domestic policies as well as import restraints and export subsidies. "They (GATT talks) really have to deal with domestic policies, as well as trade arrangements," Wallis said. Trade Representative Clayton Yeutter has said a summit statement of support for agriculture talks is part of an overall U.S. strategy to build momentum for the GATT farm talks. Public statements in recent weeks by several members of the Reagan cabinet have stressed the agriculture issue. Yeutter and Agriculture Secretary Richard Lyng will repeatedly discuss agriculture during a visit to Japan starting next week. Yeutter said agriculture will also be on the agenda of the trade ministers "quadrilateral" talks among Japan, the European Community, the U.S. and Canada this month. And the ministerial meeting of the Paris-based Organization for Economic Cooperation and Development, OECD, in May will highlight the agriculture problem, Yeutter said. The OECD in May is expected to release a study of domestic farm subsidies which shows that Japan has the highest subsidies among industrial countries, but aid to farmers is also generous in the EC and United States. The controversial OECD study calculated a measure of farm subsidies called the Producer Subsidy Equivalent, PSE, which allows farm aid to be compared across countries. Some officials including British Agriculture Minister Michael Jopling, have said the PSE could be useful as a method of negotiating lower domestic farm subsidies worldwide. However, the State Department's Wallis said while the PSE can be useful in negotiations, it has shortcomings and "its not definitive." He and other U.S. officials said the Reagan administration has not yet reached a decision on a specific U.S. agriculture proposal to present to the GATT. "I would expect it (U.S. proposal) to be in the fall," after the series of international meetings, Wallis said. At preliminary meetings of the GATT agriculture committee, the United States has pushed for the so-called "freeze and rollback" approach. Subsidies would first be frozen at current levels, then rolled-back jointly in stages. However, the Reagan administration perplexed some trade analysts recently by reacting cooly to a plan by Australian prime minister Bob Hawke calling for a similar approach. Hawke unveiled a seven-point plan to freeze and subsequently reduce the gap between high farm price supports and world prices. Australia is leading a the so-called Cairns group of 13 coutries pressing for freer agriculture trade. "The proposals that the so-called Cairns group are coming up with seem to be focusing on short-run, quick fixes which is not what we think is what's called for here," Wallis said. Wallis and other said the U.S. wants a "long-range" solution to the agriculture problem. U.S. officials also have criticized the Australian proposal because they said it deals primarily with the difference between domestic prices and world levels in the EC and U.S., but fails to focus on the question of market access. At the same time the U.S. is rejecting the Australian "quick fix", Wallis said the U.S. will press at the summit for a declaration urging that agriculture talks be completed "expeditiously", or within two years. The unstated U.S. strategy, U.S. officials said, is to keep the pressure on the EC this year through the export enhancement program and lower value of the dollar, in the hope that a sweeping agriculture agreement is possible in 1988. Reuter ================================================== Title: U.S. HOUSE PANEL EXTENDS EEP, URGES USSR OFFER The U.S. House Agriculture Committee approved proposals to extend the life of the Export Enhancement Program, EEP, through fiscal 1990 and urged the Reagan administration offer EEP wheat to the Soviet Union. The proposals were approved as amendments to a comprehensive trade bill moving through Congress this year. In addition to the amendments on EEP, the committee approved several proposals which could restrict imports of lamb, casein, sugar-containing products and tobacco. Those amendments affecting imports face an uncertain future because the House Ways and Means Committee, which has overall jurisdiction over trade legislation, will oppose them, Congressional sources said. The effect of the EEP amendments would be to extend the life of the program five years through fiscal 1990 rather than the current three years through fiscal 1988. The amendments, offered by Rep. Dan Glickman, D-Kan., also would increase funding for the program to 2.5 billion dlrs from 1.5 billion now. Furthermore, the committee passed an amendment offered by Rep. Glickman which instructs the U.S. Agriculture Department to value EEP bonus commodities at market value, not acquisition value. Glickman said the change would make the program 30 pct less expensive to operate. The provision on EEP wheat to the Soviet Union, offered by Rep. Bob Smith, R-Ore., does not require the administration make an offer, but urges such action. The committee approved an amendment, offered by Rep. Glenn English, D-Okla., requiring the Secretary of Agriculture to begin discussions with other major grain producing countries aimed at jointly reducing world grain production. Trade Representative Clayton Yeutter yesterday opposed the amendment, saying such commodity agreements do not work. Among the host of amendments to restrict imports approved by the panel, the most significant would require quotas on imports of goods containing more than 25 pct of a bulk farm product that is subject to U.S. quotas. The amendment, offered by Rep. Arlan Stangeland, R-Minn., is aimed primarily at curbing imports from Canada of products containing sugar and foreign foods containing dairy products. It also may affect peanut, cotton and tobacco imports, Committee sources said. Another amendment would place a quota on U.S. imports of casein, a dairy product shipped to the U.S. primarily by New Zealand and Ireland. The panel also voted to apply to lamb imports the same countercyclical import quota law which is operating for U.S. beef imports. Other miscellaneous amendments included: -- Urging the administration consider retaliating against Japan and South Korea if those countries do not remove restrictions on beef imports. -- Boosting the amount of U.S. grain which must be shipped each year under a food aid program called Section 416 to 800,000 tonnes from 500,000 tonnes now. -- Requiring the Agriculture Secretary conduct a study of the Canadian Wheat Board import licensing system for wheat to determine if it is a non-tariff trade barrier. -- Requiring the Agriculture Secretary reimburse the National Corn Growers Association up to 500,000 dlrs for the costs of defending the U.S. feedgrains program against a Canadian countervailing duty case this year. -- Urging the administration oppose the Canadian decision to apply a duty on U.S. corn imports, and a proposal by the European Community to apply a vegetable oils tax. -- USDA conduct a study of the findings of a National Commission on Agricultural Export Policy, which recommended a reorganization of USDA's trade policy apparatus. Reuter ================================================== Title: U.S. SUPPLY/DEMAND DETAILED BY USDA The U.S. Agriculture Department made the following supply/demand projections for the 1986/87 seasons, in mln bushels, with comparisons, unless noted -- CORN -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 76.7 76.7 83.4 83.4 Harvested 69.2 69.2 75.2 75.2 Yield (bu) 119.3 119.3 118.0 118.0 Supply (mln bu) -- Start Stock 4,040 4,040 1,648 1,648 Production 8,253 8,253 8,877 8,877 Total-X 12,295 12,295 10,536 10,536 X-Includes imports. CORN (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage: Feed 4,500 4,300 4,095 4,126 Other 1,180 1,150 1,160 1,129 Ttl Domest 5,680 5,450 5,255 5,255 Exports 1,375 1,250 1,241 1,241 Total Use 7,055 6,700 6,496 6,496 End Stocks 5,240 5,595 4,040 4,040 Farmer Reser 1,400 1,300 564 564 CCC Stocks 1,700 1,500 546 546 Free Stocks 2,140 2,795 2,930 2,930 AvgPrice 1.35-1.65 1.35-1.65 2.23 2.23 Note - Price in dlrs per bu. Corn season begins Sept 1. ALL WHEAT - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 72.0 72.0 75.6 75.6 Harvested 60.7 60.7 64.7 64.7 Yield 34.4 34.4 37.5 37.5 Supply (mln bu) -- Start Stcks 1,905 1,905 1,425 1,425 Production 2,087 2,087 2,425 2,425 Total Supply-X 4,007 4,007 3,865 3,865 X - Includes imports. ALL WHEAT 1986/87 1985/86 (cont.) 04/09/87 03/09/87 04/09/87 03/09/87 Usage: Food 700 690 678 678 Seed 84 90 93 93 Feed 350 325 274 274 Ttl Domest 1,134 1,105 1,045 1,045 Exports 1,025 1,025 915 915 Total Use 2,159 2,130 1,960 1,960 End Stocks 1,848 1,877 1,905 1,905 Farmer Reser 475 450 433 433 CCC Stocks 950 950 602 602 Free Stocks 423 477 870 870 Avg Price 2.30-40 2.30-40 3.08 3.08 Note - Price in dlrs per bushel. Wheat season begins June 1. SOYBEANS - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 61.5 61.5 63.1 61.1 Harvested 59.4 59.4 61.6 61.6 Yield (bu) 33.8 33.8 34.1 34.1 Supply (mln bu) -- Start Stocks 536 536 316 316 Production 2,007 2,007 2,099 2,099 Total 2,543 2,543 2,415 2,415 SOYBEANS (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage -- Crushings 1,130 1,115 1,053 1,053 Exports 700 700 740 740 Seed, Feed and Residual 103 93 86 86 Total Use 1,933 1,908 1,879 1,879 End Stocks 610 635 536 536 Avg Price 4.60-4.80 4.60-4.80 5.05 5.05 Note - Average price in dlrs per bushel. Soybean season begins June 1. FEEDGRAINS - X 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 119.8 119.8 128.1 128.1 Harvested 102.0 102.0 111.8 111.8 Yld (tonnes) 2.48 2.48 2.45 2.45 Supply (mln tonnes) -- Start Stocks 126.4 126.4 57.5 57.5 Production 252.4 252.4 274.4 274.4 Imports 0.6 0.6 0.9 0.9 Total 379.4 379.4 332.7 332.7 X - Includes corn, sorghum, barley, oats. FEEDGRAINS - X (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage: Feed 140.6 136.2 134.8 135.5 Other 35.8 35.0 35.0 34.3 Ttl Domest 176.4 171.2 169.8 169.8 Exports 43.9 40.8 36.6 36.6 Total Use 220.3 211.9 206.4 206.4 End Stocks 159.1 167.5 126.4 126.4 Farmer Reser 39.0 36.5 16.6 16.6 CCC Stocks 55.2 49.5 20.4 20.4 Free Stocks 64.8 81.5 89.3 89.3 X - Includes corn, sorghum, oats, barley. Seasons for oats, barley began June 1, corn and sorghum Sept 1. SOYBEAN OIL - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Supply (mln lbs) -- Start Stcks 947 947 632 632 Production 12,263 12,103 11,617 11,617 Imports Nil Nil 8 8 Total 13,210 13,050 12,257 12,257 Note - 1985/86 production estimates based on October year crush of 1,060 mln bushels. SOYBEAN OIL (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage (mln lbs) -- Domestic 10,500 10,500 10,053 10,053 Exports 1,350 1,350 1,257 1,257 Total 11,850 11,850 11,310 11,310 End Stcks 1,360 1,200 947 947 AvgPrice 14.5-16.0 15.0-17.0 18.00 18.00 Note - Average price in cents per lb. Season for soybean oil begins Oct 1. SOYBEAN CAKE/MEAL, in thousand short tons -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Start Stcks 212 212 387 387 Production 26,558 26,203 24,951 24,951 Total 26,770 26,415 25,338 25,338 Note - 1985/86 production estimates based on October year crush of 1,060 mln bushels. SOY CAKE/MEAL (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage (thous short tons) -- Domestic 20,000 19,750 19,090 19,118 Exports 6,500 6,350 6,036 6,008 Total 26,500 26,100 25,126 25,126 End Stcks 270 315 212 212 AvgPrice 145-150 145-150 154.90 154.90 Note - Price in dlrs per short ton. Season for soybean cake and meal begins Oct 1. COTTON -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Area (mln acres) -- Planted 10.06 10.06 10.68 10.68 Harvested 8.49 8.49 10.23 10.23 Yield (lbs) 549 553 630 630 Supply (mln 480-lb bales) -- Start Stks-X 9.35 9.35 4.10 4.10 Production 9.70 9.79 13.43 13.43 Ttl Supply-Y 19.06 19.14 17.57 17.57 X - Based on Census Bureau data. Y - Includes imports. COTTON (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage -- Domestic 7.10 7.01 6.40 6.40 Exports 6.66 6.76 1.96 1.96 Total 13.76 13.77 8.36 8.36 End Stocks 5.40 5.49 9.35 9.35 Avge Price 51.7-X 51.7-X 56.50 56.50 X - 1986/87 price is weighted average for first five months of marketing year, not a projection for 1986/87. Average price in cents per lb. Cotton season begins August 1. RICE 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 2.40 2.40 2.51 2.51 Harvested 2.38 2.38 2.49 2.49 Yield (lbs) 5,648 5,648 5,414 5,414 Supply (mln cwts) -- Start Stcks 77.3 77.3 64.7 64.7 Production 134.4 134.4 134.9 134.9 Imports 2.2 2.2 2.2 2.2 Total 213.9 213.9 201.8 201.8 RICE (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage (mln cwts) -- Domestic 67.0 67.0 65.8 65.8 Exports 80.0 80.0 58.7 58.7 Total-Y 147.0 147.0 124.5 124.5 End Stocks 66.9 66.9 77.3 77.3 CCC Stocks 42.9 42.9 41.5 41.5 Free Stocks 24.0 24.0 35.8 35.8 AvgPrice 3.45-4.25 3.45-4.25 6.53 6.53 Note - Average price in dlrs per CWT. Y-Rough equivalent. N.A.-Not Available, USDA revising price definition due to marketing loan. Rice season begins August 1. SORGHUM 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Yield (bu) 67.7 67.7 66.8 66.8 Supply (mln bu) -- Start Stcks 551 551 300 300 Production 942 942 1,120 1,120 Total 1,493 1,493 1,420 1,420 Usage (mln bu) -- Feed 550 575 662 662 Other 30 30 29 29 Ttl Domest 580 605 691 691 SORGHUM (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Exports 225 225 178 178 Total Use 805 830 869 869 End Stocks 688 663 551 551 Avge Price 1.30-50 1.30-50 1.93 1.93 Note - Price in dlrs per bushel. Sorghum season begins Sept 1. BARLEY 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Yield (bu) 50.8 50.8 51.0 51.0 Start Stocks 325 325 247 247 Production 610 610 591 591 Imports 5 5 9 9 Total 941 941 847 847 BARLEY (cont.) 1986/87 1985/86 04/09/87 03/15/87 04/09/87 03/15/87 Usage (mln bu) -- Feed 300 300 333 333 Other 175 175 167 167 Ttl Domest 475 475 500 500 Exports 150 150 22 22 Total Use 625 625 522 522 End Stocks 316 316 325 325 AvgPrice 1.45-65 1.45-65 1.98 1.98 Note - Average price in dlrs per bushel. Barley season begins June 1. OATS - in mln bushels 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Yield (bu) 56.0 56.0 63.7 63.7 Start Stcks 184 184 180 180 Production 385 385 521 521 Imports 30 30 28 28 Total 598 598 729 729 OATS, in mln bushels (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage -- Feed 400 400 460 460 Other 85 85 83 83 Ttl Domes 485 485 543 543 Exports 2 2 2 2 Total 487 487 545 545 End Stcks 111 111 184 184 AvgPrice 1.00-20 1.00-20 1.23 1.23 Note - Average price in dlrs per bushel. Oats season begins June 1. LONG GRAIN RICE, in mln CWTs (100 lbs) -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Harvested -- Acres (mln) 1.83 1.83 1.94 1.94 Yield (lbs) 5,358 5,358 5,168 5,168 Start Stks 49.3 49.3 37.7 37.7 Production 97.8 97.8 100.4 100.4 Ttl Supply 148.6 148.6 140.1 140.1 Note -- Starting Stocks does not include broken kernels -- Supply minus use does not equal ending stocks in breakdowns. Total Supply includes imports but not broken kernels. LONG GRAIN RICE, in mln CWTs (100 lbs), cont. -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Domestic Use 43.0 43.0 48.8 48.8 Exports 65.0 60.0 42.0 42.0 Total Use 108.0 103.0 90.8 90.8 End Stocks-X 40.6 45.6 49.3 49.3 AvgPric 3.45-4.25 3.45-4.24 6.86 6.86 Note - Average price in dlrs per cwt. X-Broken kernels not included -- supply minus use does not equal ending stocks in breakdowns. Rice season begins August 1. MEDIUM, SHORT GRAIN RICE - in mln CWTs (100 lbs) -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Harvested -- Acres (mln) 0.55 0.55 0.55 0.55 Yield (lbs) 6,651 6,651 6,258 6,258 Start Stks 26.7 26.7 25.7 25.7 Production 36.6 36.6 34.5 34.5 Ttl Supply 65.3 65.3 61.7 61.7 Note -- Starting Stocks does not include broken kernels -- Supply minus use does not equal ending stocks in breakdowns. Total Supply includes imports but not broken kernels. MEDIUM, SHORT GRAIN RICE, in mln CWTs (100 lbs), cont. -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Domestic Use 24.0 24.0 17.0 17.0 Exports 15.0 20.0 16.7 16.7 Total Use 39.0 44.0 33.7 33.7 End Stocks-X 24.5 19.5 26.7 26.7 AvgPric 3.45-4.25 3.45-4.25 5.91 5.91 Note - Average price in dlrs per CWT. X-Broken kernels not included - supply minus use does not equal ending stocks in breakdowns. Rice season begins August 1. NOTES ON U.S. SUPPLY/DEMAND TABLES -- N.A. - Not available. -- Totals may not add due to rounding. -- Figures for 1986/87 are midpoint of USDA range. -- Feed usage for corn, wheat, soybean, feedgrains, sorghum, barley, oats includes residual amount. -- Residual amount included in rice and medium/short grain rice domestic usage. -- Rice, long grain, and medium/short grain rice average price for 1985/86 estimates and 1986/87 projections are market prices and exclude cash retained under the marketing loan since April, 1986. Reuter ================================================== ************************************************** Topic 9 ************************************************** Title: ASIA GENERALLY WELCOMES U.S. NIGHT FUTURES TRADING Traders in financial centres in Asia generally welcomed the first U.S. Night session of futures trading which starts in Chicago on April 30. Traders in Japan, Sydney and Hong Kong said they expected the move to bring benefits, but traders and bankers in Singapore said it posed a serious threat to the Singapore International Monetary Exchange (SIMEX). The Commodity Futures Trading Commission (CFTC) in Washington gave unanimous approval to the Chicago Board of Trade's (CBT) proposals on Tuesday. The CBT plans to offer futures on U.S. Treasury notes and bonds, and options on those futures, from 1800 to 2100 hrs Chicago time (2300 to 0200 gmt) on Mondays to Thursdays. The sessions would mark the start of the trading day, which would end at the present close of business the next day. The proposed hours are designed to coincide with the busiest morning trading hours in Japan. But Andrea Corcoran, chief of CFTC's division of trading and markets, said on Tuesday she expected the evening sessions to attract primarily U.S. Firms looking for additional overnight protection. Traders in Tokyo said the night sessions were expected to help expand U.S. Treasury bond trading volume and enlarge daily fluctuation ranges in Tokyo. They said Japanese financial institutions were very interested in using overseas futures markets, but were waiting for finance ministry approval to do so. Approval is expected before the end of the month. The foreign branches of financial institutions can already trade futures, but in practice make little use of them. But, traders said the timing of the launch was poor, as it is in a ten day period when Tokyo has three public holidays. The Tokyo traders said because of the holidays little interest in night trading could be expected until after May 5. Tokyo bond managers said also that participation could be limited by a lack of experienced futures traders in Tokyo. The Sydney Futures Exchange (SFE) hoped the four-hour trading overlap with the new CBT hours would boost activity in Sydney's eurodollar and U.S. Treasury bond contracts, spokesman Stephen Calder said. The eurodollar contracts are linked to the London International Financial Futures Exchange (LIFFE). Calder said turnover in both contracts had been disappointingly low since they were introduced last October. He said the CBT move would broaden arbitraging opportunities for SFE traders. "With a late evening lead from Chicago, there's also more chance that people will deal here in the afternoon," he said. But in Singapore news of the CBT move was not welcomed. A senior executive of a Japanese securities firm operating in Singapore told Reuters: "Expanding global links between futures markets mean that SIMEX must add Chicago and London and Sydney to its list of rivals." "LIFFE could cut further into the SIMEX contract, with a U.S treasury bond contract that can be off-set on the CBOT," the Singapore-based Japanese trader said. Such a contract is expected later this year, he said. Other SIMEX traders said local interest in the Sydney treasury bond contract might be boosted if the Sydney exchange established a three-way link with Chicago and London. LIFFE has signed a memorandum of understanding with CBOT for such a link. "If this link-up materializes, most traders are likely to by-pass SIMEX," said one trader. Hong Kong commodity traders welcomed the CFTC's decision, though they added that local investors would have been more interested in financial futures. "I think it is very good, because the move will help us to increase our market share here," said Joseph Tan, manager of <Bache Securities (HK) Ltd>. He said that Bache, like many other local units of U.S. Commodity houses, had been participating in Chicago's rregular hours of trading for a long time and would like to extend its business. Local Hong Kong houses also welcomed the move, but a spokesman for Shun Loong Co said investors would be more interested if stock index or currency futures were available. Futures contracts in the local Hang Seng index have become increasingly popular since they were introduced to the market in May 1986. (See ECRA for Spotlight Index) REUTER ================================================== Title: ASIA GENERALLY WELCOMES U.S. NIGHT FUTURES TRADING Traders in financial centers in Asia generally welcomed the first U.S. Night session of futures trading which starts in Chicago on April 30. Traders in Japan, Sydney and Hong Kong said they expected the move to bring benefits, but traders and bankers in Singapore said it posed a serious threat to the Singapore International Monetary Exchange (SIMEX). The Commodity Futures Trading Commission (CFTC) in Washington gave unanimous approval to the Chicago Board of Trade's (CBT) proposals on Tuesday. The CBT plans to offer futures on U.S. Treasury notes and bonds, and options on those futures, from 1800 to 2100 hrs Chicago time (2300 to 0200 gmt) on Mondays to Thursdays. The sessions would mark the start of the trading day, which would end at the present close of business the next day. The proposed hours are designed to coincide with the busiest morning trading hours in Japan. But Andrea Corcoran, chief of CFTC's division of trading and markets, said on Tuesday she expected the evening sessions to attract primarily U.S. Firms looking for additional overnight protection. Traders in Tokyo said the night sessions were expected to help expand U.S. Treasury bond trading volume and enlarge daily fluctuation ranges in Tokyo. They said Japanese financial institutions were very interested in using overseas futures markets, but were waiting for finance ministry approval to do so. Approval is expected before the end of the month. The foreign branches of financial institutions can already trade futures, but in practice make little use of them. But, traders said the timing of the launch was poor, as it is in a ten day period when Tokyo has three public holidays. The Tokyo traders said because of the holidays little interest in night trading could be expected until after May 5. Tokyo bond managers said also that participation could be limited by a lack of experienced futures traders in Tokyo. The Sydney Futures Exchange (SFE) hoped the four-hour trading overlap with the new CBT hours would boost activity in Sydney's eurodollar and U.S. Treasury bond contracts, spokesman Stephen Calder said. The eurodollar contracts are linked to the London International Financial Futures Exchange (LIFFE). Calder said turnover in both contracts had been disappointingly low since they were introduced last October. He said the CBT move would broaden arbitraging opportunities for SFE traders. "With a late evening lead from Chicago, there's also more chance that people will deal here in the afternoon," he said. But in Singapore news of the CBT move was not welcomed. A senior executive of a Japanese securities firm operating in Singapore told Reuters: "Expanding global links between futures markets mean that SIMEX must add Chicago and London and Sydney to its list of rivals." "LIFFE could cut further into the SIMEX contract, with a U.S treasury bond contract that can be off-set on the CBOT," the Singapore-based Japanese trader said. Such a contract is expected later this year, he said. Other SIMEX traders said local interest in the Sydney treasury bond contract might be boosted if the Sydney exchange established a three-way link with Chicago and London. LIFFE has signed a memorandum of understanding with CBOT for such a link. "If this link-up materializes, most traders are likely to by-pass SIMEX," said one trader. Hong Kong commodity traders welcomed the CFTC's decision, though they added that local investors would have been more interested in financial futures. "I think it is very good, because the move will help us to increase our market share here," said Joseph Tan, manager of <Bache Securities (HK) Ltd>. He said that Bache, like many other local units of U.S. Commodity houses, had been participating in Chicago's rregular hours of trading for a long time and would like to extend its business. Local Hong Kong houses also welcomed the move, but a spokesman for Shun Loong Co said investors would be more interested if stock index or currency futures were available. Futures contracts in the local Hang Seng index have become increasingly popular since they were introduced to the market in May 1986. (See ECRA for Spotlight Index) REUTER ================================================== Title: GLOBAL TRADING IN YEN BOND FUTURES EXPECTED SOON Global trading of yen bond futures is just around the corner and they are expected to be listed soon on the London International Financial Futures Exchange (LIFFE) and the Chicago Board of Trade (CBOT), bond managers said. "Internationalisation of the yen through expansion of overseas portfolios in yen assets is the key to the success of global trading of yen bond futures," said Katsuyuki Okayasu, general manager of Yamaichi Securities Co Ltd's bond division. "But Tokyo-based orders are necessary for a primary stimulus for the LIFFE yen bond futures market," said Tetsuya Dezuka, deputy general manager of the money market section of New Japan Securities Co Ltd, one of the most active yen bond brokers in London. Healthy growth of yen bond futures markets depends basically on substantial liquidity in cash yen bond markets overseas and on the yen becoming attractive to traders there, dealers said. Outstanding yen cash bonds worldwide stand at around 140,000 billion yen, with most held in Japan, they said. An agreement between CBOT and LIFFE in early February on mutual settlements is expected to link U.S. Treasury bond futures trading in London and Chicago, enabling a continuous 12-hour session, bond managers here said, adding the move was made with yen bond futures trading in mind. LIFFE is preparing for an early listing of yen bond futures after receiving approval from Japan's Finance Ministry last December. But futures markets will never take root unless they are backed by substantial liquidity in cash bond markets, dealers said. Daily transactions in the London yen cash bond market now stand at 200 to 300 billion yen, but the extent of investor- linked transactions is unknown, securities bond managers said. "Japanese corporations have been actively setting up their financing companies in London, suggesting they increasingly are engaging in, not only fund raising, but management there," Dezuka said. The steep increase in the number of branches of Japanese securities houses in London and the growing numbers of U.S. And U.K. Brokers coming to Tokyo has helped the London market's growth, dealers said. Internationalisation of the yen is also likely to be promoted by yen bond trading in Chicago and New York later this year, securities managers said. The recent removal of a key regulatory obstacle by the U.S. Securities and Exchange Commission will allow the CBOT to apply to the Commodity Futures Trading Commission for a yen bond futures contract, they said. The ruling removed a regulation which prohibited trading futures of designated foreign government debt securities not located in the issuing country. Fundamental Brokers Inc, a major U.S. Brokers' broker, has decided to launch yen bond broking on its display system in New York as early as April. CBOT's start of an evening session, planned for the end of April, will also multiply yen bond futures trading, a Nomura Securities Co Ltd bond manager said. But there are still obstacles to trading on the London market. "Problems concerning cash bond delivery and clearing are major obstacles for an early launching at LIFFE," said Koki Chiyojima, deputy general manager of Nikko Securities Co Ltd's bond administration division. Nikko Securities Co Ltd, one of the big four Japanese securities houses, is responsible for corresponding with LIFFE on these matters. Japan's Finance Ministry will start issuing bonds with coupon payment of either March and September, or June and December from April 1, matching futures delivery months. The ministry now pays coupons in January, June, July and December. When delivery months and coupon payments do not match, a 20 pct withholding tax is imposed on interest earned by non-resident bond holders, a deterrent to LIFFE, securities managers said. LIFFE is likely to wait until the outstanding amount of bonds with matching months increases to over several billion yen, bond managers said. These bonds will be used for deliveries, as they are expected to be the cheapest deliverable issues due to low interest rates, they said. Market participants here expect a clearing organisation to be set up by the time they have substantial deliverable cash issues, making overseas listings probable in the latter half of 1987. REUTER ================================================== Title: SINGAPORE MONETARY EXCHANGE FACES NON-ASIAN RIVALS Expanding global links between futures markets mean that the Singapore International Monetary Exchange (SIMEX) must add Chicago and London to its list of rivals, banking sources said. When SIMEX and the Sydney Futures Exchange (SFE) introduced U.S. Treasury bond futures last autumn, the sources expected to see fierce rivalry between the two exchanges, ending with only one winner in Asia. But surprisingly, the challenges now appear to be coming from the other side of the world, they said. The Chicago Board of Trade (CBOT) will introduce night trading in its U.S. Treasury bond contract on April 30, which could clash with SIMEX morning activity, banking sources said. The CBOT had planned to introduce night trading on April 2, but postponed the move to allow participants time to prepare. The London International Financial Futures Exchange (LIFFE) could cut further into the SIMEX contract with a U.S. Treasury bond contract that can be offset on the CBOT, they said. Such a LIFFE contract is expected later this year. LIFFE liquidity could be higher than at the SIMEX, where average daily volume in Treasury bonds dropped to 165 in February from 1,286 last October when the bonds were first introduced. The contracts were set up to attract hedging from the rapidly growing underlying cash market in U.S. Treasury bonds in Toyko, but interest has waned as that market has grown more stable, traders said. Restrictions on investments by Japanese residents have also inhibited the growth of the futures contracts in both Singapore and Sydney, the banking sources said. Nevertheless, all 450 seats on SIMEX are now taken, with the last trading at 55,000 dlrs against the initial price of 50,000 dlrs. The current bid is 55,500 dlrs, but offers at 65,000 show that confidence in SIMEX remains, said Michael Killian, general manager of Chase Manhattan Futures Corp. Killian, a SIMEX board member, said the CBOT night session might raise arbitrage opportunities and SIMEX would benefit from a local stock exchange index contract planned for the end of 1987. SIMEX also became more competitive after this month's budget eliminated withholding tax on interest earned on futures margin deposits. Banking sources said the tax change would boost SIMEX trading by non-bank institutions and individuals and would benefit foreign firms and institutions. While the Treasury bond contract has been somewhat disappointing, other SIMEX contracts continue to expand, Fong Yew Meng, SIMEX assistant general manager, told Reuters. Volume in the SIMEX's Nikkei stock index, based on the Tokyo stock market, has risen to a daily average of more than 1,000 contracts this month, from 320 contracts last October, helped by uncertainty during the recent bull run in Tokyo stocks, Fong said. Open interest in the Nikkei contract, introduced last year, reached a record 2,697 on February 26. Killian said the Nikkei contract has considerable potential for expansion, as overseas investors have been avoiding the contract because they currently see no need to hedge the rising cash market in Tokyo. SIMEX is also enjoying record trading in other contracts. In February, total volume on the exchange reached a record 122,819 contracts, surpassing the previous monthly record of 116,767 set in September. Eurodollar volume reached a record 78,546 contracts last month against 70,306 in September. SIMEX is likely to try to maintain its growth by moving into options soon, but competition continues regionally as well as globally, banking sources said. The Sydney exchange plans to introduce by June a share index futures contract based on a composite of stocks on which equity options are traded, which could generate more liquidity than the ordinary index, banking sources said. Local interest in the Sydney Treasury bond contract may also flare if the Sydney exchange establishes a three-way link with Chicago and London, traders in Sydney said. LIFFE is discussing such a link with the CBOT, they said. REUTER ================================================== Title: COCOA BUFFER STOCK MAY FACE UPHILL BATTLE - TRADE The International Cocoa Organization (ICCO) buffer stock could face an uphill battle to halt the downtrend in world cocoa prices when it begins buying operations in the next few weeks, cocoa traders said. Traders said they believed buffer stock purchases could reach 75,000 tonnes in a matter of weeks without lifting prices significantly, given the amount of surplus cocoa overhanging the market. The buffer stock may begin buying shortly as the ICCO 10 day average indicator price is now at 1,578.03 Special Drawing Rights (SDR) per tonne, below the 1,600 "must buy" level. Rules governing buffer stock operations were agreed last month by the ICCO council. Buying will begin once the buffer stock manager has completed preparations, traders said. Some traders said the buffer stock manager may delay buffer stock buying until mid or end-April when changes in months used to calculate the ICCO indicator may lift the 10 day average above the 1,600 SDR "must buy" level. The ICCO indicator price is calculated from the average of the second, third and fourth positions on the London and New York futures markets. The daily price was 1,577.61 SDR per tonne yesterday. Months used currently for the indicator are May, July and September, but these are set to change to July, September and December on April 15, prior to May becoming the New York spot month, traders noted. The introduction of December into the calculations may lift the daily SDR price as December is currently quoted about 75 stg above May on the London terminal market. But the buffer stock manager would have to wait for the higher daily price to feed through into the 10-day average, the indicator which governs his activities, traders said. "The buffer stock manager is obviously looking at the implications of delaying until forward prices lift the indicator since it might mean he has to buy less cocoa," an analyst from a leading cocoa trade house said. Traders said the buffer stock purchases could reach 75,000 tonnes fairly quickly once buying starts. If purchases reach this level within six months, buying is suspended pending an ICCO council review of price ranges. But some cocoa market watchers said the buffer stock may benefit from recent forecasts for a poor Brazilian Bahia temporao crop at 1.5 mln to two mln 60 kilo bags against initial expectations of up to three mln. A lower than expected Brazilian crop may cut the 1986/87 world surplus to between 50,000 and 70,000 tonnes, compared with a recent forecast by the ICCO statistics committee of 94,000 tonnes, traders said. In these circumstances, the buffer stock may only need to buy between 20,000 and 30,000 tonnes to lift prices above the "must buy" level. But some dealers said the ICCO buffer stock rules may put constraints on how quickly and effectively the buffer stock manager can remove cocoa from the market. The buffer stock system of price differentials set according to quality and a 15 pct limit on purchases from non-members could limit the buffer stock's scope for action, dealers said. Most of the cocoa readily available to the buffer stock is nearby in-store material of Malaysian and Ivory Coast origin. But the buffer stock can only buy 15 pct Malaysian cocoa as Malaysia is not an ICCO member, while purchases of nearby cocoa can only reach 40 pct in any one day, which forces the buffer stock to buy some intermediate and forward shipment material. Limits on buffer stock purchases of nearby and non-member cocoa will reduce the impact on terminal prices which are pressured by the overhang of Malaysian material, traders said. Buffer stock purchases of forward shipment cocoa from quality producers such as Ghana will have only a limited impact on futures, but is likely to widen physical market premiums for this cocoa over futures. Ghana's premium to the terminal has risen to about 50 stg from 25 to 30 stg a month ago partly in anticipation of buffer stock buying, dealers said. "The buffer stock may not help the terminal market, but will provide a backstop for quality cocoas," one trader said. Traders cautioned that views on the impact of the buffer stock were "all prognostication" and that no one could hope to predict accurately what the result would be. Psychologically buffer stock buying should help prices, but since the buffer stock already holds a carryover of 100,000 tonnes from the previous cocoa agreement and the market is in surplus, dealers expressed doubts purchases can counter bearish pressure. In June the ICCO is due to discuss rules for a withholding scheme as an additional market support mechanism. REUTER ================================================== Title: ECONOMIC SPOTLIGHT - EUROYEN BOND ISSUES INCREASE The easing of rules governing overseas use of the yen has caused an explosion of Euroyen bond activity but has failed to turn the yen into a truly international currency, bond managers and traders said. Although yen bonds now rank second only to dollar issues in the Eurobond market, few foreigners are interested in keeping the yen they borrow and no one wants the yen bonds but the Japanese, they said. This lack of real yen demand through the freer Euroyen market is undermining the 1984 U.S. And Japanese accord to internationalise the yen, they said. The borrowers want to take advantage of low Japanese interest rates but have no need for yen. They arrange primarily with Japanese banks to exchange yen funds into other currencies, mainly dollars, bond managers said. More than 85 pct of Euroyen bond issues are swap driven, they added. "The borrowers don't care which currency they use. They are only after attractive money," one bond trader said. Issues doubled to more than 150 in 1986 from the previous year, boosting Euroyen offerings to more than nine pct of the total Eurobond market, Koichi Kimura, managing director of Daiwa Securities Co Ltd, said recently. Traders said some of the activity stems from battles among Japanese and foreign securities companies and banks for the prestige of placing a larger share of issues. Many even resort to "harakiri" swaps, those with unprofitable pricing. But the fever continues and the number of offerings could double again in 1987, said Naoki Yokoyama, manager of Nikko Securities Co Ltd's international capital markets operation. The Euroyen bonds, once issued, are mostly picked up by Japanese trust banks, one trader said. After a 90 day waiting period the bonds flow back to Japan where investor appetite is strong, he added. Foreign investors are reluctant to invest in yen when more attractive yields are offered on dollar and other currency investments, traders said. "Even aggressive foreign investors have stopped investing (in yen)," said Masaki Shimazu, manager of Daiwa's bond department. While few foreigners are interested in the secondary market, Japanese commercial banks, regional banks, life insurers and other financial institutions are eager to buy the bonds and await their flow back to Japan since they offer little currency risk, traders said. The Finance Ministry last April shortened the waiting period before issues could flow back to Japan to 90 days from 180. A ministry official said it verified through sampling that reflow was fairly small. "We believe the Euroyen bond should remain mainly in the Euroyen market," he said. One trader said that although demand from Japanese investors is heavy, it may prove to be only short-term. He said many investors plan to sell their bonds if Japanese or U.S. Interest rates decline further. To encourage further international use of the yen, the ministry is considering allowing the issue of Euroyen commercial paper, the official said, adding that it is studying demand from potential borrowers. Securities company sources believe the ministry will permit non-residents to issue Euroyen commercial paper within the next few months. But they expect it to continue to ban domestic participation in the market for some time to come. Japanese banks object to the short-term paper market which they see encroaching on their business territory. Traders said Euroyen commercial paper could spur more demand overseas for the yen by allowing opportunities to shift into shorter-term securities if need be. "Commercial paper might encourage fewer swaps," one bond manager said. If more financial instruments were available, there might be more trades in yen, he added. Euroyen bonds must now carry a five-year maturity, though some recent issues which are callable in three years work as if they had shorter maturities, traders said. The ministry is expected to allow four-year Euroyen bond maturities within a few months. One yen bond manager said Japanese financial authorities are giving up a lot of their control in liberalising the rules governing international transactions of the yen. But freer use of the yen could encourage more trade settlements in the Japanese currency, he said. "If exporters or importers can raise funds in yen, they will be more willing to agree to using the Japanese yen as a settlement currency," he added. The Finance Ministry official said the government must constantly consider ways to improve markets for the benefit of borrowers and investors. "No major market can keep its status without change," he said. REUTER ================================================== Title: DOLLAR STRAIGHT BONDS END LOWER, TEXACO UNTRADED The dollar straight sector of the eurobond market ended lower after another nervous day's trading, with many operators keeping to the sidelines ahead of tomorrow's U.S. Trade figures for February, dealers said. Prices of longer dated issues ended 1/2 or 5/8 point lower, while short dates were 1/8 to 3/8 point easier. Bonds for Texaco Inc units hardly traded during the day following the weekend news that the company filed for Chapter 11 bankruptcy protection in another twist to its long running dispute with Pennzoil Co, dealers added. The Chapter 11 filing means that Texaco will not be paying interest on its eurobonds. Dealers in the straight bonds noted that the market in them had been basis only for some time prior to the weekend's news. "It wasn't a true market, someone asked you a price and you just gave them an idea," one said. However, the company's convertible bonds had been trading since the company's share price provided a benchmark to which dealers could establish a proper price level. The company has two actively traded convertibles outstanding, a 500 mln dlr bond due 1994 which pays 11-3/4 pct and a one billion dlr deal, also due 1994, paying 11-7/8 pct. Traders even disagreed about last week's closing levels for the convertible bonds, but a median appeared to be around 97 to 99 pct. Today, one trader said they were indicated initially at 65 to 70 pct before ending at some 79 83 pct. But he added, "That's only an idea. There's no real market today. I've dealt once during the day, I'm not going to say at what level." Other dealers were reluctant even to give an indication of the bonds' levels. Dealers said the market in all Texaco deals will almost certainly remain on an indicated, or negotiated, basis until the events of the weekend are further clarified. The primary market had a steady day, with the Australian dollar and the yen sectors again seeing the most activity, dealers said. Deutsche Bank Finance NV Curacao became the first of three issuers in the Australian dollar market during the morning with a 100 mln dlr bond due 1990 paying 14-1/8 pct and priced at 100-1/4 pct. The issue was lead managed by Deutsche Bank Capital Markets (DBCM) and guaranteed by Deutsche Bank itself. A DBCM official said the firm had placed 60 mln Australian dlrs of the issue itself and quoted the deal at less one less 7/8 pct, comfortably inside the 1-1/2 pct total fees. The State Bank of Victoria issued a 50 mln Australian dlr bond paying 14-1/2 pct over three years and priced at 101-3/8 pct. Commerzbank AG was sole manager for the deal, which was offered on one broker screen at less 1-1/2 pct. The day's other borrower in this sector was the New South Wales Treasury Corporation guaranteed by the crown-in-right of New South Wales. The five year bond pays 14-1/4 pct and was priced at 101-7/8 pct. Lead manager was County Natwest Capital Markets. It was quoted at less 1-7/8 less 1-3/4 pct, inside the two pct total fees. Secondary market Australian dlr bonds ended little changed on the day, with dealers saying that operators are awaiting the Australian trade figures for March. A deficit of some 800 mln to one billion dlrs was expected by one house active in the sector. Union Bank of Switzerland (Securities) Ltd lead managed a 15 billion yen bond for Union Bank of Switzerland NV. The five year deal pays 4-3/8 pct and features a put and call option at par after four years. Priced at 101-5/8 pct, the issue was quoted at less 1-1/4 pct bid on the grey market compared with the total fees of 1-5/8 pct. Ente Nazionale per l'Energia Elettrica issued a 15 billion yen bond due 1994 at 4-3/4 pct and priced at 101-7/8 pct. The deal was quoted on the 1-7/8 pct total fees. Elsewhere, Alza Corp issued a 75 mln dlr convertible bond due 2002 through Merrill Lynch Capital Markets. The par priced issue has an indicated coupon of between 5-1/2 and 5-3/4 pct. REUTER ================================================== Title: U.S. LEADS JAPAN IN FINANCIAL FUTURES BUSINESS U.S. firms are expected to enjoy the advantage of superior experience over their Japanese competitors in the new, promising business of bringing asset rich Japanese investors to the U.S. financial futures markets. Japan allowed local financial institutions last month to start using overseas futures in currencies, bonds and stocks to help them manage their bulging foreign portfolios. "U.S. investment banks are going to take advantage. We've been in the business for two decades, the Japanese have not," said Eugene Atkinson, president of Goldman, Sachs Japan Corp. Japanese investors were assumed to be eager to get into the new markets, but in fact participation so far has been slow, Japanese securities and bank sources in New York said. Koichi Kane, Executive Vice President of Nomura Securities International, said, "They're still in a starting up period." "They're testing the water," Atkinson added. But once they start, the Japanese are likely to become very big players, opening up lucrative business opportunities, he said. U.S. investment banking sources said the slow start is understandable because U.S. institutional investors, too, are fairly new to the market. Futures markets have a long history in the U.S., but because of the high risks involved American pension funds and mutual funds were not allowed to use the markets until relatively recently, a U.S. investment bank futures analyst said. In addition to Japan's inexperience in financial futures, an insufficient number of brokers in Japan is also to be blamed for the slow start, the Japanese sources said. Japan is liberalizing its financial markets, but domestic financial institutions are still not allowed to act as brokers in Japan for overseas futures markets. This may change next year, when bankers speculate that securities houses will be permitted to enter this line of business. While the Japanese are out of the business, the Americans have moved in, with First Boston Corp, Salomon Brothers Inc, Goldman, Sachs and Co, Drexel Burnham Lambert Inc and PainWebber Inc leading the charge, they said. In the U.S., Nikko Securities Co International Inc is preparing to become a clearing member of the Chicago Boad of Trade (CBT)in anticipation of growing Japanese demand for futures products, Akira Tokutomi of Nikko said. Nomura, Japan's largest securities house, has not yet decided whether to expand its futures brokerage business in the U.S. to establish closer links between Japanese investors and the U.S. futures markets, Kane said. The evening session of CBT, inaugurated recently to coincide with early Tokyo business hours, has increased Japanese participation to some extent, but the brokerage issue is still a hurdle, the Japanese sources said. High liquidity is the biggest attraction of the futures market, so the Japanese naturally want to join the daytime trading session in Chicago if possible, they said. The Japanese are in the process of selecting brokers and establishing channels to pay fees and margins, but harmonizing clerical procedures and bridging the time gap between Tokyo and Chicago are proving to be a burden, the sources said. Some Japanese banks, which are largely barred from the securities industry in Japan, have contemplated buying into the U.S. brokerage business, the Japanese sources said. One of the motives for doing so is to save on commissions, which was also a spur for U.S. commercial banks to get into the brokerage business, they said. "The simplest way may be to take over a brokerage house or to go into a business tie-up," said Hiroyuki Kondo of Yasuda Trust and Banking Co Ltd in New York. One trust bank source said total fees could amount to around one mln dlrs a year if his bank used the futures markets fully to hedge its huge pension fund and other assets. Japanese banks have been able to penetrate aggressively many foreign financial markets by mobilizing their mammoth capital assets, but the futures brokerage business to be a different story, Japanese banking sources said. They cited stiff fee-cutting competition in addition to difficulties recruiting influential Chicago brokers. In anticipation of sizeable orders in the future, some U.S. brokers are now taking orders from the Japanese at around 13 dlrs per contract, below the break-even level, they said. Some Chicago brokers and brokerage houses are trying to approach Japanese financial institutions about possible tie-ups, a futures indusry source in Chicago said. But Japanese bank sources in New York said the small capital base of many of these brokerages is making the Japanese nervous about a capital link. Japanese banks are unlikely to ignore the brokerage business once financial futures trading by the Japanese starts growing fast and proves to be profitable, they said. But the big question, they added, is whether the Japanese government would let banks engage in this new risky business. reuter ================================================== Title: ECONOMIC SPOTLIGHT - SWISS OPTIONS AND FUTURES Preparations for the launch of a Swiss options and futures exchange, billed as the first completely electronic market of its kind, are at an advanced stage, according to members of the project team. The Swiss Options and Financial Futures Exchange (Soffex) is a new departure in that it will introduce an additional range of financial instruments and electronic trading methods to the traditionally conservative Swiss market. There will be no physical exchange floor and both trading and clearing systems will be completely automated. The new market, due to start operating in January 1988, follows a series of innovations by the bourses in Zurich, Basle and Geneva aimed at preventing loss of business in the face of keen competition from London and Frankfurt. These innovations included the introduction last October of continuous trading in major shares, plans to establish a single continuously updated Swiss share index from next month to supplement the various indices produced by the major banks at the close of business, and experiments in electronic trading. Banks themselves last year took the initiative of launching covered warrants on the shares of other Swiss companies. "If Switzerland wants to maintain and expand its international prominence in portfolio management, our bankers and fund managers must have the same modern instruments at their disposal as their competitors," says Soffex president Rudolf Mueller, a director of Union Bank of Switzerland. The computer terminals on which business will be conducted will be confined to Switzerland. It is still unclear how many Swiss-based institutions will seek membership of the exchange. Formal applications are not due until next month but a preliminary survey completed by the Soffex project team this week showed strong interest in membership. "The response from both Swiss and foreign institutions all over the country has been very encouraging," says Philippe Bollag of the project team. Hans Kaufmann, who follows Swiss equities for Bank Julius Baer, says a regulated traded options exchange should boost foreign interest in Swiss shares and possibly increase bourse turnover generally. The possibility of protecting portfolios by hedging should attract Swiss institutional investors, Kaufmann added. Soffex is a private company set up by the five major Swiss banks and the bourses of Zurich, Geneva and Basle. Trading will initially be limited to stock options on 10 to 15 leading Swiss bearer shares. An options contract on the new Swiss share index should follow within six months but trading in financial futures will be delayed until an unspecified future date. Options on foreign shares may also be added later. Participants will be either brokers or dealers, operating in the market through computer terminals in their own offices. Trading must be conducted exclusively through the exchange. Exchange membership is open to banks, traders and brokerage firms with an office in Switzerland, while Clearing Members must be recognised as banks under Swiss law. The trading system, based on Digital Equipment Corp software and hardware, provides for the display of best bid and offer prices, matches orders electronically, allows anonymous negotiation of block orders and maintains members' order books. An "interest" facility, aimed at helping participants to gauge the market mood, shows the number of users watching a particular instrument at any time. Most of the electronic clearing functions will be carried out overnight. Each contract will cover only five shares instead of the 100 shares normally traded on existing options and futures markets in the United States, London, Amsterdam and Stockholm. This reflects the fact that Swiss shares often cost thousands of francs. Bearer shares in F. Hoffman-La Roche und Co AG <HOFZ.Z>, likely to be on the Soffex opening list, were quoted this week at 209,000 francs each. Contracts will initally be offered for the three end-months following the trading date plus the subsequent January, April, July or October end-months. Longer maturities may be added in future if market liquidity permits. Detailed provisions have still to be worked out in areas such as margin requirements, position limits, the supervisory and regulatory functions of the exchange and brokerage fees. Banks polled by Reuters in a random survey were enthusiastic about Soffex but reticent about the level of their own involvement and about the exchange's prospects for success. "We're moving into completely new surroundings and it will require a change in psychology," said a securities dealer at a major Swiss bank. "We in Switzerland are not used to sitting all day at a screen where nobody shouts at you." Moving into traded options will also require considerable investment in equipment and staff by participants. Completely new dealing and back-office skills will have to be acquired and some banks are already sending staff abroad for training. REUTER ================================================== Title: SWISS OPTIONS, FUTURES EXCHANGE PLANNED FOR 1988 Preparations for the launch of a Swiss options and futures exchange, billed as the first completely electronic market of its kind, are at an advanced stage, according to members of the project team. The Swiss Options and Financial Futures Exchange (Soffex) is a new departure in that it will introduce an additional range of financial instruments and electronic trading methods to the traditionally conservative Swiss market. There will be no physical exchange floor and both trading and clearing systems will be completely automated. The new market, due to start operating in January 1988, follows a series of innovations by the bourses in Zurich, Basle and Geneva aimed at preventing loss of business in the face of keen competition from London and Frankfurt. These innovations included the introduction last October of continuous trading in major shares, plans to establish a single continuously updated Swiss share index from next month to supplement the various indices produced by the major banks at the close of business, and experiments in electronic trade. Banks themselves last year took the initiative of launching covered warrants on shares of other Swiss companies. "If Switzerland wants to maintain and expand its international prominence in portfolio management, our bankers and fund managers must have the same modern instruments at their disposal as their competitors," says Soffex president Rudolf Mueller, a director of Union Bank of Switzerland. The computer terminals on which business will be conducted will be confined to Switzerland. It is still unclear how many Swiss-based institutions will seek membership of the exchange. Formal applications are not due until next month but a preliminary survey completed by the Soffex project team this week showed strong interest in membership. "The response from both Swiss and foreign institutions all over the country has been very encouraging," says Philippe Bollag of the project team. Hans Kaufmann, who follows Swiss equities for Bank Julius Baer, says a regulated traded options exchange should boost foreign interest in Swiss shares and possibly increase bourse turnover generally. The possibility of protecting portfolios by hedging should attract Swiss institutional investors, Kaufmann added. Soffex is a private company set up by the five major Swiss banks and the bourses of Zurich, Geneva and Basle. Trading will initially be limited to stock options on 10 to 15 leading Swiss bearer shares. An options contract on the new Swiss share index should follow within six months but trading in financial futures will be delayed until an unspecified future date. Options on foreign shares may also be added later. Participants will be either brokers or dealers, operating in the market through computer terminals in their own offices. Trading must be conducted exclusively through the exchange. Exchange membership is open to banks, traders and brokerage firms with an office in Switzerland, while clearing members must be recognised as banks under Swiss law. The trading system, based on Digital Equipment Corp software and hardware, provides display of best bid and offer prices, matches orders electronically, allows anonymous negotiation of block orders and maintains member order books. An "interest" facility, aimed at helping participants to gauge the market mood, shows the number of users watching a particular instrument at any time. Most of the electronic clearing functions will be carried out overnight. Each contract will cover only five shares instead of the 100 shares normally traded on existing options and futures markets in the United States, London, Amsterdam and Stockholm. This reflects the fact that Swiss shares often cost thousands of francs. Bearer shares in F. Hoffmann-La Roche und Co AG, likely to be on the Soffex opening list, were quoted this week at 209,000 francs each. Contracts will initally be offered for the three end-months following the trading date plus the subsequent January, April, July or October end-months. Longer maturities may be added in future if market liquidity permits. Detailed provisions have still to be worked out in areas such as margin requirements, position limits, the supervisory and regulatory functions of the exchange and brokerage fees. Banks polled by Reuters in a random survey were enthusiastic about Soffex but reticent about the level of their own involvement and about the exchange's prospects for success. "We're moving into completely new surroundings and it will require a change in psychology," said a securities dealer at a major Swiss bank. "We in Switzerland are not used to sitting all day at a screen where nobody shouts at you." Moving into traded options will also require considerable investment in equipment and staff by participants. Completely new dealing and back-office skills will have to be acquired and some banks are already sending staff abroad for training. Reuter ================================================== ************************************************** Topic 10 ************************************************** Title: FRENCH INTERVENTION RATE CUT LIKELY, DEALERS SAY The Bank of France is likely to cut its money market intervention rate by up to a quarter point at the start of next week. This follows a steady decline in the call money rate over the past 10 days and signals from the Finance Ministry that the time is ripe for a fall, dealers said. The call money rate peaked at just above nine pct ahead of the meeting of finance ministers from the Group of Five industrial countries and Canada on February 22, which restored considerable stability to foreign exchanges after several weeks of turbulence. The call money rate dropped to around 8-3/8 pct on February 23, the day after the Paris accord, and then edged steadily down to eight pct on February 27 and 7-3/4 pct on March 3, where it has now stabilised. Dealers said the Bank of France intervened to absorb liquidity to hold the rate at 7-3/4 pct. While call money has dropped by well over a percentage point, the Bank of France's money market intervention rate has remained unchanged since January 2, when it was raised to eight pct from 7-1/4 pct in a bid to stop a franc slide. The seven-day repurchase rate has also been unchanged at 8-3/4 since it was raised by a half-point on January 5. The Bank of France has begun using the seven-day repurchase rate to set an upper indicator for money market rates, while using the intervention rate to set the floor. Sources close to Finance Minister Edouard Balladur said that he would be happy to see an interest rate cut, and dealers said any fall in the intervention rate was most likely to come when the Bank of France buys first category paper next Monday, although an earlier cut could not be excluded. A cut in the seven-day repurchase rate could come as early as tomorrow morning, banking sources said. They said recent high interest rates have encouraged an acceleration in foreign funds returning to France, discouraging the authorities from making a hasty rate cut. But they also pointed out that money supply is broadly back on target, giving scope for a small fall in rates. M-3 money supply, the government's key aggregate, finished 1986 within the government's three to five pct growth target, rising 4.6 pct compared with seven pct in 1985. REUTER ================================================== Title: BANK OF ENGLAND PRESSURE HOLDS BASE RATES This week's Bank of England resistance to strong market pressure for lower interest rates succeeded in holding bank base rates at 11 pct. But at a cost of threatening the Chancellor of the Exchequer Nigel Lawson's policy, stated at the end of the Paris Group of Six meeting last month, that he wanted to see sterling broadly stable about then prevailing levels, market sources said. Since then, the pound has risen to 71.8 pct on its closing trade-weighted index, up from 69.7 pct imediately after the Paris meeting and up 0.4 on the day. Today's peak at 72.0 pct was its highest since August 19. A Treasury spokesman said Lawson had said he neither wanted a substantial rise or fall in sterling. The question is therefore how large a rise he is ready to see before acting. Paul Temperton, chief economist at Merrill Lynch Europe Ltd, estimated that the government wanted to see the trade-weighted index about 72-73 pct. "Even after this action over the last few weeks, sterling's only just within striking distance of that range," he said. Other analysts agree that the government probably has some broad target range around this area. However, they said Lawson would be prepared to see the pound go higher at least in the short term, despite the risk of a loss of export competitiveness and cheaper prices on imports. "If the Bank of England keeps the interest rates as they are, what's to stop it (going higher)," said John Cox, executive director of EBC Amro Bank Ltd, a major operator on the London foreign exchange market. Cox estimates that the Bank of England has been active selling sterling over the past few days, despite the lack of general market talk of such intervention, and this has helped keep it below 1.60 dlrs. The pound rose to 1.5870 dlrs from 1.5764 yesterday and 1.5400 February 23, the day after the Paris meeting. But Cox says the government must be worried with sterling heading toward 2.95 marks and would be very concerned if it holds around these levels. He warned the Bank may run the risk of missing the interest rate boat. "If rates don't come down, the market will say they ought to have come down and will sell sterling," he said. Most dealers agree there is a good deal of "hot money" being invested in sterling, money simply attracted by high overnight or one-week rates, which could flow out at equally short notice. However, the authorities will hope that at least a proportion of the buying reflects long-term investment. "The last thing they want to do is reduce them (rates) and have to jack them back up again," said Richard Jeffrey, economist at brokerage house Hoare Govett Ltd. He said a half point cut would ensure continued support for sterling, at least in the near term. However, most analysts are still looking for a full point about March 17, Budget Day. The Bank must hold out until it sees the reaction to the Budget, said Temperton. The Budget is widely forecast to be a vote winner in the run-up to a general election, the major factor behind current bullishness in the government bond and currency markets. "Lawson wants to delay a cut in base rates until the budget. He wants it to be crowned with the glory of an interest rate cut," said Ian Harwood, economist at Warburg Securities, the equities arm of Mercury International Group. Speculation a clearing bank might break ranks and lead the way lower were confounded today. There was excitement a fall in the weekly Treasury Bill rate to 9.7 pct from 10.2 pct last Friday might mean the Bank had changed its mind. This followed the imposition of penal lending rates of 11 3/4 pct on the discount houses yesterday, and was the lowest since base rates were at 10 pct, early last October. However, with this Bill rate pertaining to three-months money, banking sources said the market could not take the cut as a guide to the Bank's intentions on short term rates. REUTER ================================================== Title: FEBRUARY U.S. PURCHASING MANAGER INDEX FALLS The U.S. economy continued to expand in February, but at a slower pace than in January which saw a spurt of activity, the National Association of Purchasing Management (NAPM) said in a report. The Association's composite survey index declined to 51.9 pct in February from 55.8 pct in January, the NAPM said. It was the seventh consecutive month in which this leading indicator was over 50 pct. A reading above 50 pct generally indicates that the economy is in an expanding phase. One below 50 pct implies a declining economy. The report, based on questions asked of purchasing managers at 250 U.S. industrial companies, also found that the growth rate in new orders and production slowed in February. However, production remained vigorous as more than three times as many members reported it better rather than worse. Vendor deliveries improved slightly last month, but members reported that steel supplies were tight as U.S. Steel <X> gradually resumed production. An equal number of members reported inventories were higher and lower. The NAPM said that had not happened since August 1984. For a sixth month, more purchasers reported paying higher rather than lower prices, this time by a ratio of nine to one. Robert Bretz, chairman of the NAPM's business survey committee and director of materials management at Pitney Bowes Inc <PBI> said "the economy continued to expand in February, but at a more subdued rate than in January. The slowing of new orders should not be significant enough to dampen prospects for a respectable first quarter." The composite index is a seasonally adjusted figure, based on five components of the NAPM business survey - new orders, production, vendor deliveries, inventories and employment. Reuter ================================================== Title: EL PASO ELECTRIC <ELPA> REACHES NEW MEXICO PACT El Paso Electric Co said it has agreed to limit rate increases in its New Mexico service territory to a maximum of nine pct over the next three years. Last year, about 18 pct of the utility's revenues came from New Mexico, 70 pct from retail electricity sales in Texas and 12 pct from wholesale sales under federal regulation. In January the company filed a formal rate case with New Mexico regulators seeking a 21.66 pct increase in its annual rates there which would have been equal to about 13.9 mln dlrs net of fuel savings. El Paso Electric said it reached a stipulated settlement on its New Mexico rates with several parties, including the state of the New Mexico Public Service Commission, which provides for rate treatment of the utility's investment in the Palo Verde Nuclear Generating Station located near Phoenix, Ariz. The company said commission hearings on the stipulated settlement are expected to start next month. If it is approved, the new rates could go into effect as early as this summer. El Paso Electric's January rate case will remain before the commission pending approval of the settlement. El Paso Electric said the agreement provides got continued full inclusion in its rate base of the costs of Palo Verda Unit one, maximum rate increases of three pct on a cents per kilowatt hour basis in 1987, 1988 and 1989, and no further rate increases until 1994. Once the agreement is approved, the utility would still have to prove cost of service increases to support at least the maximum increase each year, a spokesman explained. The company said it will attempt to settle the cost of service issues in timed to allow the new rates to go into effect this summer. El Paso Electric said the agreement allows recovery in its New Mexico rates of lease payments in connection with the utility's 1986 sale and leaseback of its investment in Palo Verde Unit Two to the extent of the book value sold. The company said it agreed that none of its costs for Palo Verde Unit Three will be included in its New Mexico rates. The utility said the agreement also resolves any issue relating to the prudence of the planning, management and construction of Palo Verde and settles any possible issue of excess generating capacity through 1993. El Paso Electric said it does not expect to have excess generating capacity. The agreement also provides that any portion of the cost of service deferrals not recouped prior to December 31, 1994 will not be recovered through New Mexico rates, the company said, adding it expects to recoup all deferrals in full by that date. Reuter ================================================== Title: U.K. BASE RATES WILL FALL AGAIN SOON, SAY ANALYSTS Today's modest half-point cut in U.K. Bank base lending rates to 10 pct signals the Bank of England's determination to maintain a cautious monetary stance, but financial markets appear set to force its hand, analysts said. They said a further half-point cut in base rates to 9-1/2 pct was bound to occur within the next week and rates may shed a further half point soon if markets remain buoyant. Earlier, markets were bracing for a one-point cut in rates after yesterday's budget set a sharp three billion stg reduction in 1987 government borrowing targets to four billion stg. Sterling money market rates moved lower again, with the key three-month interbank rate down to 9-5/8 1/2 pct at the start of business from 9-11/16 9/16 yesterday, and sterling rallied to four-year highs against the dollar in very active trading. Government bond prices also surged on the budget, with gains in excess of one point pushing yields on long-term paper below nine pct for the first time in nearly a year. But today's smaller than expected rate cut appeared to have placated markets for now, analysts said. Money market rates recovered up to 1/4 point from earlier lows while both sterling and gilts came off highs as trading ground to a near halt. Analysts said the slowdown was likely to be temporary, and the reappraisal of sterling assets by international investors was set to resume as early as tomorrow, leading to higher gilt prices, exchange rate advances and lower money market rates. "Today's cut was slightly disappointing," said Bill Martin, chief U.K. Economist at stockbrokers Phillips and Drew. "The Bank of England is taking a very cautious line ... To temper the markets' first rush of blood to the head after the budget." Analysts said the bank's move today to lend two-week cash to U.K. Discount houses at a lower 10 pct suggested it hoped to maintain the new rates for about that period of time. The analysts agreed success would depend largely on how sterling performs in the near term. Sharp rises in the pound's value could be checked initially through Bank of England intervention but eventually the gains would force the bank to cut interest rates rates again. "The market seems to have accepted the modest cut for the time being," said Midland Bank treasury economist David Simmonds. "But I am sceptical that the bank will be able to hold up rates for long." Simmonds said he saw sterling rising another two U.S. Cents this week from around 1.60 dlrs, forcing a rate cut by Friday. Robin Marshall, chief economist at Chase Manhattan Securities, said "There is another half point to come in the near term, this week or next week at the latest...We see a whole point off base rates in the next two or three weeks." Analysts stressed that apart from prestige, Britain had very little to gain from a sharp rise in sterling's exchange rate. Martin, of Phillips and Drew, said the dampening effect of a sterling rise on consumer price inflation would not materialise for at least nine months while its hampering impact on manufactured exports would show almost immediately. Analysts said the budget, featuring income tax cuts as well as cautious plans for public finances, had improved the chances of re-election for the Conservative government and probably advanced the election date. One must be held before June, 1988. Combined with overall good prospects for the U.K. Economy, this was likely to fuel a foreign rush on sterling-denominated assets, pushing the pound's value well above unofficial targets. With mark-denominated investments largely out of favour because of low yields and a dull economic outlook, Chase's Marshall said "Sterling is simply the best game in town, especially after the budget, and demand will remain strong." REUTER ================================================== Title: THREE U.S. EXCHANGES VIE FOR GOLD The glitter of gold has generated a three-way competition among the world's largest futures exchanges for a 100-ounce contract for the precious metal. When the Chicago Mercantile Exchange (CME) re-introduces gold futures trading here Tuesday (at 9 a.m. CDT), it will go toe-to-toe in an uphill battle against the Commodity Exchange Inc. of New York (Comex), which brokerage executives describe as the world's precious metals futures capital for institutional business. And by autumn, the oldest and biggest exchange, the Chicago Board of Trade (CBT), expects to join the fray when the Commodity Futures Trading Commission (CFTC) approves a pending application for a 100-ounce gold contract to trade side-by-side with the CBT's smaller, one kilogram (about 2.5 U.S. pounds) gold futures. The CME introduced a 100-ounce gold futures contract in 1974, but lack of interest forced it to abandon the instrument in July 1986. CME officials said investors and brokerage firms asked the exchange to reintroduce the contract because of recent volatility in precious metals. Other factors influencing the decision may also have been clearing problems in May which forced the Comex to shorten trading for three straight days in an effort to clear up a huge backlog of unresolved trades, especially in silver futures. Comex's problems may now create a window of opportunity for other exchanges to successfully offer precious metals contracts, industry sources say. But it is much too early to predict whether other exchanges can inflict serious damage on the Comex' daily trading volume of more than 40,000 contracts which represents commitments to buy and sell gold of more than 2 billion dlrs. While average daily trading in the CBT's smaller gold contract, aimed at retail customers rather than institutions, was under 500 contracts per day throughout 1986, it has surpassed 1,000 contracts daily for the past two months. "The climate could not be better for this venture by the CME," said Merrill Lynch Commodity Marketing Vice President Neil McGarrity. "Everybody is talking about metals now, and interesting daily trading ranges provide opportunities for bulls and bears. There's good trading volume in all world outlets," McGarrity added. "The Merc's gold futures would be insurance for dealers, merchants and customers that there would be a market open for trading," if heavy gold or silver futures volume causes the Comex to close early again, said Jack Lehman, senior vice president and director of commodities for Shearson Lehman Bros. Inc. and a Comex board member. Delivery points vary for each exchange's 100-ounce gold futures. Comex contracts are deliverable through New York warehouses while the CME contract specifies London delivery through a CME account at Samuel Montagu and Co. Ltd., a member of the London gold market. The CBT gold application specifies delivery from New York and Chicago vaults. The Comex and the CBT have applied to the CFTC for an earlier precious metals opening to match the CME's starting time of 7:20 a.m. CDT. The exchanges said the earlier start allows for trading before many important government reports are released at 7:30 a.m. CDT. CME marketing sources said arbitrage possibilities exist with side-by-side trading, noting local interests can be generated by traders dealing in foreign currency and short-term debt futures along with gold futures contracts to further hedge their financial risks. "If the dollar rises, traders can sell currencies and buy gold," said David Johnson, CME's manager of currency products. The Chicago Board of Trade sees an extra advantage to gold trading. "Given our night trading session, we could add either our pending 100-ounce gold or our existing 5,000-ounce silver contract to attract overseas business," a CBT official said. Which market is identified as the precious metal capital does not appear to be a major issue among professionals. "We've seen Chicago bring in a new constituency before, with perhaps different needs," Mocatta Metals Chairman Dr. Henry Jarecki said. "Merchants will go to the CME or anywhere to trade a liquid contract. Our firm is no exception," Jarecki said. "At worst, even if the CME gold futures fail, the Comex will be under pressure to improve the integrity of its clearing processes," a CME official added. Reuter ================================================== Title: FEBRUARY U.S. PURCHASING MANAGER INDEX FALLS The U.S. Economy continued to expand in February but at a slower pace than in January, which saw a spurt of activity, the National Association of Purchasing Management (NAPM) said in a report. The Association's composite survey index dropped to 51.9 pct in February from 55.8 pct in January, the NAPM said. It was the seventh consecutive month in which this leading indicator was over 50 pct. A reading above 50 pct generally indicates that the economy is in an expanding phase. One below 50 pct implies a declining economy. The NAPM report, based on a survey of purchasing managers at 250 U.S. Industrial companies, also found that the growth rate in new orders and production slowed in February. But production remained vigorous, with more than three times as many members reporting it better rather than worse. Vendor deliveries improved slightly last month, but members reported that steel supplies were tight as USX Corp gradually resumed production. The same number of members reported inventories were higher as reported them lower. The NAPM said that had not happened since August 1984. For a sixth straight month, more purchasers reported paying higher rather than lower prices, this time by a ratio of nine to one. Robert Bretz, chairman of the NAPM's business survey committee, said: "The economy continued to expand in February, but at a more subdued rate than in January. The slowing of new orders should not be significant enough to dampen prospects for a respectable first quarter." The composite index is a seasonally adjusted figure, based on five components of the NAPM business survey - new orders, production, vendor deliveries, inventories and employment. REUTER ================================================== Title: ATT <T> MAY FACE STRUGGLE OVER DEREGULATION American Telephone and Telegraph Co may have a hard time convincing U.S. regulatory authorities that lifting controls on its long-distance business will benefit consumers, industry and congressional analysts say. "There's clearly going to have to be an effort (by ATT) to say that deregulation will not have an adverse effect on the consumer," said Gerry Salemme, a policy analyst for the House telecommunications, consumer protection and finance subcommittee. Salemme said that if the Federal Communications Commission eased restrictions on ATT, Congress probably would consider taking legislative oversight action to protect consumers' interests. ATT has about 80 pct of the interstate long-distance market. It asked the FCC to cut back price and rate regulations that have control its long-distance phone business. ATT spun off its local telephone services operations into the seven regional Bell companies in 1984 as part of the court ordered breakup of the telephone giant. The regional companies have been prohibited from manufacturing equipment and from offering information services and out-of-region long-distance service. But some of them want to move into those areas, particularly the provision of long-distance services, which would compete directly with ATT. ATT's request came in response to an FCC notice issued in January that proposed to streamline regulation of certain parts of its long-distance business. The FCC will closely examine the potential effects of the proposal on consumers, said FCC spokeswoman Mary Beth Hess. "That would be foremost in our mind," Hess said. Hess said she expected the FCC to respond in a few months. Congressional aides said they were concerned that if regulation is reduced, ATT will use its dominant market position to raise consumer rates. Consumer groups say ATT's concern for its business clients, its most lucrative market, underscores a danger that, without full regulation from the FCC, any increased costs will be passed onto the consumer rather than big business. ATT, however, says deregulation would benefit consumers. The company would become more competitive because it would not have to wait for FCC authorization before introducing new services, spokeswoman Edith Herman said. However, Gene Kimmelman of the Consumer Federation of America, which represents more than 200 consumer groups nationally, said, "When ATT offers new services, they tend to be geared toward the high volume business market rather than the average consumer." ATT proposed that in addition to lifting profit regulation, the FCC allow new rates to go into effect in 14 days instead of the current 45 days. The company also called for a reduction in the amount of documentation it must file with the FCC each time it introduces or changes long-distance services. "With this filing, we're suggesting that regulators replace a blanket approach to regulating ATT with a more finely-tuned, targeted approach," said Lawrence Garfinkel, AT&T's vice president of marketing services, in a statement. "We believe that by using a scalpel instead of a meat axe, the public interest can be protected and all consumers will benefit," he added. MCI Communications Corp, also asked the FCC to ease restrictions on ATT, saying this would encourage competition. Some industry analysts said the MCI proposal was an effort to halt FCC-mandated price cuts that have forced ATT and its rivals to cut prices, eroding profits in the industry. MCI lost 448.4 mln dlrs on sales of 3.59 billion dlrs last year. The analysts said the proposal would benefit MCI because ATT would no longer impose price cuts that MCI would have to follow when costs fell in the industry. "I'm sort of mystified by those comments," retorted Herman, a district manager for ATT. "ATT (if deregulated) has no intention of not passing on cost reductions," she added. Kimmelman, legislative director of the Consumer Federation, said he opposed deregulation because it left no alternatives that would ensure against overcharging by ATT. He said the FCC had in the past instructed ATT to reduce prices when the company was benefitting from lower costs from increased use by consumers of long-distance services. Without full regulatory authority this may no longer happen, he added. Reuter ================================================== Title: ANALYSTS SEE EARLY ONE POINT CUT IN U.K. BASE RATE British bank base lending rates are likely to fall by as much as one full point to 9-1/2 pct this week following the sharp three billion stg cut in the U.K. Central government borrowing target to four billion stg set in today's 1987 budget, bank analysts said. The analysts described Chancellor of the Exchequer Nigel Lawson's budget as cautious, a quality which currency and money markets had already started to reward. Sterling surged on foreign exchange markets and money market interest rates moved sharply lower as news of the budget measures came through, the analysts said. Lloyds merchant bank chief economist Roger Bootle said he expected base rates to be cut by one full point tomorrow. "This is very much a safety-first budget in order to get interest rates down," he said. Bootle said the money markets had almost entirely discounted such a one point cut, with the key three month interbank rate down to 9-11/16 pct from 9-13/16 last night, and it would be rather conservative for banks to go for a half-point cut now. Midland Bank treasury economist David Simmonds said he, too, expected base rates would be a full point lower by Friday, but this would likely happen via two half-point cuts. "This budget is designed to please both the markets and the electorate. The implications for interest rates are very favourable, we could have a half-point cut tomrorow and another such cut before the end of the week," Simmonds said. Pointing to buoyant U.K. Retail data released yesterday, he said Lawson had done well to resist pressures for a sharp cut in income tax rates at the expense of a lower borrowing target. "There is no real need to boost private consumption," he said. National Westminster Bank chief economist David Kern said the lower borrowing target set in the budget had increased the likelihood of an early one-point base rate cut. Kern said the budget would have to be analysed carefully, in particular to see how exactly Lawson planned to achieve the sharper than expected borrowing target cut, before a one-point base rate cut could be implemented. But providing the budget small-print was convincing, "and I suspect it will be, it is entirely possible that we see one point off base rates by the end of this week," Kern said. Bootle of Lloyds said the expected base rate cut would pave the way for an early one-point cut in mortgage lending rates. This would help achieve Lawson's lower than expected consumer price inflation target of four pct at end-1987, he said. U.K. Base rates were cut last week to 10-1/2 pct from 11 pct after sustained pressure from the foreign exchange, money and government bonds (gilts) markets. But building societies said they would not cut lending rates until base rates had fallen by one full point. REUTER ================================================== Title: HOUSTON METALS' MINE YIELDS POSITIVE RESULTS <Houston Metals Corp> said the the first phase of the underground rehabilitation, extensive drilling and bulk sampling program at its Silver Queen Mine has yielded positive results. Houston said representative assays from the 2,750 ft and 2,600 ft levels at the south end of the mine established ore deposits in the following ranges: copper, 3.7 pct to 5.08 pct, lead .99 pct to 1.5 pct, zinc six pct to 9.6 pct, silver 15.63 pct to 79.92 oz per ton, gold .062 to .19 oz per ton, germanium 93 to 103 grams per ton, gallium five to 18 grams per ton. In addition, Houston Metals said the weighted average of 25 diamond-drilled holes 375 ft below the 2,600 foot level and 800 ft along the strike assayed gold at .237 oz per ton, silver at 10.91 oz per ton and zinc at 8.99 pct. An apparent parallel vein structure at the 2,600 ft level returned similar values, the company said. It added that preliminary metallurgical tests from representative bulk ore samples indicate the commercial feasability of producing a zinc and a copper-lead concentrate. Houston Metals said gold, silver and the base metals have recoveries of 90 pct to 95 pct, with 95 pct of gold recovered from better gold ores, while gallium, germanium and indium have recoveries of between 66 pct to 82 pct and are included in the zinc concentrate. The company's 1987 program of diamond drilling, underground drifting and metallurgical evaluation is scheduled to start on April. Houston Metals said it has a 60 pct interest in the Silver Queen mines. It added that funds for the program have been provided by First Exploration Fund, a Canadian limited partnership sponsored by Merrill Lynch Canada Inc and Dominion Securities Inc. Reuter ================================================== ************************************************** Topic 11 ************************************************** Title: REAGAN ADMITS IRAN ARMS OPERATION A MISTAKE President Reagan, fighting to regain public confidence in the wake of the Iran arms scandal, admitted tonight that the clandestine operation wound up as an arms-for-hostages deal and, "It was a mistake." "When it came to managing the NSC (National Security Council) staff, let's face it, my style didn't match its previous track record," Reagan said in a television address to the American people. "I have already begun correcting this," he added in his prepared remarks. Reagan's speech, widely regarded as critical to his hopes of repairing his presidency, was his first detailed response to last week's scorching Tower commission report on the secret sale of arms to Iran and diversion of profits to U.S.-backed contra rebels in Nicaragua. Reagan said he had been silent on the scandal while he waited for the truth to come out and admitted, "I've paid a price for my silence in terms of your trust and confidence." He said that a few months ago, he told the American people he did not trade arms for hostages in the 18-month covert operation. "My heart and my best intentions still tell me that is true, but the facts and the evidence tell me it is not," Reagan said. "There are reasons why it happened, but no excuses. It was a mistake," he said. Reagan again said that the original Iran initiative was to develop relations with those who might assume leadership in a post-Khomeini government. "It's clear from the Board's report however that I let my personal concern for the hostages spill over into the geo-political strategy of reaching out to Iran. "I asked so many questions about the hostages' welfare that I didn't ask enough about the specifics of the total Iran plan," he said. The commission, headed by former Republican Sen. John Tower, said Reagan's "intense compassion" for Americans being held by pro-Iranian groups in Lebanon had resulted in an unprofessional and unsatisfactory policy. It portrayed 76-year old Reagan as a man who did not know or care much about the wide-ranging, probably illegal activities of his National Security Council (NSC) staff, which hatched the operation. Reagan said he endorsed all of the Tower commission's recommendations about the running of the NSC, adding, "In fact, I'm going beyond its recommendations, so as to put the house in even better order." He noted that he had appointed former Senate Republican leader Howard Baker as his new chief of staff and said he hoped Baker would help him forge a new partnership with Congress, "especially on foreign and national security policies." He said his new national security adviser, Frank Carlucci, was rebuilding the national security staff "with proper management discipline." Reagan said that almost half the NSC professional staff now consisted of new people. He said that FBI Director William Webster, his new nominee to head the CIA, "understands the meaning of 'rule of law'". Reagan also announced that Tower had agreed to serve as a member of his Foreign Intelligence Advisory Board, which acts as a watchdog on the nation's covert activities. But he said that he had issued a directive barring the NSC staff itself from undertaking covert operations -- "No ifs, ands, or buts." Tonight's speech was a far cry from Reagan's initial strong defense of his Iran policy. In a televised speech last November 13, Reagan called charges that he ransomed hostages and undercut the U.S. war on terrorism "utterly false." As recently as two months ago in his State of the Union speech, Reagan said that "serious mistakes were made" but defended the basic policy as one that had worthy goals. By contrast, tonight's speech had an apologetic tone that was a marked departure from Reagan's usual upbeat, confident demeanor. He said he took full responsibility for his own actions "and for those of my administration." "As angry as I may be about activities undertaken without my knowledge, I am still accountable for those activities. As disappointed as I may be in some who served me, I am still the one who must answer to the American people for this behavior," Reagan said. Reagan said the message that the nation should move on had come from Republicans and Democrats in Congress, from allies around the world -- "and if we're reading the signals right, even from the Soviets." His remark seemed to be a reference to a new Soviet willingness to reach an agreement on eliminating medium-range nuclear missiles in Europe. Reuter ================================================== Title: REAGAN AND BAKER BEGIN TASK OF REBUILDING After a week that left his presidency shaken and his popularity at a new low, Ronald Reagan and his new chief of staff today begin trying to revive an administration tattered by the Iran-contra arms scandal. Reagan and former Senate Republican leader Howard Baker, whose appointment as White House chief of staff won bipartisan praise, will begin mapping strategy to deal with scathing criticism by a report on his failed bid to trade U.S. arms with Iran for help in freeing Ameican hostages in Lebanon. Among the chores facing Reagan's new inner circle is assessing the damage the 300-page Tower commission report has done to the nomination of Robert Gates to succeed William Casey as the new head of the Central Intelligence Agency. White House officials are checking to see how much support Gates, a 43-year old career spy agency bureaucrat, would have if his nomination is submitted to the full Senate for a vote, Senate Republican leader Robert Dole said. Appearing on the NBC News program, "Meet the Press," the Kansas senator said the Gates nomination "could be in some difficulty." Aides said that Gates' future would be given high priority by Baker. Even though he was not deeply implicated in the arms sale scandal, lawmakers said Senate confirmation of the Gates nomination is not assured and, even if won, would come only after months of congressional probes into the affair. "He has the smell of Iran on him," said former Nevada Sen. and Reagan confidant Paul Laxalt. "He is a victim." Laxalt, appearing on the ABC News program, "This Week With David Brinkley," bluntly admitted "the Gates nomination is in trouble." Senate Armed Services Committee Chairman Sam Nunn said the odds are now slightly against confirmation of Gates. When asked on the syndicated television program, "John McLaughlin: One on One," if he thought Gates would be confirmed, the Georgia Democrat shot back: "I wouldn't bet any money on it. "I think this report hurts that," Nunn said. "It indicates that the National Security Council had policy-type influence over intelligence-type activities and we're going to go into that with Mr. Gates. Only a day after it was issued last week, the Tower report prompted the abrupt exit of Donald Regan as White House chief of staff. Regan, the former Wall Street executive and Treasury secretary who has been the president's top aide for the past two years, was assigned the lion's share of the blame for the botched handling of the Iran arms sale. The report blamed Regan for the "chaos that descended on the White House" since it was first revealed last November that profits from the Iran arms sales had been diverted to contra rebels fighting the leftist Nicaraguan government. The two other victims of the scandal are former National Security Adviser Vice Adm. John Poindexter who resigned and Marine Lt. Col. Oliver North who was fired after it was disclosed last November 23 that profits from the Iran arms sale were diverted to the contras. The two, pictured by the Tower commission as the key operators of the Iran arms deal, have refused to testify. Reagan, who freely admits disliking details, is portrayed in the Tower report as a befuddled chief executive whose inattention let his aides run away with his foreign policy. That perception has wrecked Reagan's popularity and threatened to condemn him to lame duck status until he leaves office in January 1989. A recent Newsweek magazine poll found that just 40 pct of Americans approved of Reagan's leadership, a record low, and a third believed he should consider resignation. After meeting with aides over the weekend and poring over the meaty report of the commission headed by former Texas Sen. John Tower, Reagan is now preparing for a nationwide television address this week to respond to the criticisms of his presidency. Reuter ================================================== Title: TRADE INTERESTS READY FOR FIGHT IN U.S. CONGRESS U.S. lawmakers are gearing up for a showdown between protectionists and free traders as a major trade bill winds its way through committees to a vote by the full House of Representatives in late April. In a move to toughen U.S. enforcement of trade laws, a key House subcommittee last week approved a toned down version of legislation to require President Reagan to retaliate against foreign countries that follow unfair trade practices. This bill will be the cornerstone of congressional efforts to restore competitiveness of American industries and turn around last year's record 169 billion dlrs trade deficit. Several lawmakers have argued the new trade bill made too many concessions to Reagan and said they intend to back amendments to "get tough" with countries that violate trade agreements or keep out U.S. products. On the other hand, congressmen known for their allegiance to free trade, said the bill ties Reagan's hands too much in trade disputes and they will seek to restore his negotiating powers. Republican Bill Frenzel of Michigan said the subcommittee's bill was not one "that a free trader like me could endorse in all respects," but he emphasized there was a consensus among trade lawmakers to work toward a bill Reagan and Republicans would ultimately endorse. Frenzel said the goal of trade legislation was, "to make our trade policy stronger without violating our international trade agreements. You'll find a lot of people who think we have not done the former enough. You'll find poeple who think we haven't avoided violating agreements." In a key concession made at the urging of the powerful chairman of the House Ways and Means Committee, the trade subcommittee backed off a requirement that would have forced Reagan to automatically impose quotas or tariffs on imports from countries that engage in unfair trade practices. It also agreed he may waive any retaliation if it would hurt the U.S. economy. Ways and Means chairman Dan Rostenkowski, an Illinois Democrat, insisted the more moderate approach was necessary if the House wanted to pass a bill Reagan would sign into law. Reagan last year had blocked Senate consideration of a tough House trade bill he branded as protectionist and this year only reluctantly agreed to support a trade bill when he saw Democratic leaders were determined to pass a bill. As an indication of his success, White House spokesman Marlin Fitzwater told reporters Friday the administration still did not like some provisions. But he added, "Generally we feel very good about the bipartisan consideration of the trade legislation. I think we are progressing very well." The first battle will take place next week when the full House Ways and Means Committee considers an amendment by Rep. Richard Gephardt, a Missouri Democrat, to force countries such as Japan, South Korea and Taiwan to cut their trade surpluses with the United States. The subcommittee limited the Gephardt plan to provide only that the existence of a large trade surplus with the United States will trigger an investigation of unfair trade practices, but would not automatically set off retaliation. Rep. Phil Crane, an Illinois Republican and staunch free trader, said he will try to further weaken the Gephardt plan. Organized labor has pressed lawmakers for more relief from imports where jobs have been lost to foreign competition. AFL-CIO president Lane Kirkland this year angered the administration in a statement that any trade bill Reagan would sign would not be worth passage in Congress. But Rostenkowski set the tone of the trade debate in a statement, "I'm not trying to write legislation to please Lane Kirkland. I'm trying to write legislation that will be signed by the president." In writing the bill, the subcommittee rejected calls for trade relief for specific industries such as textiles. Rep. Ed Jenkins, a Democrat from Georgia, agreed to hold off his fight. He intends to push separately a bill to protect the domestic textile and shoe industry, an aide said. Reagan vetoed a similar measure last year. House Speaker Jim Wright, a Texas Democrat, is one of the most influential proponents of aid for specific industries beset by low priced foreign competition. Wright Thursday renewed his call for import relief for the domestic oil industry and announced his support for a Senate plan to trigger a temporary oil import tariff when imports reach half of domestic consumption. For the most part, the trade bill's provisions toughen U.S. enforcement of trade laws. The bill forces the administration to act rapidly on complaints of unfair trade practices such as dumping products in the United States at prices below the cost of production. It also forces the administration to act rapidly when an industry complains that a surge in imports threatens its existence. Congressmen said the change would have required the U.S. International Trade Commission to impose limits on car imports in 1981. Reuter ================================================== Title: REGAN DEPARTURE MAKES 3RD VOLCKER TERM LIKELY Last week's White House shake-up has increased the odds that Federal Reserve Board chairman Paul Volcker, a symbol of strength in a government reeling from the arms-to-Iran scandal, will serve a third term, sources close to the Fed say. But they said that no decision on the appointment, which must be filled this August, has been taken by the White House and Volcker too has not made up his mind. Former White House Chief of Staff Donald Regan, who resigned last week when ex-senator Howard Baker was named as his replacement, was implacably opposed to Volcker and tried often to undermine him. It is an open secret in Washington that Regan tried to ensure that Volcker, first appointed in 1979 by President Carter, will not be offered a third term by President Reagan. Only Volcker's key allies in the Reagan administration, Vice-President George Bush and Treasury Secretary James Baker, kept Regan's recent maneuvering at bay, the sources said. Sources close to the administration say Regan leaked a story, quickly shot down by others in the administration, that Beryl Sprinkel, chairman of the council of economic advisers, had been chosen to replace Volcker. But as the administration's credibility was increasingly under fire, it became clear that Regan's power to bring about such changes was on the wane. The sources said New White House Chief of Staff Howard Baker has a very good relationship with his namesake at the Treasury Department and is likely to respect his views on the Fed chairmanship. As a moderate Republican, Baker is also unlikely to share the right-wing's opposition to Volcker. "This new White House is going to need all the strength it can get," said one source when asked about the possibility of Volcker's reappointment. Paul Volcker is deeply respected in financial markets both in the United States and around the world. At a time when the stability of the dollar and the viability of major debtor nations are in question, Volcker's departure would definitely undermine U.S. leadership, foreign exchange analysts say. U.S. officials say Volcker works very closely with Treasury Secretary Baker on issues like international debt and global economic cooperation. The two men seem only to differ on how far to deregulate the banking industry, but recent statements by Volcker, in which he adopted a more liberal attitude on deregulation, signalled the politically-independent central bank is coming around at least partially to the Treasury position. And a recent statement by a Reagan administration official that the two men saw "exactly eye-to-eye" on the dollar was seen as an indication of Baker's support for the Fed chairman. Baker is understood to have played a key role in Volcker's reappointment to the Fed in mid-1983. The sources said Baker respects Volcker and when appointed Treasury Secretary in February 1985, he decided to ensure a good working relationship, in part because he believed the two key government economic institutions have to work closely. Regan, Treasury Secretary during President Reagan's first term, was formerly head of Wall Street's largest brokerage firm Merrill Lynch and came to Washington determined to be America's pre-eminent economic spokesman. He developed a deep antipathy for Volcker, whose political skills undermined that ambition, and who financial markets took much more seriously. But the sources said Volcker would have to be invited to stay. "Is the president going to ask him? he wouldn't stay otherwise," said one. "He'd have to be asked," said Stephen Axilrod, formerly staff director of monetary policy at the Fed and now vice-chairman of Nikko Securities Co. International. Otherwise, the list of potential candidates is not awe-inspiring. And if Volcker left this Augsut, he would leave behind one of the most inexperienced Fed Boards in years. Many analysts believe this lack of collective experience -- the four sitting members were all appointed within the last three years -- is dangerous, coming at a time when the global economy is threatened by instability. An experienced successor, therefore, would seem a necessity. One widely mentioned possibility is Secretary of State George Shultz, whose experience as Treasury Secretary under Preesident Nixon and background as a trained economist would make him ideal. But Shultz too may have been damaged by the arms-to-Iran scandal, while vice-chairman Manuel Johnson is regarded at 37 years old as too young for the job. Other potential candidates include economist Alan Greenspan, frequently an informal presidential economic adviser, New York Fed President E. Gerald Corrigan, Federal Deposit Insurance Corp chairman William Seidman, and Sprinkel. Long a Regan protege, Sprinkel's chances may be damaged by his patron's departure from the White House. Reuter ================================================== Title: REGAN DEPARTURE MAKES 3RD VOLCKER TERM LIKELY Last week's White House shake-up has increased the odds that Federal Reserve Board chairman Paul Volcker, a symbol of strength in a government reeling from the arms-to-Iran scandal, will serve a third term, sources close to the Fed say. But they said that no decision on the appointment, which must be filled this August, has been taken by the White House and Volcker too has not made up his mind. Former White House Chief of Staff Donald Regan, who resigned last week when ex-senator Howard Baker was named as his replacement, was implacably opposed to Volcker and tried often to undermine him. It is an open secret in Washington that Regan tried to ensure that Volcker, first appointed in 1979 by President Carter, will not be offered a third term by President Reagan. Only Volcker's key allies in the Reagan administration, Vice-President George Bush and Treasury Secretary James Baker, kept Regan's recent maneuvering at bay, the sources said. Sources close to the administration say Regan leaked a story, quickly shot down by others in the administration, that Beryl Sprinkel, chairman of the council of economic advisers, had been chosen to replace Volcker. But as the administration's credibility was increasingly under fire, it became clear that Regan's power to bring about such changes was on the wane. The sources said New White House Chief of Staff Howard Baker has a very good relationship with his namesake at the Treasury Department and is likely to respect his views on the Fed chairmanship. As a moderate Republican, Baker is also unlikely to share the right-wing's opposition to Volcker. "This new White House is going to need all the strength it can get," said one source when asked about the possibility of Volcker's reappointment. Paul Volcker is deeply respected in financial markets both in the United States and around the world. At a time when the stability of the dollar and the viability of major debtor nations are in question, Volcker's departure would definitely undermine U.S. leadership, foreign exchange analysts say. U.S. officials say Volcker works very closely with Treasury Secretary Baker on issues like international debt and global economic cooperation. The two men seem only to differ on how far to deregulate the banking industry, but recent statements by Volcker, in which he adopted a more liberal attitude on deregulation, signalled the politically-independent central bank is coming around at least partially to the Treasury position. And a recent statement by a Reagan administration official that the two men saw "exactly eye-to-eye" on the dollar was seen as an indication of Baker's support for the Fed chairman. Baker is understood to have played a key role in Volcker's reappointment to the Fed in mid-1983. The sources said Baker respects Volcker and when appointed Treasury Secretary in February 1985, he decided to ensure a good working relationship, in part because he believed the two key government economic institutions have to work closely. Regan, Treasury Secretary during President Reagan's first term, was formerly head of Wall Street's largest brokerage firm Merrill Lynch and came to Washington determined to be America's pre-eminent economic spokesman. He developed a deep antipathy for Volcker, whose political skills undermined that ambition, and who financial markets took much more seriously. But the sources said Volcker would have to be invited to stay. "Is the president going to ask him? he wouldn't stay otherwise," said one. "He'd have to be asked," said Stephen Axilrod, formerly staff director of monetary policy at the Fed and now vice-chairman of Nikko Securities Co. International. Otherwise, the list of potential candidates is not awe-inspiring. And if Volcker left this Augsut, he would leave behind one of the most inexperienced Fed Boards in years. Many analysts believe this lack of collective experience -- the four sitting members were all appointed within the last three years -- is dangerous, coming at a time when the global economy is threatened by instability. An experienced successor, therefore, would seem a necessity. One widely mentioned possibility is Secretary of State George Shultz, whose experience as Treasury Secretary under Preesident Nixon and background as a trained economist would make him ideal. But Shultz too may have been damaged by the arms-to-Iran scandal, while vice-chairman Manuel Johnson is regarded at 37 years old as too young for the job. Other potential candidates include economist Alan Greenspan, frequently an informal presidential economic adviser, New York Fed President E. Gerald Corrigan, Federal Deposit Insurance Corp chairman William Seidman, and Sprinkel. Long a Regan protege, Sprinkel's chances may be damaged by his patron's departure from the White House. Reuter ================================================== Title: TOWER REPORT DIMINISHES REAGAN'S HOPES OF REBOUND The Tower Commission report, which says President Reagan was ignorant about much of the Iran arms deal, just about ends his prospects of regaining political dominance in Washington, political analysts said. "This is certification of incompetence," private political analyst Stephen Hess told Reuters in commenting on the Tower report made public today. "It's as if he went before a professional licensing board and was denied credentials." In one of the most direct criticisms, board chairman John Tower, a longtime Reagan supporter and former Republican senator from Texas, told a press conference, "The president clearly did not understand the nature of this operation." The report, which lent credence to widespread opinion in Washington that Reagan is not in full command of the government, was particularly damaging because it was prepared by a board of the Republican president's own choosing. The three-member panel made up of Tower, former National Security Adviser Brent Scowcroft and former Secretary of State Edmund Muskie, does not carry the partisan taint of criticism from a Congress controlled by the Democratic party. "We're falling by our own hand," said one Republican political strategist. "What can we say except 'we're sorry, we won't do it again'?" The strategist, who works for one of his party's top 1988 presidential contenders and asked not to be identified, said the report was like "an anvil falling on us." Hess, with the Brookings Institution public policy study group, said the report is the final blow to Reagan's hopes of regaining the upper hand he once had in dealings with Congress, the press and the Washington bureaucracy. The report may also undermine the standing of Defense Secretary Caspar Weinberger and Secretary of State George Shultz, who the report suggests were more interested in keeping their own skirts clean than supporting the president. "They protected the record as to their own positions on this issue. They were not energetic in attempting to protect the president from the consequences," it said. White House chief of staff Donald Regan and former Central Intelligence Agency Director William Casey also received strong criticism, but the blows were expected in their cases. Regan, expected to resign or be fired shortly, was savaged for allegedly failing both to help Reagan conduct the Iran initiative and to avoid "chaos" in the disclosure process. Casey, who underwent surgery for removal of a cancerous brain tumor in December, had already resigned for health reasons last month. "This is a story about people who came up somewhat short of being heroes," Tower told reporters. While Reagan retains considerable constitutional powers, including command of the armed forces and the right to veto legislation, analysts say it will be difficult for him to retake control of the country's policy agenda -- particularly with Congress controlled by the Democrats. The crucial remaining question, they said, is whether the man in the street will forsake Reagan over the affair. Although his job approval rating has fallen as much as twenty percentage points in some opinion polls since the arms deal with Iran became public last November, his personal popularity is still relatively high. A Los Angeles Times poll released earlier this week showed that just 37 pct of those surveyed thought Reagan was in control of the government, but 55 pct still thought he was doing a good job as president. American Enterprise Institute analyst William Schneider, a Democrat, says Reagan's loss of support among Washington power brokers could be offset by continued backing of the public. "In the past, he has been able to go around the power elite by appealing directly to the public," Schneider said. Reagan will again plead his case that way in a televised address next week. But one top Republican strategist warned against expecting a dramatic turnaround. "The White House has to avoid building expectations that cannot be met," said the strategist, who requested anonymity. "They have to recognize there is no quick fix." Analysts also point out that Reagan's personal popularity has not always translated into public backing for his policies. They note he was dramatically rebuffed in last November's elections when voters rejected his appeals and restored control of the Senate to the Democrats. Reuter ================================================== Title: REAGAN'S STRENGTH IN U.S. CONGRESS APPEARS SAPPED President Reagan's reduced strength in Congress has been demonstrated by the U.S. Senate's decision to approve a highway spending bill despite his attempts to veto it, political analysts said. "He's very weakened," said William Schneider of the private American Enterprise public policy group after the Senate voted 67-33 yesterday to ignore Reagan's veto of the road bill. Schneider contrasted Reagan's failure with his previous ability to win clear majorities on major issues. Sustaining his veto required him to win just one-third of the votes in either house of Congress. It was the third consecutive fight over a presidential veto on which Congress had defied Reagan, whose clout with the legislature has been greatly diminished by the arms-for-Iran scandal and the capture of a majority in the Senate by the opposition Democratic party in the November 1986 election. Congress overrode Reagan's veto of a popular water projects bill in January and last autumn Congress rejected his veto of economic sanctions against South Africa. But this time the president laid his full authority on the line, even making a rare journey to Capitol Hill to plead for support in person. With both the House and Senate in Democratic hands, analysts say Reagan is swiftly becoming a lame duck, facing difficulties in enacting his own legislative agenda, especially given the furore over the Iran arms deal. The situation contrasts with Reagan's first six years in office when a Republican-controlled Senate and the backing of conservative Democrats in the House enabled Reagan to win passage of most of his legislative priorities. Reagan's ability to veto legislation he dislikes had been his strongest weapon in dealing with Congress, but his defeat on the highway bill was expected to reduce the credibility of his veto power. Senator John Chafee, a Rhode Island Republican, told the New York Times earlier this week that if Reagan lost "there will be no brake on -- if you suggest a presidential veto you will be laughed away." Yesterday's defeat came two days after the House of Representatives' overwhelming rejection of a presidential veto on the highways bill by 350 votes to 73. White House strategists had presented the veto fight as a test of Reagan's strength as he attempted to recover from the scandal over secret arms sales to Iran. Senate Republican leader Robert Dole of Kansas pleaded with fellow party members to back Reagan because "this may determine the strength of the presidency for the next 21 months." The defeat showed the problems facing any president in his final years in office. Reagan's term expires in January 1989. A majority of Republicans in the House of Representatives and 13 in the Senate apparently decided their own political concerns have become more important than the president's. "President Reagan, he ain't going to be running in 1988, but I am," Congressman Arthur Ravenel, a South Carolina Republican, said on Tuesday of his decision to back a bill that means money and jobs for his home district in new highway construction. The defeat interrupted a good streak for Reagan, who won applause for his selection in February of former Senate majority leader Howard Baker to replace Donald Regan as White House chief of staff, and was believed by most political analysts to have benefitted from a televised speech and a news conference on the Iran affair last month. A steady drop in Reagan's job approval ratings appeared to level off in recent weeks. The president slumped from about 65 pct last autumn to about 42 pct after the Tower Commission report in February said he had failed to exercise proper control over the dealings with Iran. His approval rating hovers at 50 pct. Reagan said he was deeply disappointed by the Senate defeat but "my efforts to control spending are not diminished." Democratic leader Robert Byrd said "this isn't going to make or break the president." REUTER ================================================== Title: TRADE INTERESTS READY FOR BATTLE IN U.S. HOUSE U.S. lawmakers are gearing up for a showdown between protectionists and free traders as a major trade bill winds its way through committees to a vote by the full House of Representatives in late April. In a move to toughen U.S. enforcement of trade laws, a key House subcommittee last week approved a toned-down version of legislation to require President Reagan to retaliate against foreign countries that follow unfair trade practices. The bill will be the cornerstone of congressional efforts to restore competitiveness of American industries and turn around last year's record 169 billion dlrs trade deficit. Generally, the bill's provisions toughen U.S. enforcement of trade laws. The trade bill forces the administration to act rapidly on complaints of unfair trade practices, such as dumping products in the United States at prices below cost of production. It also forces the administration to act rapidly when an industry complains that a surge in imports threatens its existence. In writing the bill, the subcommittee rejected calls for trade relief for specific industries such as textiles. Several lawmakers have argued the new trade bill made too many concessions to Reagan and said they intend to back amendments to "get tough" with countries that violate trade agreements or keep out U.S. products. But congressmen known for their allegiance to free trade said the bill ties Reagan's hands too much in trade disputes and they will seek to restore his negotiating powers. Bill Frenzel, R-MI., said the subcommittee's bill was not one "that a free trader like me could endorse in all respects," but he emphasized there was a consensus among lawmakers to work toward a bill Reagan and Republicans would ultimately endorse. The goal of trade legislation was "to make our trade policy stronger without violating our international trade agreements," he said. In a key concession made at the urging of Ways and Means Committee chairman Dan Rostenkowski, D-IL., the trade subcommittee backed off a requirement that would have forced Reagan to impose automatically quotas or tariffs on imports from countries that engage in unfair trade practices. It also agreed the president may waive any retaliation if it would hurt the U.S. economy. Rostenkowski insisted the more moderate approach was necessary if the House wanted to pass a bill Reagan would sign into law. Reagan last year blocked Senate consideration of a tough House trade bill he branded as protectionist and this year he only reluctantly agreed to support a trade bill when he saw Democratic leaders were determined to pass such legislation. White House spokesman Marlin Fitzwater told reporters late last week that the administration still did not like some of the bill's provisions, but he added, "Generally we feel very good about the bipartisan consideration of the trade legislation. I think we are progressing very well." The first battle will take place next week when the full House Ways and Means Committee considers an amendment by Rep. Richard Gephardt, D-MO., to force countries like Japan, South Korea and Taiwan to cut their trade surpluses with the U.S. The subcommittee limited the Gephardt plan to provide only that the existence of a large trade surplus with the United States will trigger an investigation of unfair trade practices, but would not automatically set off retaliation. Organized labor has pressed lawmakers for more relief from imports where jobs have been lost to foreign competition. AFL-CIO president Lane Kirkland this year angered the administration when he said any trade bill Reagan would sign would not be worth passage in Congress. But Rostenkowski set the tone of the trade debate by saying, "I'm not trying to write legislation to please Lane Kirkland. I'm trying to write legislation that will be signed by the president." Rep. Ed Jenkins (D-GA.) intends to push separately a bill to protect the domestic textile and shoe industry, an aide said. Reagan vetoed a similar measure last year. House Speaker Jim Wright of Texas, one of the most influential proponents of aid for specific industries beset by low-priced foreign competition, last week renewed his call for import relief for the domestic oil industry and announced his support for a Senate plan to trigger a temporary oil import tariff when imports reach half of domestic consumption. Reuter ================================================== Title: IRAN PROBERS AGREE ON IMMUNITY FOR POINDEXTER Congressional investigators of the Iran-contra scandal have tentatively agreed to grant immunity from prosecution to a star witness --President Reagan's former national security adviser John Poindexter, congressional sources said today. Sources told Reuters the chief counsels of the two special committees probing the two-year episode that has darkened the White House image plan to take their preliminary accord to court-appointed special prosecutor Lawrence Walsh, possibly today or tomorrow. The tentative accord follows weeks of negotiating with Walsh and with committee members. Poindexter would be the highest ranking official to be granted immunity in the investigations of the 1985-1986 arms sales to Iran to gain release of hostages held in Lebanon and the clandestine shifting of arms profits to arm U.S.-backed rebels in Nicaragua, at a time aid would have been illegal. If the agreement --reached on Friday by Arthur Liman and John Nields, chief legal advisors of the Senate and House committees respectively --is ratified as expected by Walsh and the full committees, closed door interviews could be held with Poindexter in two months with public testimony in about 90 days or mid June, sources said. "They have tentatively reached an agreement and are supposed to meet with Walsh or his deputies," a source told Reuters of the deliberations by the two chief counsels Sources said Poindexter could assist investigators determine what Reagan knew about the diversion of funds from arms sales to Iran to rebels in Nicaragua, if anything. Reagan has denied knowing about the shift of funds although he has admitted he gave orders to sell arms through Israel in either August or after the first shipment in September 1985, but can't remember when. Congress was kept in the dark about the affair until last autumn. "He will be a credible witness," one source said of the pipe-smoking Poindexter. Besides Reagan's knowledge, or lack of it, another key unanswered questions lingering from earlier congressional investigators and a special presidential review board, is who received millions of dollars from clandestine arms profits. So far the money trail uncovered by probers stops at secret Swiss and Cayman Islands bank accounts. The committees have been privately negotiating with Walsh over the immunity matter, and the prosecutor, also called an independent counsel, has been urging the committees to hold off on their request for at least 90 days. Under the tentative accord, the wishes of Walsh could be met since public testimony is not expected before 90 days. Poindexter, a Navy vice admiral, along with his fired deputy at the National Security Council, Marine Lt. Col. Oliver North, have refused to testify before investigators, claiming their fifth amendment rights against self incrimination. Yesterday, Vice President George Bush said in a a television interview that he disagreed with Maureen about court martials, but he too disclaimed any details of diverted funds. So far, granting immunity to compel testimony from reluctant witnesses has been granted to five persons--with the key figure so far, shadowy California international arms merchant Albert Hakim. Also, getting immunity has been North's attractive personal secretary, Fawn Hall, who was said to have assisted North in shredding documents in his White House basement office after the scandal broke. Reuter ================================================== Title: PAPER SAYS POINDEXTER MAY LINK REAGAN TO FUNDS President Reagan's denial that he knew proceeds from Iran arms sales were diverted to Nicaraguan contra rebels might be challenged by his former national security adviser, according to the Washington Post. The paper said yesterday that John Poindexter, who resigned last November when the illegal transfer of up to 20 mln dlrs was disclosed, was ready to break the silence he has so far maintained over the affair. The Post said he might tell a special Senate committee investigating the Iran scandal that he told Reagan twice in 1986 that money from Iran sales was being used for aid to the contras. It said the panel was considering granting Poindexter immunity from prosecution over the fund diversion, which was illegal under a Congressional ban in force at the time against aid for the contras. Poindexter has so far invoked the Fifth Amendment to the Constitution which protects people from giving evidence which could be self-incriminating. Reagan has said he authorized the sale of arms to Iran in the hope of establishing links with Iranian moderates, but has denied knowing that proceeds were ending up in Nicaraguan rebel hands. A White House spokesman had no comment on the Post story, but David Abshire, who is coordinating White House handling of the affair, said Reagan would never approve any illegal action. Abshire, on the CBS television show "Face the Nation," did not comment directly on the Post story, but said: "He (Reagan) is deeply honest, he is deeply dedicated, he tells the truth and when he says he has no knowledge, he has no knowledge." The Post quoted a source close to Reagan as saying the White House expected Poindexter "will say he had direction and authority, directly or indirectly," from the president for the diversion of funds. The paper said the former security adviser's testimony could damage the president's claim he was unaware of the funds diversion. It quoted a legal source as saying Poindexter and his lawyers planned to contend that twice in 1986 he told Reagan that the arms sales were generating money for the "contras." The paper quoted the source as saying Poindexter did not tell Reagan there was an illegal diversion of funds, but that help for the contras was "an ancillary benefit" of the sales. The Post's sources also said the Senate committee could grant immunity from prosecution this month to Oliver North, who was fired from the National Security Council on the same day that Poindexter resigned. Reuter ================================================== ************************************************** Topic 12 ************************************************** Title: JAPAN SALES TAX MAY FORCE NAKASONE OUT OF OFFICE Prime Minister Yasuhiro Nakasone is likely to leave office this summer amid opposition to his controversial tax-reform package, political analysts said. They said Nakasone's reputation as a skilled politician has suffered irreparable damage from his support of a five pct sales tax planned for January 1988. "Nakasone is trying to carry out a drastic tax reform at the end of his administration, which is not only impossible but also is very irresponsible as a politican," Rei Shiratori, professor of politics at Dokkyo University, told Reuters. "Nakasone will almost certainly step down as soon as parliament approves the sales tax, probably in the summer," Shiratori said. Some ruling Liberal Democratic Party (LDP) members of parliament have spoken against the tax, which Nakasone says is needed to balance planned cuts in income and corporate taxes. Nakasone today called for disciplinary action against LDP members who oppose the tax. "There are some who are objecting because of their constituencies," he told a meeting of government and party leaders. "If the party discipline is broken, I would like to see punishment considered." "A proposed sales tax has become a political issue, partly because Nakasone breached his election pledge against introducing it," Shiratori said. "Moreover, the tax is being introduced when the public feels uncertainty about the sluggish economy stemming from the yen's appreciation and about the future when the Japanese society is rapidly aging," he said. Political analysts said the controversial tax could affect the more than 2,500 local elections scheduled for April, involving governors, mayors, town and village heads and assemblies at all levels. But the situation is complicated, since opposition parties excluding the communists sometimes put up joint candidates with the LDP, the political analysts added. Shiratori said, "In the worst case, implementation of the sales tax, now scheduled for next January, may be put off for some time before the government makes a final decision. "Another alternative is to modify the planned five pct to perhaps three pct. "A third alternative for the government is to ram through the bills only with the attendance of LDP MPs," he said. Seizaburo Sato, professor of politics at Tokyo University, thought the last possibility most likely. "I think the LDP alone will take a vote on the tax bills," he said. The LDP now holds 304 seats in the 512-seat Lower House and 143 in the 252-seat Upper House. To lure opposition parties back to parliament after the LDP pushes through the tax bills, the Nakasone cabinet will have to resign, Sato said. "Boycotting opposition members will be more willing to return to parliament if a new cabinet has been formed," he said. REUTER ================================================== Title: NAKASONE SET TO STAY UNTIL TAX REFORM APPROVED Prime Minister Yasuhiro Nakasone will step down only after his plan to overhaul Japan's tax system gets parliamentary approval, one of his closest aides said today. The aide, who declined to be identified, said at a private meeting, "Nakasone's power in office does not necessarily terminate at the end of his term in October. It depends on when (the) seven tax reform bills get parliamentary approval." Nakasone vowed yesterday to press on with his plan despite Sunday's unexpected Upper House by-election defeat of the ruling Liberal Democratic Party (LDP) in a conservative stronghold. The socialist winner, backed by other opposition parties, had campaigned against a controversial five pct value added sales tax, the main plank of the reform plans. The aide dismissed the possibility of any amendment of the sales tax on the grounds the opposition parties were demanding nothing but retraction of the tax. They have been refusing to discuss a draft budget for the 1987 fiscal year starting on April 1, which includes the tax plans. They have been resorting to an on-off boycott of parliament since February 4. "If I were Nakasone, I would close the current regular parliamentary session on May 27 as scheduled, attend the Venice summit of industrial democracies in June and open an extraordinary session to discuss the tax plans," the aide said. Under law, a regular session can be extended only once while an extraordinary session can be extended twice.The other option would be to extend the current session, he said. "The opposition parties will surely present a no-confidence motion against the Nakasone Cabinet at one stage or another." One scenario then will be to reject the motion opening up the way for tax reform. "Another scenario is the resignation of the Nakasone Cabinet en masse. A third scenario is a dissolution of the Lower House for a snap general election," the aide said. That is only possible if the 200 opposition members resign from the 512-seat Lower House, necessitating by-elections. The LDP now has 304 seats in the Lower House after its landslide victory in general elections last July. There are five independents and three vacancies. "The LDP which will put up candidates will certainly inflate their seats, but at the expense of fierce media criticism," the aide said. He said he expected the proposed sales tax to have little effect on local elections to be held on April 12 and 26. About 2,600 elections will be held in all but three of the nation's 47 prefectures including 13 gubernatorial elections. "Candidates running in prefectural assemblies will all oppose the sales tax irrespective of their party tickets. "Possible effects, if any, will be on gubernatorial elections in Japan's northernmost island of Hokkaido and Fukuoka in southern Japan," he said. The two posts are now held by opposition socialists. REUTER ================================================== Title: NAKASONE SET TO STAY UNTIL TAX REFORM APPROVED Prime Minister Yasuhiro Nakasone will step down only after his plan to overhaul Japan's tax system gets parliamentary approval, one of his closest aides said today. The aide, who declined to be identified, said at a private meeting, "Nakasone's power in office does not necessarily terminate at the end of his term in October. It depends on when (the) seven tax reform bills get parliamentary approval." Nakasone vowed yesterday to press on with his plan despite Sunday's unexpected Upper House by-election defeat of the ruling Liberal Democratic Party (LDP) in a conservative stronghold. The socialist winner, backed by other opposition parties, had campaigned against a controversial five pct value added sales tax, the main plank of the reform plans. The aide dismissed the possibility of any amendment of the sales tax on the grounds the opposition parties were demanding nothing but retraction of the tax. They have been refusing to discuss a draft budget for the 1987 fiscal year starting on April 1, which includes the tax plans. They have been resorting to an on-off boycott of parliament since February 4. "If I were Nakasone, I would close the current regular parliamentary session on May 27 as scheduled, attend the Venice summit of industrial democracies in June and open an extraordinary session to discuss the tax plans," the aide said. Under law, a regular session can be extended only once while an extraordinary session can be extended twice.The other option would be to extend the current session, he said. "The opposition parties will surely present a no-confidence motion against the Nakasone Cabinet at one stage or another." One scenario then will be to reject the motion opening up the way for tax reform. "Another scenario is the resignation of the Nakasone Cabinet en masse. A third scenario is a dissolution of the Lower House for a snap general election," the aide said. That is only possible if the 200 opposition members resign from the 512-seat Lower House, necessitating by-elections. The LDP now has 304 seats in the Lower House after its landslide victory in general elections last July. There are five independents and three vacancies. "The LDP which will put up candidates will certainly inflate their seats, but at the expense of fierce media criticism," the aide said. He said he expected the proposed sales tax to have little effect on local elections to be held on April 12 and 26. About 2,600 elections will be held in all but three of the nation's 47 prefectures including 13 gubernatorial elections. "Candidates running in prefectural assemblies will all oppose the sales tax irrespective of their party tickets. "Possible effects, if any, will be on gubernatorial elections in Japan's northernmost island of Hokkaido and Fukuoka in southern Japan," he said. The two posts are now held by opposition socialists. REUTER ================================================== Title: PAPANDREOU SAYS GREEKS READY FOR AGGRESSORS Greek Prime Minister Andreas Papandreou said today that the Greek armed froces were ready to tackle any aggressors following the sailing of a Turkish research vessel and warships towards disputed waters in the Aegean Sea. Papandreou told an emergency cabinet meeting in Athens "the military readiness of our country is able now to give a very hard lesson if our neighbours (Turkey) were to carry out military actions." He said the activities of the research vessel could be aimed at partitioning the Aegean. "The air force, navy and army are in a state of alert," General Guven Ergenc, Secretary General of the Turkish General Staff, told a news conference. He said the Turkish research ship Sismik 1, escorted by an unspecified number of warships, would sail into disputed waters in the Aegean Sea tomorrow morning. Ergenc told Reuters later that all leave had been cancelled for members of the armed forces in the Aegean coast area. The Turkish government said yesterday it had licensed the state-owned Turkish Petroleum Corp to explore for oil in international waters around three Greek islands off Turkey. Greece and Turkey have long-standing disputes over areas of the Aegean and the presence of Turkish troops in Cyprus. The latest row erupted when the Greek government said last month that it was taking control of a Canadian-led consortium which was already producing oil off the Greek island of Thassos and would drill in the same area after the takeover. Ergenc told the news conference the alert followed a government decision that Turkey should protect its interests "because of measures Greece has been taking in the Aegean in violation of international agreements." Asked how Turkey would react if Greece attacked any of the vessels, he said "If there is an attack, it is clear what has to be done. An attack on a warship is a cause for war." But he added "We are not in a state of war. The measures taken by the military are directed towards protecting our rights." Greece said yesterday it would defend its national rights in the Aegean and urged Turkey to accept reference of the dispute to the International Court of Justice in The Hague. Turkish Foreign Ministry spokesman Yalim Eralp told reporters today this was unacceptable because of preconditions Athens had attached. In Athens, Greek Prime Minister Papandreou said that if the Turkish vessel Sismik 1 began research operations "we will hinder it, of course not with words, as it cannot be stopped with words." Greek newspapers said the armed forces were on alert and navy ships had gone to the Aegean. But government spokesman Yannis Roubatis did not confirm the move, saying only "The Greek fleet is not at its naval base." Papandreou said that a map issued in Turkey showed 95 pct of the areas proposed for research were on the Greek continental shelf. Papandreou told the U.S. And NATO that if they had a part in orchestrating the present crisis in order to force Greece to negotiate with Turkey, the Greek government would not accept it. Papandreou has maintained in the past that he will not negotiate with Ankara until Turkey recognises Greek rights in the Aegean and withdraws its troops from Cyprus. He said that in the case of war with Turkey it would not be possible for Greece to discuss the future of American military bases here. Asked by reporters if he would close the U.S. Bases in Greece in the event of war, Papandreou replied "Obviously, and perhaps even before the war." REUTER ================================================== Title: PESSIMISM MOUNTS OVER BAHIAN TEMPORAO COCOA CROP Pessimism over the effects of a prolonged dry spell on the coming Bahian temporao cocoa crop is rising with trade forecasts generally in the 2.0 mln to 2.5 mln bag range against 2.5 mln to 3.0 mln a fortnight ago. Trade sources told Reuters from the state capital of Salvador that despite scattered rains since mid-February, which broke a six week drought, plantations have not picked up as hoped and very little cocoa is expected to be gathered in the first three months of the May/September crop. The sources said arrivals from May through July might only reach around 600,000 bags whereas in normal years a figure of 1.0 mln to 1.5 mln bags might be expected. Arrivals from then should start to pick up sharply as pods from current flowering are gathered. However, the sources noted a late temporao is always more susceptible to pod rot, which flourishes if conditions turn cold and humid, and which is more likely from late July on. This year's crop is doubly susceptible because poor prices mean farmers were not encouraged to invest in fertilisers and insecticides and are also unlikely to treat against pod rot. A severe attack of pod rot can cause the loss of over 500,000 bags in a very short period, one source said. Because of the increased exposure to pod rot damage, estimates of the final outcome of the temporao are extremely vulnerable and production could easily drop to below the 2.0 mln bag mark if the disease hits. Although flowering was good following the start of the rains, pod setting was not up to expectations, possibly because the drought had caused a drop in the insect population which pollinates flowers, the sources said. However, reports from farms indicate moisture levels are now generally back to near normal levels and that current flowering and pod setting is good, which should result in mature fruit from August through September. The sources said they expect no break in the harvesting of beans between the end of the temporao and the beginning of the main crop, which officially starts on October 1. "The cut-off date is completely artificial. If things go well from now on we should see heavy harvesting without a break from August through November or even December," one said. If predictions of a 2.0 to 2.5 mln bag temporao prove accurate this would be below the 2.7 mln bag average for the past 10 years. The last poor temporao was in 1984 when prolonged drought and later pod rot cut production to 1.79 mln bags, the lowest since 1974. Good growing conditions the following year produced a temporao of 3.12 mln bags, just below the 1983 3.17 mln bag record, while last year's output, which also suffered some drought damage, was 2.77 mln bags. Figures for the coming temporao might be distorted upwards by the inclusion of undeclared current main crop beans. The sources said large quantities of beans are believed to have been undeclared from this year's record total harvest and they were unsure how much of this would be unregistered by the end of the official crop year on April 30. Recent official arrivals figures have been swollen by the inclusion of beans which had been delivered previously to port warehouses but not declared. Because of the high turnover of beans this year, significant amounts have deteriorated because they were stored too long at the back of warehouses. Some of these are expected to be held for mixing in with early temporao arrivals. With official arrivals figures for the 1986/87 temporao and main crops totalling over 6.1 mln bags, and over seven weeks still to go to the end of the year, the total outturn should be at least a record 6.5 mln bags if all production is declared, the sources said. This would compare with the previous record set last year of 6.03 mln. However, there is no way of telling how many current crop beans will be declared after the May 1 start of the temporao and thus the true size of the 1986/87 harvest may never be officially registered. Reuter ================================================== Title: PHILIPPINE COCONUT CHIEF TO LOBBY AGAINST EC TAX Philippine Coconut Authority (PCA) chairman Jose Romero said he would visit Brussels later this month to lobby against a proposed 100 pct European Community (EC) levy on vegetable oil imports. "I intend to visit Brussels and talk to whoever is putting up this devilish scheme to impoverish third world countries like the Philippines," Romero said in an interview. He said he did not know how much support the levy had within the EC but he said he believed those originally opposed to the tax were under pressure to change their position. Romero said a group of EC members led by West Germany, the Netherlands, Denmark and Norway were opposed to the tax. But there was a danger some of them would be persuaded to change sides, and if that happened opposition could crumble. Romero said another threat to exports lay in an EC warning that copra meal cake used in livestock feeds contained dangerous levels of aflatoxin, a carcinogenic chemical. He said the EC standard of 0.02 parts of aflatoxin per million parts of meal, which EC countries had been asked to apply by October 1988, was too rigid. He said Philippine copra cake contained much higher levels of aflatoxin. Aflatoxin comes from moulds which develop in copra when it is not properly dried or ground. Romero said he would tell big buyers of copra meal in London that the Philippines was doing its best to meet EC standards. It was also trying to eliminate aflatoxin totally, but this was likely to take several years of research. Copra meal exports were 817,641 tonnes or 35 pct of total coconut exports in 1986. The meal was worth 73.5 mln dlrs. Romero said he would also visit Oxford University's department of agricultural economics to discuss ways of avoiding the copra process altogether. "There are ways of producing coconut products outside of copra," Romero said. "We can process fresh coconut without drying the meat in the sun. Through the wet process we can process coconuts into other food or non-food products, or we can go to the chemical root." He said there was a tendency for agricultural countries to become more protectionist and he expected export prices of coconut products to drop. "In the long term we will be getting less and less for more and more production, and I'm not comfortable with that," he said. With countries like Indonesia and Malaysia stepping up production of palm oil, a coconut oil substitute, palm oil output had risen nearly 70 pct since 1971, Romero said. "To add to that the U.S. Soybean Association is spending billions of dollars to discredit palm oil and coconut oil by saying that they are polysaturated fats and bad for the heart," he said. Romero said he expected coconut product export prices to stay up for the rest of the year. They would probably touch a high of 20 cents/pound from the current level of 18.59 cents, and a sharp rise from year-ago levels of 10.50 cents. Romero said the Philippines was at the end of a five-year coconut production cycle which showed production tended to fall after two successive years of good harvests. He said 1985 and 1986 were good harvests and this year, to add to the production fall, drought had affected output. "Traders are stocking up and when they have overbought the prices will start declining again. The only sure way to keep prices stable is by processing, adding more value," he said. Coconut farmers were being encouraged to intercrop by planting other cash crops between coconut trees, he said. "A typical farm may have from 100 to 150 trees sitting on 10,000 square metres of land. That's a lot of space," Romero said. He said the government's proposed land reform program would exclude about 75 pct of the coconut farmers because they had less than the proposed seven-hectares of land. "If the idea of land reform is to increase income levels, production and employment then it won't happen," he said. PCA figures show about one-third of the country's population is dependent on the coconut industry. Coconuts are planted on about 3.2 mln hectares or one-fourth of total agricultural land. REUTER ================================================== Title: ECONOMIC SPOTLIGHT - CHINA MUST PRESERVE FARMLAND "If we go on using up farmland as we have done since 1980, there will be none left in 20 years to grow grain on." Xu Jinfeng, a middle-aged official in Fengbang village on the edge of Shanghai, sums up the dilemma China faces as it tries to feed its more than one billion people and at the same time let them get richer by building factories and new homes. China has to feed one quarter of the world's population, but only one seventh of its land is arable. Sharp increases in farm output since 1979 turned China into a net grain exporter for the first time in 1985, and again in 1986. But the rapid industrialisation of the countryside which has occurred at the same time, has gobbled up arable land for factories and homes for peasants who can now afford them. Official figures show that China lost just under one pct of its arable land to other uses in 1985 and a slightly smaller amount last year. It gained 26 mln new mouths to feed during the two years. "We lost very little land prior to 1980 when the industrialisation began," official Xu said. "Since then, nearly all the families in the county have built new homes and many factories have gone up." "Last year we lost land to a new railway line," Xu said. But land losses in future should fall because nearly all families already have new houses, she added. The issue of land loss is a matter of major concern to the Peking leadership, which announced earlier this month that China will issue nationwide quotas for conversion of grain land for the first time this year. "The present situation of abusing, occupying unlawfully, wasting and destroying land and land resources is serious," said an article in the official press explaining the new measures. "It has resulted in great losses of cultivated farmland," it said. "China has a large population and its land resources are badly deficient." An official of the Shanghai city government said county authorities could approve conversion of only 0.3 hectares of arable land to other uses, while anything more than that must be approved by the city government. The Peking government faces another major obstacle in its efforts to ensure China's people get enough grain to eat. The prices the state pays to farmers for grain are too low, making it more profitable for them to grow other crops. To offset this, the state offers farmers cheap fertiliser and diesel oil and payment in advance for grain it contracts to buy. The state then sells the grain at subsidised prices to China's 200 mln city residents. Rural factories also subsidise grain output, paying farmers bonuses to grow it. Some officials argue that the simplest solution to the problem would be for the state to raise city grain prices. Chen Zuyuan, Communist Party secretary of a village in the eastern province of Zhejiang, said the government listened too much to the demands of "selfish city people" and could raise city grain prices without any problem. But the government has ruled out a price rise. "Raising the price of grain would directly conflict with the goal of social stability," said a China Daily editorial this month. The Shanghai official said prices must be reformed over the long term. "We must be very careful. We have a very large population which is used to price stability and will object to price rises," he said. "The problem is how to do it." The Shanghai official said a rise in grain prices might also affect the prices of hundreds of food products made with grain and consumed by city residents. In addition, the state faces the problem of inadequate investment by farmers in land and in grain in particular. The official press has reported that farmers fear farm policy may change and they are putting their new wealth into building graves, memorial halls for ancestors and homes. Under reforms introduced in the late 1970s, farmers sign contracts with the state requiring them to grow certain crops, but they have considerable freedom in how to use their land. "As the expiration date of the 15-year contract is almost at the halfway mark, farmers are beginning to worry about the future," the China Daily said in an editorial last month. Their anxieties stem from the fact that they are allowed to use the land but not own it. For most of the period of Communist rule, the land was organised into collectives where there was little room for individual initiative. "New measures are needed to reassure them of the consistency of government policies and make them interested in long-term investment," the newspaper said. REUTER ================================================== Title: EUROPEAN BEET PLANTINGS SEEN LITTLE CHANGED European sugar beet plantings are expected to show little change from last year, despite recent firmness in world prices, analysts and industry sources said. A Reuter survey of planting intentions showed that while, so far, European Community (EC) growers plan unchanged to lower areas, increases are expected in some Eastern European nations. Trade analysts said their private reports give similar results and do not differ significantly from the first estimate of stagnant 1987 European beet plantings made last week by West German sugar statistician F. O. Licht. Areas may be slightly lower but analysts and agricultural experts said the steady rise in yields resulting from improved seed varieties and better farming techniques could offset this. In recent years, good autumn weather has given yields a late boost, making up for lower areas despite some disappointing starts to growing seasons. Changes in EC areas reflect the extent to which producers will grow so-called "C" sugar for unsubsidised sale to the world market. This is what is produced in excess of the basic area needed to meet the EC "A" and "B" quotas, which receive full and partial price support, respectively. Some analysts said the open row that broke out last week between producers and the EC commission over its export policy could have serious implications for future sugar output. Beet producers have threatened to effectively dump nearly one mln tonnes of white sugar into EC intervention stocks as they feel export subsidies have been too low to compensate for the gap between high EC internal and low world market prices. However, with the EC budget stretched to breaking point, this could give treasury ministers extra resolve in resisting higher guaranteed sugar prices and build a case for a future cut in the basic "A" and "B" quotas, they added. In France, the largest producer of EC quota and non quota sugar, the sugar market intervention board FIRS said first planting intentions indicate an area about the same as last year's 421,000 hectares, nine pct below the previous year. "The basic trend is towards stability," a FIRS spokesman said. Unlike world market raw sugar prices in dollars, white sugar French franc prices are not particularly high and are not encouraging higher planting levels, he said. Beet sugar output last year was 3.37 mln tonnes, with an average yield of 8.00 tonnes per ha, the highest in the EC apart from the Netherlands but below 8.52 the previous year and a five year average 8.11. In West Germany, recent price rises have not altered plans, since planting decisions were taken a few months ago, industry sources said. The farm ministry said a December survey is still valid and plantings should be cut slightly after being trimmed by just under four pct in 1986 when yields were above average. Licht last week estimated West German plantings at a reduced 385,000 hectares against 399,000 last year. British Sugar Plc, the monopoly beet processor, has signed up U.K. Farmers to grow 8.1 mln tonnes of beet. This should yield about 1.25 mln tonnes of whites. Last year's crop equalled the second highest ever at 1.32 mln tonnes. British Sugar has "A" and "B" quotas totalling 1.144 mln tonnes of whites and its "C" output is due to improved yields from more consistent disease-resistant seed types. Recent price rises have not altered Polish plans, Wincenty Nowicki, a deputy director of Cukropol, the Amalgamated Sugar Industry Enterprises, said. World prices are still below Polish production costs and there is no way to convince farmers to increase the area above the already signed contracted level. The national plan, set before prices began to rise, put plantings this year at 460,000 hectares, against 425,000 in 1986, Nowicki said. Last year production was 1.74 mln tonnes. World prices have less impact in Italy than in France or Germany as it is traditionally not an exporter but is geared to the domestic market, an official at the national beet growers' association said. Italian sowings are not yet complete but surveys suggest a drop from last year's 270,000 ha, especially in the north where some farmers have switched to soya. Beet output last season of 15.5 mln tonnes yielded a higher than expected 1.72 mln tonnes of white sugar. Dutch plantings are expected to fall to 130,000 ha from a record 137,600 in 1986 as a new self-imposed quota system comes into force, a spokesman for Centrale Suiker, the second largest Dutch sugar processor, said. The new system aims for an average of around 915,000 tonnes of white sugar and to cut output of "C" sugar. Last year, the Netherlands produced a record 1.2 mln tonnes of white sugar against a combined "A" and "B" quota of only 872,000 tonnes. "The world price of sugar would have to rise much higher than it has done recently to make planned production of "C" sugar really worthwhile," the spokesman said. Western agricultural experts in Moscow said Soviet planting intentions are likely to be unchanged. Licht put this year's Soviet beet area at 3.40 mln ha, against 3.44 mln last year. Hungary is expanding its beet area to 105,000 ha from some 95,000 in 1986, the official MTI news agency said, but diplomats said policy is to balance supply with domestic demand. The Spanish ministry of agriculture said beet sowings are estimated unchanged at 180,000 ha this year. A spokesman for Denmark's largest beet concern, De Danske Sukkerfabrikker A/S, said its 1987 sugar target was unchanged from 1986 at 365,000 tonnes from a steady area of 60,000 ha. In Sweden, where beet is grown just to meet domestic demand, the planted area is seen little changed at 51,000 ha against 51,300 last year, according to a spokesman for sugar company Svenska Sockerfabriks AB. Last year, Irish yields were the lowest for 10 years due to late sowings and the state-run Irish Sugar Plc said the 1987 plantings target is the equivalent of 36,400 hectares, down from 37,600 in 1986. REUTER ================================================== Title: PANEL HEAD SAYS MARCOS STILL CONTROLS LARGE FUNDS The head of a Philippine panel charged with recovering illegal wealth accumulated by former President Ferdinand Marcos and his associates said they still controlled large funds circulating in the country's economy. Ramon Diaz, Chairman of the Presidential Commission on Good Government (PCGG) told Reuters in an interview: "There is every reason to believe that the cronies and President Marcos and his family were able to hide millions and millions of pesos before they fled. As a matter of fact we have been able to get hold of crates of newly printed currency." Diaz did not give figures, but said: "We believe they still have a lot of funds. These are the funds that they will use in the coming elections. These are the funds that they used to stage those coups." He was referring to congressional elections scheduled for May 11 and to the three coup attempts faced by President Corazon Aquino since she toppled Marcos a year ago. Diaz said the PCGG so far has recovered cash and property valued at about eight billion pesos and had sequestered shares of stock of at least 286 firms. "We have achieved more than what we thought we could achieve in one year," he added. The PCGG, set up by Aquino in February 1986, has sweeping powers of sequestration, seizure and inspection of bank accounts. Diaz said the panel's main task is to gather evidence for legal prosecution. "But we have to sequester before we file a case and that is the legal objection because they say that we shoot first before we ask questions," he said. He said dividends from seized shares were held in trust funds pending court verdicts, adding several Marcos associates had made confessions about their wealth. He did not name them. "They are very concerned and afraid that if their names appear something may happen to them," he said. The government last week announced that businessman Antonio Floirendo, an associate of Marcos known as the "banana king," had turned over 70 mln pesos in cash to the PCGG and promised to surrender titles to property in New York and Hawaii worth another 180 mln pesos. In return, the PCGG said it had lifted freeze and sequestration orders on Floirendo's properties. Diaz said there were already similar preliminary agreements with another Marcos associate, Roberto Benedicto. He said Benedicto had surrendered control of several newspapers and radio and television stations and agreed to PCGG control of the boards of a bank and a hotel he owned in the Philippines. Diaz said the PCGG based its estimates of illegal wealth on income-tax returns and land titles of Marcos associates. "Anything over and above reported income -- that's what we have to recover," he said. He said a decision by the PCGG last week to probe street certificates held by brokers at Manila's two stock exchanges was prompted by suspicion that illegal funds were in circulation. Street certificates describe securities held in the name of a broker or another nominee instead of a customer so as to permit easy trading or transfer. Share prices at the two exchanges reacted nervously last Tuesday when news of the probe leaked. The composite index at the Manila Stock Exchange fell 18.61 points to 451.51, while that at the Makati Stock Exchange slipped 1.7326 points to close at 63.0618. There was a slight recovery the following day. The presidents of the two exchanges appealed to Diaz to carry out the probe discreetly so investors were not scared away, saying street certificates did not necessarily indicate "anomalous transactions." "It's unfortunate that (news of the probe) leaked out to the papers," Diaz said. Diaz said PCGG suspicions were aroused by the stock market boom over the past year. The Manila Stock Exchange composite index jumped 224 pct from 131.32 to 424.81 in 1986. "One of our functions is to see to it that these assets that we have sequestered do not go right back into the hands of the (Marcos) cronies," he said. "We want to make sure that these stock exchanges are not being manipulated by the cronies because maybe they want to launder their pesos and that is why the prices are just skyrocketing." Diaz said the PCGG would limit its probe to sequestered stock in brewery giant San Miguel Corp, the Philippine Long Distance Telephone Co, mining conglomerate Benguet Corp, and Oriental Petroleum and Minerals Corp. Shares of the four companies are among the most frequently traded on the two stock exchanges. Diaz said at a meeting with the heads of the two exchanges last Thursday that the PCGG would act prudently in its investigation of street certificates, adding the panel supported government efforts to create a favourable investment climate. REUTER ================================================== Title: OPPOSITION TO PROPOSED SALES TAX SPREADS IN JAPAN Opposition to government plans to impose a five pct sales tax is spreading nationwide ahead of the start of campaigning for local elections next week, political analysts said. The Asahi Shimbun said 31 of the 47 prefectural assemblies had so far opposed, demanded amendments to, or expressed wariness about the tax. Assemblymen from the ruling Liberal Democratic Party (LDP) have also joined the opposition against the tax in 11 prefectural assemblies, the daily reported. About 2,600 elections will be held on April 12 and 26 for a wide range of local posts, including 13 governors. The sales tax is one of the main planks of Prime Minister Yasuhiro Nakasone's plan to overhaul the tax system. A close aide to Nakasone has said the sales tax issue will have a minimal impact on the local elections because centrist parties by and large support LDP candidates in many of the races for governors. In the assembly elections, even LDP candidates oppose the tax, he said. On March 8, the LDP lost an Upper House by-election in the conservative stronghold of Iwate Prefecture in northern Japan for the first time in 25 years. The opposition socialist winner campaigned on the single issue of the sales tax. The surprise LDP defeat in Iwate, coupled with Nakasone's sagging popularity, has forced the party to compromise with the opposition and agree to postpone public hearings on the fiscal 1987/88 budget to March 19/20 from March 13/14. The opposition parties have been staging recurring parliamentary boycotts to show their disapproval of the sales tax contained in the budget. They returned to the Lower House Budget Committee last Friday but walked out again after a few hours, demanding detailed data on the tax. But parliamentary sources said they are expected to agree in a day or two to dispose of some of 29 bills the LDP will submit. The bills include nine which will become extinct on March 31 unless some action is taken, the sources said. These cover such uncontroversial topics as wages for diplomats and revisions of the law covering court employees. Discussion is also expected of a provisional budget to allow the government to continue operating while debate on the main budget continues beyond the April 1 start of fiscal 1987/88, the sources said. The provisional budget could cover some 50 days and include authorisation for spending on some public works. Otherwise, parliament will go into virtual recess until local elections start on April 12, they said. REUTER ================================================== ************************************************** Topic 13 ************************************************** Title: SUGAR PRICES TOO LOW TO BOOST LATIN OUTPUT Latin American sugar producers are awaiting further rises in world market prices before moving to boost production, official and trade sources said. Although prices have risen to around eight from five U.S. Cents per lb in the past six months, they are still below the region's nine to ten cents per lb average production cost. The recent rise in prices has placed producers on the alert, Manuel Rico, a consultant with the Group of Latin American and Caribbean Sugar Exporting Countries (GEPLACEA), told Reuters. However, Rico said, it would require another five to seven cents to stimulate notable increases in output. "Producers are taking measures for increasing their production when the prices are profitable," he said. Officials in Mexico, Guatemala and Ecuador said a continued rise in prices would stimulate production, but industry leaders in Panama and Costa Rica said there was still a long way to go. "The prices are ridiculous," said Julian Mateo, vice president of Costa Rica's Sugar Cane Industrial-Agricultural League. "At current prices nobody is going to consider increasing production." Other producers are wary of committing funds to increasing output, given the instability of world markets. An official at Colombia's National Association of Sugar Cane Growers said they had no plans to raise export targets. "The market is very unstable. What is happening is not yet giving way to a pattern and so there is no reason to modify anything." In 1985, the latest year for which full figures are available, Central and South American nations produced 28 mln tonnes, raw value, of sugar of which 12.3 mln were exported. A year earlier, they had produced and exported about 800,000 more, according to the London-based International Sugar Organization. Years of continuous low prices have plunged the sugar industry in many countries in the region into a recession from which it will be hard to recover. Miguel Guerrero, director of the Dominican Republic's National Sugar Institute, said it would be difficult to boost production even if prices recovered sharply. Output had slumped to under 450,000 tonnes a year from 900,000 in the late 1970s. Obsolete refineries, poor transport and badly maintained plantations were barriers to any short term recovery in output, he added. Plans of nearby Cuba, the world's largest cane sugar exporter, to increase output to 10 mln tonnes a year by the end of the decade seem ambitious, trade sources said. Output is running well below the record 8.6 mln produced in 1970. Cuba suffers from run down plantations, harvesting problems and poor processing facilities more than from low world prices, since much of its output is sold to Eastern Bloc countries under special deals. Last year, bad weather added to its troubles, and output fell to 7.2 mln tonnes from 8.2 mln in 1985. The low world prices of recent years have led many countries in the region to cut exportable production to levels where they barely cover U.S. And, in the case of some Caribbean countries, European Community (EC) import quotas, for which they receive prices well above free market levels. Progressive reductions in the U.S. Quotas have led to production stagnating or falling rather than being shifted to the free world market. Peru, for example, shipped 96,000 tonnes to the U.S. In both 1983 and 1984. This fell to 76,000 in 1986 and this year its quota is only 37,000. A national cooperative official said that, as long as world market levels continue at around half of Peru's production cost, the future of the industry is uncertain. At a meeting of GEPLACEA in Brazil last October officials stressed the need to find alternative uses for sugar cane which, according to the group's executive-secretary Eduardo Latorre, "grows like a weed" throughout the region. Brazil, the largest cane producer with output of around 240 mln tonnes, uses over half to produce alcohol fuel. Cane in excess of internal demand for alcohol and sugar is refined into sugar for sale abroad to earn much needed foreign currency. The difference in the price the state-run Sugar and Alcohol Institute (IAA) pays local industry and what it receives from foreign buyers costs the government some 350 mln dlrs a year. Soaring domestic demand for both alcohol and sugar over the past year, coupled with a drought-reduced cane crop, has meant Brazil will have difficulties in meeting export commitments in 1987, trade sources said. Negotiations to delay shipments to next year have been indecisive so far, the main sticking point being how Brazil should compensate buyers for non-delivery of sugar it had sold at around five cents per lb and which would cost eight cents to replace. Brazilian sugar industry sources said new sugar export sales were expected to be extremely low for the next year, with the Institute wary of exposing itself to domestic shortages of either alcohol or sugar and because of the need to rebuild depleted reserve stockpiles. However, the situation could change dramatically if the economy goes into recession and internal demand slumps. Sources within Latin America and the Caribbean hold little hope for the region's sugar industry to return to profitability unless the U.S. And EC change their policies. "The agricultural policies of the European Community and of the United States have caused our economies incalculable harm by closing their markets, by price deterioration in international commerce and furthermore by the unfair competition in third countries," Brazil's Trade and Industry Minister Jose Hugo Castelo Branco told the October GEPLACEA meeting. The EC has come under prolonged attack from GEPLACEA for what the group charges is its continued dumping of excess output on world markets. GEPLACEA officials say this is the main cause of low prices. GEPLACEA sees a new International Sugar Agreement which would regulate prices as one of the few chances of pulling the region's industry out of steady decline. Such an agreement would have to have both U.S. And EC backing and industrialised countries would have to see it as a political rather than a merely economic pact. "They have to realise that the more our economies suffer, the less capcity we have to buy their goods and repay the region's 360 billion dollar foreign debt," GEPLACEA's Latorre said. Reuter ================================================== Title: COFFEE MAY FALL MORE BEFORE NEW QUOTA TALKS Coffee prices may have to fall even lower to bring exporting and importing countries once more round the negotiating table to discuss export quotas, ICO delegates and traders said. The failure last night of International Coffee Organization, ICO, producing and consuming countries to agree export quotas brought a sharp fall on international coffee futures markets today with the London May price reaching a 4-1/2 year low at one stage of 1,270 stg per tonne before ending the day at 1,314 stg, down 184 stg from the previous close. The New York May price was down 15.59 at 108.00 cents a lb. Pressure will now build up on producers returning from the ICO talks to sell coffee which had been held back in the hope the negotiations would establish quotas which would put a floor under prices, some senior traders said. The ICO 15 day average price stood at 114.66 cents a lb for March 2. This compares with a target range of 120 to 140 cents a lb under the system operating before quotas were suspended in February last year following a sharp rise in international prices caused by drought damage to the Brazilian crop. In a Reuter interview, Brazilian Coffee Institute, IBC, President Jorio Dauster urged producers not to panic and said they need to make hard commercial decisions. "If we have failed at the ICO, at least we have tried," Dauster said, adding "now it is time to go and sell coffee." But Brazil is keeping its marketing options open. It plans to make an official estimate of the forthcoming crop next month, Dauster said. It is too difficult to forecast now. Trade sources have put the crop at over 26 mln bags compared with a previous crop of 11.2 mln. Brazil is defining details of public selling tenders for coffee bought on London's futures market last year. A basic condition will be that it does not go back to the market "in one go" but is sold over a minimum of six months. The breakdown of the ICO negotiations reflected a split between producers and consumers on how to set the yardstick for future quotas. Consumers said "objective criteria" like average exports and stocks should determine producer quota shares, Dauster said. All elements of this proposal were open to negotiation but consumers insisted they did not want a return to the "ad hoc" way of settling export quotas by virtual horse trading amongst producers whilst consumers waited in the corridors of the ICO. Dauster said stocks and exports to ICO members and non-members all need to be considered when setting quotas and that Brazil would like to apply the coffee pact with a set ratio of overall quota reflecting stock holdings. It is a "simplistic misconception that Brazil can dictate" policy to other producers. While consumer countries are welcome to participate they cannot dictate quotas which are very difficult to allocate as different "objective criteria" achieve different share-outs of quota, Dauster said. Other delegates said there was more open talking at the ICO and at least differences were not hidden by a bad compromise. Consumer delegates said they had not been prepared to accept the producers' offer to abandon quotas if it proves impossible to find an acceptable basis for them. "We want the basis of quotas to reflect availability and to encourage stock holding as an alternative to a buffer stock if supplies are needed at a later stage," one delegate said. Some consumers claimed producer support for the consumer argument was gaining momentum towards the end of the ICO session but said it is uncertain whether this will now collapse and how much producers will sink their differences should prices fall further and remain depressed. The ICO executive board meets here March 30 to April 1 but both producer and consumer delegates said they doubt if real negotiations will begin then. The board is due to meet in Indonesia in June with a full council scheduled for September. More cynical traders said the pressure of market forces and politics in debt heavy Latin American producer countries could bring ICO members back around the negotiating table sooner than many imagine. In that case quotas could come into force during the summer. But most delegates and traders said quotas before October are unlikely, while Brazil's Dauster noted the ICO has continued although there were no quotas from 1972 to 1980. A clear difference between the pressures already being felt by importers and exporters was that consumers would have been happy to agree on a formula for future quotas even if it could not be imposed now. At least in that way they said they could show a direct relationship between quotas and availability. In contrast producers wanted stop-gap quotas to plug the seemingly bottomless market and were prepared to allow these to lapse should lasting agreement not be found. "Producers were offering us jam tomorrow but after their failure to discuss them last year promises were insufficient and we wanted a cast iron commitment now," one consumer said. Reuter ================================================== Title: EUROPEAN BEET PLANTINGS SEEN LITTLE CHANGED European sugar beet plantings are expected to show little change from last year, despite recent firmness in world prices, analysts and industry sources said. A Reuter survey of planting intentions showed that while, so far, European Community (EC) growers plan unchanged to lower areas, increases are expected in some Eastern European nations. Trade analysts said their private reports give similar results and do not differ significantly from the first estimate of stagnant 1987 European beet plantings made last week by West German sugar statistician F. O. Licht. Areas may be slightly lower but analysts and agricultural experts said the steady rise in yields resulting from improved seed varieties and better farming techniques could offset this. In recent years, good autumn weather has given yields a late boost, making up for lower areas despite some disappointing starts to growing seasons. Changes in EC areas reflect the extent to which producers will grow so-called "C" sugar for unsubsidised sale to the world market. This is what is produced in excess of the basic area needed to meet the EC "A" and "B" quotas, which receive full and partial price support, respectively. Some analysts said the open row that broke out last week between producers and the EC commission over its export policy could have serious implications for future sugar output. Beet producers have threatened to effectively dump nearly one mln tonnes of white sugar into EC intervention stocks as they feel export subsidies have been too low to compensate for the gap between high EC internal and low world market prices. However, with the EC budget stretched to breaking point, this could give treasury ministers extra resolve in resisting higher guaranteed sugar prices and build a case for a future cut in the basic "A" and "B" quotas, they added. In France, the largest producer of EC quota and non quota sugar, the sugar market intervention board FIRS said first planting intentions indicate an area about the same as last year's 421,000 hectares, nine pct below the previous year. "The basic trend is towards stability," a FIRS spokesman said. Unlike world market raw sugar prices in dollars, white sugar French franc prices are not particularly high and are not encouraging higher planting levels, he said. Beet sugar output last year was 3.37 mln tonnes, with an average yield of 8.00 tonnes per ha, the highest in the EC apart from the Netherlands but below 8.52 the previous year and a five year average 8.11. In West Germany, recent price rises have not altered plans, since planting decisions were taken a few months ago, industry sources said. The farm ministry said a December survey is still valid and plantings should be cut slightly after being trimmed by just under four pct in 1986 when yields were above average. Licht last week estimated West German plantings at a reduced 385,000 hectares against 399,000 last year. British Sugar Plc, the monopoly beet processor, has signed up U.K. Farmers to grow 8.1 mln tonnes of beet. This should yield about 1.25 mln tonnes of whites. Last year's crop equalled the second highest ever at 1.32 mln tonnes. British Sugar has "A" and "B" quotas totalling 1.144 mln tonnes of whites and its "C" output is due to improved yields from more consistent disease-resistant seed types. Recent price rises have not altered Polish plans, Wincenty Nowicki, a deputy director of Cukropol, the Amalgamated Sugar Industry Enterprises, said. World prices are still below Polish production costs and there is no way to convince farmers to increase the area above the already signed contracted level. The national plan, set before prices began to rise, put plantings this year at 460,000 hectares, against 425,000 in 1986, Nowicki said. Last year production was 1.74 mln tonnes. World prices have less impact in Italy than in France or Germany as it is traditionally not an exporter but is geared to the domestic market, an official at the national beet growers' association said. Italian sowings are not yet complete but surveys suggest a drop from last year's 270,000 ha, especially in the north where some farmers have switched to soya. Beet output last season of 15.5 mln tonnes yielded a higher than expected 1.72 mln tonnes of white sugar. Dutch plantings are expected to fall to 130,000 ha from a record 137,600 in 1986 as a new self-imposed quota system comes into force, a spokesman for Centrale Suiker, the second largest Dutch sugar processor, said. The new system aims for an average of around 915,000 tonnes of white sugar and to cut output of "C" sugar. Last year, the Netherlands produced a record 1.2 mln tonnes of white sugar against a combined "A" and "B" quota of only 872,000 tonnes. "The world price of sugar would have to rise much higher than it has done recently to make planned production of "C" sugar really worthwhile," the spokesman said. Western agricultural experts in Moscow said Soviet planting intentions are likely to be unchanged. Licht put this year's Soviet beet area at 3.40 mln ha, against 3.44 mln last year. Hungary is expanding its beet area to 105,000 ha from some 95,000 in 1986, the official MTI news agency said, but diplomats said policy is to balance supply with domestic demand. The Spanish ministry of agriculture said beet sowings are estimated unchanged at 180,000 ha this year. A spokesman for Denmark's largest beet concern, De Danske Sukkerfabrikker A/S, said its 1987 sugar target was unchanged from 1986 at 365,000 tonnes from a steady area of 60,000 ha. In Sweden, where beet is grown just to meet domestic demand, the planted area is seen little changed at 51,000 ha against 51,300 last year, according to a spokesman for sugar company Svenska Sockerfabriks AB. Last year, Irish yields were the lowest for 10 years due to late sowings and the state-run Irish Sugar Plc said the 1987 plantings target is the equivalent of 36,400 hectares, down from 37,600 in 1986. REUTER ================================================== Title: PHILIPPINE SUGAR CROP SET AT 1.6 MLN TONNES Philippine sugar production in the 1987/88 crop year ending August has been set at 1.6 mln tonnes, up from a provisional 1.3 mln tonnes this year, Sugar Regulatory Administration (SRA) chairman Arsenio Yulo said. Yulo told Reuters a survey during the current milling season, which ends next month, showed the 1986/87 estimate would almost certainly be met. He said at least 1.2 mln tonnes of the 1987/88 crop would be earmarked for domestic consumption. Yulo said about 130,000 tonnes would be set aside for the U.S. Sugar quota, 150,000 tonnes for strategic reserves and 50,000 tonnes would be sold on the world market. He said if the government approved a long-standing SRA recommendation to manufacture ethanol, the project would take up another 150,000 tonnes, slightly raising the target. "The government, for its own reasons, has been delaying approval of the project, but we expect it to come through by July," Yulo said. Ethanol could make up five pct of gasoline, cutting the oil import bill by about 300 mln pesos. Yulo said three major Philippine distilleries were ready to start manufacturing ethanol if the project was approved. The ethanol project would result in employment for about 100,000 people, sharply reducing those thrown out of work by depressed world sugar prices and a moribund domestic industry. Production quotas, set for the first time in 1987/88, had been submitted to President Corazon Aquino. "I think the President would rather wait till the new Congress convenes after the May elections," he said. "But there is really no need for such quotas. We are right now producing just slightly over our own consumption level." "The producers have never enjoyed such high prices," Yulo said, adding sugar was currently selling locally for 320 pesos per picul, up from 190 pesos last August. Yulo said prices were driven up because of speculation following the SRA's bid to control production. "We are no longer concerned so much with the world market," he said, adding producers in the Negros region had learned from their mistakes and diversified into corn and prawn farming and cloth production. He said diversification into products other than ethanol was also possible within the sugar industry. "The Brazilians long ago learnt their lessons," Yulo said. "They have 300 sugar mills, compared with our 41, but they relocated many of them and diversified production. We want to call this a 'sugarcane industry' instead of the sugar industry." He said sugarcane could be fed to pigs and livestock, used for thatching roofs, or used in room panelling. "When you cut sugarcane you don't even have to produce sugar," he said. Yulo said the Philippines was lobbying for a renewal of the International Sugar Agreement, which expired in 1984. "As a major sugar producer we are urging them to write a new agreement which would revive world prices," Yulo said. "If there is no agreement world prices will always be depressed, particularly because the European Community is subsidising its producers and dumping sugar on the markets." He said current world prices, holding steady at about 7.60 cents per pound, were uneconomical for the Philippines, where production costs ranged from 12 to 14 cents a pound. "If the price holds steady for a while at 7.60 cents I expect the level to rise to about 11 cents a pound by the end of this year," he said. Yulo said economists forecast a bullish sugar market by 1990, with world consumption outstripping production. He said sugar markets were holding up despite encroachments from artificial sweeteners and high-fructose corn syrup. "But we are not happy with the Reagan Administration," he said. "Since 1935 we have been regular suppliers of sugar to the U.S. In 1982, when they restored the quota system, they cut ours in half without any justification." Manila was keenly watching Washington's moves to cut domestic support prices to 12 cents a pound from 18 cents. The U.S. Agriculture Department last December slashed its 12 month 1987 sugar import quota from the Philippines to 143,780 short tons from 231,660 short tons in 1986. Yulo said despite next year's increased production target, some Philippine mills were expected to shut down. "At least four of the 41 mills were not working during the 1986/87 season," he said. "We expect two or three more to follow suit during the next season." REUTER ================================================== Title: CRUDE OIL PRICES UP AS STOCKS, OUTPUT FALL U.S. crude oil prices rose above 18 dlrs a barrel this week and industry analysts said the price could rise another dollar as inventories fall. "OPEC is keeping its production down, and in the cash market there is tight supply of crude with short transportation time to major refining centers," said Daniel McKinley, oil analyst with Smith Barney, Harris Upham and Co. "That could send prices 50 cts to a dollar higher," he added. The U.S. benchmark crude West Texas Intermediate rose to 18.15 dlrs a barrel today, a rise of 1.50 dlrs this week. The rally in oil prices this week came after prices fell in February more than two dlrs from its high of 18.25 dlrs a barrel. "Oil traders were pulling prices down on the assumption that oil stocks were building and OPEC was producing well above its 15.8 mln bpd quota, but now both of those assumptions have come under question," McKinley said. Yesterday the International Energy Agency in its monthly report said that oil stocks in the OECD area, or in industrialized nations, were drawn down by 1.3 mln bpd during the first quarter of this year. IEA estimates that the draw in oil stocks during the first quarter of this year will come largely from oil companies whose inventory levels by April one will be an estimated 326 mln tonnes, or about 74 days consumption. Industry analysts also said the estimate of a 3.5 mln bpd draw in stocks made by Shell Chairman Peter Holmes yesterday fed speculation that other major companies were destocking. Traders said the destocking has come about as a result of a so-called buyers strike, which kept refiners from buying officially priced OPEC oil in an effort to get the organization to offer discounts to the official price. "This struggle between the companies and OPEC is the ultimate game of chicken but it will be resolved relatively soon. I would imagine by about the middle of the month (March)," the general trading manager of an international oil company told Reuters in a telephone interview. For its part OPEC has moved to win this game by cutting excess supplies from the market by a reduction of its own output, traders said. A Reuter survey estimates OPEC output to be 14.7 mln bpd this week. Also, an earthquake in Ecuador yesterday led it to suspend oil exports indefintiely and force majeure its shipments. "This will reduce short-haul availabilities by about 250,000 bpd almost immediately and the longer the suspension continues, the larger the draw in stocks will be for companies expecting it to be there," McKinley said. International oil traders said that other short-haul crudes, such as North Sea Brent, were also scarce because Asian refiners bought the oil after absorbing a lot of the readily available Mideast crudes earlier this week. If this pattern continues then oil companies will bid up the price of oil as they purchase for their refineries, trading managers at several companies told Reuters. But there were skeptics who said they wondered how long OPEC can retain its unity if buyer resistance continues. Stephen Hanke, chief economist at Friedburg Commodity Management, said OPEC production was lower "because of the Saudi cut (to 3.1 mln bpd) and this could spell trouble if it gives other members an incentive to exceed their quotas." He added, "The Saudis will be picking up the tab for other members who produce over their quota, and the drain on the Saudis will continue, forcing them to cut output maybe as low as 2.5 mln bpd to support the 18 dlrs average price," he added. There are also signs of some OPEC crudes being sold in the spot market at below OPEC official prices, traders said. Oil traders said Nigerian Brass River sold for delivery into the U.S. Gulf at a price related to North Sea brent, which traded this week at 17.60 dlrs, far below the official price of 18.92 dlrs for the similar quality Bonny Light. Iranian oil is also surfacing in the U.S. Gulf and the Far East at reported discounts to its 17.50 dlrs official price. "There is a lot of oil priced on government-to-government deals, which are below official prices and this is probably being resold," one international trader said. Reuter ================================================== Title: U.S. SUPPLY/DEMAND DETAILED BY USDA The U.S. Agriculture Department made the following supply/demand projections for the 1986/87 seasons, in mln bushels, with comparisons, unless noted -- CORN -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 76.7 76.7 83.4 83.4 Harvested 69.2 69.2 75.2 75.2 Yield (bu) 119.3 119.3 118.0 118.0 Supply (mln bu) -- Start Stock 4,040 4,040 1,648 1,648 Production 8,253 8,253 8,877 8,877 Total-X 12,295 12,295 10,536 10,536 X-Includes imports. CORN (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage: Feed 4,500 4,300 4,095 4,126 Other 1,180 1,150 1,160 1,129 Ttl Domest 5,680 5,450 5,255 5,255 Exports 1,375 1,250 1,241 1,241 Total Use 7,055 6,700 6,496 6,496 End Stocks 5,240 5,595 4,040 4,040 Farmer Reser 1,400 1,300 564 564 CCC Stocks 1,700 1,500 546 546 Free Stocks 2,140 2,795 2,930 2,930 AvgPrice 1.35-1.65 1.35-1.65 2.23 2.23 Note - Price in dlrs per bu. Corn season begins Sept 1. ALL WHEAT - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 72.0 72.0 75.6 75.6 Harvested 60.7 60.7 64.7 64.7 Yield 34.4 34.4 37.5 37.5 Supply (mln bu) -- Start Stcks 1,905 1,905 1,425 1,425 Production 2,087 2,087 2,425 2,425 Total Supply-X 4,007 4,007 3,865 3,865 X - Includes imports. ALL WHEAT 1986/87 1985/86 (cont.) 04/09/87 03/09/87 04/09/87 03/09/87 Usage: Food 700 690 678 678 Seed 84 90 93 93 Feed 350 325 274 274 Ttl Domest 1,134 1,105 1,045 1,045 Exports 1,025 1,025 915 915 Total Use 2,159 2,130 1,960 1,960 End Stocks 1,848 1,877 1,905 1,905 Farmer Reser 475 450 433 433 CCC Stocks 950 950 602 602 Free Stocks 423 477 870 870 Avg Price 2.30-40 2.30-40 3.08 3.08 Note - Price in dlrs per bushel. Wheat season begins June 1. SOYBEANS - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 61.5 61.5 63.1 61.1 Harvested 59.4 59.4 61.6 61.6 Yield (bu) 33.8 33.8 34.1 34.1 Supply (mln bu) -- Start Stocks 536 536 316 316 Production 2,007 2,007 2,099 2,099 Total 2,543 2,543 2,415 2,415 SOYBEANS (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage -- Crushings 1,130 1,115 1,053 1,053 Exports 700 700 740 740 Seed, Feed and Residual 103 93 86 86 Total Use 1,933 1,908 1,879 1,879 End Stocks 610 635 536 536 Avg Price 4.60-4.80 4.60-4.80 5.05 5.05 Note - Average price in dlrs per bushel. Soybean season begins June 1. FEEDGRAINS - X 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 119.8 119.8 128.1 128.1 Harvested 102.0 102.0 111.8 111.8 Yld (tonnes) 2.48 2.48 2.45 2.45 Supply (mln tonnes) -- Start Stocks 126.4 126.4 57.5 57.5 Production 252.4 252.4 274.4 274.4 Imports 0.6 0.6 0.9 0.9 Total 379.4 379.4 332.7 332.7 X - Includes corn, sorghum, barley, oats. FEEDGRAINS - X (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage: Feed 140.6 136.2 134.8 135.5 Other 35.8 35.0 35.0 34.3 Ttl Domest 176.4 171.2 169.8 169.8 Exports 43.9 40.8 36.6 36.6 Total Use 220.3 211.9 206.4 206.4 End Stocks 159.1 167.5 126.4 126.4 Farmer Reser 39.0 36.5 16.6 16.6 CCC Stocks 55.2 49.5 20.4 20.4 Free Stocks 64.8 81.5 89.3 89.3 X - Includes corn, sorghum, oats, barley. Seasons for oats, barley began June 1, corn and sorghum Sept 1. SOYBEAN OIL - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Supply (mln lbs) -- Start Stcks 947 947 632 632 Production 12,263 12,103 11,617 11,617 Imports Nil Nil 8 8 Total 13,210 13,050 12,257 12,257 Note - 1985/86 production estimates based on October year crush of 1,060 mln bushels. SOYBEAN OIL (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage (mln lbs) -- Domestic 10,500 10,500 10,053 10,053 Exports 1,350 1,350 1,257 1,257 Total 11,850 11,850 11,310 11,310 End Stcks 1,360 1,200 947 947 AvgPrice 14.5-16.0 15.0-17.0 18.00 18.00 Note - Average price in cents per lb. Season for soybean oil begins Oct 1. SOYBEAN CAKE/MEAL, in thousand short tons -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Start Stcks 212 212 387 387 Production 26,558 26,203 24,951 24,951 Total 26,770 26,415 25,338 25,338 Note - 1985/86 production estimates based on October year crush of 1,060 mln bushels. SOY CAKE/MEAL (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage (thous short tons) -- Domestic 20,000 19,750 19,090 19,118 Exports 6,500 6,350 6,036 6,008 Total 26,500 26,100 25,126 25,126 End Stcks 270 315 212 212 AvgPrice 145-150 145-150 154.90 154.90 Note - Price in dlrs per short ton. Season for soybean cake and meal begins Oct 1. COTTON -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Area (mln acres) -- Planted 10.06 10.06 10.68 10.68 Harvested 8.49 8.49 10.23 10.23 Yield (lbs) 549 553 630 630 Supply (mln 480-lb bales) -- Start Stks-X 9.35 9.35 4.10 4.10 Production 9.70 9.79 13.43 13.43 Ttl Supply-Y 19.06 19.14 17.57 17.57 X - Based on Census Bureau data. Y - Includes imports. COTTON (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage -- Domestic 7.10 7.01 6.40 6.40 Exports 6.66 6.76 1.96 1.96 Total 13.76 13.77 8.36 8.36 End Stocks 5.40 5.49 9.35 9.35 Avge Price 51.7-X 51.7-X 56.50 56.50 X - 1986/87 price is weighted average for first five months of marketing year, not a projection for 1986/87. Average price in cents per lb. Cotton season begins August 1. RICE 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Acreage (mln acres) -- Planted 2.40 2.40 2.51 2.51 Harvested 2.38 2.38 2.49 2.49 Yield (lbs) 5,648 5,648 5,414 5,414 Supply (mln cwts) -- Start Stcks 77.3 77.3 64.7 64.7 Production 134.4 134.4 134.9 134.9 Imports 2.2 2.2 2.2 2.2 Total 213.9 213.9 201.8 201.8 RICE (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage (mln cwts) -- Domestic 67.0 67.0 65.8 65.8 Exports 80.0 80.0 58.7 58.7 Total-Y 147.0 147.0 124.5 124.5 End Stocks 66.9 66.9 77.3 77.3 CCC Stocks 42.9 42.9 41.5 41.5 Free Stocks 24.0 24.0 35.8 35.8 AvgPrice 3.45-4.25 3.45-4.25 6.53 6.53 Note - Average price in dlrs per CWT. Y-Rough equivalent. N.A.-Not Available, USDA revising price definition due to marketing loan. Rice season begins August 1. SORGHUM 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Yield (bu) 67.7 67.7 66.8 66.8 Supply (mln bu) -- Start Stcks 551 551 300 300 Production 942 942 1,120 1,120 Total 1,493 1,493 1,420 1,420 Usage (mln bu) -- Feed 550 575 662 662 Other 30 30 29 29 Ttl Domest 580 605 691 691 SORGHUM (cont.) - 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Exports 225 225 178 178 Total Use 805 830 869 869 End Stocks 688 663 551 551 Avge Price 1.30-50 1.30-50 1.93 1.93 Note - Price in dlrs per bushel. Sorghum season begins Sept 1. BARLEY 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Yield (bu) 50.8 50.8 51.0 51.0 Start Stocks 325 325 247 247 Production 610 610 591 591 Imports 5 5 9 9 Total 941 941 847 847 BARLEY (cont.) 1986/87 1985/86 04/09/87 03/15/87 04/09/87 03/15/87 Usage (mln bu) -- Feed 300 300 333 333 Other 175 175 167 167 Ttl Domest 475 475 500 500 Exports 150 150 22 22 Total Use 625 625 522 522 End Stocks 316 316 325 325 AvgPrice 1.45-65 1.45-65 1.98 1.98 Note - Average price in dlrs per bushel. Barley season begins June 1. OATS - in mln bushels 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Yield (bu) 56.0 56.0 63.7 63.7 Start Stcks 184 184 180 180 Production 385 385 521 521 Imports 30 30 28 28 Total 598 598 729 729 OATS, in mln bushels (cont.) 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Usage -- Feed 400 400 460 460 Other 85 85 83 83 Ttl Domes 485 485 543 543 Exports 2 2 2 2 Total 487 487 545 545 End Stcks 111 111 184 184 AvgPrice 1.00-20 1.00-20 1.23 1.23 Note - Average price in dlrs per bushel. Oats season begins June 1. LONG GRAIN RICE, in mln CWTs (100 lbs) -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Harvested -- Acres (mln) 1.83 1.83 1.94 1.94 Yield (lbs) 5,358 5,358 5,168 5,168 Start Stks 49.3 49.3 37.7 37.7 Production 97.8 97.8 100.4 100.4 Ttl Supply 148.6 148.6 140.1 140.1 Note -- Starting Stocks does not include broken kernels -- Supply minus use does not equal ending stocks in breakdowns. Total Supply includes imports but not broken kernels. LONG GRAIN RICE, in mln CWTs (100 lbs), cont. -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Domestic Use 43.0 43.0 48.8 48.8 Exports 65.0 60.0 42.0 42.0 Total Use 108.0 103.0 90.8 90.8 End Stocks-X 40.6 45.6 49.3 49.3 AvgPric 3.45-4.25 3.45-4.24 6.86 6.86 Note - Average price in dlrs per cwt. X-Broken kernels not included -- supply minus use does not equal ending stocks in breakdowns. Rice season begins August 1. MEDIUM, SHORT GRAIN RICE - in mln CWTs (100 lbs) -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Harvested -- Acres (mln) 0.55 0.55 0.55 0.55 Yield (lbs) 6,651 6,651 6,258 6,258 Start Stks 26.7 26.7 25.7 25.7 Production 36.6 36.6 34.5 34.5 Ttl Supply 65.3 65.3 61.7 61.7 Note -- Starting Stocks does not include broken kernels -- Supply minus use does not equal ending stocks in breakdowns. Total Supply includes imports but not broken kernels. MEDIUM, SHORT GRAIN RICE, in mln CWTs (100 lbs), cont. -- 1986/87 1985/86 04/09/87 03/09/87 04/09/87 03/09/87 Domestic Use 24.0 24.0 17.0 17.0 Exports 15.0 20.0 16.7 16.7 Total Use 39.0 44.0 33.7 33.7 End Stocks-X 24.5 19.5 26.7 26.7 AvgPric 3.45-4.25 3.45-4.25 5.91 5.91 Note - Average price in dlrs per CWT. X-Broken kernels not included - supply minus use does not equal ending stocks in breakdowns. Rice season begins August 1. NOTES ON U.S. SUPPLY/DEMAND TABLES -- N.A. - Not available. -- Totals may not add due to rounding. -- Figures for 1986/87 are midpoint of USDA range. -- Feed usage for corn, wheat, soybean, feedgrains, sorghum, barley, oats includes residual amount. -- Residual amount included in rice and medium/short grain rice domestic usage. -- Rice, long grain, and medium/short grain rice average price for 1985/86 estimates and 1986/87 projections are market prices and exclude cash retained under the marketing loan since April, 1986. Reuter ================================================== Title: COMMODITY PACTS MORE ORIENTED TOWARDS MARKET Consuming countries, chastened by the collapse of International Tin Council (ITC) price support operations in 1985, are insisting more than ever before that commodity pacts reflect the reality of the markets they are serving, a Reuter survey showed. They want price ranges to be more responsive to market trends - to avoid overstimulating output and straining the accords' support operations - and intervention rules that avoid the risk of exports by non-members undermining the pacts. Consumers and producers, mindful of ITC buffer stock losses, have also sought strict conditions for buffer operations. Importers and some key exporting countries have shunned a generalised approach to commodity price stabilisation and prefer to assess each commodity case by case, the survey showed. The International Cocoa Organization (ICCO) last week set precise limits on what the Buffer Stock Manager (BSM) could do under the new agreement. It imposed daily and weekly purchase limits, prohibited the BSM from operating on futures markets and stipulated, after consumer insistence, that up to 15 pct of total buffer stock purchases could be of non-member cocoa. This will help prevent lower quality cocoa from Malaysia, the world's fourth largest producer, undermining the market. The cocoa pact establishes precise differentials the Buffer Stock Manager must use when purchasing varying grades. A new International Natural Rubber Agreement (INRA) was adopted earlier this month in Geneva. Importing and exporting countries agreed several changes to make the reference price more responsive to market trends and they eliminated provisions under which the buffer stock could borrow from banks to finance operations. Direct cash contributions from members will fund buffer stock purchases. Bank financing was a particular feature of the failed ITC buffer stock which suffered losses running into hundreds of millions of sterling. Legal wrangles continue. Recent International Coffee Organization (ICO) negotiations in London exemplified the degree to which consumers insist that agreements reflect market reality, commodity analysts said. Consumers and a small group of producers argued that "objective criteria" should be used to define export quota shares, which would have meant a reduction in the share of Brazil, the world's leading producer. Brazil wanted to maintain its previous quota share of 30 pct. The talks broke down and, although an ICO executive board meeting starts in London today, delegates and trade sources see chances of any near term negotiations on export quota distribution as remote. International agreements exist for sugar and wheat. These do not have any economic clauses but provide a forum for discussions on possible future economic agreements, collect statistics and draw up market analyses. Analysts said differences between sugar exporting countries have held up any progress towards an accord with economic teeth, while sheer competition between major exporters amid a world grain glut militate against any pact with economic provisions for wheat. An alternative focus for commodity discussions are international study groups, made up of governments with advice from industry, such as those for lead and zinc and rubber. The U.N. Common fund for commodities, with a planned directly contributed capital of 470 mln dlrs, has failed to become operational because neither the U.S. Nor the Soviet Union has ratified it. U.S. Officials in Washington said the U.S. Doubts the fund would be able to fulfil its objectives, citing the lack of widespread support. U.S. Officials in Washington and Malaysian officials in Kuala Lumpur expressed a policy of looking at each commodity pact case by case. U.S. Officials said it has been willing to study individual cases for economically sound, market-oriented commodity accords balancing producer and consumer interests. "We see little to be gained by attempting to increase the price of a commodity whose long-term trend is downward," official Administration policy states. The U.S. Currently belongs to only two international commodity agreements that have economic clauses - the International Coffee Agreement (ICA) and INRA - but it is also a member of the sugar and wheat pacts. The U.S. Did not join the International Cocoa Agreement because it considered its proposed price ranges unrealistic and not designed to protect the interests of consuming countries, the State Department said. U.S. Officials singled out the INRA as the one commodity agreement that seems to be working. U.S. Negotiators were successful in getting other members of the pact to agree that the price review and adjustment mechanism of the rubber agreement would accurately reflect market trends and also to continue the accord as a market oriented agreement, U.S. Officials said. Canadian officials in Ottawa also said they have consistently tried to look at membership of commodity pacts on the merits of each case. Malaysian Primary Industries Minister Lim Keng Yaik told Reuters in Kuala Lumpur his country, the world's top producer of rubber, tin and palm oil, decides its participation in international commodity pacts case by case. Malaysia is a member of the Association of Tin Producing Countries (ATPC) which produce 65 pct of world tin. The ATPC launched a plan to limit member tin exports to 96,000 tonnes for a year from March to cut the tin surplus to 50,000 from 70,000. Economist in the West German Ministry of Agriculture and delegate to cocoa, wheat and sugar agreements Peter Baron told Reuters in London, "Agreements with economic clauses to stabilise prices could function if fixed price ranges were close to market reality, if there was full participation by producers and consumers, and if participants were prepared to take their obligations in the framework of the agreement seriously." But Baron added, "No real sanctions are available for a country that doesn't stick to its obligations...The German approach is sceptical. We don't think agreements are the best instrument to help developing countries. They were never meant to be a vehicle for the transfer of resources and that is how developing countries often interpret them." Traditionally Britain has always been supportive of commodity agreements, reflecting its strong links with Third World producing countries. But recently demands for more stringent and justifiable pacts with emphasis placed on the need for "intellectual honesty" and "objective criteria" have grown. British officials stress the need for commodity pacts to be a two way partnership in trade rather than a disguise for aid. It is now seen as essential that any pacts involving direct market participation through a buffer stock have a high degree of transparency and do not contain the risk of open-ended borrowing that occurred in the tin pact, they said. U.K. Delegates talk of stabilisation and the need for prices to reflect changes in market structure and price trends rather than dictate what prices should be. A Foreign Ministry official in Tokyo said Japan urges price realism in commodity pacts, adding high prices inflate supply. A government spokesman in Paris said France is favourable to commodity pacts. France, a large consumer and producer of sugar, favours a sugar pact as long as it reflects the real market situation, particularly regarding stocks. Indonesia's Foreign Minister Mochtar Kusumaatmadja told Reuters in Jakarta: "These agreements can work as long as the problems are cyclical..But it's another matter when there are structural problems..But we are still committed to commodity agreements as an act of faith." Nicaraguan External Trade Minister Alejandro Martinez Cuenca said in London producers cannot afford not to give their backing to commodity agreements. "The political will is not there on the part of some consumers to make agreements work," Martinez Cuenca said. The head of the economics department in the Brazilian Foreign Ministry, Sebastiao do Rego Barros, told Reuters an agreement can be successful if it keeps a link with market reality. If you have an agreement such as coffee with a system of quotas, with a link between prices practised inside the pact and actual market prices, it can work. UNCTAD spokesman Graham Shanley said consuming countries realise steady export earnings enhance developing countries' ability to service debt and mean greater demand for industrialised nations' capital goods. REUTER ================================================== Title: BRAZIL DEBT SEEN PARTNER TO HARD SELL TACTICS Brazil's recent announcement of a suspension in interest payments on 68 billion dlrs of foreign debt gave the banking system the jitters and confirmed views among many international economists and commodities analysts that Brazil will continue to flex its trading muscles in 1987. The developing world's most indebted nation is also its most prolific exporter of agricultural commodities such as coffee and soybeans, and might maximize foreign exchange revenue by selling hard on world markets, economists said. "That sounds like a reasonable strategy. But there is no way they can trade their way out of this situation," Aldo Roldan, Vice President for International Services at Chase Econometrics, said. Roldan told Reuters that Brazil not only had to tackle the problems of satisfying domestic demand and competing on glutted world markets, but also had to work to make its position on foreign exchange markets more profitable. "Domestic costs have increased (due to inflation) and exporters have not had the same offsetting movement in exchange rates," Roldan said. The Chase economist also said commodities markets were depressed and generally did not appear very promising for a country like Brazil, where pure commodities account for some 50 pct of exports and in 1986 had a total value of around 23 billion dlrs. But he added: "They are always pretty aggressive and they have good foreign marketing channels." Analysts said a key factor in Brazilian trade will be coffee, and even without background pressure from foreign creditors the world's largest producer was expected to hit the market this year with a vengeance. Negotiations between International Coffee Organization (ICO) members to re-establish producer export quotas broke up earlier this week with major producers and consumers accusing each other of intransigence. "Brazil would not tolerate a change in ICO regulations, which others wanted changed," one senior coffee dealer said. The dealer, who declined to be named, said Brazil wanted to preserve its market share. At the end of the talks, he said Brazil hinted it could sell more than anyone else and others would suffer. Brazil will be an aggressive seller under any scenario but as yet there is no sign of unusually heavy Brazilian sales, the dealer said. "If they do come into the market at this level it will go lower and you could breach a dollar, ninety or eighty cents," he said. New York coffee futures for May delivery settled 2.29 cents lower Thursday at 104.68 cents a lb, while more distant deliveries fell the six-cent maximum trading limit. President of the Brazilian Coffee Institute, Jorio Dauster told a press conference in Rio de Janeiro today that Brazil has no set target for its coffee exports following the breakdown of the ICO talks on export quotas. Many economists and analysts believe soybeans could be the focus of possible stepped-up Brazilian marketing efforts. "They will be more aggressive this year than they have ever been," according to Richard Loewy, analyst for Prudential-Bache Securities Inc. Loewy believes the foreign debt problem, a good crop, plus difficulties with storage would help motivate selling of the Brazil soybean crop. "Brazilian farmers also need cash flow and they can't afford to store the crops," he said. The Chicago soybean complex has been nervous for some time about large South American crops developing under near ideal conditions towards record yields. "We are going to see a very rapid decline, earlier than usual, this year in our (U.S.) exports," Loewy said. Tommy Eshleman, economist for the American Soybean Association (ASA), said this year's Brazilian soybean harvest could total 18 mln tonnes, versus 13.7 mln last year. Marketings will be very aggressive this summer when prices are usually high relative to the rest of the year due to the vulnerability of the U.S. crop to bad growing weather. Another incentive to sell might be trade anticipation of a reduction in the U.S. government soybean loan rate, offered to farmers who give crops as collateral, Eshleman said. He said there has been some uncertainty this year about the soybean loan rate, which acts as an effective floor for prices by keeping supplies away from the free market. Farmers can forfeit their beans to the government rather than repay the loan. "We're getting into a period when they (Brazil) are starting to harvest and starting to export," Eshleman said. But he added it will be a while before U.S. exports fall to below 10 mln bushels a week from around 20 mln bushels currently. Jose Melicias from the research department of Drexel Burnham Lambert said Brazil would be trying to export as much as it can this year because of its economic situation. He said the debt situation was a major consideration. "The Brazilian government also does not have enough money to pay for storage," he added. Asked if a return to an inflationary environment in Brazil would make farmers inclined to hold onto crops, Melicias said it would not make a big difference. On other commodity markets, Brazil's selling impact may be muted no matter its need to generate capital. Brazil is faced with a poor 1986/87 sugar harvest, which could limit exports to the world market, analysts said. The country may have oversold and be unable to honor export commitments, and this plus higher domestic demand caused by consumer price subsidies on ethanol and refined sugar, will give it little room to stretch exports, they said. Brazil's other major crop, cocoa, is in its third year of surplus. "Cocoa consumption is basically flat and last year it fell, so I don't think they can start throwing out cocoa and find many more markets for it," one analyst said. "If they come out as aggressive sellers, the market would collapse and they can't afford to do that," she added. Reuter ================================================== Title: ICO QUOTAS BEFORE OCTOBER UNLIKELY - DELEGATES The restoration of coffee export quotas before the end of the current 1986/87 coffee year (Oct 1/Sept 30) now seems unlikely, given reluctance by International Coffee Organization, ICO, producers and consumers to resume negotiations on an interim quota accord, producer delegates told reporters. Consumers and most producers see no point in reopening the quota dialogue while Brazil's position remains unchanged, they said. Brazil's refusal to accept a reduction in its previous 30 pct share of the ICO's global export quota effectively torpedoed talks here last month aimed at restoring quotas before October, the delegates noted. Disappointment at the lack of progress on quotas forced coffee futures in London and New York to new lows today, traders here said. Near May in New York fell below one dlr in early trading at around 99.10 cents per pound, traders said. Producer delegates said that while the possibility of reimposing quotas before October remained on the ICO agenda, in practice the idea had effectively been discarded. The ICO's executive board session here this week has so far barely touched on the quota debate, demonstrating general unwillingness to revive talks while chances of success are still remote, producer delegates said. Some producers are in no hurry to see quotas restored, despite the price collapse seen since the failure of last month's negotiations, they said. "With Brazil's frost season approaching, who wants to negotiate quotas," one leading producer delegate said. Coffee prices normally rise during Brazil's frost season (mainly June-August) as dealers and roasters build up stocks as insurance against possible severe frost damage to Brazil's crop. Many producers are more interested in working towards reimposing quotas from October 1, based on a new system of quota allocations valid until the International Coffee Agreement expires in 1989, they said. Guatemala has already proposed the "other oilds" producer group should meet in the next two months to begin talks on how to allocate quota shares. Producers still seem divided on how to overhaul the quota distribution system, with some producer delegates reporting growing support for a radical reallocation, based on the principle of "objective criteria" favoured by consumers. At last month's council session a splinter group of small producers backed consumer demands for new quota shares based on exportable production and stocks, while Brazil, Colombia and the rest of the producers favoured leaving quota allocations unchanged, except for some temporary adjustments. A delegate from one of the eight said more producers now supported their cause. The delegate said unless major producers like Brazil showed readiness to negotiate new quota shares, prospects for a quota accord in October also looked bleak. The U.S. and most other consumers are still determined to make reimposition of quotas conditional on a redistribution of quota shares based on "objective criteria." ICO observers remained sceptical that Brazil would be prepared to accept a quota reduction when the ICO council meets in September. Brazil has adopted a tough stance with banks on external debt negotiations and is likely to be just as tough on coffee, they said. They said Brazil's reluctance to open coffee export registrations might reflect fears this would provoke another price slide and force an emergency ICO council session, which would most likely end in failure. Producers met this afternoon to review the market situation but had only a general discussion about how further negotiations should proceed, a producer delegate said. Producers plan to hold consultations on quotas, and then may set a date for a formal producer meeting, but plans are not fixed, he said. The ICO executive board reconvened at 1650 hours local time to hear a report from consultants on ICO operations. The board meeting looks set to end today, a day earlier than scheduled, delegates said. Reuter ================================================== Title: CHINA FACES DILEMMA OVER SUGAR IMPORTS China has to decide if it will increase sugar imports this year to cover falling domestic output and rising demand, in view of market predictions that international sugar prices will remain firm this year, traders and the official press said. He Kang, Minister of Agriculture, Animal Husbandry and Fisheries, said this week that China has adjusted the purchasing price for sugar cane and beet to check a drop in production last year but he gave no price details. One Japanese trader said domestic demand is rising rapidly because of improving living standards and rising demand for sweet drinks, cakes and biscuits and other sugary foods. "It will not be easy to cut domestic demand, even in a state-controlled economy. China may have to import," he said. Customs figures show imports fell to 1.182 mln tonnes in 1986 from 1.909 mln in 1985 and fell to 25,165 tonnes in January 1987 from 54,000 in January 1986. The official Economic Information newspaper last month said production in the 1986/87 crushing season (September-April) will be 1.18 mln tonnes short of demand. The paper put 1986/87 output at 4.82 mln, down from 5.24 mln in 1985/86, and domestic demand at about six mln tonnes. "In the last two years, acreage under sugar cane and beet has fallen, sugar mills are underutilised, output has dropped and cannot meet demand that is rising every day," it said. "The country will have to continue imports of sugar and draw down stocks to meet market demand," it added. It quoted the Ministry of Light Industry as blaming the drop in output on unreasonable state purchasing prices for cane and beet as against other crops, which has resulted in farmers refusing to grow them. The paper said in 1985 a farmer could earn up to three times more per hectare from pineapple and watermelon and up to seven times more from bananas than from sugarcane. He could sell grain on the free market at 560 yuan a tonne, against only 70 yuan a tonne for sugarcane. Sugar mills are suffering because refined sugar prices have not changed for 20 years despite rising costs, it said. In Fujian, the cost of producing one tonne rose to 702 yuan in 1985 from 520.1 in 1980, cutting the mills' profit to 117 yuan a tonne from 217.9, it added. The paper said unreasonable pricing resulted in 144 of the 442 sugar mills working in the 1985/86 crushing season losing money. China has 521 sugar mills. A foreign agricultural expert forecast a drop in cane acreage in 1986/87 (September-August) of up to 10 pct in Guangdong, which produced 45 pct of China's sugar in calendar 1985, and a smaller drop in Fujian, which produced 11 pct of China's sugar in calendar 1985. He said both provinces are more developed than other sugar-producing areas and more sensitive to demand from cities. But cane acreage in Guangxi and Yunnan, which accounted for 28 pct of the 1985 crop, has risen by 10 to 30 pct in 1986/87, because cane-growing is more economic there, he said. He put sugar stocks at 2.333 mln tonnes in September 1986. A Hong Kong trader estimated stocks at more than three mln at end-January. "Now they are falling but (they) have not reached the critical level, compelling China to import quickly," he said. "China has options not easily available in western countries. It controls stocks strictly and can release less into the consumer market if stocks fall too quickly," he said. The Hong Kong trader said calendar 1987 imports will be slightly less than those of 1986, because of firm world prices and serious foreign exchange constraints which, he said, are likely to continue until at least end-1988. He said nearly all cane and beet is sold to the state-owned mills, with a small amount sold raw to consumers. "Most of the mills are old and inefficient, with many of them using Soviet equipment imported in the 1950s," he said. He said demand in rural areas will in future rise an annual four pct, with demand in the cities rising an annual two pct. REUTER ================================================== ************************************************** Topic 14 ************************************************** Title: LORD ABBETT AND CO DECLARES MUTUAL FUND DIVS LORD ABBETT VALUE APPRECIATION FUND Annual div 33 cts vs 23 cts prior Long term capital gain 2.06 vs 75 cts prior Short term capital gain 18 cts vs 11 cts prior Pay April 6 Record March 12 LORD ABBETT U.S. GOVERNMENT SECURITIES FUND Daily div .029 cts vs .029 cts prior Pay April 15 Record April 15 LORD ABBETT TAX FREE INCOME NATIONAL SERIES Daily .068 cts vs .068 prior Pay April 15 Record April 15 LORD ABBETT TAX FREE INCOME FUND NY SERIES Daily .067 cts vs .067 cts prior Pay April 15 Record April 15 LORD ABBETT TAX FREE INCOME FUND TEXAS SERIES Daily .059 cts vs .059 cts prior Pay April 15 Record April 15 LORD ABBETT CALIFORNIA TAX FREE INCOME FUND Daily .062 vs .063 cts prior Pay April 15 Record April 15 Reuter ================================================== Title: LORD ABBETT AND CO MUTUAL FUND DIVIDENDS LORD ABBETT BOND DEBENTURE FUND Qtly div 28 cts vs 29 cts prior Pay May 5 Record April 9 --- LORD ABBETT U.S. GOVERNMENT SECURITIES FUND Daily div 2.9 cts vs 2.9 cts prior Pay May 15 Record May 15 LORD ABBETT TAX FREE INCOME FUND NATIONAL SERIES Daily div 6.7 cts vs 6.7 cts prior Pay May 15 Record May 15 --- LORD ABBETT TAX FREE INCOME NEW YORK SERIES Daily div 6.7 cts vs 6.7 cts prior Pay May 15 Record May 15 LORD ABBETT TAX FREE INCOME TEXAS SERIES Daily div 5.9 cts vs 5.9 cts prior Pay May 15 Record May 15 --- LORD ABBETT CALIFORNIA TAX FREE INCOME Daily div of 6.2 cts vs 6.2 cts prior Pay May 15 Record May 15 Reuter ================================================== Title: ROTTERDAM GRAINS - APR 7 Sellers rulling at 1200 local time in No Two Soft Red Winter Jne 129.50 up 1.50 Jly 124.50 up 1.50 Aug 126.50 up 1.50 Sep 127.50 up 1.50 US Northern Spring 14 pct protein Apl/May 139.50 up one Jne 139 up 0.50 Jly 138 down 0.50 Aug 134.50 up 0.50 US Northern Spring 15 pct protein Apl/May 159.50 up one Jne 157 unch Jly 155 unch Aug 151 unch WHEAT - US three Hard Amber Durum Apl/May 161 unch Jne 160 unch Jly 160 unch Aug 155 unch Canadian One Western Red Spring 13.5 pct Apl/May 148.50 unch Jne 146.50 unch Jly 146.50 unch Aug 144 unch Canadian Two Western Red Spring 13.5 pct Apl/May 135 unch Jne 133 unch Jly 133 unch Aug 133 unch Canadian One Western Amber Durum Apl/May 168 unch MAIZE - US Three Yellow Afloat 94 Apl 86 unch May 85 unch Jne 84.50 unch Jly 84.50 unch MAIZE - Argentine Plate Apl/Jne 95.50 unch Jly 96.50 unch Aug 98 unch MILLET - Argentine Plate Apl 133 unch May 135 unch REUTER ================================================== Title: JEFFERIES <JEFG> CHAIRMAN PLEADING GUILTY, QUITS Jefferies Group Inc said founder and chairman Boyd L. Jefferies has resigned and intends to plead guilty to two felony counts of violating federal securities laws. The company said neither Boyd Jefferies nor the company ever engaged in insider trading and neither he nor the company ever sought or communicated insider information or violated ny trust of confidence placed in them by customers. It said no governmental authority has ever alleged any such activity on Boyd Jefferies' part or the part of the company. The company said Boyd Jefferies has consented to an administrative order barring him from the securities business for at least five years and he has agreed to place his 13 pct holding in Jefferies Group stock in a voting trust during that period. The company said, without admitting any allegations made by the Securities and Exchange Commission, Boyd Jefferies, Jefferies Group and primary brokerage subsidiary Jefferies and Co also consented to an injunction barring any future securities laws violations. It said Jefferies and Co has agreed further to undertake reviews to assure that its internal recordkeeping and other control systems are in compliance with federal laws. The company said president and chief operating officer Frank E. Baxter will assume the added duties of chief executive officer. Boyd Jefferies had been chief executive. The company said the criminal charges against Boy Jefferies resulted from a transaction in which, on behalf of Jefferies and Co, he agreed to purchase stocks from entities controlled by Ivan F. Boesky and later resell the stock to the Boesky firms. It said "Within days of the purchase, the market value of one of the stocks fell sharply and, pursuant to their agreement, a Boesky entity paid Jefferies and Co three mln dlrs to offset the loss. The company said Boyd Jefferies will admit that following the loss he ordered that Boesky receive a bill for three mln dlrs for investment advisory and corporate finance services, although Jefferies and Co treated the three mln dlrs as an offset to the losses it experienced. It said by rendering the involice, Boyd Jefferies apparently enabled one of the Boesky entities to make a false entry in its books, resulting in the charge, to which Boyd Jefferies will plead guilty, of aiding and abetting one of the Boesky firms in making false entries on its books. The company said Boyd Jefferies will also plead guilty to a margin violation resulting from a transaction in which he caused Jefferies and Co to buy shares at the request of a customer in the company's trading account. It was expected that the customer would be responsible for any loss on the shares and would also receive any profit, and because the customer had not put up any funds for the purchase, Boyd Jefferies had in effect caused Jefferies and Co to finance the full purchase price for the shares in violation of margin requirements, the company said. The company quoted Boyd Jefferies as saying, "I fully accept sole responsibility for these transactions. I think it is appropriate that I suffer the consequences for my actions rather than the company." Jefferies Group said it expects no impact on its operations or client base from Boyd Jefferies' departure. Reuter ================================================== Title: SEC DETAILS CHARGES AGAINST JEFFERIES Federal regulators said Boyd Jefferies, who resigned as head of his Los Angeles brokerage firm, took part in schemes to manipulate the price of a stock and in a stock "parking" plot with inside trader Ivan Boesky. In a civil complaint filed in U.S. District Court in New York, the Securities and Exchange Commission said Jefferies agreed with an unidentified person to have his firm buy up a large chunk of stock being issued in a public offering. Under the agreement, the firm, Jefferies and Co, drove the price of the stock up by one-eighth point by buying four blocks of the stock at or near the close of trading, the SEC said. Jefferies and Co's purchases of the unidentified stock accounted for 66 pct of the total trading volume of the stock on that day and were aimed at manipulation, the SEC said. The complaint did not identify the company whose stock was being traded, but said that the Jefferies and Co purchases took place sometime last year when another unidentified company, which owned a controlling interest in the company, sold several million shares of the stock in a secondary public offering. The stock purchases were made on the New York Stock Exchange and the Pacific Stock Exchange, the SEC said. The person who made the alleged stock manipulation agreement with Jefferies was also not identified. But the person was later billed by Jefferies and Co in a phony invoice marked for investment banking services for the exact amount the firm lost on the deal when it later sold the stock on the open market, the SEC said. The payment, the amount of which was also not revealed in the complaint, was made later by another unidentified person after Jefferies sent a second invoice for a lesser amount, the SEC said. The firm recorded the payment as "other income," it said. William McLucas, associate director of enforcement at the SEC, declined to say why the agency decided against revealing the identities of other persons and companies involved in the stock manipulation scheme. "We just made a determination that this was the way to go at this time," McLucas told Reuters. The complaint went into far greater detail in its charges that Jefferies agreed with Boesky to "park" stock at each other's firms. Parking, or warehousing, stock, refers to deals where stock is held by one person or firm under an arrangement where it is actually under the control of someone else. Under the agreement between Jefferies and Boesky, Jefferies and Co would hold stock owned by Seemala Corp, one of Boesky's brokerage firms, for 31 days, after which Seemala would "buy" the stock back, the SEC said. Seemala realized all gains and sustained all losses on the stock held by Jefferies and Co during the period, agreed to compensate Jefferies and Co for carrying the stock and to pay more than twice Jefferies and Co's usual commission, it said. Seemala then agreed to hold stock owned by Jefferies and Co for a month under terms about the same as the deal in which Seemala agreed to park its stock at Jefferies and Co, it said. The agreement, which violated several securities laws, allowed Seemala to create a false appearance that no longer held the stock and could meet the SEC's net capital requirements, the SEC said. Jefferies wanted Seemala to hold some of its stock, the SEC said, so that Jefferies and Co could meet its net capital needs, the agency said. On March 12, 1985, Seemala "sold" Jefferies 810,000 shares oc Cooper Laboratories Inc for 11.7 mln dlrs, 600,000 shares of Southland Financial Corp for 17.3 mln dlrs and 500,000 shares of G.D. Searle and Co for 27.1 mln dlrs, it said. On March 20, Jefferies and Co "sold" Seemala 185,500 shares of American Broadcasting Co for 19.6 mln dlrs, 210,000 shares of Ideal Basic Industries Inc for 2.9 mln dlrs, 300,000 shares of ITT Corp for 9.8 mln dlrs, 105,000 shares of Phillips Petroleum Co for 4.0 mln dlrs, 70,000 shares of Pioneer Corp for 2.1 mln dlrs and 300,000 shares of Texas Oil and Gas Corp for 5.3 mln dlrs, the SEC said. The value of Seemala's stock at the time of the transfers was 56 mln dlrs, while Jefferies and Co's stock was worth 43 mln dlrs at the time, the SEC said. Within a month, Seemala and Jefferies and Co unwound most of the stock transfers with each others firms, the SEC said. But a major hitch developed in the deal when the price of Searle stock, which Jefferies and Co was holding for Seemala, dipped sharply, it said. On March 26 Seemala "bought" back its Searle stock for 23.4 mln dlrs, resulting in a 3.6 mln dlr loss for Jefferies and Co, the SEC said. Seemala then allowed Jefferies and Co to "buy" back some it the stock Seemala was holding for it at a 647,812 dlr gain and Boesky's firms later paid the Jefferies firm three mln dlrs, which it called "fees," it said. Among the violations Jefferies committed in the schemes, were net capital, record keeping, public disclosure and margin requirements, the SEC said. Under the settlement of the civil SEC's charges, which was announced simultaneously with the filing of the complaint, Jefferies and his firm did not have to admit or deny guilt. But they agreed to a court order barring them from further securities law violations. Jefferies also agreed to get out of the securities business for at least five years. Reuter ================================================== Title: SUDAN REJECTS IMF DEMAND FOR DEVALUATION Sudan has rejected a demand by the International Monetary Fund for a currency devaluation because such a move would have a negative impact on its economy, the official Sudan News Agency (SUNA) reported. Finance Minister Beshir Omer, quoted by SUNA, said his government also rejected an IMF demand to lift state subsidies on basic consumer goods. SUNA, monitored by the British Broadcasting Corporation, said Omer made the remarks after a meeting in Khartoum yesterday with IMF envoy Abdel-Shakour Shaalan. Sudan, burdened by a foreign debt of 10.6 billion dlrs, is some 500 mln dlrs in arrears to the IMF, which declared it ineligible for fresh loans in February last year. In February 1985, Sudan announced a 48 pct devaluation of its pound against the dollar, adjusting the official exchange rate to 2.5 pounds to the U.S. Currency. Since then, it has resisted pressure from main creditors for more currency adjustments, arguing that past devaluations had failed to boost exports but raised local consumer prices. Sudan also has an incentive rate of four pounds to the dollar for foreign visitors and remittances by expatriate workers. Dealers in Khartoum's thriving black market said the dollar was sold at 5.5 pounds today. With stringent import regulations and the government increasingly short of foreign currency, black market dollars are used to finance smuggled imports from neighbouring countries, mainly Egypt, Kenya, Ethiopia and Zaire. Western diplomats in Khartoum say the meetings between IMF and Sudanese government officials do not amount to formal talks, but rather an effort by the IMF to monitor Sudan's economic performance. The diplomats said Sudan hoped a planned four-year economic recovery program would be acceptable to the IMF as a serious attempt to tackle the country's economic troubles and persuade its Gulf Arab creditors to pay the IMF arrears. This, they said, could provide Sudan with a clean bill of health from the IMF that it could take to Western government creditors, grouped informally in the so-called Paris Club, to reschedule debt payments. Twenty-three pct of Sudan's total foreign debt is owed to members of the Paris Club, the diplomats said. Sudan's Finance Minister said last month the country's IMF representative had told him the fund's executive board was "very pleased with the 18.5 mln dlrs arrears we have paid in the past couple of months." The representative, Omer Said, said IMF Managing Director Michel Camdessus said he would ask Saudi Arabia, to which Sudan owes about 1.4 billion dlrs, to help Khartoum to pay more. Sudan has an annual debt liability of nearly 900 mln dlrs but set aside only some 200 mln dlrs to service debts in the fiscal year ending next June 30. REUTER ================================================== Title: GM <GM> BUYBACK SEEN CALMING SHAREHOLDERS Wall Street analysts said a share repurchase program announced by General Motors Corp is in part an attempt to placate shareholders angry over the recent repurchase of shares from Texan H. Ross Perot last year. "He (Perot) was obviously the big trigger" said analyst Joseph Phillippi of E.F. Hutton Co. "There was a firestorm of criticism from people on the institutional side." Wall Street analysts said the GM buyback will boost the shares in the near term but some had reservations about the long term effects of the plan. "They're trying to soothe irate shareholders irriated by the buyout of Ross Perot," said analyst David Healy of Drexel Burnham Lambert Inc. Healy said General Motors chairman Roger Smith had been hinting at a buyback program in meetings with institutional investors. He said the plan, which could cost more than five billion dlrs over four years, was similar in size to Ford Motor Co's <F> repurchase program but smaller on a percentage basis than that of Chrysler Corp <C>. Healy said General Motors will have to borrow money to buy back stock on a large scale. The General Motors plan, announced after a board of directors meeting in New York, calls for repurchase of up to 20 pct of the common stock by the end of 1990. The GM board also authorized repurchase of up to five mln class E <GME> and class H <GMH> shares. GM shares closed at 75-5/8, up 7/8, in composite trading prior to the company's announcement. However subsequently Jefferies and Co, which trades NYSE-listed issues outside regular hours, said it was making a market in the shares at 77-1/2 to 78. "The stock is obviously going to be strong tomorrow," said Ronald Glantz, analyst at Montgomery Securities. "I don't know where the money (for the buyback) is coming from unless they borrow," Glantz said. "Their credit rating is going to fall." GM said it anticipates a decrease in automotive capital spending. Glantz believes GM could be inviting a strike this fall by going ahead with the buyback program at a time when it has 37,000 employees on indefinite layoff and 11 plants marked for closing. After deciding against a profit sharing bonus for workers and buying out Perot for 743 mln dlrs "this will be seen as rubbing salt into the wound," Glantz said. "GM must be challenging the union to make it the strike target." Glantz said he is not changing his buy recommendation on GM and expects the shares to rise. But he said he did not think the overall plan was "prudent." "Obviously we're going to get at least an opening gap in the stock tomorrow," Hutton's Phillippi said. He says GM apparently believes as a result of a cost reduction program plus the falloff in capital spending levels "they can handle a stock buyback of this magnitude within the confines of their cash flow." Phillippi, who has been telling clients to hold GM shares mainly for income, said on balance "we've got to feel they're doing something constructive." Reuter ================================================== Title: KODAK <EK> TO CUT POLYESTER FIBER OPERATIONS Eastman Kodak Co said it will reduce capacity and employment levels in two polyester fiber operations of its Eastman Chemicals division. A company spokesman said the company will take "some writeoff" in connection with the action in the first quarter and there will probably be a further "carryover" writeoff in the second quarter. The writeoffs will cover the costs of plants and equipment involved, as well as expenses connected with the staff cuts. Kodak said the division will discontinue production of polyester partially-oriented filament yarn, or POY, at its Carolina Eastman Co plant in Columbia, S.C., and will idle 100 mln pounds of older polyester staple fiber production capacity, mostly in Columbia. The company said about 350 jobs will be affected in Columbia, most of which are now performed by contract workers, and about 225 jobs at its Tennessee Eastman Co plant in Kingsport, Tenn. Kodak said part of the staff reduction will be achieved through an enhanced voluntary separation and retirement plan for employees of Carolina Eastman, Eastman Chemical Products Inc and other Kodak units in Kingsport, except Holsten Defense Corp. Most of the workforce reduction is expected to be completed by April 30. Kodak said depressed prices and poor financial performance have led to the decision. It said about 50 mln pounds of POY production will be shut down as a result of its exit from the business. All Kodak POY production has been at Carolina Eastman since last year. The company said annual capacity for production of Kodel polyester staple fiber will be reduced to 400 mln pounds from 500 mln due to lesser demand. It said it will proceed with a previous decision to phase in a new 100 mln pound staple fiber plant at Carolina Eastman. Carolina Eastman employs about 1,350 and the Kingsport units affected about 10,800. The company spokesman later said the charges will be insignificant and will have no impact on earnings estimates. Reuter ================================================== Title: N.Y. COMEX METALS WAREHOUSE STOCKS - APRIL 7 total 156,708,754 off 323,664. Chase Manhattan 30,034,873 unch, Citibank 61,107,328, off 340,082 Iron Mountain 25,980,352 unch, Irving Trust. 1,316,184. unch, Republic. Natl 33,008,542 up 16,418, Swiss.Bank. 5,261,475 unch. COPPER total 96,547 off 667. Port of New York 6,468 unch, New Haven 4,351 off 605, Stratford Conn 785 unch, Camden N.J. 62 unch, Reading. Pa. 13 unch, Phila nil nil, Balt 12 unch, Chicago 362 unch, E. ST Louis 991 off 37, St Louis 38 unch, New Orleans. 464 off 25, Amarillo Texas 10,907 unch, El Paso Tex. 45,406 unch, Demming, N Mex 10,077 unch, Tacoma. Wash. unch. GOLD - total 2,763,817 off 65,437. Chase Manhattan 728,239 off 64,533 Citibank 1,419,438 off 904, Iron Mountain 270,748 unch, Irving Trust 1,949. unch, Republic National 174,396 unch, Swiss Bank 169,047 unch. ALUMINUM - total 8,627 off 20. Charlotte N.C. nil unch, New Haven 0 unch, New Orleans 734 off 20, Seattle nil unch, Tacoma Wash 885 unch. Vancouver,Wash 7,008 unch. Reuter ================================================== Title: KLM EXPANDS TALKS WITH BRITISH AND COMMONWEALTH KLM Royal Dutch Airways <KLM.AS> said it agreed to take full control of a partially owned Dutch-based parcel delivery service and will offer a minority stake in it to British and Commonwealth Shipping Plc <BCOM.L> KLM, seeking to strengthen its market position in the fast growing door-to-door delivery market, said it agreed with Dutch retailer Vendex International <VENN.AS> to take over Vendex's 50-pct in their jointly-owned courier, <XP System VOF>. Ownership of XP will now be brought into the talks started by KLM last week with British and Commonwealth for a one-third stake in the latter's <IML Air Services Group Ltd> courier. When announcing the negotiations with British and Commonwealth last week, KLM said buying a minority stake in IML could involve a convertible loan issue. A KLM spokeswoman said the Dutch flag carrier would now offer a minority stake in XP to British and Commonwealth in the negotiations on IML, but declined to elaborate on financial aspects of the talks. She said KLM would like the two courier services to cooperate in future and did not exclude a future merger between them to combine IML's strong world-wide network with XP's mainly European activities. XP System is based in the southern Dutch airport of Maastricht and has an annual turnover of 100 mln guilders. KLM, which is also negotiating with British and Commonwealth for a 15-pct stake in the latter's regional airline <Air U.K. Ltd>, says door-to-door delivery courier services are seeing substantially faster growth than traditional cargo activities. REUTER ================================================== ************************************************** Topic 15 ************************************************** Title: NET CHANGE IN EXPORT COMMITMENTS -- USDA The U.S. Agriculture Department gave the net change in export commitments, including sales, cancellations, foreign purchases and cumulative exports, in the current seasons through the week ended April 2, with comparisons, as follows, in tonnes, except as noted -- 4/2/87 Prev Week All Wheat 119,800 368,300 Corn 1,001,900 927,000 Soybeans 240,500 300,900 Soy Cake/Meal 117,700 170,200 Soybean Oil 2,400-x 8,100 Cotton-Y 60,200 31,900 x-minus total. Y-running bales. The indicated totals include reported commitments to both named and unnamed destinations, sales on exporters' own account and optional origin sales plus actual exports already made during the respective marketing seasons. The USDA cautions that reported outstanding sales are subject to modification, deferral or cancellation and it is unlikely that all reported quantities will be exported. USDA gave detailed breakdowns for the 1986/87 and 1987/88 seasons as follows, in thousand tonnes unless stated -- (A) - Firm sales to a declared destination. (B) - Ultimate destination not yet declared. (C) - Sales made on exporters' own account. (D) - Exporter holds option to fill commitment with supplies from origins other than U.S. (E) - Accumulated exports since season began based on data reported by exporters. (F) - Indicated total for season. (G) - USDA-projected exports for season. Note -- Totals may not add due to rounding. ALL WHEAT 1986/87 1987/88 4/2/87 Prev Wk 4/3/87 Prev Wk Named-A 3,157.6 3,684.1 1,591.4 1,635.6 Unnamed-B 143.8 144.3 87.1 57.1 E.O.A.-C 9.5 9.5 nil nil O.O.P.-D nil nil nil nil Gr Total 3,310.9 3,837.9 1,679.0 1,692.7 Ay Expd-E 21,044.6 20,433.4 Ind Ttl-F 24,355.5 24,271.3 USDAPRJ-G 27,900.0 27,900.0 SOYBEANS 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 1,774.7 1,780.3 215.9 215.9 Unnamed-B 500.3 524.8 nil 30.0 E.O.A.-C 18.4 18.4 nil nil O.O.P.-D nil nil nil nil Gr Total 2,293.4 2,323.5 215.9 245.9 Ay Expd-E 14,334.2 14,183.2 Ind Ttl-F 16,627.6 16,506.7 USDAPRJ-G 19,050.0 19,050.0 CORN 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev WK Named-A 8,559.8 8,684.8 772.1 268.8 Unnamed-B 945.7 920.1 nil nil E.O.A-C 90.8 66.9 nil nil O.O.P-D 138.0 175.0 nil nil Gr Total 9,734.3 9,846.9 772.1 268.8 Ay Expd-E 20,296.0 19,293.8 Ind Ttl-F 30,030.3 29,140.7 USDAPRJ-G 31,750.0 31,750.0 SORGHUM 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev WK Named-A 875.6 805.1 nil nil Unnamed-B 151.2 151.2 10.2-x nil E.O.A-C nil nil nil nil O.O.P-D 114.5 138.3 nil nil Gr Total 1,141.3 1,094.6 10.2-x nil Ay Expd-E 3,222.5 3,149.7 Ind Ttl-F 4,363.8 4,244.3 USDAPRJ-G 5,720.0 5,720.0 x-minus total WHEAT PRODUCTS 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 321.0 401.9 nil nil Unnamed-B nil nil nil nil E.O.A.-C nil nil nil nil O.O.P.-D nil nil nil nil Gr Total 321.0 401.9 nil nil Ay Expd-E 926.9 840.9 Ind Ttl-F 1,348.2 1,242.8 Note - Includes bulgur, semolina, farina, rolled, cracked and crushed wheat. SOYBEAN OIL 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 8.8 10.4 nil nil Unnamed-B 7.0 10.5 nil nil E.O.A-C nil nil nil nil O.O.P-D nil nil nil nil Gr Total 15.8 20.9 nil nil Ay Expd-E 138.4 135.8 Ind Ttl-F 154.2 156.7 USDAPRJ-G 610.0 610.0 SOYBEAN CAKE AND MEAL 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 788.0 869.7 50.7 48.4 Unnamed-B 76.0 94.0 nil nil E.O.A-C 2.7 6.1 nil nil O.O.P-D nil nil nil nil Gr Total 866.7 969.8 50.7 48.4 Ay Expd-E 4,098.0 3,880.6 Ind Ttl-F 4,964.7 4,850.4 USDAPRJ-G 5,760.0 5,760.0 COTTONSEED OIL 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 7.4 7.2 nil nil Unnamed-B 0.3 0.3 nil nil E.O.A.-C nil nil nil nil O.O.P.-D 7.8 7.8 nil nil Gr Total 15.4 15.2 nil nil ALL UPLAND DOMESTIC RAW COTTON-Y 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 2,007.9 2,076.1 468.2 457.2 Unnamed-B 20.3 20.2 nil nil E.O.A-C nil nil nil nil O.O.P-C nil nil nil nil Gr Total 2,028.2 2,096.3 468.2 457.2 Ay Expd-E 4,333.1 4,204.7 Ind Ttl-F 6,361.3 6,301.0 USDAPRJ-G 6,335.0 6,335.0 Y-In thousand running bales. BARLEY 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 559.5 584.5 nil nil Unnamed-B 12.7 12.7 nil nil E.O.A.-C nil nil nil nil O.O.P.-D 25.0 25.0 nil nil Gr Total 597.1 622.1 nil nil Ay Expt-E 2,464.6 2,440.7 Ind Ttl-F 3,061.7 3,062.8 USDAPRJ-G 3,270.0 3,270.0 OATS 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A nil nil nil nil Unnamed-B nil nil nil nil E.O.A.-C nil nil nil nil O.O.P.-D nil nil nil nil Gr Total nil nil nil nil Ay Expd-E 2.4 2.4 Ind Ttl-F 2.4 2.4 USDAPRJ-G 30.0 30.0 RICE 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 347.6 369.1 nil nil Unnamed-B 1.0 1.0 nil nil E.O.A-C nil nil nil nil O.O.P-D nil nil nil nil Gr Total 348.6 370.1 nil nil Ay Expd-E 1,718.8 1,688.2 Ind Ttl-F 2,067.4 2,058.3 USDAPRJ-G 2,580.0 2,580.0 HARD RED WINTER WHEAT 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 1,738.0 2,019.7 893.0 943.0 Unnamed-B 80.5 70.5 107.6 77.2 E.O.A.-C nil nil nil nil O.O.P.-D nil nil nil nil Gr Total 1,818.5 2,090.2 1,000.6 1,020.2 Ay Exp-E 8,332.1 7,974.5 Ind Tl-F 10,150.6 10,064.8 WHITE WHEAT 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 548.5 635.6 58.0 58.0 Unnamed-B 19.0-x 19.0-x 6.0-x 6.0-x E.O.A.-C nil nil nil nil O.O.P.-D nil nil nil nil Gr Total 529.5 616.6 52.0 52.0 Ay Exp-E 3,831.5 3,757.7 Ind Tl-F 4,361.0 4,374.3 x - denotes minus figure HARD RED SPRING WHEAT 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 576.6 620.6 164.7 164.7 Unnamed-B 29.6 16.0 nil nil E.O.A.-C 0.9 0.9 nil nil O.O.P.-D nil nil nil nil Gr Total 607.1 637.5 164.7 164.7 Ay Exp-E 4,312.4 4,247.6 Ind Tl-F 4,919.5 4,885.1 DURUM WHEAT 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 166.6 280.3 93.4 93.4 Unnamed-B 52.8 76.9 nil nil E.O.A.-C 2.8 2.8 nil nil O.O.P.-D nil nil nil nil Gr Total 222.2 360.0 93.4 93.4 Ay Exp-E 1,842.6 1,727.5 Ind Tl-F 2,064.8 2,087.5 SOFT RED WINTER WHEAT 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk Named-A 127.8 127.8 382.3 376.5 Unnamed-B nil nil 14.0-x 14.0-x E.O.A.-C 5.8 5.8 nil nil O.O.P.-D nil nil nil nil Gr Total 133.6 133.6 368.3 362.5 Ay Exp-E 2,726.0 2,726.0 Ind Tl-F 2,859.6 2,859.6 x-minus figure Country and destinations of the identified sales of commodities reported by exporters in week ended April 2 for the respective marketing seasons were detailed by the USDA as follows, with comparisons for the previous week, in thousands of tonnes, except where noted-- ALL WHEAT 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk E.C. nil nil 50.0 50.0 Other West Europe 218.8 236.8 nil nil East Europe 261.0 346.0 25.0 25.0 ALL WHEAT Continued 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk USSR nil nil nil nil Japan 490.4 662.2 nil nil China 90.0 90.0 910.0 910.0 Taiwan 115.0 141.0 144.0 144.0 Other Asia and Oceania 654.9 730.9 28.6 78.6 Africa 959.5 1,115.0 167.1 167.1 Western Hemisphere 367.9 362.1 266.7 260.9 SOYBEANS 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk E.C. 302.2 317.7 91.4 91.4 Other West Europe 25.0 25.0 nil nil East Europe 101.0 101.0 nil nil Japan 355.4 330.5 nil nil China nil nil nil nil Taiwan 472.0 499.0 87.0 87.0 Other Asia and Oceania 164.6 187.7 nil nil Africa nil nil nil nil Western Hemisphere 354.4 391.5 37.5 37.5 SOYBEAN OIL 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk E.C. 1.5 1.5 nil nil India nil nil nil nil Other Asia and Oceania nil nil nil nil Africa nil nil nil nil Western Hemisphere 7.3 8.9 nil nil SOYBEAN CAKE/MEAL 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk E.C. 301.7 350.7 47.2 45.0 Other West Europe nil nil nil nil East Europe nil 36.0 nil nil Japan nil 3.5 nil nil Other Asia and Oceania 25.0 40.0 nil nil Africa 30.2 38.0 nil nil Western Hemisphere 431.0 401.5 3.4 3.4 CORN 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk E.C. 82.5 22.5 0.2 0.2 Other West Europe nil 0.8 nil nil E. Europe 94.0 50.0 50.0 50.0 USSR 2,432.7 2,543.8 nil nil Japan 2,767.4 2,787.8 52.4 21.0 China 495.0 555.0 nil nil Taiwan 791.0 836.0 390.0 170.0 Other Asia and Oceania 721.7 615.2 250.0 nil Africa 125.0 195.5 nil nil WestHem 1,050.5 1,114.0 29.4 27.6 UPLAND COTTON (In thousand bales) 1986/87 1987/88 4/2/87 Prev Wk 4/2/87 Prev Wk E.C. 260.9 266.1 97.9 95.0 Other West Europe 62.2 66.2 8.7 8.7 E. Europe 3.1 3.1 nil nil Japan 445.8 484.1 72.3 70.1 Taiwan 377.9 390.4 41.6 39.5 Other Asia and Oceania 741.7 783.4 244.5 241.1 Africa 16.7 13.4 nil nil Western Hemisphere 99.6 69.5 3.2 2.7 Reuter ================================================== Title: CARTER HAWLEY HALE STORES INC <CHH> 4TH QTR LOSS ended Jan 31 Shr loss 1.58 dlrs vs profit 58 cts Net loss 24.2 mln vs profit 18.9 mln Sales 1.34 billion vs 1.32 billion Avg shrs 20.0 mln vs 19.8 mln Year Shr loss 1.27 dlrs vs profit 92 cts Net profit 4.2 mln vs profit 48.0 mln Sales 4.09 billion vs 3.98 billion Avg shrs 20.2 mln vs 19.6 mln NOTES: Share results after provision for preferred dividends Per share profits from operations were 1.46 dlrs vs 71 cts in the quarter and 2.44 dlrs vs 1.05 dlrs in year. On a fully diluted basis this was 1.11 dlrs vs 67 cts and 2.42 dlrs vs 1.58 dlrs, respectively, based on 33.0 mln vs 32.3 mln shares outstanding in quarter and 32.8 mln vs 32.1 mln in year 1986 results in both periods include pre-tax losses pf 2.2 mln dlr on sale of John Wanamaker and 25.0 mln dlrs related to recapitalization, for a combined primary per share charge of 1.58 dlrs in quarter and 1.57 dlrs in year. 1986 results also include an after-tax charge 29.3 mln dlrs, equal to 1.46 dlrs a share in quarter and 1.44 dlrs in year, for premium on early retirement of debt 1985 net in both periods includes pre-tax loss of 2.4 mln dlrs, equal to 13 cts a share, on sale of Holt Renfrew Results include LIFO charge 1.7 mln dlrs vs credit 4.4 mln dlrs in quarter and credit 1.9 mln dlrs vs credit 6.4 mln dlrs in year Reuter ================================================== Title: ROYAL DUTCH/SHELL GROUP OF COS 4TH QTR NET Shr Royal Dutch Petroleum Co <RD> 2.30 dlrs vs 2.90 dlrs Final Royal Dutch dividend of 8.30 guilders for total 12.80 guilders vs 12.80 guilders for 1985 Shr Shell Transport and Trading Co PLC <SC> 1.38 dlrs vs 1.65 dlrs Final Shell Transport dividend 118.0 pence for total of 172.0 pence vs 140.0 pence for 1985 Group Net 1.07 billion vs 1.24 billion Group Sales 20.42 billion vs 25.84 billion Year Shr Royal Dutch 8.65 dlrs vs 9.11 dlrs Net Shell Transport 4.78 dlrs vs 5.16 dlrs Group Net 3.71 billion vs 3.88 billion Group Sales 81.40 billion vs 94.57 billion NOTES: Group is 60 pct owned by Royal Dutch and 40 pct by Shell Transport Dollar amount of Royal Dutch dividend will depend on guilder/dollar exchange rate on May 14. Final dividend is payable June 16 to holders of record May 26 Shell Transport dividend and per share results based on New York shares, which are equal to four ordinary shares. Dollar final dividend will be determined by sterling/dollar exchange rate May 18. At current rate, with tax credits, is equal to 2.59 dlrs. Final dividend is payable May 28 to holders of record April 10 Fourth quarter U.S. dollar figures for group translated from sterling at average rate of exchange for the quarter which was 1.43 dlrs per pound in 1986 and 1.44 dlrs in 1985. Full year U.S. dollar figures are sum of sterling translations to U.S. dollars for first, second, third and fourth quarters Net includes FIFO inventory gain 217 mln dlrs vs loss 80 mln dlrs in quarter and loss 1.23 billion dlrs vs loss 178 mln dlrs in year. If LIFO accounting had been used, company said, Royal Dutch per share net would have been 1.78 dlrs vs 3.17 dlrs in quarter and 11.60 dlrs vs 9.53 dlrs in year, Shell Transport per share net would have been 1.10 dlrs vs 1.81 dlrs in quarter and 6.36 dlrs vs 5.40 dlrs in year Net includes restructuring credit 114 mln dlrs vs charge 72 mln dlrs in quarter and credit 67 mln dlrs vs charge 467 mln Per share impact of restructuring on Royal Dutch was credit 27 cts vs charge 17 cts in quarter and credit 16 cts vs charge 1.10 dlrs in year, on Shell Transport was credit 15 cts vs charge 10 cts in quarter and credit nine cts vs charge 62 cts in year Net also includes currency exchange losses of 20 mln dlrs vs 69 mln dlrs in quarter and 170 mln dlrs vs 401 mln dlrs in year. Exchange losses had per share impact on Royal Dutch of 14 cts vs 31 cts in quarter and 96 cts vs 1.26 dlrs in year and on Shell Transport of eight cts vs 17 cts in quarter and 51 cts vs 71 cts in year. Reuter ================================================== Title: TRIANGLE INDUSTRIES INC <TRI> 4TH QTR LOSS Oper shr loss three cts vs profit 27 cts Oper net loss 178,000 vs profit 4,165,000 Sales 783.7 mln vs 464.6 mln Avg shrs 25.3 mln vs 10.3 mln Year Oper shr profit 2.61 dlrs vs profit 2.75 dlrs Oper shr diluted profit 2.05 dlrs vs profit 2.66 dlrs Oper net profit 47.6 mln vs profit 31.0 mln Sales 2.67 billion vs 1.65 billion Avg shrs 16.0 mln vs 9.8 mln Avg shrs diluted 24.5 mln vs 10.2 mln NOTES: Results include American Can Packaging Inc and National Can Corp from acquisition on Nov 1, 1986, and April 16, 1985, respectively 1986 4th qtr oper results reduced 3.0 mln dlrs, or 12 cts a share, by retroactive elimination of investment tax credits 1985 operating profit includes gains of 1.8 mln dlrs, or 17 cts a share, in quarter and 6.8 mln dlrs, or 67 cts a share, in year from sale of investments Operating net excludes loss of 647,000 dlrs, or three cts a share, vs profit 173,000 dlrs, or two cts a share, in quarter and loss 647,000 dlrs, or four cts a share, vs profit 5,847,000 dlrs, or 60 cts a share, in year from discontinued operations. 1986 operating results also exclude charges of 1,271,000 dlrs, or five cts a share, in quarter and 34.0 mln dlrs, or 2.12 dlrs a share, in year from early extinguishment of debt Reuter ================================================== Title: CHARTER CO <QCHR> 4TH QTR OPER LOSS Oper shr loss one ct vs loss four cts Oper net loss 336,000 vs profit 2,631,000 Revs 237.2 mln vs 382.3 mln Avg shrs 47.4 mln vs 16.5 mln Year Oper shr profit 21 cts vs profit 12 cts Oper profit 9,922,000 vs profit 15.1 mln Revs 1.1 billion vs 1.6 billion Avg shrs 47.4 mln vs 16.5 mln NOTE: 1986 4th qtr and year oper net excludes a gain of 28.6 mln dlrs and 28.5 mln dlrs or 60 cts per share, respectively, for discontinued operations. 1986 4th qtr and year oper net excludes a gain of 90.5 mln dlrs or 1.91 dlr per share and 114.8 mln dlrs or 2.42 dlrs per share, respectively, mainly for settlement of dioxin-related claims in reorganization proceedings. 1985 4th qtr and year oper net excludes a loss of 41.2 mln dlrs or 2.51 dlrs per share and a loss of 36.3 mln dlrs or 2.21 dlrs per share, respectively, for discontinued operations. 1985 4th qtr and year oper net excludes a gain of 25.6 mln dlrs or 1.56 dlr per share and 29.4 mln dlrs or 1.79 dlrs per share for settlement of claims and utilization of tax loss carryforward. 1985 year oper net also excludes a loss of seven mln dlrs for change in inventory evaluation method. Reuter ================================================== Title: DWG CORP <DWG> 3RD QTR JAN 31 NET Oper shr profit 17 cts vs profit 10 cts Oper net profit 5,146,000 vs profit 2,691,000 Revs 269.5 mln vs 274.4 mln Avg shrs 20.5 mln vs 17.0 mln Nine mths Oper shr profit 14 cts vs loss 45 cts Oper net profit 4,131,000 vs loss 7,148,000 Revs 802.8 mln vs 766.0 mln Avg shrs 20.4 mln vs 16.9 mln NOTE: Net excludes discontinued operations loss 1,667,000 dlrs vs profit 42,000 dlrs in quarter and loss 2,123,000 dlrs vs profit 1,334,000 dlrs in nine mths. Net excludes gains on insurance recovery of 54,000 dlrs vs 91,000 dlrs in quarter and 1,289,000 dlrs vs 218,000 dlrs in nine mths. Prior year net excludes 1,103,000 dlr loss from change in accounting for textiles inventories. Prior year results for discontinuance of apparel segment and change in accounting for textile inventories. Share adjusted for stock dividends. Net includes pretax unrealized loss provision recoveries related to marketable securities of 580,000 dlrs vs 824,000 dlrs in quarter and recovery 640,000 dlrs vs provision 366,000 dlrs in nine mths. Prior nine mths net includes pretax gain on sale of marketable securities of 493,000 dlrs. Net includes tax credits 5,738,000 dlrs vs 494,000 dlrs in quarter and credit 4,194,000 dlrs vs provision 11.2 mln dlrs in nine mths. Reuter ================================================== Title: FINANCIAL CORP OF AMERICA <FIN> 3RD QTR LOSS Shr loss 2.20 dlrs vs profit 24 cts Net loss 75.8 mln vs profit 11.6 mln Avg shrs primary 35.9 mln vs 36.5 mln Avg shrs diluted 39.3 mln vs 39.9 mln Nine mths Shr primary loss 7.04 dlrs vs profit 1.69 dlrs Shr diluted loss 7.04 dlrs vs profit 1.64 dlrs Avg shrs primary 35.9 mln vs 37.2 mln Avg shrs diluted 39.3 mln vs 46.6 mln Net loss 243.4 mln vs profit 72.2 mln Assets 33.4 billion vs 34.1 billion Loans 10.8 billion vs 12.0 billion Deposits 16.9 billion vs 17.0 billion NOTE: Net includes FSLIC sepcial assessment loss of 5,429,000 vs 5,193,000 in qtr 1987 vs 1986, and 16.3 mln vs 16.0 mln in nine mths 1987 vs 1986. Net includes gain from sale of mortgage-backed securities and loans of 12.4 mln vs 93.4 mln, and 139.7 mln vs 264.0 mln in nine mths 1987 vs 1986. Net includes gain from sale of investments of 64,000 in qtr 1987, and 157,000 vs 1,231,000 in nine mths 1987 vs 1986. Net includes provision for losses and discounts of 70.4 mln vs 76.2 mln in qtr 1987 vs 1986, and 315.7 mln vs 161.7 mln in nine mths 1987 vs 1986. Nine mths 1987 included write off of FSLIC secondary reserve of 22.7 mln. Reuter ================================================== Title: SCHLUMBERGER LTD <SLB> 3RD QTR NET Shr nil vs loss 14 cts Net 1,697,000 vs loss 41.9 mln Revs 1.2 billion vs 1.1 billion Avg shrs 276.4 mln vs 285.6 mln Nine mths Shr profit 13 cts vs profit 56 cts Net profit 36.8 mln vs 161.5 mln Revs 3.4 billoin vs 3.8 billion Avg shrs 278.2 mln vs 288.9 mln NOTE: 1987 3rd qtr includes 152.6 mln dlrs for continuing operations, which includes a 69 mln dlrs after-tax gain on sale of company's investment in Compagnie Luxembourgeoise de Telediffusion. 1987 3rd qtr and nine mths net includes a loss of 220 mln dlrs or 79 cts a share for discontinued operations and 70 mln dlrs or 25 cts a share for extraordinary gain. 1986 3rd qtr and nine mths net includes a loss of 59 mln dlrs or 20 cts a share from continuing operations mainly for employee layoff costs in oilfied services, sale of small electronic business and unfavorable lease comitments. 1987 nine mths net also includes a loss of 220 mln dlrs from discontinued operations due to completion of previously announced sale of Fairchild Semiconductor business. 1987 extraordinary item of 70.1 mln dlrs relates to award from Iran-U.S. Claims Tribunal from Iran's seizure of SEDCO Inc drilling business in 1979 prior to its acquisition by Schlumberger. 1986 3rd qtr and nine mths net also includes in discontinued operations a loss of 36 mln dlrs from Fairchild Semiconductor offset by a 53 mln dlrs gain from favorable settlement of litigation with Data General. Reuter ================================================== Title: NATIONAL SEMICONDUCTOR CORP <NSM> 3RD QTR LOSS March Eight Shr loss 31 cts vs loss 47 cts Net loss 25.6 mln vs loss 39.4 mln Sales 398.1 mln vs 322.3 mln Avg shrs 91.6 mln vs 90.0 mln Nine mths Shr loss 44 cts vs loss one dlr Net loss 32.7 mln vs loss 84.4 mln Sales 1.36 billion vs 1.08 billion Avg shrs 91.2 mln vs 89.6 mln NOTE: Twelve and 40-week periods. Prior year results restated for change in method of recognizing revenue on distributor shipments. Quarter net loss originally reported as 32.0 mln dlrs or 38 cts shr on sales of 328.9 mln dlrs and nine mth loss as 120.3 mln dlrs or 1.40 dlrs shr on sales of 1.11 billion dlrs. Prior nine mths net includes 51.2 mln dlr gain from cumulative effect of accounting change. Prior year net includes extraordinary credits of 1,100,000 dlrs in quarter and 3,300,000 dlrs in nine mths. Current year net both periods includes 15.0 mln dlr pretax charge from previously-announced restructuring of Datachecker Systems and Semiconductor Group manufacturing operations. Reuter ================================================== Title: FEDERATED DEPARTMENT STORES INC <FDS> 4TH QTR Jan 31 end Shr 3.64 dlrs vs 3.16 dlrs Net 171.3 mln vs 154.0 mln Sales 3.44 billion vs 3.23 billion Avg shrs 47.1 mln vs 48.8 mln Year Oper shr 6.23 dlrs vs 5.88 dlrs Oper net 301.9 mln vs 286.6 mln Sales 10.51 billion vs 9.98 billion Avg shrs 48.5 mln vs 48.8 mln NOTE: Latest year net excludes 14.3 mln dlr charge from loss on early debt extinguishment. Net includes charges 15.7 mln dlrs in both periods of latest year vs charges 23.9 mln dlrs in both periods of earlier year from merger of divisions. Investment tax credits three mln dlrs vs 8,900,000 dlrs in quarter and 4,900,000 dlrs vs 16.4 mln dlrs in year. Latest year net includes nine mln dlr provision for loss on disposition of two Abraham and Strauss stores and preopening expenses for another. Latest year net includes gain from sale of interest in Fort Worth, Texas, shopping center of 9,500,000 dlrs. Latest year net both periods includes gain 9,100,000 dlrs from sale of interest in Memphis, Tenn., shopping center. Prior year net includes gain 6,600,000 dlrs on sale of Boston Store division. Reuter ================================================== ************************************************** Topic 16 ************************************************** Title: TECHNOLOGY/CHIP INDUSTRY SEEKS CUSTOM DESIGNS U.S. semiconductor manufacturers, struggling to stem a river of red ink, are increasingly looking toward customized designs rather than mass-market chips for future profits. The market for customized chips - semiconductors designed for a very specific application or product - is expected to expand by 25 to 30 pct this year, compared with only about six pct for the entire integrated circuit industry. Market researcher Dataquest Inc estimates that sales of customized chips totaled about 4.5 billion dlrs worldwide last year, about 12 pct of the total chip market. By 1990, however, customized chips are expected to represent a 12 billion to 15 billion dlr market, about 25 pct of total chip sales. More important for their vendors, because they are not a standard design customized chips represent a sellers' market, and prices and profit margins can be set accordingly. High volume memory chips have become "a perfect commodity market," Robert Brodersen, a professor of electrical engineering at the University of California at Berkeley, told an industry forum. "The product is interchangeable between one manufacturer and another and customers base their buying decisions almost entirely on price," Brodersen said. He predicted that, in the next few years, only a handful of the world's largest chip manufacturers (most of them Japanese) will produce memory chips, the standard electronic component found in everything from digital watches to computers. "The rest of the industry just won't be involved." Last week's International Solid State Circuits Conference, the chip industry's annual forum for new developments, seemed to support Brodersen's prediction. Of the 116 papers presented at the conference, some 40 pct had Japanese authors, the first time they have outnumberd the United States. Most of the Japanese chip designs were in the memory category, including Nippon Telephone and Telegraph Co's attention-grabbing 16 mln bit dynamic random access memory (dram) chip, 16 times more powerful than anything now available. The most advanced memory chip described by a U.S. company was International Business Machine Corp's <IBM> four mln bit chip, and IBM only manufactures chips for its own internal use, not for the open market. The problem with memory chips is that they are all based on the same, well known design standards, so they are easy to copy and inexpensive to manufacture. Because such large Japanese conglomerates as Sony Corp <SNE>, NEC Corp, <NIPNY> Matushita and Mitsui have their own enormous consumer and electronics product lines, they also have a guaranteeed internal market for their chips, so they can produce huge amounts at a very low cost per unit. Customized chips, however, are designed for a specific customer, manufactured in small quantities and expensive relative to standard chips. Computer markets are increasingly looking to customized chips because they are difficult to copy, thus making the final product harder to clone as well. Intel Corp <INTC>, the leading manufacturer of the microprocessors that form the brains of most computers, alerted the industry to its intention to switch to customized chips last fall. The company, which just reported a loss for 1986, said it will spend 75 mln dlrs over the next three years to turn itself into a leading manufacturer of custom and semi-custom chips. Intel joins some 275 companies already competing for a piece of the customized chip business but it has an advantage that the others do not. IBM, which owns a 20 pct stake in Intel, has agreed to share the designs for many of the 15,000 chips it makes for its own use. Intel will customize those designs and sell them to others. It will also get to use IBM's proprietary computer system for designing chips, considered by experts to be one of the most advanced in the world. Intel's success is still not guaranteed, however. Industry analysts noted that it is far different to design a mass market item than a customized chip that requires a close working relationship with the customer. Intel spent five years and 100 mln dlrs developing its newest 30386 microprocessor. A much faster turnarouond time, and much lower development costs, will be required for customized chips if the firm is to succeed. Reuter ================================================== Title: IBM <IBM> INTRODUCES NEW PERSONAL COMPUTERS International Business Machines Corp said it introduced four new personal computers, including a top of the line unit based on the powerful Intel Corp <INTC> 80386 chip. The company said the new PC's are compatible with most existing IBM PC applications. The new computers, which mark the first major overhaul of the IBM PC line since the company entered the business in 1981, include a PC based on the Intel Corp <INTC> 80386 microprocessor, making it the most powerful IBM PC to date. Also included is an Intel 8086 based system which IBM said is up to two and a half times as fast as its IBM PC XT model. IBM also introduced two new versions of its PC AT system. These use an Intel 80286 chip running at 50 pct faster than the existing IBM PC AT. The new line of PC's, which IBM calls the Personal System/2, uses 3.5 inch diskettes instead of the conventional 5.25 inch diskettes. The company said the smaller diskettes store from two to four times more data than larger diskette, which typically handle 360 kilobytes of data. IBM said the new PC AT's and the 80386-based PC use a new IBM-designed 32-bit data bus. This carries data internally within the PC. The company said the new bus offers processing power up to two to three-and-a-half times the existing IBM PC AT. IBM said the new PC's can run a new operating system, called IBM DOS Version 3.3, which is now available. The company also said it will offer a second operating system, called IBM Operating System/2, developed jointly with Microsoft Corp <MSFT>. This will be available in stages, beginning in the first quarter of 1988. IBM said Operating System/2 will for the first time give IBM PC users the ability to access multiple applications and very large programs and amounts of data. IBM said said its Personal System/2 Model 30, which is an Intel 8-megahertz (MHz) 8086-based system, is now available at a list price of 1,695 dlrs each with two diskette drives and for 2,295 dlrs with one diskette and one 20-megabyte fixed disk drive. The unit weighs 17 pounds. It said an 8087 math coprocessor that runs at the same eight MHz rate as the 8086 is available. The company said the Personal System/2 Model 50, an Intel 10 MHz 80286-based desktop system, is now available at a cost of 3,595 dlrs. IBM said said its Personal System/2 Model 60, which is also an Intel 10 MHz 80286-based system, is a floor-standing system available in two configurations. This system, which is scheduled for availability in the second quarter, lists at 5,295 dlrs with a 44MB fixed disk drive and 6,295 dlrs on the 70MB fixed disk drive. The company said the Personal System/2 80 is the most powerful member of the new family of PC's, using an Intel 80386-based mocroprocessor. The floor-standing machine will be available in three configurations. IBM said one Model 80 configuration, scheduled for July availability at a cost of 6,995 dlrs, runs at 16 MHz, contains 1MB of memory and features a 44MB fixed disk drive. A second configuration, also scheduled for July at 8,495 dlrs each, runs at 16 MHz and has 2MB of memory and a 70MB fixed disk drive. The company said the third Model 80 is scheduled for the fourth quarter and features IBM-designed one-megabit memory technology. Expected to cost 10,995 dlrs, it runs at 20 MHz and features 2MB of memory and a 115 MB fixed disk drive. IBM said its Personal System/2 incorporates enhanced integrated graphics functions including significantly improved text, expanded colors up to 256 out of a palette of more than 256,000, and sharper business graphics. The company said the Models 50, 60 and 80 Video Graphics Array supports 640 x 480 x 16 colors in graphics mode and 720 x 400 x 16 colors in text mode. It will also support the new 320 x 200 x 256 color mode. With the addition of the new advanced graphics feature, IBM said, 1024 x 768 addressability also can be obtained. Reuter ================================================== Title: TECHNOLOGY/IBM'S NEW COMPUTER NERVOUSLY AWAITED International Business Machines Corp <IBM> is widely expected to deeply affect the personal computer industry this week when it announces a long awaited new generation of desktop machines. The four new computers, expected to be called the Personal System 2 family, are almost sure to veer away from industrywide standards for personal computers that were first established by IBM six years ago. The result id the new computers will be harder to copy and less likely to work with software and attachments designed for existing standards. Some market researchers are already predicting slower growth as customers adjust to the change. A proprietary IBM pc will cause the pc market's growth to be flat or even negative in 1988 as vendors and users delay purchases to gauge the importance of the new machine,'' said John McCarthy, consultant with Forrester Research Inc. IBM is traditionally very close-mouthed about unannounced products, but so intense is the interest in these machines that some details have leaked out and consultants, dealers and the trade press are rife with information, both factual or supposed. The four computers expected to be announced April 2 will reportedly include one low end, low cost computer, two models that will resemble IBM's current high-end AT, and, most importantly, a computer incorporating Intel Corp's <INTC> 80386 microprocessor, the powerhouse chip that is revolutionizing the personal computer. The microprocessor is the brains of a computer and Intel microprocessors are the ones used in all IBM and IBM-compatible personal computers, by far the largest segment of the desktop market. The 80386, more commonly called the 386, processes computer instructions twice as fast as the chips used in existing IBM computers and 386-based desktop computers are as powerful as the much larger minicomputers of a few years ago. Although IBM will not be the first company to introduce a 386 personal computer - Compaq Corp <CPQ> was - most industry consultants believe that customers will not rush to embrace the new generation until they see what the world's largest computer company is going to do. What IBM will apparently do is introduce a computer that is, at least temporarily, copy-proof. That is a far different situation than exists with IBM's current family of personal computers, which are cloned widely. With the Personal System, IBM will reportedly build as many features as possible directly into the computers' motherboards, including graphics capabilities, a non-standard bus for add-on equipment and a new version of the operating system used on all IBM compatible computers. The word in (Silicon) Valley is that it will take two mln dlrs and 18 months before the machines can be copied,'' said Michael Murphy, publisher of the newsletter California Technology Stock Letter. At the same time as Personal System is unveiled, Microsoft Corp <MSFT> is expected to unveil a new version of its MS/DOS operating system, DOS 3.3, that will correct many of the programming problems encountered on earlier versions of the software. MS/DOS is used with all IBM personal computers. Consultants said that most existing IBM-compatible software will run on the new computers but software written specifically for the Personal System will not run on older models. The industry will be looking closely at the delivery dates for the new computers, particularly the 386, because if IBM does not start shipping its entry in this important new market soon, Compaq will continue to gain larger and larger market share. Market researcher Future Computing Inc estimated that Compaq's Deskpro 386, which started shipping last October, is generating sales of between 3.5 mln and and four mln dlrs a month. In the first six months of availability between 21 and 24 mln dlrs worth of Deskpro 386s were sold. Said Future Computing analyst Joe Cross, "That's some indication of the kind of money IBM is leaving on the table." Reuter ================================================== Title: TECHNOLOGY/ALTERNATIVES TO IBM SOFTWARE STANDARD In the fast paced personal computer industry, millions can be made in six months, and such an opportunity may exist now for companies seeking to capitalize on the delay of a new IBM software standard. When International Business Machines Corp <IBM> announced its new generation of personal computers, the PS/2 family, in April, it also decided to establish a new operating system for the machines, a death sentence for the billions of dollars of software now in use on the existing system. Because IBM is the world's largest computer company - some 70 pct of the world's computers bear the IBM logo - most industry analysts, and even IBM's competitors, expect that within two years the new operating system, called OS/2, will be as commonplace as the current standard, MS-DOS, is now. "By 1989, at least one half to 60 pct of all personal computers will be sold with OS/2," predicted George Colony, president of the consulting firm Forrester Research Inc. But until then there is an opportunity, some analysts said, for firms selling advanced versions of MS-DOS, specialised multi-tasking software packages and Unix, an alternative to MS-DOS developed by American Telephone and Telegraph Co <T> that has developed a following among engineers and the federal government. OS-2, which IBM is developing with Microsoft Corp, the author of MS-DOS, will not be ready for another six months. IBM said last week that the product is on schedule but analysts and other software developers are skeptical, since delays in major new software products are commonplace. Initial acceptance of the new system will most likely be hindered by the disgruntlement of hardware and software vendors alike, who would prefer to keep making products that work with tried and true MS-DOS, according to Paul Cubbage, software analyst with the market research firm Dataquest Inc. Compaq, IBM's major personal computer competitor, has already said it will stick with the MS-DOS standard. Compaq president Rod Canion said recently their will be no "automatic mass migration" to OS/2. "(Advanced MS-DOS) applications will continue to meet a far broader set of users needs than OS/2 will supply long after it becomes available," he said. Cubbage acknowledged that "it will probably be a year or more before any really useful applications are available for OS-2," creating opportunities for multi-tasking programs. "But there comes a time when the memory limits of those gets to you," he said. IBM's new operating system was as big an event to the computer industry as the PS-2 announcement itself. The new computers, the most powerful of which will use Intel Corp's fast 80386 microprocessor, are expected to rejuvenate the sagging sales of the personal computer industry and already gave a big boost to IBM. Company officials said last week that 250,000 PS/2s were shipped in the 2-1/2 months since their introduction and IBM expect record pc sales ths year as a result. The enthusiasm for the PS-2 is particularly striking since the full potential of the powerful computers cannot be tapped until a new operating system or other high level software is available, analysts said. OS-2 will allow users to work on many different programs, or tasks, at once on a personal computer, ideally without any slowdown in operation, a capability the industry has long strived for. Microsoft is already promising alternatives to OS-2, in particular an advanced version of its Windows multitasking program, which is used in conjunction with MS-DOS. Microsoft chairman Bill Gates has suggested an advanced version of the program, Windows 386, will be announced in September and available six to eight weeks later, at a price of 100 dlrs and 300 dlrs. OS/2 is expected to cost 325 dlrs. Some software developers have said the the program, designed for 80386-based personal computers, may even be superior to OS/2 in allowing users to multitask applications without disruption. But several analysts commented that what users really want is a multi-taksing operating system for 80386-based personal computers, and so far that desire has been met primarily by a small Atlanta software publisher, The Software Link Inc. In late spring the company announced PC-MOS/386, a multi-tasking, multiuser operating system that is compatible with MS/DOS and works on 80386-based computers. The company said it filled 2,500 orders in the first four weeks of availability and expects shipments to reach 40,000 by year end. International Data Corp analyst Will Zachmann said Unix could be the most promising alternative to OS/2, even once the IVM system is available. IBM did not endorse Unix for any of its PS/2 models, although it did say that it would announce a version of its Advanced Interactive Executive (AIX), a Unix compatible operating system. But the federal government requires Unix compatability for most of its computer contracts, it is almost certain that other companies will provide Unix-style operating systems for the IBM systems. ATT itself two weeks ago introduced a version of Unix that is compatible with the 80386 microprocessor, although not IBM's computer specifically. Analysts saw the announcement as a move to get Unix accepted as a strong alternative to OS/2 before the IBM system has a chance to take off. Reuter ================================================== Title: TECHNOLOGY/SUPERCOMPUTER MARKET GETTING CROWDED The supercomputer industry is getting crowded as a handful of startup companies and some huge Japanese manufacturers compete for the right to apply the label "world's fastest machine" to their products. Currently there are only about 250 supercomputers installed around the world, but many believe that situation is about to change dramatically as these highly specialized and extremely expensive machines move out of the research laboratories where most of them are found today and into commerical applications. "It is commercial supercomputing... that holds the most promise for this young industry's handful of vendors," said Gary Smaby, supercomputer analyst for Piper Jaffray and Hopwood. These commercial applications, he said, could propel annual sales of supercomputers from 850 mln dlrs in 1986 to 2.4 billion by 1990. For years two companies, Cray Research Inc <CYR> and Control Data Corp <CDA> were virtually the only options for customers seeking to buy supercomputers. But in the last three years a number of new companies have announced supercomputers using some innovative technologies, and the industry finally expanded enough to hold its first World Supercomputer Exhibition in Santa Clara last month. Also in the last month two small companies, ETA Systems Inc (a subsidiary of Control Data) and Thinking Machines Corp both laid claim to having the world's fastest computer and a joint venture of Honeywell Inc <HON> and Japan's NEC Corp <NIPN.T> Honeywell-NEC Supercomputers Inc, announced its entrance into the U.S. market. All three are aiming at industry leader Cray Research Inc, which holds more than 60 pct of the market. This week, Cray plans to make a joint announcement with Digital Equipment Corp, <DEC> already the world's largest minicomputer maker, of some products that will work on both companies' computers, expanding the market opportunities for both supers and minis even further. Supercomputers were initially designed only for the most complex of applications, such as predicting worldwide weather patterns, fusion energy research or military defense and weapons design. They are built for speed, not for standard business functions such as payroll processing. The fastest supercomputers can perform more than a billion calculations per second, greater than the combined power of 100,000 personal computers. They also carry stratospheric price tags of between one mln to 20 mln dlrs each, which is why Cray's revenues could reach 600 mln dlrs last year even though it only shipped 36 new and 10 used supercomputers, a level that would spell starvation for any standard computer company. But speakers at the supercomputer exhibition emphasized that a host of new applications should increase total industry shipments to 150 systems a year by the end of the decade. Most commercial customers of supercomputers now use the machines to simulate a physical process, such as the flow of air over an aircraft wing, in design and testing work. But financial institutions, particularly Wall Street brokerage houses, are considered the next major buyers of supercomputers as they try to recognize changes in stock trading patterns faster than any of their competitors. Two firms, Goldman Sachs and Co and Morgan Stanley and Co, are now using superminicomputers, hybrid machines that are faster than a minicomputer but cheaper than a super, to create financial models of the stock and bond markets. Analysts said it is only a matter of time before actual supercomputers are found on Wall Street. One reason for the shift to commercial applications is that supercomputers are coming down in price as new technologies provide greater speed at lower costs than the Cray and Control Data behemoths. Both the ETA and Thinking Machines Systems use a technology called parallel processing, in which a number of internal processors work together to solve a problem. With such systems a problem is broken up and different segments are assigned to different processors. By contrast, standard computers solve a problem one instruction at a time, or sequentially. The ETA system, the ETA 10, will eventually use as many as eight parallel processors capable of processing up to 8.32 billion operations per second. However, the first ETA 10, installed at Florida State University, has only two processors, later to be expanded to four. ETA president Lloyd Thorndyke said the ETA 10 represents a drastic change in architecture from parent company Control Data's Cyber system. Priced from 5.5 mln to 22 mln dlrs, the ETA 10 contains about 240 chips in each of its processing units, built onto a board about the size of a standard newspaper section. Each of these boards contains the equivalent of 1.5 miles of embedded wiring. It took ETA about 3-1/2 years to develop its supercomputer but Thorndyke said he expects much faster development time frames in the futre, from both ETA and its competitors. "We're in a leapfrog business and we just took the last leap," he said. Thinking Machines also claims to have the world's fastest computer and in some ways this is true. Its Connection Machine Model CM-2 can process 2.5 billion instructions per second, but it is a very specialized architecture only meant for certain very specific applications. The one mln to five mln dlr Connection Machine uses a technology called "massive parallism." It contains 64,000 processors crammed into a five foot cube. The processors all work on a problem at once, breaking it down into minute bits. It is an ideal tool for applications with many unpredicatble variables, according to Brian Boyle, analyst for Novon Research Group. "The more unpredictable things are, the more the Thinking Machine will be appropriate," he said. Reuter ================================================== Title: TECHNOLOGY/NEW ERA FOR INFORMATION HANDLING Ground-breaking new systems for storing and retrieving information are ushering in a new era for computer companies and computer users. Within the past few weeks, International Business Machines Corp <IBM>, Eastman Kodak Co <EK> and others have launched products that radically increase the amount of data that can be catalogued and shelved in computerized libraries. "This flurry of new technology could yield systems that handle a multimedia blitz of data," said Ian Warhaftig, a senior analyst with International Data Corp, Framingham, Mass. "We're developing new systems because our customers are asking for them," Peter Giles, vice president and general manager of Kodak's mass memory division, said in a recent interview. This demand is expected to soar in coming years. While estimates vary, industry analysts project that providing products and services geared for information storage and retrieval could become a 20 billion dlr a year business by 1995. A wide range of technologies will be needed to meet the varying requirements of users. For example, a large credit verification service would want a system from which it could quickly retrieve credit data and relay it to its clients. A law firm, however, may need a computerized law library in which capacity, rather than speed, is the key feature. For architects and engineers, the ability to store photographs, sketches and other graphics would be crucial. Regardless of the specific application, the trend is toward converting information - documents, video or film or even sound recordings - into to the digital language of zeros and ones understood by computers. Saving space is the key goal in digitizing data for storage. An optical disk the size of a standard compact disk can store 550 megabytes of data, or about 250,000 pages of typewritten text. For this reason, the compact disk read-only memory, or CD-ROM, is already a popular data storage media. Last week, Microsoft introduced Microsoft Bookshelf, a 300 dlr program that contains, on a single CD-ROM disk, a dictionary, thesaurus, national ZIP code directory, Bartlett's Familiar Quotations, the World Almanac and other reference works. Scores of such products are already on the market, but most are specialty items, such as Lotus Development Corp's <LOTS> CD-ROM data base of stock information for financial analysts and investors. "Microsoft Bookshelf is important because it marks the arrival of CD-ROM packages for the general public," said Ian Warhaftig of International Data Corp. One drawback of the CD-ROM, which uses a laser to record and read data, is that that it requires a special player. CD-ROM players for the retail market will appear later this year. Moreover, IDC's Warhaftig said CD-ROM's will be integrated with personal computers. "Eventually, CD-ROM's will fit right inside the PC box," he said. "Imagine the advantage of having a spelling checker and thesaurus at your fingertips when you're writing with a word processing program." But CD-ROM's are just the beginning. Also last week, Kodak unveiled several systems that use 12-inch optical disks. The largest Kodak system uses a jukebox-like cabinet to hold up to 150 optical disks from which data can be retrieved in a matter of seconds. Kodak also announced a 14-inch optical disk with 6.8 gigabytes of memory, five times the memory of a CD-ROM. The Kodak disk, which will not be available until the middle of 1988, is designed for users who need quick access to very large amounts of data, said Kodak's Giles. Meanwhile, N.V. Philips <PGLO.AS>, the Dutch electronics giant, is preparing to take optical disk technology a step further with the first disk that can combine text, video and sound. Philips said the system, called Called CD-Interactive, will be ready next year. It will include a new kind of CD-ROM player that can hook up with a television set and stereo. Additional breakthroughs are expected as the next generation of computer memory chips are introduced. Last month IBM said it has made a four-megabyte chip, capable of storing more data than eight CD-ROM's. Meantime, <Nippon Telegraph and Telephone> of Japan said it has built a 16-megabyte chip. Analysts say commercial versions of these chips are several years away, though some suspect that IBM may start volume production of its four-megabyte chip sometime this year. Such chips will enable computer makers to build computers with immense memory capacities. Reuter ================================================== Title: NEC CORP TARGETS HOME ELECTRONICS BUSINESS The president of Japan's biggest high technology firm, NEC Corp <NIPN.T>, is anything but worried, despite growing anti-Japanese protectionism, a soaring yen, and a stagnant world electronics market. "The company's structure was developed by looking ahead," Tadahiro Sekimoto told Reuters in an interview. "We assumed the era of a strong yen, trade friction and globalisation would arrive, and we moved ahead on that basis. There's no need to change our strategy now." However, the world's largest manufacturer of microchips, the tiny silicon wafers which are the brains of most high technology products, knows it must keep looking ahead if it is to survive. Hoping to build on existing strengths, NEC is now turning its focus on home electronics, an area of past weakness, Sekimoto said. NEC wants to follow its corporate slogan "C and C" (Computers and Communications) to create high level home electronics that go beyond mere televisions and video tape recorders, Sekimoto said. Home electronics accounted for only eight pct of NEC's total 2,334.67 billion yen sales on a consolidated basis in the year ended March 31, 1986. Industry analysts say NEC is wise to target what will be a major growth market in the future, but some warn the company faces some stiff competition. "This is where the market is going to be for a long time -- in products that combine personal computers, video display and telecommunications networks," said Salomon Brothers (Asia) Ltd analyst Carole Ryavec. "But Matsushita (Electric Industrial Co Ltd) may be there first." But Sekimoto argues that NEC's overall strengths will carry the day. "Many companies are in the top 10 in computers or microchips or telecommunications, but none is in the top 10 in all three. NEC is unique in that respect," he said. To help its already high rankings, NEC will further increase the high level of offshore production which makes it one of the most multinational of Japan's electronics firms. The company will increase offshore output of all goods it sells overseas to 50 pct from a current 25 pct over the next several years, Sekimoto said. But the firm plans to go it alone in expanding overseas, despite moving last year to become joint owner, along with France's Cie des Machines Bull <BULP.P>, of U.S. Firm Honeywell Inc's <HON> Information Systems unit. "We hope to increase our share in the U.S. Market through the Honeywell tie-up. But our basic strategy is to take an independent and autonomous route," said Sekimoto. The company also plans to maintain its independent line by continuing to make computers which are not compatible with those of International Business Machines Corp <IBM>, he said. "Among the Japanese competitors, only NEC hasn't been caught in software copyright disputes with IBM and our profits and market share have gradually expanded," Sekimoto said. Once new ways of linking non-compatible computers are perfected, IBM compatibility will be irrelevant. "What will matter is the best hardware, the best software and the best ability to meet customers needs," Sekimoto said. In fact, NEC, which has over half of Japan's personal computer market, may go to court to stop competitors selling cheaper machines which can run NEC software but infringe copyright on its operating system, an NEC spokesman said. While industry analysts give NEC high marks for looking ahead, they note that it failed in forecasting microchip demand. Like other Japanese chipmakers, the firm was left with serious excess capacity when lean years followed the boom times. But after two years of cutbacks in capital investment in the sector, Sekimoto thinks the time has come to boost spending again, if only slightly. "We're not going to increase production. But we are going to invest in new product development and upgrade existing plant," he said. Despite NEC's admitted strengths, analysts note the company faces tough times due to stagnant markets. "NEC has excellent worldwide capacity and technology, but they are caught in a downturn which may last a long time," said Salamon's Ryavec. The company forecasts such troubles will slash parent net profits to 30 billion yen in the year ending March 31, 1987, down 43 pct from the previous year, although sales are expected to rise eight pct to 2,130 billion yen. Profits will improve only slightly next year, rising to 38 billion yen on sales of 2,350 billion, it said. REUTER ================================================== Title: HONDA EXPORTS FIRST U.S.-MADE CARS Japanese-owned Honda American Manufacturing Co has exported the first U.S.-built cars ever sold overseas by a foreign-owned auto company, a Honda spokesman said. The subsidiary of Honda Motor Co Ltd <HMC.T> of Japan shipped 200 of its popular Accord cars to Taiwan earlier this month, the spokesman said. The company might also eventually send U.S.-made cars to Japan, he said. The automaker said it would not boost its U.S. imports of cars from Japan, but instead make up demand for its cars in the U.S. by increasing U.S. production. The shipment to Taiwan was part of planned shipments to San-Yan Industries of Taiwan of about 2,000 Accords a year. Honda said it does not make Accords in Taiwan, and is prevented by Taiwanese import restrictions from shipping them there from Japan. Those restrictions were loosened this year to allow imports from the United States. Previously no imports of foreign-built cars were allowed, the spokesman said. The Accords were built at Honda's U.S. car and motorcycle production facility at Marysville, Ohio. Honda in the past has sent motorcycles from Marysville to Europe and Australia, and has sent cars to Canada. Honda's U.S. output would have to be adjusted to meet changing U.S. demand, the spokesman said. He quoted American Honda president Tetsuo Chino as saying, "Honda will not increase U.S. imports beyond the current level even if voluntary export restrictions on Japanese cars are lifted." Analysts say there are few signs Japan's restrictions will be lifted. Honda might decide by the end of this year whether to expand its U.S. production, the spokesman said. Honda said it is considering building either of its two new luxury models--the "Legend" or "Integra"--in the United States. The Legend and Integra, two models of the company's Acura line, were introduced last March. If the cars prove popular enough, one of them could be built at the Ohio plant, or at a new factory, the spokesman said. The spokesman said it is possible Acuras built in the United States could be shipped back to Japan. However, he said that decision has not yet been made, and would follow the decision to build the cars in the United States. If demand for either one of the two cars reaches 100,000 vehicles a year, Honda could decide to build the cars in the U.S., the company said. Sales of the Integra through February have outpaced the Legend--35,768 against 29,824--but the spokesman said Honda expects sales to "lean more heavily toward Legend" this year because a two-door Legend has been added to the line. Reuter ================================================== Title: TECHNOLOGY/DESKTOP PUBLISHING This month's endorsement by International Business Machines Corp <IBM> of two desktop publishing software products should add some much-needed standards to one of the fastest growing segments of the computer industry, analysts say. Desktop publishing is a relatively new market but industry analysts estimate that sales will reach one billion dlrs this year and jump to six billion dlrs by 1990, fueled by the rush of corporations to bring their printing and publishing needs in-house rather than to more expensive outside printers. Printing is a big expense for most companies. Analysts estimate U.S. corporations will spend about six to 20 pct of their total operating budgets on publishing expenses this year. At a desktop publishing conference in Chicago earlier this month, IBM said it will adopt Adobe Systems Inc's Postscript typesetting language in future electronic printing products. IBM also said it will support Microsoft Corp's Windows operating environment as the graphics interface standard in future publishing announcements rather than its own Topview environment. "IBM's announcement will give tremendous stimulation to the development of the desktop publishing market," said David Goodstein, president of the consulting firm Interconsult Inc. "It gives users permission to go ahead and buy products that are already available without being afraid that they will not be compatible with whatever IBM does," he said. The advent of personal computers, laser printers and graphics software has allowed users to design and print brochures, newsletters and a host of other communications at their desks for a fraction of the cost of an outside printing firm. Analysts credit Apple Computer with creating desktop publishing when it introduced its Macintosh personal computer four years ago, with its easy-to-use formats and excellent graphics capabilities. Since then Digital Equipment Corp, Xerox Corp, Apollo Computer Inc and a number of other vendors have identified desktop publishing as a major growth area. IBM entered the market only last July when it formed its Publishing Systems Business Unit. IBM's embrace of the already-widely used Postscript, a language that interprets computer commands and translates them into instructions for the printer, was an acknowledgment of what is already a de facto standard. Both users and makers of electronic publishing systems said the support of the world's largest computer maker was critical to the language's ultimate acceptance by users. John Warnock, president of Palo Alto, Calif.-based Adobe, said, "Ten pct of corporations have (moved) into desktop publishing but 90 pct are still sitting back and waiting for an IBM announcement." IBM entered a licensing pact with Adobe for Postscript, but its support of Windows was not quite so broad. IBM recognizes Windows as a standard but would not comment on the extent of its commitment to the software. Windows, a program integrator, allows personal computer users to run a number of different applications simultaneously. Reuter ================================================== Title: U.S. CAR SALES DOWN 3.9 PCT IN MID-MARCH Sales of U.S.-made cars during mid-March, the traditional start of the spring selling season, dropped 3.9 pct behind last year's level, analysts say. Automakers sold about 204,000 cars in the March 11-20 selling period, 10,000 fewer than last year. Analysts said the decline may auger poorly for the rest of the spring season. Buyers shied away from the showrooms of American Motors Corp <AMO>, the target of a 1.5 billion dlr takeover bid from Chrysler Corp <C>. Analysts said consumers were anxious about the whether Chrysler will retain some American Motors models, causing a 62 pct drop in American Motors sales in mid-March. Chrysler's mid-March sales fell 3.6 pct. "During the spring selling season, you usually look for some kind of seasonal uplift in sales. It doesn't look like it's happening," said Joseph Philippi, analyst with E.F. Hutton and Co. "There may be less bloom to the spring selling season this year than last," one auto company official conceded. General Motors Corp <GM>, still working to regain consumer interest in its cars, led the drop with a 14.8 pct decline. Ford Motor Co's <F> sales increased 15.2 pct for the period. But analysts said the rise compares to a 1986 period for Ford, leaving it down 10 pct in two years. "The total industry (mid-March sales) was slightly less than expected," the company official said. American Motors' decline caught analysts eye. "American Motors took it on the chin--big," said Philippi. Given the prospective takeover by Chrysler, "people might be a little leary about going to (American Motors) dealers," he said. American Motors sold 790 domestic cars in the period, meaning each of American Motors 1,050 dealers "is selling a car about every other day," Philippi said. Potential American Motors buyers are afraid their car models "might disappear," he said. Chrysler, in its purchase agreement with American Motors' majority stockholder <Renault>, has agreed not to undercut sales of American Motors' new Medallion and Premier cars, made by Renault. On a company by company basis, sales of U.S. made cars from the March 11 to 20 period were--GM 105,438, down 14.8 pct, Ford 67,672, up 15.2 pct, Chrysler 30,909, down 3.6 pct, American Motors 790, down 6.2 pct, American Honda 7,447 compared with 5,031, Nissan Motor Corp, 3,358, up 10.7 pct, Volkswagon U.S. Inc 1,330, down 35 pct. Reuter ================================================== ************************************************** Topic 17 ************************************************** Title: PUROLATOR <PCC> IN BUYOUT WITH HUTTON <EFH> New Jersey-based overnight messenger Purolator Courier Corp said it has agreed to be acquired for about 265 mln dlrs by a company formed by E.F. Hutton LBO Inc and certain managers of Purolator's U.S. courier business. Analysts have said that Purolator has been for sale for some time. Purolator announced earlier it was mulling a takeover bid, but analysts wrongly predicted the offer was from another courier company. Hutton LBO, a wholly owned subsidiary of E.F. Hutton Group Inc, will be majority owner of the company. Hutton said the acquiring company, PC Acquisition Inc, is paying 35 dlrs cash per share for 83 pct of Purolator's stock in a tender offer to begin Thursday. The rest of the shares will be purchased for securities and warrants to buy stock in a subsidiary of PC Acquisition, containing Purolator's U.S. courier operations. If all the shares of Purolator are tendered, shareholders would receive for each share 29 dlrs cash, six dlrs in debentures, and a warrant to buy shares in a subsidiary of PC Acquisition containing the U.S. courier operations. Hutton said in the merger shareholders would get 46 mln dlrs aggregate amount of guaranteed debentures due 2002 of PC Acquisition and warrants to buy 15 pct of the common stock of the PC courier subsidiary. Hutton said the company has valued the warrants at two to three dlrs per share. Purolator's stock price closed at 35.125 dlrs on Friday. While some analysts estimated the company was worth in the mid 30s, at least one said it would be worth 38 to 42 dlrs. This follows sales of two other Purolator units. It agreed recently to sell its Canadian Courier unit to Onex Capital for 170 mln dlrs, and previously sold its auto filters business. Purolator retains its Stant division, which makes closure caps for radiators and gas tanks. A Hutton spokesman said the firm is reviewing its options on Stant. Purolator's courier business has been lagging that of its U.S. rivals because of the high price it paid in the past several years to add air delivery to its ground fleet. E.F. Hutton will provide 279 mln dlrs of its funds to complete the transaction. This so-called "bridge" financing will be replaced later with long-term debt most likely in the form of bank loans, Hutton said. Hutton LBO is committed to keeping the courier business, its president Warren Idsal said. "Purolator lost 120 mln dlrs over the last two years largely due to U.S. courier operations, which we believe the management is turning around. We belive it will be a very serious competitor in the future," said Idsal. William Taggart, chief executive officer of U.S. Courier division, will be chief executive officer of the new company. The tender offer will be conditioned on a minimum of two thirds of the common stock being tendered and not withdrawn to the expiration of the offer as well as certain other conditions. The offer will begin Thursday, subject to clearances from the staff of the Interstate Commerce Commission and will expire 20 business days after commencement unless extended. Reuter ================================================== Title: EMERY AIR <EAF> TO BID FOR PUROLATOR <PCC> Emery Air Freight Corp said it plans to begin tomorrow a 40 dlr a share tender offer for 83 pct of the outstanding common stock of Purolator Courier Corp. The company said the tender offer is the first step in a plan to buy 100 pct of the Purolator shares. Following the tender offer, Emery said it would offer 40 dlrs of junior subordinated debentures for each remaining Purolator share outstanding. On March one, Purolator agreed to a 35 dlr a share leveraged buyout by eight Purolator executives and EF Hutton LBO Inc, a unit of EF Hutton Group Inc. Emery said it had tried unsuccessfully to open merger discussions with Purolator before the company accepted the management-led buyout offer. In a letter to Purolator's chairman, Nicholas F. Brady, Emery's chairman, John C. Emery, said the company would still prefer to negotiate with Purolator. But he said the imminent expiration of the leveraged buyout group's offer has forced the company to make an unsolicited tender offer of its own. Emery said its offer is scheduled to expire at 2400 EST on April 28, unless extended. The company said conditions of the offer include the receipt of at least two-thirds of Purolator's shares outstanding, on a fully diluted basis, and the repeal of its share purchase rights plan. Emery said the offer is also subject to completion of the previously announced sale of Purolator's Canadian operations. Emery said Chemical Bank, Bankers Trust, Morgan Guaranty Trust Co and Salomon Bros had agreed to provide financing for the tender offer. It said the junior subordinated debentures to be issued in the subsequent merger will carry a 13 pct annual interest rate, payable twice a year. For the first three years after the notes are issued, interest will be paid, at Emery's option, in cash or in additional notes, Emery said. It added that the notes will not be subject to redemption for one year after they are issued. Emery said Purolator would operate as a wholly owned unit of the company after the merger. It said it hoped Purolator's management would continue with the company. "We believe that our two companies provide an excellent fit with each other and that the combination will enable each of us to better serve our existing customers and meet the challenges of the future," Emery's chairman said in his letter. He said a merger would significantly enhance the financial turnaround that Purolator's management had previously forecast. Officials at Purolator could not immediately be reached for comment on the offer, which was released several hours after the stock market had closed. Emery's stock closed up 1/2 at 12-5/8. Purolator closed at 34-7/8, off 5/8. Reuter ================================================== Title: AMERICAN EXPRESS <AXP> APPROVES SHEARSON OFFER American Express Co said its board approved a public offering of about 18 pct of its wholly owned Shearson Lehman Brothers Inc brokerage unit. American Express also approved the previously announced plan to sell about 13 pct, or 13 mln convertible preferred, of the unit to Nippon Life insurance co for 538 mln dlrs. The preferred shares are convertible to the same number of common shares following Hart-Scott-Rodino and FDIC approvals. American Express said it will maintain 60 pct, or 60 mln of the 100 mln shares of Shearson that will be outstanding. American Express said it had agreed with Nippon life that American Express will hold a minimum of 40 pct of Shearson until January, 1999. American Express said 7.5 mln Shearson shares would be held by certain employees of Shearson and one mln by a Shearson stock ownership plan to be formed. American Express said it anticipates a registration statement for the public offering will be filed with the Securities and Exchange Commission shortly. American Express also declared a two-for-one stock split and raised its quarterly dividend to 38 cts per share from 36 cts on a pre-split basis. Both dividends are payable May 8, to shareholders of record April 3. There are currently 215 mln American Express shares outstanding. The transaction with Nippon Life remains subject to approval by the Japanese ministry of finance, which is expected in April. American Express also said an agreement was reached by Shearson and Nippon Life providing for a joint venture in London. The venture will focus on investment advisory asset management, market research and consulting on financing. It also said it expects the relationship to extend to selected projects involving American Express, Shearson Lehman and Nippon Life in key financial centers of Asia and other regions, and to future personnel exchanges. Under the agreement, Nippon will receive 13 mln cumulative preferred shares with a five pct dividend rate. The cumulative preferred stock will become convertible with voting powers to an equal number of common shares following the U.S. government approvals. American Express said that assuming conversion of the preferred stock held by Nippon, 100 mln shares of Shearson Lehman common stock would be outstanding. For the public offering, it said there will be an underwriters overallotment option to purchase 1.8 mln shares. American Express will also grant Nippon Life a five-year warrant to purchase one mln American Express common shares at 100 dlrs per share. There are currently 215 mln American Express shares outstanding. Nippon Life would be entitled to nominate two directors to the Shearson board and one representative to serve as an adviser to the American Express board of directors. "These proposed transactions are yet another signal that american express intends to stay in the forefront of the financial services industry worldwide," said American Express Chairman James D. Robinson. "The implementation of our plans, moreover, will enable us to maintain a majority interest in shearson while enhancing the strength of our balance sheet by tapping additional capital resources for shearson outside american express." Reuter... ================================================== Title: PANTERA <PANT> AND PIZZA <PZA> AGREE TO MERGE Pantera's Corp said it agreed in principle to acquire Pizza Inn Inc in a cash and stock transaction. Under terms of the proposed transaction, each Pizza Inn share can be exchanged for either three dlrs in cash plus the lesser of 1.4 shares of Pantera's common stock or 11.50 dlrs market value of Pantera's stock, or four dlrs in cash plus a unit consisting of one share of Pantera's stock and a non-transferrable right to receive up to 0.55 share of Pantera's stock under certain conditions, it said. Completion of the transaction is subject to arrangement of financing, negotiation of a definitive agreement, and various regulatory approvals, it said. Pantera's said Pizza Inn's largest shareholder, F.J. Spillman, previously granted Pantera's an option to buy more than one mln shares of Pizza Inn common stock owned by him. Pantera's also said it retained Drexel Burnham Lambert Inc to act as its financial advisor in connection with the merger. Pizza Inn has retained Dean Witter Reynolds Inc to act as its financial advisor, Pantera's said. Yesterday, Pantera's stock closed at 9.50 dlrs on NASDAQ, while Pizza Inn's stock was quoted at 12 dlrs when the Amex halted trading pending the announcement of the proposed merger. From its Dallas headquarters, Pizza Inn said completion of the transaction is subject to certain conditions including that the price of Pantera's stock average not less than seven dlrs during the 20 trading days before the merger. Under the agreement, Pizza Inn said it will still be permitted to complete a leveraged buyout agreement with Pizza Inn Acquiring Corp, which has been approved by its shareholders, but is subject to otaining financing. More ================================================== Title: BORG-WARNER AGREES TO BUYOUT BY MERRILL LYNCH FIRM Borg-Warner <BOR> Corp, facing an unwanted offer from GAF Corp <GAF>, agreed to a 4.23 billion dlr buyout offer from a company to be formed by <Merrill Lynch Capital Partners Inc>. Borg-Warner and Merrill said yesterday they entered a definitive merger agreement, under which a subsidiary of the new company, <AV Holdings Corp>, will begin a 48.50 dlr per share cash tender offer today for 77.6 mln shares or 89 pct of Borg-Warner common stock. The offer will be followed by a merger in which each remaining share will be converted into 19.75 dlrs cash and 54.25 dlrs principal amount of AV Holdings junior subordinated discount debentures. As a result of the merger, Borg-Warner will become a wholly owned subsidiary of AV Holdings. A Borg-Warner spokeswoman said members of management do not plan to participate in the transaction, but they will retain their positions with the company. A spokesman for GAF was unavailable for comment. GAF holds 19.9 pct of Borg-Warner's shares. GAF had said it would offer 46 dlrs per share. Borg-Warner's spokeswoman said the company still plans to sell its financial services unit, which includes Wells Fargo security guards, and the Chilton Corp, a credit rating service. Borg-Warner has been the focus of takeover speculation for about a year. Corporate raider Irwin Jacobs last year proposed a takeover of the firm and until recently held 10 pct of the stock. Following the GAF offer, analysts had calculated breakup values for the company in the low 50 dlrs per share range and speculated an offer would have to be sweetened. In its statement, Borg-Warner said its board endorsed the Merrill offer and it recommended that shareholders tender their shares. The board received opinions on the offer from its advisors, First Boston Corp and Goldman, Sachs and Co. James Burke, president of Merrill Lynch Capital Partners, said, "We are very pleased to have entered into this transaction with Borg-Warner. We are looking forward to working with the employees of Borg-Warner and to Borg-Warner maintaining its strong presence in the Chicago community." Merrill Lynch will be the dealer-manager for the offer, which expires at midnight EDT May 8 (0400 GMT, May 9), subject to conditions, including the completion of necessary financing arrangements. The offer is also subject to a minimum 44.25 mln shares, or 51 pct of the outstanding shares, being tendered. Merrill Lynch and certain affiliates have committed to provide 200 mln dlrs in AV Holdings equity and 870 mln in subordinated financing and forward underwriting commitments. Merrill Lynch said that following discussions with commercial banks it is confident it can obtain the rest of the financing required to complete the transaction. The junior subordinated discount debentures to be issued in the merger will carry a 13 pct coupon and will begin paying cash interest after five years. The debentures will be redeemable at the company's option for the first six years at 105 pct, during the seventh year at 102.5 pct and after that at 100 pct of the principal amount. The junior subordinated discount debentures have a maturity of 20 years and are entitled to a sinking fund commencing in the 16th year designed to retire 60 pct of the issue before maturity. Borg-Warner will also redeem all of its outstanding 4.50 dlrs cumulative preferred stock, series A, for 100 dlrs per share. Holders who wish to participate in the offer must first convert their preferred stock into Borg-Warner common stock. The board of Borg-Warner has also taken steps to redeem its poison pill or share purchase rights for five cents per right, effective immediately. REUTER ================================================== Title: WAINOCO OIL <WOL> RECAPITALIZING COMPANY Wainoco Oil Corp said it is undergoing a recapitalization program with a proposed offering of two mln units consisting of common shares and warrants, the planned redemption of its shareholder value rights, and a change in its corporate structure that substantially reduces futurer income taxes. Wainoco said it had filed a registration statement with the Securities and Exchange Commission for the offering of the two mln units consisting of two shares of common stock and one warrrant per unit for a total of four mln shares of common stock and two mln warrants. Included in the two mln units to be offered are 280,000 shares of common stock to be sold by <Waverly Oil Co>, a selling shareholder of Wainoco, it said. Proceeds of the offering will be used to reduce bank debt, the company said. It said its outstanding 10-3/4 pct subordinated debentures may be used at face value to pay the exercise price of the warrants. Wainoco said the offering will be underwritten by E.F. Hutton and Co Inc, Kidder Peabody and Co Inc, and Smith Barney harris Upham Inc. Simultaneous with the offering, Wainoco said it intends to redeem its shareholder value rights attached to each common share at 10 cts per right. Wainoco said without redemption of the value rights, the company would not have sufficient authorized and unissued shares of common stock to complete the units offering. Due to certain covenants under the company's 10-3/4 pct subordinated debentures, the value rights redemption is contingent upon the success of the units offering, it said. Wainoco's said its shareholders purchase rights distributed to the shareholders in June 1986 are unaffected and remain valid. It said as a result of the liquidation of its Canadian subsidiary into the parent company, it will be able to offset all of its corporate overhead expenses and some of its debenture interests against Canadian income for tax purposes. Wainoco said its pool of future Canadian tax deductions has been increased by an amount which should generate savings that will exceed existing deferred income tax liability. Existing U.S. tax loss carryforward benefits in the U.S. are not materially affected, the company said. It added this will considerably reduce future income taxes in Canada and add to Wainoco's net income and cash flow for a number of years. John Ashmun, chairman of Wainoco, said "as a result of this recapitalization, Wainoco will be in a strong financial position. "Our net income and cash flow will benefit from lower interest expense, lower Canadian taxes, and the considerable savings achieved over the past few years from cost reductions," he said. Ashmun said the company will be able to "utilize enhanced cash flow to develop its large resource base and explore for additional reserves at a time when exploration and development costs are low and opportunities abound rather than using a disproportiaonate share of cash flow for debt service." Reuter ================================================== Title: TALKING POINT/PUROLATOR COURIER <PCC> Emery Air Freight Corp topped a leveraged buyout offer for Purolator Courier Corp by about 40 mln dlrs, but Wall Street is reacting as though another offer may surface. Purolator's stock climbed 5-3/8 today, to 40-1/8, 1/4 over Emery's 40 dlr per share offer. Emery topped a 35 dlr per share or 268 mln dlr offer from E.F. Hutton LBO Inc. Some analysts said the latest, 306 mln dlr offer for Purolator exceeded their expectations. Several analysts previously had said they saw takeover values for the package delivery company in the 35 dlr per share range. At least one, however, estimated the company could be taken over in a range of 38 to 42 dlrs per share. Analysts today would not venture to say whether another offer could be made, but some arbitragers still held to the belief that the bidding could go higher. "They have no choice to seek out the best possible offer. Emery has shown the courage to go forth," said one arbitrager, who speculated other courier companies may also emerge as bidders. "It makes sense," said James Parker of Robinson Humphrey. But "It won't make out as well as they think. They won't get a 100 pct of the synergies." Analysts said the acquisition could cost Emery earnings in the short term, but long term, after eliminating redundancies and selling other Purolator assets, it should boost Emery's profitability. Parker said a combined Purolator and Emery would rival United Parcel Service as the second largest U.S. package delivery company after Federal Express Corp <FDX>, which has 47 pct of the market. Parker speculated that the combined Emery-Purolator would have about 24 pct of the six to seven billion dlr delivery business. "This will make Emery a bigger factor in the light weight (delivery) business, but it will not make them a power house," said Douglas Arthur of Kidder, Peabody and Co. Purolator today declined comment on the Emery offer, and its chairman Nicholas Brady did not return a phone call. E.F.Hutton LBO also declined comment on the Emery offer, but said it extended the expiration and withdrawal period on its offer to April six at midnight from today at midnight EST. One analyst speculated the extension makes it more likely Hutton will attempt another offer. However, he was skeptical a company outside the package delivery industry would want to outbid 40 dlrs per share because it would not have the same synergies as a courier company. Since Purolator agreed in late February to a buyout by some of its management and the E.F. Hutton Group <EFH> subsidiary, speculation has arisen that more bidding was to come. The buyout was surrounded by controversy since a Purolator board member, Doresy Gardner resigned in March. Gardner said he believed a better offer could be made by another entity. A spokesman for Gardner today said the former director had no contact with Emery, nor did he have any other buyers lined up for Purolator. Purolator's deal with Hutton was also called into question by a shareholder suit filed earlier this week, which attempted to stop the tender offer to allow another bidder to come forth. Hearings in a New York state court were delayed until Monday. Arbitragers had said they believed the Hutton offer could be bettered because the Wall Street firm was not planning to keep its cash tied up in Purolator. Hutton is providing a 279 mln dlr "bridge" loan that would later be replaced with other debt. Hutton would maintain a majority interest in Purolator. Hutton sources have said the firm was in fact facing risk n its investment since it did not know when it could reclaim its 279 mln dlr loan. Emery last year lost 5.4 mln dlrs on revenues of 887.5 mln dlrs. Purolator lost 57.6 mln dlrs on 841.4 mln dlrs in revenues. Reuter ================================================== Title: PESCH SEES SHAREHOLDER SUPPORT IN AMI <AMI> BID Chicago physician LeRoy Pesch said he has had discussions with several American Medical International Inc shareholders and sees support for a restructuring of the company. Pesch said he has discussed his sweetened, 1.91 billion dlr takeover bid for American Medical with several large shareholders, including the biggest investor, the Bass family of Texas. However, the Bass family has not indicated support one way or the other for his offer, he said. Pesch, in an interview with Reuters, said based on the conversations he held with shareholders, he could not guage whether he had majority support. He said, however, there is support for his offer. Pesch would not identify shareholders with whom he held discussions other than the Bass family and the Wedge Group Inc, the only other holder of more than five pct of American Medical stock. Earlier today, Wedge Group, which has a 5.5 pct stake, said it held discussions with Pesch, American Medical management and other American Medical shareholders. Wedge, in a filing with the Securities and Exchange Commission, said it believes a restructuring of American Medical and its business would be "highly desirable and appropriate at this time." "That's the sort of position that I find a large segment of shareholders of AMI really share," said Pesch. Pesch said he held discussions with Wedge about joining his takeover effort, in which he is offering 17 dlrs cash, four dlrs in preferred stock and one dlr in common stock for each American Medical share. Wedge said it has no plans to join in an effort to seek control of American Medical, but it would not rule out a future takeover try. Pesch said he did not discuss a joint takeover proposal with the Bass family. Some analysts saw the Wedge statement as a boost to Pesch's takeover effort and a further sign that there could be some shareholder dissatisfaction following American Medical's previous rejection of a 20 dlr per share all cash offer from Pesch. American Medical is expected to resist Pesch's latest bid. Larry Feinberg, an analyst with Dean Witter Reynolds Inc said a management-led leveraged buyout cannot be ruled out. An American Medical spokesman said the company will comment on the new Pesch offer by March 10. Analysts continue to view the Bass family as a factor in the outcome of the bid for control of American Medical. The Bass family holds an 11. 6 pct stake in American Medical, and the company has previously said the investors support management's internal plan to improve the company's performance. The Bass family would not comment on American Medical or Pesch. Pesch, who led the leveraged buyout of Republic Health Corp last year, continues to face a credibilty problem on Wall Street because of the long time it took to finish the Republic acquisition. Republic also has substantial debt, and has left wall street questioning whether financing can be completed for the much larger American Medical takeover proposal. Pesch's first offer for American Medical was made without an investment banking firm, another cause for concern to Wall Street. However, Pesch entered his second offer with representation from Donaldson, Lufkin, and Jenrette Securities and Security Pacific Merchant Banking Group. "I don't have any doubt that the current transaction can be worked out and completed, provided we get to the point where Ami management will sit down and talk in a friendly environment," Pesch said. Pesch would not elaborate on what type of financing arrangements are being made. He did say if he succeeds in acquiring American Medical he plans to keep much of American Medical management in place. He said he plans to combine the company with Republic to form an efficient network of hospitals. Analysts said they do not believe a much higher offer could be made for American Medical. Byron Nimocks of E.F. Hutton Group said improved second fiscal quarter earnings could make American Medical stock worth about 20 dlrs per share. Nimocks estimates American Medical earnings for the second quarter ended February 28 could be 35 cts, compared to a 95 ct loss last year. Nimocks said Pesch's revised offer is not worth much more than the 20 dlrs cash offered previously. But Feinberg said there is a better chance a transaction could be completed because of the revised structure of the offer. "I think it's much more doable," he said. Analysts have said American Medical has begun a turnaround by replacing some members of management and reducing costs. Reuter ================================================== Title: PENTLAND TO REDUCE REEBOK <RBK> HOLDINGS Pentland Industries PLC said it report a substantial capital gain from the sale of part of its holdings in Reebok International Limited, which will cut its stake in Reebok to 32.2 pct from 36.7 pct. It said Reebok filed a registration statement with the Securities and Exchange Commission for the offering of six mln shares of Reebok common. Reebok will sell three mln shares and Pentland will sell 1,404,866 shares, reducing its stake in Reebok to 18.1 mln from 19.5 mln shares. After the offering, Reebok will have 56.1 mln shares shares outstanding. Pentland said the amount of the capital gain from the sale depends on the offering price for the Reebok shares to be negotiated between it, Reebok, and the other selling stockholders who will offer about 1.6 mln shares of Reebok common, and the underwriters. Pentland said proceeds from the offering will be used by Reebok to retire bank debt incurred in its acquisition of AVIA Group for about 180 mln dlrs. Is said that afterwards, Reebok will have bank credit lines available for general corporate purposes, including possible acquisitions. Reebok's stock was selling at 45-1/2, up 1/8. At that price, the 1.4 mln Reebok shares Pentland will sell are worth about 64 mln dlrs and the three mln shares Reebok will sell are worth about 136.5 mln dlrs. Pentland said it will use proceeds to fund growth and possible acquisitions. Pentland said 4,500,000 shares of Rebbok will be offered in the U.S. by a syndicate led by Kidder, Peabody and Co Inc and 1,500,000 shares will be offered outside the U.S. by an international syndicate led by Kidder. It said the U.S. underwriters have been granted an option to buy from certain selling stockholders up to an additional 900,000 shares to cover overallotments. Pentland said it has not chosen to participate in this over allotment. Pentland said that as soon as the date and price of the offering have been determined it will release further details. It said it expects the offering to close in May. Reuter ================================================== Title: DART GROUP FLEXIBLE ON SUPERMARKETS <SGL> BID <Dart Group Corp> said it told Supermarkets General Corp <SGL> it was flexible on the price it would pay to acquire the company. Dart has said it would offer 41.75 dlrs cash for each SGL share if the SGL board recommended the offer to shareholders. SGL has termed the 1.62 billion dlr offer unsolicited. In a letter to SGL dated March 20, Dart also said it was denied confidential information on SGL that would be given to other potential bidders. SGL officials could not be reached for comment. Dart said it was advised that a selling brochure for the sale of SGL had been distributed to about 20 potential buyers, but not itself. These purchasers would also be given access to SGL's books and records and the opportunity to talk with key employees. "We suspect that one or more of the 20 are leveraged buyout firms," said a source close to Dart. Analysts have said SGL management may be considering a leveraged buyout. Dart said it remains interested in acquiring SGL on a friendly basis and reiterated its willingness to negotiate all the terms of its offer. Dart said SGL representatives said the company has not received any other offer. It said it requested the confidential information to better understand SGL, but was denied this because it refused to sign an agreement prohibiting it from making a bid for SGL without SGL's approval. The agreement would also have limited its ability to buy SGL shares, Dart said. It considered those conditions unreasonable in the interest of trying to negotiate a friendly transaction, it said. Dart has just under five pct of SGL shares. Dart said it requested the information before its meeting with SGL representatives, but held the meetings in the hope representatives would reach an agreement. It said it indicated it was flexible on price, but was told there were certain issues important to SGL management and while they were not conditions to the deal, Dart was expected to take them into account in putting together its package. It said the issues include an immediate payment of 5.7 mln dlrs to SGL chairman Leonard Lieberman, executive vice president James Dougherty and financial officer Murray Levine. Dart said this payment was intended for the three officers' severance agreements, although there was an implication that Lieberman and Dougherty would be leaving the company of their own volition. Dart said under their present agreements, none of these officers have any right to such accelerated payments. Also, Dart said Lieberman, Dougherty and Levine are to be paid 2.6 mln dlrs to pay their taxes. It also said top management's incentive shares were to be accelerated and paid for at a cost of six mln dlrs although there are restrictions on the shares unless waived by the company's compensation committee. Dart said it was to fund up to five mln dlrs for top management's supplemental retirement plan. Dart said another issue was to agree to future severance obligations and future salary guarantees for top management, estimated at more than 15 mln dlrs in excess of obligations under the company's present policy. Dart said despite such management payments, it agreed to discuss all aspects of its offer and in fact did try to negotiate a transaction at the March 18 meeting with SGL. Supermarkets General owns the Path Mark supermarket chain and Rickels home centres. Dart also released a copy of a lawsuit that was being filed by an SGL shareholder, seeking to stop SGL from taking such actions as paying greenmail or enacting a poison pill defence. The suit also sought to have directors carry out their fiduciary duty. Greenmail is the payment at a premium for shares held by an unwanted suitor and a poison pill is typically the issue of securities to shareholders which make a takeover more expensive. REUTER ================================================== ************************************************** Topic 18 ************************************************** Title: SAUDI OIL MINISTER SEES NO NEED TO ALTER OPEC PACT Saudi Arabian Oil Minister Hisham Nazer said OPEC's December agreement to stabilise oil prices at 18 dlrs a barrel was being implemented satisfactorily and there was no immediate need to change it. Nazer, in an interview with Reuters and the television news agency Visnews, said Saudi Arabia was producing around three mln barrels per day (bpd) of crude oil, well below its OPEC quota. Saudi Arabia, the world's largest oil exporter, will continue to restrain production as long as other OPEC members adhere to the pact, Nazer said. The 13-nation OPEC agreed in December to cut its production ceiling by 7.25 pct to 15.8 mln bpd and abide by fixed prices averaging 18 dlrs a barrel from February 1. Nazer, in his first interview since succeeding Ahmed Zaki Yamani last October, said: "I do not foresee any need for new measures before the 25th of June when our (next OPEC) meeting will take place as scheduled." Nazer said OPEC was producing below 15.8 mln bpd and all members were abiding by its agreements. "We've heard news every now and then of violations but they were not at all verified," he said. OPEC production curbs have boosted world oil prices from a 13-year low of around eight dlrs a barrel last August to near 18 dlrs after announcement of the December pact. Spot market prices slipped some two dlrs in February but have firmed in the past two weeks to near OPEC levels as traders gained confidence in OPEC price and output discipline. Nazer said Saudi Arabia would continue to produce below its 4.133 mln bpd quota if necessary to defend the 18 dlr price. "As long as all the OPEC members adhere to the program as devised in December, Saudi Arabia will continue to adhere to the agreement," he said. Current production of three mln bpd includes oil from the Neutral Zone shared with Kuwait, but not sales from floating storage, Nazer said. King Fahd of Saudi Arabia, in an interview with Reuters and Visnews on March 11, said the kingdom wanted oil price stability and called on non-OPEC producers to avoid harmful competition with OPEC. "Saudi Arabia doesn't decide prices by itself but certainly desires price stability," he said. Nazer said the output level did not mean the kingdom had returned to a role of "swing producer" within OPEC. Saudi Arabia allowed its output to sink as low as two mln bpd in August 1985 to compensate for slack demand and over-production by some OPEC states. "Saudi Arabia is not playing that role. It is being played by OPEC membership as a whole because the reduction in the 15.8 mln bpd share of OPEC in the market is being shared by other members of OPEC," Nazer said. Nazer said OPEC estimated demand for its oil during third quarter this year would be around 16.6 mln bpd. But he said if circumstances changed "I am sure then the OPEC members will consult with each other and take the necessary measures." Oil analysts say the OPEC pact could come under strain when demand for petroleum products generally falls in the northern hemisphere spring and summer. Nazer said he was satisfied with the extent of cooperation from non-OPEC producers. Norway, Egypt and the Soviet Union agreed to help OPEC by restraining production or exports after he visited them on OPEC's behalf earlier this year. "We did not ask any country to do anything. These were programmes they thought were necessary to stabilise market conditions and to help themselves attain better pricing conditions," Nazer said. He said it was up to countries that declined to cooperate -- such as Britain -- to come up with their own proposals if they saw fit. REUTER ================================================== Title: SAUDI OIL MINISTER SEES NO NEED TO ALTER PACT Saudi Arabian Oil Minister Hisham Nazer said OPEC's December agreement to stabilize oil prices at 18 dlrs a barrel was being implemented satisfactorily and there was no immediate need to change it. Nazer, in an interview with Reuters and the television news agency Visnews, said Saudi Arabia was producing around three mln barrels per day (bpd) of crude oil, well below its OPEC quota. Saudi Arabia, the world's largest oil exporter, will continue to restrain production as long as other OPEC members adhere to the pact, Nazer said. The 13-nation OPEC agreed in December to cut its production ceiling by 7.25 pct to 15.8 mln bpd and abide by fixed prices averaging 18 dlrs a barrel from February 1. Nazer, in his first interview since succeeding Ahmed Zaki Yamani last October, said: "I do not foresee any need for new measures before the 25th of June when our (next OPEC) meeting will take place as scheduled." Nazer said OPEC was producing below 15.8 mln bpd and all members were abiding by its agreements. "We've heard news every now and then of violations but they were not at all verified," he said. OPEC production curbs have boosted world oil prices from a 13-year low of around eight dlrs a barrel last August to near 18 dlrs after announcement of the December pact. Spot market prices slipped some two dlrs in February but have firmed in the past two weeks to near OPEC levels as traders gained confidence in OPEC price and output discipline. Nazer said Saudi Arabia would continue to produce below its 4.133 mln bpd quota if necessary to defend the 18 dlr price. "As long as all the OPEC members adhere to the program as devised in December, Saudi Arabia will continue to adhere to the agreement," he said. Current production of three mln bpd includes oil from the Neutral Zone shared with Kuwait, but not sales from floating storage, Nazer said. King Fahd of Saudi Arabia, in an interview with Reuters and Visnews on March 11, said the kingdom wanted oil price stability and called on non-OPEC producers to avoid harmful competition with OPEC. "Saudi Arabia doesn't decide prices by itself but certainly desires price stability," he said. Nazer said the output level did not mean the kingdom had returned to a role of "swing producer" within OPEC. Saudi Arabia allowed its output to sink as low as two mln bpd in August 1985 to compensate for slack demand and over-production by some OPEC states. "Saudi Arabia is not playing that role. It is being played by OPEC membership as a whole because the reduction in the 15.8 mln bpd share of OPEC in the market is being shared by other members of OPEC," Nazer said. Nazer said OPEC estimated demand for its oil during third quarter this year would be around 16.6 mln bpd. But he said if circumstances changed "I am sure then the OPEC members will consult with each other and take the necessary measures." Oil analysts say the OPEC pact could come under strain when demand for petroleum products generally falls in the northern hemisphere spring and summer. Nazer said he was satisfied with the extent of cooperation from non-OPEC producers. Norway, Egypt and the Soviet Union agreed to help OPEC by restraining production or exports after he visited them on OPEC's behalf earlier this year. "We did not ask any country to do anything. These were programmes they thought were necessary to stabilise market conditions and to help themselves attain better pricing conditions," Nazer said. He said it was up to countries that declined to cooperate -- such as Britain -- to come up with their own proposals if they saw fit. ================================================== Title: KUWAIT SAYS NO PLANS FOR EMERGENCY OPEC TALKS Kuwait"s Oil Minister, in remarks published today, said there were no plans for an emergency OPEC meeting to review oil policies after recent weakness in world oil prices. Sheikh Ali al-Khalifa al-Sabah was quoted by the local daily al-Qabas as saying: "None of the OPEC members has asked for such a meeting." He denied Kuwait was pumping above its quota of 948,000 barrels of crude daily (bpd) set under self-imposed production limits of the 13-nation organisation. Traders and analysts in international oil markets estimate OPEC is producing up to one mln bpd above a ceiling of 15.8 mln bpd agreed in Geneva last December. They named Kuwait and the United Arab Emirates, along with the much smaller producer Ecuador, among those producing above quota. Kuwait, they said, was pumping 1.2 mln bpd. "This rumour is baseless. It is based on reports which said Kuwait has the ability to exceed its share. They suppose that because Kuwait has the ability, it will do so," the minister said. Sheikh Ali has said before that Kuwait had the ability to produce up to 4.0 mln bpd. "If we can sell more than our quota at official prices, while some countries are suffering difficulties marketing their share, it means we in Kuwait are unusually clever," he said. He was referring apparently to the Gulf state of qatar, which industry sources said was selling less than 180,000 bpd of its 285,000 bpd quota, because buyers were resisting official prices restored by OPEC last month pegged to a marker of 18 dlrs per barrel. Prices in New York last week dropped to their lowest levels this year and almost three dollars below a three-month high of 19 dollars a barrel. Sheikh Ali also delivered "a challenge to any international oil company that declared Kuwait sold below official prices." Because it was charging its official price, of 16.67 dlrs a barrel, it had lost custom, he said but did not elaborate. However, Kuwait had guaranteed markets for its oil because of its local and international refining facilities and its own distribution network abroad, he added. He reaffirmed that the planned meeting March 7 of OPEC"s differentials committee has been postponed until the start of April at the request of certain of the body"s members. Ecuador"s deputy energy minister Fernando Santos Alvite said last Wednesday his debt-burdened country wanted OPEC to assign a lower official price for its crude, and was to seek this at talks this month of opec"s pricing committee. Referring to pressure by oil companies on OPEC members, in apparent reference to difficulties faced by Qatar, he said: "We expected such pressure. It will continue through March and April." But he expected the situation would later improve. REUTER ================================================== Title: OPEC REAFFIRMS COMMITMENT TO FIXED PRICES, CEILING OPEC has reaffirmed its commitment to fixed crude oil prices of around 18 dlrs a barrel and an overall output ceiling of 15.8 mln barrels per day (bpd) to defend prices, its president Rilwanu Lukman said. He told a news conference here "After due consultation with my colleagues in OPEC, I hereby wish to emphasize that Nigeria and all member countries of OPEC remain determined to uphold the December agreement by adhering strictly to their various quotas and official selling prices." Lukman added no extraordinary OPEC conference was planned. "We are in a position to re-confirm that, despite misleading news in foreign media to the contrary, ... OPEC member countries as a whole produced below their agreed quota in the month of February," Lukman, who is Nigerian oil minister, said. Lukman put the overall OPEC output shortfall in February at 900,000 bpd and said this was as a result of their firm determination to defend official selling prices of 18 dlrs agreed upon last December in Geneva. The December agreement set an overall output ceiling for OPEC of 15.8 mln bpd for first half 1987 and restored fixed prices as from February 1 around a reference point of 18 dlrs. Oil prices rallied immediately after the Geneva accord but fell again last month on reports that OPEC was producing more than the agreed level. "The idea was to suggest that OPEC's agreement would not hold and this caused some customers to hold back purchases of OPEC oil and resort to destocking to meet their needs," Lukman said. He said the 900,000 bpd shortfall last February was based on the verified figure for 10 out of OPEC's 13 members, adding that Nigeria alone had a shortfall in production of 100,000 bpd. Iraq disassociated itself from the December agreement, while the production figures of Ecuador and the United Arab Emirates needed to be verified, Lukman said. "If that is the price we have to pay to make the agreement succeed, we are ready ... OPEC is not changing its price level of 18 dlrs," the group's president said. He said the OPEC price differentials committee meeting formerly postponed to April had been put off indefinitely. "Furthermore, no extraordinary meeting of the conference is at the moment contemplated since most agreements reached in December are being adhered to," he said. Asked if the committee did not need to meet soon to narrow the gaps in the prices of the various OPEC crudes -- fixed in relation to the 18 dlr benchmark -- Lukman replied "We consider the defence of our prices much more crucial than differentials." Lukman said OPEC was aware that consumers had heavily drawn on stocks of both crude oil and refined products to levels well below this time last year and soon they would return to the market in search of crude. "We don't see that there is going to be any difficulty in maintaining the 18 dlr price throughout the rest of the year," Lukman said. The OPEC president praised non-OPEC oil producers, which he said had contributed to the group's efforts to stabilise prices, but he criticised Britain for maintaining its long-held view not to do anything to help the market. "We are quite confident, however, that in the long-term with two-thirds of the world's reserves in OPEC hands, the future is ours. We will use that advantage responsibly," he said. Lukman described the disruption in Ecuador's output following an earthquake as tragic, but refused to say if the South American country would be allowed a higher output quota when it recovered from the disaster. REUTER ================================================== Title: SAUDI ARABIA REITERATES COMMITMENT TO OPEC PACT Saudi Arabian Oil Minister Hisham Nazer reiterated the kingdom's commitment to last December's OPEC accord to boost world oil prices and stabilise the market, the official Saudi Press Agency SPA said. Asked by the agency about the recent fall in free market oil prices, Nazer said Saudi Arabia "is fully adhering by the ... Accord and it will never sell its oil at prices below the pronounced prices under any circumstance." Nazer, quoted by SPA, said recent pressure on free market prices "may be because of the end of the (northern hemisphere) winter season and the glut in the market." Saudi Arabia was a main architect of the December accord, under which OPEC agreed to lower its total output ceiling by 7.25 pct to 15.8 mln barrels per day (bpd) and return to fixed prices of around 18 dlrs a barrel. The agreement followed a year of turmoil on oil markets, which saw prices slump briefly to under 10 dlrs a barrel in mid-1986 from about 30 dlrs in late 1985. Free market prices are currently just over 16 dlrs. Nazer was quoted by the SPA as saying Saudi Arabia's adherence to the accord was shown clearly in the oil market. He said contacts among members of OPEC showed they all wanted to stick to the accord. In Jamaica, OPEC President Rilwanu Lukman, who is also Nigerian Oil Minister, said the group planned to stick with the pricing agreement. "We are aware of the negative forces trying to manipulate the operations of the market, but we are satisfied that the fundamentals exist for stable market conditions," he said. Kuwait's Oil Minister, Sheikh Ali al-Khalifa al-Sabah, said in remarks published in the emirate's daily Al-Qabas there were no plans for an emergency OPEC meeting to review prices. Traders and analysts in international oil markets estimate OPEC is producing up to one mln bpd above the 15.8 mln ceiling. They named Kuwait and the United Arab Emirates, along with the much smaller producer Ecuador, among those producing above quota. Sheikh Ali denied that Kuwait was over-producing. REUTER ================================================== Title: FDA OKAYS BURROUGHS WELLCOME AZT AS AIDS TREATMENT The Food and Drug Administration has approved Burroughs Wellcome Co's AZT as a treatment to help certain AIDS patients, including those with advanced-AIDS related complex. The drug is the first approved treatment for AIDS in the U.S. AZT or azidothymidine will be marketed as Retrovir by the company, the U.S. arm of Britain's <Wellcome PLC>. Because of its limited supply, the FDA said the drug will be restricted initially to those patients with AIDS or AIDS-related complex with severely depressed immunity or a history of Pnumocystis carinii, pneumonia. "Today's approval marks an important step but by no means a final victory against our ongoing war against AIDS," said Dr Robert E. Windom, assistant secretary for health at the Public Health Service. He noted that available clinical data were sufficient for approving the use of Retrovir only for certain indications and not for all AIDS associated conditions. Nevertheless, Windom said today's action means that significant medical relief will be available to thousands of those afflicted with the disease. "Retrovir is not a cure but it has demonstrated ability to improve the short-term survival of AIDS patients with recently diagnosed PCP (Pneumomystis carinii pneumonia) and certain patients with advanced ARC (AIDS-related complex)," said Windom. Advanced AIDS related complex is a condition that frequently precedes and develops within a short time into full-scale acquired immune deficiency syndrome. As of March 16, there were 32,825 AIDS cases reported nationwide, with more than 16,000 deaths. The Public Health Agency said advanced ARC patients have symptoms that include weight loss, persistent fever and diarrhea, and less severe infections such as oral thrush and herpes infections. The federal agency said that AIDS patients who are expected to qualify for retrovir treatment are those who have serious opportunistic infections associated with AIDS and those with advanced AIDS related complex. It is estimated that about two to three times as many Americans may suffer from advanced ARC as from AIDS. Burroughs Wellcome, of Research Triangle Park, N.C., has scheduled a press conference for Monday in New York where it will discuss what patients will quality for treatment. The company has said that a year's treatment with the drug would cost 8,000 dlrs to 10,000 dlrs. Burroughs has also said that it has adequate supplies of the drug for the most seriously ill patients, and will have supplies for a minimum of 30,000 patients and probably more by the end of the year. Retrovir's approval was expected as a panel of expert medical advisers to the FDA recommended in January that the drug be licensed for sale even though there were gaps in understanding the drug's effectiveness. The panel said the drug could prolong the lives of certain AIDS patients but it also caused severe side effects such as anemia and other blood problems. Due to the extraordinary situation surrounding AIDS, a fatal disease reaching what some health officials say is epidemic proportions, Windom said the FDA has moved in near record time--four months--to approve the drug. AZT, derived from herring sperm, was created in the 1960s by Jerome P. Horwitz of the Michigan Cancer Foundation as an anticancer agent. Meanwhile in London, dealers said Wellcome shares rose to 497p in response, up from last night's close of 457p. But pharmaceutical analyst Mark Clark of Barclays de Zoete Wedd said the new drug's share of the market may not be as a high as expected since it had very severe side effects. "It is not a cure and the side effects are so bad it is unlikely that someone could support a full year's treatment," he said. "There are also a whole host of other drugs likely to come onto the market quite soon." Last week the drug was approved for marketing in the U.K. Reuter ================================================== Title: OPEC PRESIDENT SAYS OUTPUT WELL BELOW CEILING Opec Conference President Rilwanu Lukman said the group was producing well below the 15.8 mln bpd ceiling it set in December, partly because liftings had been delayed or postponed by customers unwilling to pay fixed Opec prices. Lukman, during a brief visit to London on his way home from Jamaica, told Reuters in a telephone interview that in February, Opec had underproduced partly because members were strictly abiding by production quotas and partly because they were resisting the temptation to sell at discounts to official prices of around 18 dlrs a barrel. "We are determined to stand firm by the (December) accord," he said. "I have spoken to every other Opec minister and they are committed to making the accord work," he said. Lukman gave no specific figures for February output. He said the Opec secretariat in Vienna was finalizing these figures. Told of a Reuters survey published today which estimated that Opec output so far this week was below 15 mln bpd, he said; "That could well be correct." Opec"s news agency Opecna today issued a statement saying group output was "well below" its ceiling in February. But it gave no figures. But one source close to Opec indicated that February output may have been between 15.3 and 15.5 mln bpd. The Reuter survey estimated Opec February output at around 16 mln bpd. Opec agreed in December to cut output by 7.25 pct to 15.8 mln bpd and to return to fixed prices starting February 1. Lukman said Qatar, Nigeria, Saudi Arabia and Iran had all produced in February below their Opec quotas. Iraq, which said it would not honour its 1.466 mln bpd quota under the December pact, had produced less than had been anticipated, he said. Lukman said that some industry reports "may be correct" that in February, Nigeria propuced 75-100,000 bpd below its 1.238 mln bpd quota, Saudi Arabia 500,000 bpd less than its 4.133 mln allocation and Qatar 20 to 30 pct under its 285,000 bpd quota. He said that sweet crudes such as those produced by his country were coming under price pressure because they were currently officially priced above sweet North Sea grades and the United States" West Texas Intermediate (WTI) crude. However, he said Opec in December had anticipated that demand would be slack at this time of year for seasonal reasons and expected the market to firm in two to three weeks. "We have to be patient for two or three weeks. The market is now firming on actual fundamentals," he said, adding that he expected it to go "up and up" even beyond official prices after early April. This is when, traditionally, there is more demand for gasoline-rich crudes such as Nigeria"s. The Opec President said producers such as Kuwait, Venezuela and Indonesia were having less problems with output than producers like his own country because they exported oil products. Also, some of Venezuela"s heavy grades were outside the Opec pricing system, he said. Lukman said that if refiner-buyers, now refusing to lift some Opec oil at official prices, instead used their own stocks and ran them down to "dangerous levels," they would eventually have to buy Opec oil. "When they realise it is not a free-for-all (in the market) they will realise they should buy now instead of paying more later on," he said. Lukman, asked about industry reports that Nigeria was being pressured by equity producers for better terms, said it was important to know that terms with them were negotiable, flexible and under constant review, not only when the market seemed weak. He said that so far, no meeting of the seven-nation ministerial differentials committee had been scheduled and that such a meeting, now twice-postponed, was not a high priority for Opec at the moment. "At this time, we have to get our priorities right," he said. "The most important thing now is ensuring that the accord is working, not dealing with a differential of cents between grades." But if any Opec member raised concerns or objections over the differential system, a meeting would be called, he said. Reuter ================================================== Title: FDA PANEL BACKS UPJOHN <UPJ> BALDNESS DRUG The federal Food and Drug Administration's Dermatologic Drugs Advisory Committee voted unanimously that Upjohn Co's Rogaine baldness drug was safe and effective. The panel recommended that the FDA approve Rogaine for marketing in the United States, so long as accompanying packaging and promotional materials disclose that the product has only limited effect on male pattern baldness. The five outside experts attending today's FDA committee meeting seemed less concerned about Rogaine's safety after an outside consultant told them the drug "appears to be quite safe in the normal male population." The consultant, Ohio State University Professor of Medicine Carl Leier, said Rogaine's side effects were minimal, based on a study of 10,000 individuals who have been getting the drug in Canada, where it was approved for marketing last year. "The Canadian record is quite a good one in terms of side effects," Leier said. The experts urged the FDA to require a warning in the drug's packaging that patients be monitored for heart effects while taking the drug, such as irregular heart beats, changes in heart rate, palpitations and fluid retention in the body. Rogaine, whose chemical name is minoxidil, has already been approved by the FDA when taken orally as a high blood pressure drug. But Upjohn is now seeking agency approval of it as a male baldness treatment when put directly on the skin in liquid form. Upjohn has previously claimed that, when applied to the scalp, too little of Rogaine was absorbed into the bloodstream to affect the heart. But panel members concluded that the amount absorbed merited physician monitoring of patients taking the drug. Under questioning by panel members, Upjohn official Richard De Villez acknowledged the drug in clinical trials produced moderate hair growth on the crown of the head in only about 40 pct after 12 months. He also acknowledged discontinuing treatment would make the new hair fall out. "The Upjohn problem is that they have a tremendous placebo effect," panel member Paul Bergstresser of the University of Texas told the meeting. He said patients administered a placebo during clinical trials typically had about half as much new hair growth as did individuals treated with Rogaine. As a result, it may take patients eight-12 months before they can tell whether thay are benefiting from the drug, he said. In Canada, a year's treatment costs about 550-640 dlrs (U.S.). An Upjohn official said no price would be set for the drug in the U.S. market until it was approved for sale. During trials, the drug was found to have a bizarre side effect on some individuals: It caused a state of sexual dysfunction known as "exagerrated erection." Stewart Ehrreich, a former FDA official who conducted a safety review of Rogaine before leaving the agency, said researchers had found a number of cases of patients who had exagerrated erections as a result of the drug. He said this was a common effect for drugs of the same class as Rogaine, called vaso-dilators. FDA officials said they could make no prediction on when Rogaine might be approved for marketing. Following the vote, panel member Dr. Robert Stern, a Boston dermatologist, said Upjohn statistics had exaggerated the effect of the drug. He said "about one in five will have a substantial clinical effect," which he defined as a significant growth of new hair that made the patient actually look better. He urged insurance companies not to cover the cost of Rogaine treatment in order to preserve scarce medical fund resources. "I would hope that insurance companies will take a strong line that this is not a product we will reimburse for," Stern told reporters. "I think this is a drug that has some application for some people, and I think some people will find it worth the expense," he said. But he said individuals should be required to pay for the treatment out of their personal funds. Stern estimated more than 100,000 American men are already using minoxidil on their scalps, outside the law, by grinding up the blood pressure pill and dissolving in a solvent. Reuter ================================================== Title: PROPOSALS TO RELAX U.S. DRUG LAWS POSE PROBLEMS The Reagan Administration's soon-to-be published proposals to make experimental therapies more rapidly and widely available to terminally ill patients pose product liability problems for drug companies, experts in the pharmaceutical field said. Details of the proposals will be published in the Federal Register shortly and will become effective after a 90-day comment period. Under the proposed policy, announced Tuesday by Commissioner of Food and Drugs Frank E. Young at a press conference, patients with life threatening diseases who are not enrolled in clinical trials would be allowed access to an experimental therapy. The policy also allows drug companies to sell the promising drugs to patients. Previously drugs like AZT could be rushed into wider use free-of-charge if the agent was shown to be effective. Under the new policy, the FDA could only refuse to permit a physician to administer an experimental drug if it was shown to be unsafe. Financial analysts said the plan would likely benefit biotechnology companies with few or no products approved for marketing in the U.S., but would have little economic impact on large drug companies with many other sources of revenue. "Charging a fee for still experimental drugs could help biotech companies' near-term financial situation and help make them less dependent on outside sources," said Teena Lerner, a biotech analyst at L.F. Rothchild. Other observers were concerned that drug companies would be put into a legal bind if promising drugs later proved to have devastating side effects. "Before a lot of drug companies release these drugs they are going to have to think long and hard about liability--the product liability problems are enormous," said a Washington-based lawyer who specializes in the drug field. Patients in clinical trials normally sign lengthy informed consent papers before taking an investigational drug. The lawyer said no more than two cases had gone to trial for suits against a drug company's investigational drug. "The new proposals are a whole new kettle of fish," said the lawyer. "Drug companies are right now probably meeting with their insurance companies." Burroughs-Wellcome Co, the U.S. arm of the British firm Wellcome PLC that makes AZT, Merck and Co Inc <MRK>, Hoffman-LaRoche Inc and SmithKline Beckman Corp <SKB> said it was too soon to comment on the policy. "I'm very uncomforable with this," said Wellcome spokeswoman Kathy Bartlett. "We haven't had a chance to formulate a response yet. It's too early." But some financial analysts say the proposals would benefit drug companies. "I find the proposal to be a very significant alteration of the FDA's past policies that should positively affect (drug companies') stocks," said drug analyst Davis Saks, with Morgan, Olmstead, Kennedy and Gardner. Saks also warned that many health care providers would balk at the proposal, and would call it "amoral" to charge patients with life-threatening diseases for drugs that otherwise would be given out for free in clinical trials. Jeffrey Warren, spokesman for the Pharmaceutical Manufacturers Association, which represents the major drug firms in the U.S., said "A mechanism already exists at the FDA permitting certain seriously ill patients access to experimental drugs and perhaps that system can be approved." Warren acknowledged that the PMA may not be able to come up with a consensus among its membership when the rules are formally published. He also admitted that product liability problems could be a concern to major drug companies. Jeffrey Levi, executive director of the National Gay and Lesbian Task Force, which is actively in AIDS policy and funding issues, cited the drug Suramin from Bayer AG <BAYRY>, which had shown early promise as an AIDS treatment, but on wider clinical testing was shown to have deadly side effects. Reuter ================================================== Title: U.S. OIL PRICES STRONG AHEAD OF OPEC MEETING U.S. crude oil prices are at their highest level in more than a year ahead of next week's OPEC meeting, even though most industry analysts do not expect any policy changes from the session. They said prices, which have steadily climbed since the organization's accord in December, have risen on technical factors within the market and concerns about supplies because of the Iran-Iraq war, which could disrupt deliveries from the Gulf. The U.S. benchmark crude West Texas Intermediate is trading around 20.55 dlrs in the July contract on New York Mercantile Exchange's energy futures and in the spot market. That is its highest level since January 1986. OPEC conference president Rilwanu Lukman, who is Nigeria's oil minister, said Friday he expects the meeting in Vienna to be brief and calm and that OPEC's current price and production agreement may only need a slight review. Although most industry experts expect just a reaffirmation of the December agreement, oil prices continue to climb due to a desire to hedge positions in case of any surprises. Analysts expect the higher prices to continue until soon after the OPEC meeting. At that point, barring any increased tension in the Gulf or changes in OPEC's policies, prices should begin easing. "OPEC will probably not do anything it hasn't already agreed to in December because oil prices are firm," said John Hill, a vice president at Merrill Lynch Futures. OPEC agreed in December to maintain official oil prices at 18 dlrs a barrel and raise the group's production ceiling to 16.6 mln barrels per day in the third quarter and to 18.3 mln barrels in the fourth quarter. This agreement helped send prices sharply higher, rising from 15 dlrs a barrel in early December. Several OPEC members who are price hawks, including Iran, Algeria and Libya, will seek a higher official price and a reduction in output. "And if U.S. West Texas Intermediate crude continues to trade above 20 dlrs a barrel, there is a greater chance that OPEC will raise its official 18 dlrs price," said Nauman Barakat, analyst at Smith Barney, Harris Upham and Co. But most analysts expect the more moderate producers, such as Saudi Arabia, to block any changes in policy. "The meeting will be a non-event with no change in the official prices because OPEC, and in particular the Saudis, are committed to stabilizing the market," said Rosario Ilacqua, analyst with L.F. Rothschild. However, some analysts said OPEC may need to hold a meeting in September to re-evaluate market conditions. Overproduction by OPEC will become a real problem in the fourth quarter when the quota is raised to 18.3 mln barrels a day and Iraq's pipeline through Turkey brings another 500,000 barrels to the market each day, said John Lichtblau, president of Petroleum Industry Ressearch Foundation. Most expect Saudi Arabia to oppose a price increase at this meeting but many look for an increase by year-end to 20 dlrs to offset the decline in the dollar. Oil prices are denominated throughout the world in dollars, so as the currency declines, producers receive less money for their oil. "The only real production restraint in OPEC is Saudi Arabia," said Sanford Margoshes, analyst at Shearson Lehman Brothers. "In the second half of the year we expect the Saudis not to produce at their 4.1 mln barrel a day quota and therefore act as a vehicle to stablize the market and pave the way for a two dlrs a barrel price increase at the December 1987 meeting," he said. One uncertain factor is the course of the Iran-Iraq war. "The wild card is the increased tensions in the Persian Gulf," said Frank Knuettel, analyst with Prudential-Bache Securites. Oil tankers taking oil from Iraq and Kuwait have been regular targets for Iranian planes. The Reagan administration is planning to put Kuwait tankers under the protection of the U.S. flag, with naval escorts. "Extra (oil) inventories are needed during a time of crisis like this, and just general nervousness over an incident that could disrupt oil supplies drives prices up," Knuettel said. Reuter ================================================== ************************************************** Topic 19 ************************************************** Title: FURTHER US DEFENSE WRITEOFFS LIKELY, ANALYSTS SAY The tug-of-war over who pays to develop new weapons--contractors or the government--is likely to lead to more writeoffs by defense firms, analysts said. Singer Co <SMF> and Northrop Corp <NOC> recently announced planned second quarter writeoffs related to costs of major defense programs under fixed-price government contracts. "It's a case of companies paying for things that in a different environment the Defense Department would have paid for," said Howard Mager of Donaldson Lufkin Jenrette Securities Corp. In recent years, the Defense Department, DOD, has increased competitive bidding for weapons contracts and has asked contractors to pay more of the costs of developing weapons programs. The moves have helped cut waste and abuse by contractors but have also dictated that the firms assume much more risk, analysts said. "It's a stricter environment," said Anthony Hatch of Argus Research Corp. "Contractors are absorbing more of the cost and more of risk and that's likely to be the trend for some time to come." The trend will probably lead to further writeoffs, the analysts said. Programs most prone, they agreed, are the Advanced Tactical Fighter, ATF, a new generation, high-technology fighter plane being developed for the U.S. Air Force, the C-17 air transport plane and the Light Helicopter Experimental, LHX, under development for the Army. Other programs may also be affected, they said. The Air Force is expected to order 750 of the advanced fighter planes in the 1990s at a cost of up to 40 billion dlrs, analysts have said. Two teams of contractors are competing for a contract to develop a prototype ATF. Lockheed Corp <LK>, General Dynamics Corp <GD> and Boeing Co <BA> are teamed in competition against Northrop Corp <NOC> and McDonnell Douglas Corp <MD> on ATF. The two teams fighting for an award to develop the LHX are Bell Helicopter, a unit of Textron Inc <TXT>, coupled with McDonnell Douglas, and United Technologies Corp's <UTX> Sikorsky paired with Boeing. The C-17 is a four-engine transport plane. McDonnell Douglas's Douglas Aircraft Co is working on two test planes, and a production award for up to 210 of the aircraft should be made by late 1989, a Douglas Aircraft spokesman said. Under the government's new procedures, contractors can spend hundreds of millions of dollars on development and typically recoup their investments during production. But now the government sometimes awards production to a second contractor who did not develop the system. General Electric Co <GE>, for example, developed the F404 engine for the Navy. But two weeks ago, the Pentagon awarded 30 pct of F404 production to United Technologies' Pratt and Whitney. Such tactics have increased competition but the government now risks decimating the industry by making it too competitive, said Michael LaTronica of Redding Research Group. "Two years ago, defense contractors were their own worst enemies. They were not cost efficient," LaTronica said. "Now DOD has allowed the situation to swing so far back the other way that you may be in danger of losing the defense industry as a national resource." While the nation as a whole has posted trade deficits in recent years, aerospace and defense has exported more products than it imported, he noted. LaTronica and others said, however, that changes in government procurement may be coming. "I hear that the Pentagon is looking into the situation," said John Diamantis, defense analyst at Pershing and Co. He said that some small defense electronics firms believe the Pentagon will begin re-evaluating procurement policy and perhaps start paying more development money. Redding Research's LaTronica, who still likes the industry despite the probability of additional unforeseen writeoffs, said, "There's been a swing in sentiment. The defense bashing psychology of the last few years is starting to shift." LaTronica noted that one government official has recently suggested that the winner of the ATF prototype award should get sole production of the plane for a specified time. The investments are large. The Lockheed, General Dynamics, Boeing ATF team, for example, is spending 691 mln dlrs just to develop the prototype. The danger the Pentagon runs if changes are not made is that companies will hesitate to bid to develop a program but instead will wait for a second source production award. "But it may take a company going bust to really change people's thinking," LaTronica said. Reuter ================================================== Title: TECHNOLOGY/COMPETITION FOR SATELLITE Some of the United States' largest aerospace firms are competing with some of the world's most powerful nations for a chance to cash in on the coming commercialization of space. The newest space race is for contracts to launch privately owned satellites into orbit - a business expected to be worth two billion to five billion dlrs annually in a few years. The growing opportunities to make money in space will be highlighted this month when the U.S. National Oceanic Atmospheric Administration seeks lucrative commercial bids to lauch future weather satellites, ending its long-standing dependence on the National Aeronautics and Space Administration. Companies and countries with established satellite launching operations may also get a jump on eventually providing other space-based services, particularly if the proposed international manned space station is launched as planned in the early 1990s. The 12 billion dlr space station, first proposed by President Reagan in 1984, could require as many as 16 cargo deliveries a year, many delivered by private firms. The partners in the space station are currently slated to be Canada, Japan, and the 13-nation European Space Agency, the latter two of which also have or are developing their own commercial space programs. Until the Challenger explosion in January 1986, NASA had a virtual lock on the world's commercial space cargo. But after a re-evaluation of the shuttle program, President Reagan declared last August that future U.S. shuttle flights will no longer carry commercial payloads. The administration's decision left Arianespace, a French-led European consortium, the only option available to satellite owners and the concern quickly sold out all its planned flights through 1989. The company also raised its prices, from 30,000 dlrs a launch to 50,000 dlrs, but even the larger price tag did not dampen demand. Arianespace sighned 18 new contracts last year, compared with 11 in 1985. Those kind of tariffs have caused even non-capitalist countries to try and get a piece of the action. China, the Soviet Union and Japan have all announced satellite launch programs and several U.S. firms, including McDonnell Douglas Corp, General Dynamics Corp and Martin Marietta promised to spend mlns of dollars over the next three years to develop their own satellite launch capabilities. There will be some tremendous pent-up demand for satellite launches by then, analysts said. Without Challenger, there were only three satellite launches last year, 15 fewer than in 1985 and the lowest since 1980, when only two were sent up. Ariane expects to launch from six to eight satellites a year for the next three years, about 75 pct of the world's satellite launches during that period. McDonnell Douglas scored the biggest coup of the U.S. firms in January when it won a 734 mln dlr U.S. Air Force pact for up to 20 unmanned rockets to launch military satellites. The contract is expected to underwrite the company's efforts to build rockets for private satellite launches. Martin Marietta, however, was the first U.S. company to sign up a client, Federal Express Co. Marietta plans to launch an ExpressStar communications satellite in 1989. Marietta said it will also build a version of its Titan rockets used by the Air Force to other private companies that want to get into the satellite launch buisiness. Arianespace director Charles Bigot said the U.S. companies will probably become the European firm's biggest competitors for satellite launching. He does not expect the national space programs to become commercially viable until the late 1990s. Japan has expanded its space program, launching 38 government-owned satellites in the last 16 years. But most of them were small and it was only in February it launched its first satellite that circles the earth over the poles. Japan also has yet to design and build its own rockets. The satellite launched in February was placed in orbit by a McDonnell Douglas-designed Delta rocket assembled by the Japanese under license. Tsugo Tadakawa, director of the Washington office of Japan's National Space Development Agency (NASDA), said Japan plans to launch seven of its H-1 rockets, an American Japanese hybrid that replaces the Delta, through 1991. Its much larger sucessor, the H-II, should be ready by 1992, he said. NASDA's annual budget is only about 800 mln dlrs, Tadakawa said, about 10 pct the size of NASA's yearly spending. Still, NASDA is free from private competition at home and has the full support of the government, since aerospace was chosen by the Ministry of Trade and Information as one of the country's new industries for the next decade. Surprisingly, the People's Republic of China, a relative newcomer to aerospace, is so far the most successful competitor to Ariane. The country's Great Wall Industry Corp is the only national program besides the European consortium to win a private satellite contract. It will launch a Westar communications satellite for New-York based Terasat in 1988. Reuter ================================================== Title: APPLE COMPUTER <AAPL> UPGRADES MACINTOSH LINE Apple Computer Inc today will announce the addition of two new machines to its profitable Macintosh line of personal computers, both aimed at the business market. The Macintosh was first introduced in January 1984 and has been upgraded several times since then. Both of the new machines, the Macintosh SE and the Macintosh II, will be faster and more versatile, but considerably more expensive than earlier models. The Mac SE (SE stands for "system expansion"), which Apple says will operate 15-20 pct faster than its current Mac Plus, goes on sale today. It carries a suggested retail price ranging from 2,899 to 3,699 dlrs depending on its features. The Mac II, designed to run about four times faster than the Mac Plus, is to be ready for shipping in May and priced between 4,798 and 6,998 dlrs. Mac Plus, which went on the market one year ago, sells for about 2,200 dlrs. Both new computers are to be unveiled at the AppleWorld Conference in Los Angeles. Company officials expressed high hopes for both computers at a press briefing on Friday, especially the high-performance Mac II which is designed to give Apple an entree to the expanding market for science and engineering workstations. John Sculley, Apple chairman and chief executive officer, declined to estimate anticipated sales, but he said the Mac SE should contribute significantly to Apple's bottom line this year. He said it would appeal to the mainstream of PC users. "I believe the Mac SE will be the product of choice for most people," he said. "My sense is that it will be a real power product for revenue." Bruce Lupatkin, senior technology analyst with Hambrecht & Quist in San Francisco, said he had not seen the new computers but expected the new products to do well. "Apple has recognized the need for a convergence of computer functions into one general all-purpose workstation," he told Reuters. "The graphics interface on the Mac products is significantly better than anything IBM has to date." International Business Machines is expected to announce updated personal computers this spring. The Mac II uses the new Motorola 68020 microprocessor, an "open architecture" that allows for the addition of numerous peripheral devices, a built-in hard disk and one megabyte of memory, expandable to eight megabytes. It can be equipped with a 12-inch monochrome or a 13-inch color monitor. In a demonstration of its speed and power, company executives said they thought the Mac II would push the development of software for Apple computers in new directions that could include sophisticated video editing, electronic mail systems and sound reproduction suitable for studio use. The Mac II can be upgraded so that its monitor displays 256 colors or shades of gray. The Mac SE is built around the 68000 microprocessor and will be shipped with one megabyte RAM, expandable to four megabytes, and a nine-inch monochrome screen. Both new computers have two optional keyboards, a new feature in the Apple line of products. Reuter ================================================== Title: MOTOROLA <MOT> UNVEILS NEW COMPUTERS Motorola Inc said its Microcomputer Division unveiled the Model 2616 departmental computer, one of several systems in the company's new VME Delta Series product line, as well as the MVME134 single board computer and the MVME135 multiprocessor board. Motorola said the Model 2616 is a 32-bit system containing a 12-slot VME-bus chassis with open-system flexibility for unlimited end-user application options. The company said the Model 2616 is available immediately at prices ranging from 14,000 dlrs to 25,000 dlrs. Motorola said the VME Delta Series systems are packaged systems built around open systems architecture, industry standard processors and software including VMEbus, MC68020 microprocessors and American Telephone and Telegraph's <T> Unix System V operating system. The company said its microcomputer division also introduced the MVME134, a single board computer targeted to the OEM and System integrator market. Motorola said the MVME134, a VME module 32-bit microcomputer, provides a cost effective engine for UNIX applications and is priced at 2,250 dlrs for June delivery. The company also unveiled its new MVME135 board which, it said, along with its companion MVME136, are 32-bit monoboard microcomputers for the multiprocessor market. Motorola said the boards are the first products on the market using Motorola's new MVSB2400 gate array, a low power, user-programmable, bipolar gate array. Motorola said the MVME135 and the MVME136, both VMEmodule 32-bit monoboard microcomputers, are available now, priced at 3,934 dlrs and 4,256 dlrs, respectively. It added the MVME135-1, 32-bit monoboard is also available now at a price of 4,256 dlrs. Motorola said the MVSB2400 lists for 300 dlrs each and will be available for delivery in July. Reuter ================================================== Title: MCDONNELL <MD> SAID TALKS AT INFORMAL STAGE McDonnell Douglas Corp said recent talks with Airbus Industries about joint development and production of a new jetliner with the European aircraft manufacturing consortium have been very informal. "If there have been talks, they were casual at best," said a source at the company. "There is nothing going on that would lead to immediate or near-term collaboration" on a new plane. Senior officials at the aerospace firm's St. Louis headquarters were unable to comment more specifically on weekend published reports from Europe that talks about a joint venture have resumed after they broke off last fall. McDonnell Douglas and Airbus last spring and summer had discussed jointly developing and building a long-range aircraft to compete with Boeing Co <BA> 747 wide-body jetliner, or its successor. Talks ended when neither side wanted to forego plans to launch its own widebody jetliner projects - McDonnell Douglas with its MD-11 and Airbus with its A340. McDonnell Douglas has since launched the MD-11 jetliner, a successor to its DC-10, and has more than 100 orders and options. Airbus wants to launch its program this spring and is now seeking customers for the long-range A340 and a companion plane, the shorter-range A330. "I don't want to say we're not interested, because we are in any collaboration that benefits McDonnell Douglas without it giving up anything," the source told Reuters. "There just haven't been in-depth discussions." He said any joint venture would not affect the MD-11 program already underway. McDonnell Douglas last month claimed Airbus tried to overturn pledges made by airlines to buy the MD-11 by offering cut-rate prices for the A340. The firm said Airbus, in an effort to line up enough customers to launch the program, is engaging in "predatory practices" with prices substantially below those needed to recover the cost of developing and building the plane. U.S. government and aerospace industry officials believe Airbus can offer low prices because the consortium gets government subsidies that cover many of its costs. The Reagan Administration decided last month to consult the General Agreement on Tariff and Trade, GATT, to determine whether Airbus is unfairly subsidized. Under GATT rules an enterprise can be subsidized but only if it will make a profit. U.S. officials say Airbus countries have poured 15 billion dlrs into Airbus since the early 1970's and the consortium has yet to make a profit. Reuter ================================================== Title: CANADA'S AIRLINE PROFITS SEEN HIGHER Canada's airline industry, shaken up by a recent merger that creates a powerful new competitor for government-owned Air Canada, has begun its first serious drive for profitability in 50 years, industry analysts said. "Now we've got a company that can compete with Air Canada," said Thomas Bradley of Richardson Greenshields of Canada Ltd. "Clearly, it can go head-to-head in any market." The new airline, which arose from the 300-mln-Canadian-dlr takeover of Canadian Pacific Air Lines Ltd by the small but cash-rich Pacific Western Airlines Corp, was launched last week as Canadian Airlines International Ltd. Canadian Airlines will have 35-40 pct of the 6-billion-Canadian-dlr domestic market, against Air Canada's 50-55 pct. Wardair International Ltd is third with about nine pct. Analysts believe Pacific Western's aggressive and cost-conscious chairman Rhys Eyton will develop the true potential of the former CP Air, which floundered for four decades inside the bureaucracy of conglomerate Canadian Pacific Ltd. They said CP Air's management style had been not much different from that of Air Canada, formed 50 years ago, because neither airline was held accountable to its owners. "Not that long ago, maybe even just six months ago, these two airlines were totally fiscally irresponsible. Neither seemed that concerned about the bottom line," said Bradley. "But with CP Air being run by Eyton, it will be very conscious of profitability and shareholder return. And Air Canada is on the verge of going that way," he said. CP Air, always fighting for market share rather than profits, was "a perennial money-loser," analyst Wilfred Hahn of Bache Securities Inc said in a recent report. Prior to its takeover in December, it had accumulated long-term debt of 600 mln Canadian dlrs. From 1981 to 1985, its losses totaled 87 mln Canadian dlrs. Air Canada, widely expected to be privatized later this year in a public share offering, lost 14.8 mln Canadian dlrs on revenues of 2.72 billion dlrs in 1985. It has a debt of more than 2 billion dlrs. Although only a minority interest is likely to be sold to the public, the prospect of privatization at a time of increased competition is forcing Air Canada to pay more attention to finances, analysts said. It recently disclosed that it expects to report a profit "in excess of 35 mln to 40 mln dlrs" for 1986. However, this profit recovery was due less to management skill than the fact that all Canadian airlines had a good year in 1986, analysts said. Tourists came to Canada in record numbers last year, attracted by the relatively weak Canadian dollar and Expo 86 in Vancouver, which alone had more than 22 mln visitors. For the next few years, most analysts see three-six pct air traffic growth, and they expect profits will come from cost-cutting and careful spending. Peter Friend of Walywn Stodgell Cochran Murray Ltd said institutional buyers will be eager to add Air Canada to their portfolios as a blue-chip investment, but warned that new competition makes profit growth less certain. "The airline with something to lose will be Air Canada. At one time, it had a fixed system which was theirs and nobody else's," Friend said. Many analysts recommend that investors buy and hold airline shares for at least a year. Analysts said Air Canada's immediate concern ahead of a public stock offering will be unloading unprofitable air routes without setting off a political storm. It also will be faced with an expensive but necessary updating of its aging fleet of 111 aircraft. Wardair, preferring strong medicine now instead of later, already has embarked on a one-billion-Canadian-dlr purchase of a dozen aircraft from Europe's Airbus Industrie. Canadian Airlines, which has 81 aircraft, last week ordered six commuter planes from British Aerospace and said it would soon buy as many as six wide-bodied aircraft from Airbus or the Boeing Co. Analysts said Canadian Airlines, with its newer fleet, needs to make fewer replacements and can afford these without hurting profits. Steven Garmaise of Wood Gundy Inc expects Canadian Airlines' profit in 1988 will more than double last year's 29.8 mln Canadian dlrs by Pacific Western. Reuter ================================================== Title: SPRINT OPTIMISTIC DESPITE LOSSES US Sprint, the 50-50 telephone venture of GTE Corp <GTE> and United Telecommunications Inc <UT> set up last June, is optimistic despite expecting to report a net loss of about 500 mln dlrs this year. David M. Holland, president of US Sprint's Dallas-based Southwest Division, told Reuters in an interview that he did not know what it would report for the first quarter, but agreed that for the year the company should have about the same results as last year when it lost "about 500 mln dlrs." He noted the company was slated to spend 2.3 billion dlrs over "two plus years" to set up its network. Holland added that Sprint was still paying almost 500 mln dlrs a year to American Telephone and Telegraph Co (T) in order to lease its lines. He said 16,000 miles of its 23,000 mile fiber optic telephone line are now "in the ground," and 7,000 miles are operable. By the end of the year, he said, 90 pct of the company's subscribers will be carried on its fiber optic lines (instead of leased ATT lines), compared with 60 pct by the end of the second quarter. Fiber optic lines, which send digital light impulses along microscopic glass lines, is quicker, more accurate and more economical than traditional copper cables. A fiber optic line the diameter of a dime can carry the same amount of information as a copper cable 20 feet in diameter. "By the end of the year, we will have the capacity to carry 50 pct of all U.S. long distance phone calls," Holland said. He said ATT currently controls about 80 pct of the U.S. long distance market, with MCI Communications Corp <MCIC> about 10 to 12 pct and Sprint five to seven pct. Holland said Sprint's rates, which were 50 pct lower than ATT when it did not pay to gain access to local telephone exchanges, were now about 10 to 12 pct lower now that all the companies have equal access. He said the company was cutting back its advertising by about 30 pct this year. At the same time, he said Sprint had increased its total number of customers to four mln from two mln from July 1986 to last January. "We've captured the fiber high ground, shown the importance of it," he said. Concerning the deregulation of ATT, Holland said he believed ATT "should be given some flexibility, but should be regulated on pricing plans." "They're so dominant in the market place," he said, adding that ATT should be deregulated when "there is true competition in the marketplace." "It takes time to prove ourselves and a lot of money," he said, adding, "maybe two to four years out, it's hard to say." Holland said he was not concerned about talk that Sprint's two owners might be squabbling or that corporate raiders, such as the Belzberg family in Canada, might be putting pressure on them to sell off their loss-making Sprint holdings. "They are two excellent partners who have stated time and time again their support of US Sprint," he said, adding that he was "amazed" at industry talk that the two companies might be arguing. "There's no evidence of that," he said. He said Sprint's progress in such areas as revenues, number of customers and construction was on track, even "ahead in many areas." Looking beyond the United States, Holland said Sprint currently had direct access to 34 countries and aimed to be in 90 pct of the Free World nations by 1988. "We want to be in every country that ATT serves," he said. He said Sprint currently does not have access to Mexico but was working on it. He noted negotiations between Mexico and GTE Sprint, the forerunner of US Sprint, had been broken off by the September 1985 earthquake which had devastated the nation's telephone network. Reuter ================================================== Title: SAS POSTPONES PLANS TO BUY 12 MD-11S SAS <Scandinavian Airline Systems> said it was postponing a decision on a 10-billion crown order for 12 McDonnell Douglas <MD N> MD-11 airliners following what it said was an aggressive counter-bid from Airbus Industrie. SAS signed a letter of intent for the MD-11s last December, but a company statement said the decision on whether to harden this up into a firm order would be linked to the outcome of negotiations with the United States on deregulating air fares across the North Atlantic. The SAS move, said by analysts to be a big blow to McDonnell Douglas, came following a Copenhagen board meeting of the airline in which the governments of Sweden, Denmark and Norway jointly own a 50 pct stake. The remainder is held by industry. A company statement said SAS would wait to see the outcome of the government-to-government negotiations with the United States, in which the three Scandinavian countries have demanded greater access to the U.S. Domestic market for SAS in exchange for deregulating prices across the North Atlantic. At present SAS is allowed to fly to New York, Chicago, Los Angeles, Seattle and Anchorage. SAS gave no details of the Airbus Industrie counter-offer for its long-range A340, but said it will study the bid further. Swissair yesterday confirmed an order for the MD-11 long haul jets worth 1.2 billion Swiss francs and said it had preferred the McDonnell Douglas planes over the A340, a project that has not yet been formally launched, as it met the airline's requirements better and would be able to enter service in 1990. SAS President Jan Carlzon announced the MD-11 order last December, saying the plane would replace the airline's current fleet of DC10s. The first of the MD-11s was to be delivered in 1991 for use mainly on its intercontinental routes. In January, SAS officials said Airbus had made a revised offer that included larger, more powerful engines and two versions of the four-engine plane. One would seat 220 passengers and another 260 against the MD-11's 265-seat capacity. The offer was part of a drive to secure at least five airline customers for the new aircraft to enable Airbus Industrie to launch production. Airbus is expected to decide whether to go ahead with the project next month. SAS officials earlier said they did not expect the first A340 to be delivered before 1992. McDonnell Douglas had given SAS until March 31 to agree to final terms for the MD-11 deal. REUTER ================================================== Title: BOEING <BA> RESHAPING DE HAVILLAND IN OWN IMAGE Boeing Co is attempting to recreate money-losing de Havilland Aircraft of Canada Ltd in its own image. But it is a process that will be complex and, because the company was in worse shape than expected, time-consuming, according to de Havilland president Ron Woodard. Yet Woodard, a former Boeing executive, believes the makeover is absolutely essential to revitalize the historic company Boeing bought from the Canadian government a year ago. "These are very complex, deep problems that you don't change overnight," Woodard told Reuters in an interview as he outlined his vision of transforming de Havilland into a diversified manufacturer and an important cog in Boeing's worldwide operations. "We've got to get our house in order. We've got to get lots of Boeing (sub-contract) work in here and we've got to get Boeing's systems in here and just get to be part of the worldwide support system." But based on de Havilland's turbulent flight path in recent years, the task will also not be easy. Formed in 1928 as an offshoot of the British operation started by Geoffrey de Havilland, the company has turned out a variety of small aircraft. During World War II it produced the unique wooden Mosquito bomber for the Allied Command. In the postwar years that de Havilland became renowned internationally for its rugged bush planes. Canada's Liberal government, interested in developing de Havilland's STOL (Short Take Off and Landing) technology, acquired the firm in 1974 and poured 830 mln Canadian dlrs into it over a dozen years, helping to develop the 50-seat Dash 7 and 39-seat Dash 8 commuter aircraft. Amid accusations of a sellout, the pro-business Conservative government sold the company to Boeing in 1986 for 90 mln Canadian dlrs, or less than the price of one of Boeing's 747s. Woodard believes de Havilland, which has not made a profit since 1982, suffered from neglect under government control. It was also in worse condition than anticipated, and the company has approached Ottawa for compensation for what it believes were unexpected shortcomings at the plant. "We found to our shock, to our surprise, last August we had very serious health and safety regulation violations," said Woodard. Although he would not divulge how much is being sought, Woodard said it would be in excess of the 10 mln Canadian dlrs already spent on replacing the plant's outmoded ventilation system. Yet Woodard is optimistic that once Boeing's manufacturing systems are in place, the company can begin delivering planes on time and at a profit -- possibly within a year and a half. "We've got a great product and if we can get everyone heading the same way we're just going to eat the rest of the world," Woodard predicted. Company officials said production of the 6-mln-U.S.-dlr Dash 8 has been doubled to four a month and they hope to reach six a month by year end. Some 63 Dash 8s are on order and there are options for the purchase of another 27. For the brand new "stretch" or extended version of the plane, 23 have been ordered and 11 are under option. Woodard said that while de Havilland has a commanding grip on the North American commuter market, which has been booming under airline deregulation, the company has only a 30 pct market share worldwide. "I'd like to see us make some overseas penetrations. There are a lot of places now where people are starting to deregulate. I think the next big, big growth area is probably Europe," he said. De Havilland now has 5,500 employees, up from 4,300 when Boeing bought the company. All manufacturing is located at its Downsview Airport site in Toronto. Reuter ================================================== Title: TECHNOLOGY/ALTERNATIVES TO IBM SOFTWARE STANDARD In the fast paced personal computer industry, millions can be made in six months, and such an opportunity may exist now for companies seeking to capitalize on the delay of a new IBM software standard. When International Business Machines Corp <IBM> announced its new generation of personal computers, the PS/2 family, in April, it also decided to establish a new operating system for the machines, a death sentence for the billions of dollars of software now in use on the existing system. Because IBM is the world's largest computer company - some 70 pct of the world's computers bear the IBM logo - most industry analysts, and even IBM's competitors, expect that within two years the new operating system, called OS/2, will be as commonplace as the current standard, MS-DOS, is now. "By 1989, at least one half to 60 pct of all personal computers will be sold with OS/2," predicted George Colony, president of the consulting firm Forrester Research Inc. But until then there is an opportunity, some analysts said, for firms selling advanced versions of MS-DOS, specialised multi-tasking software packages and Unix, an alternative to MS-DOS developed by American Telephone and Telegraph Co <T> that has developed a following among engineers and the federal government. OS-2, which IBM is developing with Microsoft Corp, the author of MS-DOS, will not be ready for another six months. IBM said last week that the product is on schedule but analysts and other software developers are skeptical, since delays in major new software products are commonplace. Initial acceptance of the new system will most likely be hindered by the disgruntlement of hardware and software vendors alike, who would prefer to keep making products that work with tried and true MS-DOS, according to Paul Cubbage, software analyst with the market research firm Dataquest Inc. Compaq, IBM's major personal computer competitor, has already said it will stick with the MS-DOS standard. Compaq president Rod Canion said recently their will be no "automatic mass migration" to OS/2. "(Advanced MS-DOS) applications will continue to meet a far broader set of users needs than OS/2 will supply long after it becomes available," he said. Cubbage acknowledged that "it will probably be a year or more before any really useful applications are available for OS-2," creating opportunities for multi-tasking programs. "But there comes a time when the memory limits of those gets to you," he said. IBM's new operating system was as big an event to the computer industry as the PS-2 announcement itself. The new computers, the most powerful of which will use Intel Corp's fast 80386 microprocessor, are expected to rejuvenate the sagging sales of the personal computer industry and already gave a big boost to IBM. Company officials said last week that 250,000 PS/2s were shipped in the 2-1/2 months since their introduction and IBM expect record pc sales ths year as a result. The enthusiasm for the PS-2 is particularly striking since the full potential of the powerful computers cannot be tapped until a new operating system or other high level software is available, analysts said. OS-2 will allow users to work on many different programs, or tasks, at once on a personal computer, ideally without any slowdown in operation, a capability the industry has long strived for. Microsoft is already promising alternatives to OS-2, in particular an advanced version of its Windows multitasking program, which is used in conjunction with MS-DOS. Microsoft chairman Bill Gates has suggested an advanced version of the program, Windows 386, will be announced in September and available six to eight weeks later, at a price of 100 dlrs and 300 dlrs. OS/2 is expected to cost 325 dlrs. Some software developers have said the the program, designed for 80386-based personal computers, may even be superior to OS/2 in allowing users to multitask applications without disruption. But several analysts commented that what users really want is a multi-taksing operating system for 80386-based personal computers, and so far that desire has been met primarily by a small Atlanta software publisher, The Software Link Inc. In late spring the company announced PC-MOS/386, a multi-tasking, multiuser operating system that is compatible with MS/DOS and works on 80386-based computers. The company said it filled 2,500 orders in the first four weeks of availability and expects shipments to reach 40,000 by year end. International Data Corp analyst Will Zachmann said Unix could be the most promising alternative to OS/2, even once the IVM system is available. IBM did not endorse Unix for any of its PS/2 models, although it did say that it would announce a version of its Advanced Interactive Executive (AIX), a Unix compatible operating system. But the federal government requires Unix compatability for most of its computer contracts, it is almost certain that other companies will provide Unix-style operating systems for the IBM systems. ATT itself two weeks ago introduced a version of Unix that is compatible with the 80386 microprocessor, although not IBM's computer specifically. Analysts saw the announcement as a move to get Unix accepted as a strong alternative to OS/2 before the IBM system has a chance to take off. Reuter ==================================================