WSJ : Iran Central Banker Akbar Komijani Seeks Economic Turnaround

Iran Central Banker Akbar Komijani Seeks Economic Turnaround
Bank Markazi Deputy, Team of Advisers to President Rouhani Aim to Rebuild Economy Amid Sanctions

TEHRAN—The man tasked with engineering the recovery of Iran's economy must do so from atop a central bank that is incapable of conducting financial transactions with most foreign governments and companies.

Akbar Komijani is deputy governor of Bank Markazi, Iran's central bank, an institution the U.S. Treasury Department sanctioned in 2012 for allegedly aiding Iran's nuclear program.

Called out of academia last year by the newly elected President Hasan Rouhani, Mr. Komijani says he was shocked by the state of the government's finances, which had deteriorated dramatically during former President Mahmoud Ahmadinejad's tenure.

"The sanctions were a catalyzer that exposed many other problems in our economy," said Mr. Komijani in an interview at Bank Markazi's gleaming Tehran office tower, which looks up at the snow-capped peaks of the Alborz Mountains. "By July 2011, the sanctions really started to have an impact."

Mr. Komijani was named to oversee operations at Bank Markazi last August by President Rouhani, who has set out with a group of advisers to rebuild Iran's economy amid sanctions and after the policies of President Ahmadinejad.

The firebrand former president, famous for his threats against Israel and anti-Western vitriol, made huge financial commitments to public housing and poverty-alleviation programs at the same time international sanctions were drastically constricting Tehran's ability to sell oil.

The sanctions the Obama administration placed on Bank Markazi blocked the institution from conducting financial transactions with virtually any foreign bank and drastically cut Tehran's ability to repatriate most oil revenues. The central bank was also kicked out of the electronic banking system, known as the Swift network, which manages most international financial transactions from its offices in Belgium.

Mr. Komijani, who had earned his Ph.D. in economics from the University of Wisconsin in 1983, had served in senior posts at Bank Markazi during the presidency of the reformist cleric, Mohammad Khatami, which ended in 2005. But like many of that president's aides, Mr. Komijani was purged for ideological and political reasons after the hard-line President Ahmadinejad took office. The economist took up a position teaching at the University of Tehran.

When he was brought back by Mr. Rouhani, the deputy governor and other members of the economic team responded by cutting many of Mr. Ahmadinejad's programs and sharply raising interest rates in an effort to shore up the rial and tame inflation. Mr. Rouhani's government also began attempting to reclaim what are estimated to be tens of billions of dollars in funds that disappeared from the government's books during Mr. Ahmadinejad's tenure, some as a result of rampant oil smuggling that took place as Western sanctions increased, according to Iranian officials.

Tehran police in December arrested prominent local businessman Babak Zanjani on charges he had stashed nearly $3 billion in Tehran's oil profits in overseas accounts. He has denied the charges, but the case lifted the veil on the alleged looting of Iran's financial system. A second Iranian businessman, Mahafarid Amir Khosravi, was executed in May following a fraud conviction involving more than a billion dollars in state funds.

Mr. Komijani says significant progress has been made in stabilizing Iran's economy. Month-on-month inflation that was running at above 45% last June by Iran's measure has been brought down below 20%. And Iran's government is projecting economic growth for the fiscal year ending March 2015 after successive years of sharp contractions.

Even so, Mr. Komijani acknowledges Tehran's finances will remain choked by the layers of U.S., European and United Nations sanctions that have resulted in as much as $150 billion of Iran's oil revenues being frozen in overseas accounts.

He says Iran's economy could grow much faster, by as much as 6%, if Iran reaches an agreement with the U.S. and other world powers this summer over the future of Tehran's nuclear program.

"If the negotiating process is speeded up, the country can have access to increased oil revenues and better access to overseas assets," Mr. Komijani said. "We will have the opportunity to import the necessary inputs for our industrial capacity."

The central banker has received high marks from Iran's business community for his efforts to restore economic stability in Tehran. The deputy governor regularly meets with foreign investors and businessmen interested in entering the Iranian market.

"Komijani is a key player in the Iranian recovery," said Reza Soltanzadeh, chief executive officer of Iran Industries Investment Co., a Tehran-based conglomerate and finance company. "The Iranian brand was destroyed."

FT : Dubai stocks gyrate as bull run hits buffers

When Dubai shocked the world in November 2009 with a statement that it would not be able to repay its debts, the emirate’s stock market tumbled by a quarter over three tumultuous weeks.
Over the past six weeks, and for the most part little noticed, the Dubai Financial Market has suffered a similar fall as investors have headed for the exit after a dizzying rally.

Underlining the volatility that dogs this retail-dominated, rumour-driven market, the last two sessions have witnessed an impressive rebound as investors sense a floor. It ended up 7.9 per cent on Wednesday.
“This boom had everything to do with a prolonged period of low interest rates globally – and Dubai is a small market so it’s easy to inflate,” says Maria Gordon, head of emerging market equities at Pimco. “The market may be in bear territory simply because of such a spectacular rise, even while the economy is doing well.”
Despite the slide, DFM’s index - one of the world’s best performing over the past 18 months - remains more than 20 per cent up on this year.
Underpinned by strong tourism, trade and transport sectors, the political unrest of the Arab spring has boosted Dubai’s importance as a business haven in a divided, violent region.
The city’s real estate recovery through 2012 was followed by an equities bull run: the index rose 122 per cent from last September through to May’s peak. “The market was just itching for an excuse to sell off,” says one banker.
Bankers say companies planning initial public offerings on the Dubai bourse, such as Emaar’s retail arm, are reconsidering launch dates. Real estate agents, moreover, are worried that a steep decline in property transactions could be tipped over into a real estate correction.
The volatility on DFM is being attributed in part to concerns over governance at one company, construction firm Arabtec, the builder of Dubai’s landmark Burj Khalifa.
Two years ago, Aabar, a unit of a major Abu Dhabi state investment company controlled by Manchester City owner Sheikh Mansour bin Zayed Al Nahyan, took control of the builder, disclosing a 20.67 per cent stake.
Jordanian national Hasan Ismaik joined the board as an Aabar representative in 2012 and in February 2013 took over as chief executive with the departure of experienced founder and chief executive Riad Kamal.
Mr Ismaik was an aggressive cheerleader for the company as Arabtec won large Abu Dhabi contracts and expanded overseas, a move that included a $40bn affordable housing project with Egypt’s military rulers.
After announcing a 121 per cent jump in first quarter profits in early May, the company revealed that the chief executive had built his personal holding to 28 per cent, while Aabar trimmed its stake from 21.6 per cent to 18.9 per cent.
Three weeks later, in mid-June, Mr Ismaik resigned as his senior staff were removed. The company’s stock price declined by a third.
Construction executives had long feared that new management would not be able to match the ambition and prove to be Arabtec’s undoing.
HSBC has said the company needs to hire 17,500 white-collar staff to execute its project backlog through 2017.
On Thursday, Dubai-based Arabtec held a press conference in Abu Dhabi, finally addressing weeks of turmoil that have punctured market confidence.
Khadem al-Qubaisi, Arabtec chairman and senior Abu Dhabi official, said the emirate remained committed to the company, which he said was restructuring and cutting costs.
But market observers say the damage has already been done. The UAE this month was upgraded from frontier to emerging market by the MSCI index.
“What does this mean for the reputation of Dubai,” says one financier. “This period should be one of great promise, but now we have to deal with this.”
Traders say the UAE regulator, the Emirates Securities and Commodities Authority, as well as the DFM, should have forced more disclosure from Arabtec over the past few weeks, especially regarding Mr Ismaik’s personal shareholding.
Esca said in a statement it had taken necessary steps to ensure good corporate governance, saying it had pressed Arabtec to react to rumours and that the company had obeyed disclosure rules.

WSJ : China Sweetens Stimulus With Teaspoon of Reform

China is tinkering while driving.

In the latest mini-stimulus effort, Chinese regulators this week rejiggered the way banks' loan-to-deposit ratios are calculated, pumping a bit more credit into the system while trying to accomplish financial-sector reform along the way.

As a broad prudential measure Chinese banks can't lend more than 75% of the value of their deposits. Beijing basically tweaked the definition of loans and deposits to free up more cash to lend against. Certain loans to small-and-medium enterprises, loans funded by bonds, and foreign currency loans will be exempt under the new rules. And new kinds of deposits will qualify for the ratio's denominator.

Some of that moves the system toward reform objectives such as channeling new credit away from unproductive state-owned enterprises toward small private businesses and developing the immature bond market.

The simulative impact won't be huge. Bank of America-Merrill Lynch estimates that around one trillion yuan ($161.3 billion) of loans will be made exempt from ratio calculations. It is unclear how much space that will give banks to generate new loans.

But it fits with other recent measures, such as reductions in banks' reserve requirements, conditional on lending to small businesses and the rural sector. The idea is that China needs some stimulus especially as property prices decline. But opening credit taps wide would undermine oft-stated goals to wean the economy off excessive debt and over investment. Wrapping a bit of stimulus with lending reform makes the medicine go down easier for Beijing's political factions.

China's largest banks are generally well below the regulatory ceiling, a function of large deposit bases, and undisclosed lending quotas imposed by the central bank. Smaller lenders should see more benefits. Banks don't all disclose precise regulatory loan-to-deposit ratios, nor are the regulator's calculation methods public, but according to analyst estimates some midsize lenders such as China Merchants Bank 600036.SH +0.29% were even slightly above the 75% threshold at the end of last year.

These banks are squeezed at the end of each quarter when their ratios are checked, forcing a scramble for deposits and contributing to China's periodic interbank credit squeezes.

It is healthy to get banks out of problem sectors. However shifting regulatory goal posts will do little to assuage investor worries that the loan books of China's banks are in worse shape than reported, the main reason bank shares have been so battered. Nor does the government directing loans to specific areas improve market-based decision making.

That leaves investors still evaluating China's banks based on Beijing's policies rather than fundamentals. And for the broader economy, it still amounts to propping up growth with more bank credit. Chinese policy makers haven't figured out another way to do it.

>>> China Premier Li: China's economy is operating within a reasonable range, so


China Premier Li: China's economy is operating within a reasonable range, some data series are positive but other meausres show "downward pressure" still exisits in the economy 
- Both local governments and the central government have amassed a large amount of funds, some of these funds are idle and must be used to promote economic development. 
- In 2014 it has become more difficult and more expensive to finance companies active in the real economy. Need to lower cost of funding for such firms, especially SMEs.

WSJ : Roche's Deal Should Sound Early Warning

Roche's Deal Should Sound Early Warning Ascribing Big Values to Early-Stage Drugs Can Be Hazardous

Early-stage drug deal-making is disconcerting. Rarely in other sectors do companies shell out vast sums for assets that could quite possibly amount to nothing.

Take Roche's RO.EB -0.10% agreement Wednesday to pay $725 million, plus up to $1 billion in milestone-based payments, for closely-held U.S. biotech firm Seragon Pharmaceuticals. The San Diego-based company was formed only last year and has one breast cancer drug in early stage trials.

Roche can get away with splashing out, but such deals should still give health care investors pause.

Roche is the acknowledged market leader in oncology. It dominates the treatment of one type of breast cancer, known as HER-2 positive which accounts for about 30% of cases. Seragon's putative product targets cancers which depend on estrogen and the estrogen receptor to grow, representing about 60% of the market. Roche, which given its substantial pipeline doesn't tend to splurge on buying others' early-stage work, may be trying to catch up or may need part of Seragon's intellectual property.

But the risks are substantial. Early-stage assets take many years to prove their worth: some 90% of drugs in phase one clinical trials—as Seragon's product is—just won't make it to market.

In simple monetary terms, Roche can afford it: the company generates about 14 billion Swiss francs ($15.7 billion) in free cash flow a year and should move into a net cash position in the next 12 months. And, ultimately, buying Roche's stock is a bet on the company's oncology expertise and judgment. At 16.5 times forecast 2015 earnings, Roche's shares trade at a slight premium to the global pharmaceutical sector but below where some competitors in the hot area of immuno-oncology are trading, such as Bristol Myers-Squibb BMY -0.06% or AstraZeneca. AZN.LN +1.17%

The question is whether deals such as the one for Seragon further fuel investors' conviction in biotech's resurgence and improving success in research and development. The global pharma sector's forward earnings multiple has expanded to almost 16 times, up from less than 11 times two years' ago, in part because investors believe the industry's R&D machine is again producing the goods.

That, combined with eye-catching transactions such as Roche's, could make investors more willing to give unproven treatments the benefit of the doubt, ascribing big values to early-stage drugs. Just remember that most still won't merit it.

>>> US Gapping Down

Gapping down In reaction to disappointing earnings/guidance: CAMP -13.3%, PAYX -1.3%.

Other news: MCP -10.1% (move attributed to cautious blog mention), MZOR -6.8% (reports orders for four renaissance systems during the Q2), GPRO -3.7% (cautious Barron's mention - discusses Shark Tank's O'Leary potential short stance), ORAN -3.7% (Jamie Dimon sends letter to employees and shareholders announcing diagnosis of throat cancer), JPM -0.6% (Jamie Dimon sends letter to employees and shareholders announcing diagnosis of throat cancer), TE -0.5% (prices 15.5 mln shares of common stock at $18.10 per share), MNKD -0.5% (cautious Barron's mention).

Analyst comments: VE -2.5% (downgraded to Equal-Weight from Overweight at Morgan Stanley), OHI -1.3% (downgraded to Neutral from Buy at Goldman), HOG -1.8% (downgraded to Mkt Perform from Outperform at Raymond James), MM -1.1% (downgraded to Equal Weight from Overweight at Evercore), BMY -0.9% (downgraded to Equal Weight from Overweight at Barclays ), HRL -0.9% (downgraded to Neutral from Outperform at Credit Suisse), USB -0.8% (downgraded to Neutral at Robert W. Baird).