Events related to the Crash

• South Korea's Consumer Price Index fell for the second month in a row, falling 0.4% month-on-month for Nov. 2000 (after falling 0.3% month-on-month in Oct. 2000).

• Citigroup Inc. has admitted, in a letter to the U.S. GAO, that failures in its practices and procedures permitted U.S.$750 million in bank transfers that look similar to those noticed at the Bank of New York in the ROCML Scheme@BNY.
• Daewoo Motors' creditors agreed to provide 727.9 billion won in loans to ease financial crunches on its subcontractors. GM and Fiat are expected, by the Korean Development Bank, to resume negotiations once Daewoo Motors is formally put into court receivership.

• The Korea Telecom sit-in continues. There are conflicting reports on whether the company president is actually hostage, or whether he is merely staying 24 hours a day to facilitate negotiations.
• Japanese insurance companies have had their solvency ratios endangered by the combined fall of the Japanese stock market, and their exposure to the ever-weakening Euro. Continued negative spreads between investments and guaranteed annuity rates have forced the dumping of high-risk assets. Tokyo Mutual Life (considered highly unstable) had a solvency ratio of 446% at the end of March 2000; this is presumed to have worsened by now.

• Daewoo's union accepted a restructuring plan that cut 5,700 non-union jobs. A coordinated resignation is planned to implement this cut. Daewoo's losses per month were stated as about 150 billion won/month (a seriously divergent figure from Nov. 21, 2000).

• Apparently, explicit pledges to avoid forcible layoffs as a method of reducing jobs at state-run Korea Telecom were not enough to prevent a sit-in protest from starting today.

• South Korean bond spreads against U.S. Treasuries widened as the won tested 1,200 won/1 U.S.$. The ten-year spread reached 118 basis points, gaining 7 in the past week; the sovereign bond due 2008 widened to 249 basis points, gaining 3 points today and 16 in the past week. These are attributed to concerns about a drastic slowdown in South Korea's macroeconomic growth for 1Q 2001.
  • These shifts may also be factoring in Westerner-unpredicted union resistance to job reductions. Both the Federation of Korean Trade Unions and the Korean Confederation of Trade Unions are planning to coordinate a 1-day strike on Dec. 5, 2000 to protest massive restructuring in the private sector, and are considering a similar 1-day strike on Dec. 30, 2000 to protest similar restructuring in the public sector.
• Malaysia's Euro bond, due in 2005, tightened its spread against the European benchmark [Btan] by about 7 basis points since it was launched: 142 versus 149.5.

• U.S. economic analysts have seriously diverged from the U.S. financial markets regarding the possibility of a recession in the U.S. The S&P 500 has fallen 8.3% to date for 2000; in 1981, it fell 9.7%. The average yield of a BBB- corporate bond is at 13.3%, in contrast with 10.3% for Sept. 1998. Also, U.S. bank lending has seriously tightened by several different measures. This is in direct contrast to a 30-year low unemployment rate, and mortage rates that have fallen by more than 1.5% in the past five months (since June 2000 or July 2000).

• Germany's IFO index fell for the fifth straight month to 97.2 from 98.0. This is still well above the range that classically indicates recession risks. It does, however, complicate the European Central Bank's decisions about interest rates.

• A number of large Thai banks announced non-performing loans figures for Oct. 2000, compared to Sept. 2000:
  • [largest in Thailand] Bangkok Bank Plc: up to 21.62% i.e. 162.5 billion baht for Oct. 2000, from 21.5% i.e. 159.9 billion baht for Sept. 2000.
  • [fourth largest in Thailand] Siam Commercial Bank Plc: up to 18.9% for Oct. 2000, from 18.7% for Sept. 2000.
  • Thai Farmers Bank: down to 14.75% for Oct. 2000, from 14.92% for Sept. 2000.
  • [state-owned] Krung Thai Bank: down to 10.93% for Oct. 2000, from 11% for Sept. 2000.
  Overall Thai banking system non-performing loans peaked at 47% in May 1999, and had fallen to 22.3% in Sept. 2000. Current projections from Dusadee Srishevachart of Asset Plus Securities suggest a rise of non-performing loans to 24-25% by the end of 2000, and to remain in that range for the first part of 2001. The problem is that 70% of the non-performing loans are not easily restructured because they are likely to be (or are) involved in litigation.
• Daewoo Motors' union refused to consider job cuts as measure to avoid liquidating Daewoo Motors. The union might consider job cuts if some progress were made on the cost structure for parts: the parts cost alone is 75.7% of the price of a Daewoo car. This translates to a gross margin of 24.3% -- which is inauspicious indeed. Currently, Daewoo Motors is losing 100 billion won/month; its main factory in Pupyong has entered its second week of shutdown. Bankruptcy reports are starting to surface among Daewoo's 9,000 suppliers. Daewoo's Poland car plant announced production target reductions: 29% to 113,000 vehicles for 2000, and 35% for 2001.
• Bank of Japan Governor Masaru Hayami said that another life insurance company bankruptcy would not endanger Japan's financial system.
• Japan's macroeconomy showed signs of shrinkage in many sectors. Japan's all-industries index shrank 1.5% from Sept. 2000 to Oct. 2000. Japan's services index fell 1.1% from Sept. 2000 to Oct. 2000. While the telecommunications and information services sectors grew reasonably, retail-wholesale and real estate sectors were solidly headed downwards. While July-Sept. 2000 results grew reasonably, most of this was concentrated in July and August.

• Hyundai Engineering and Construction revealed plans to raise almost 1.3 trillion won to help cut debts and speed spinoffs of Hyundai firms.
  • The intended sell date for Hyundai Electronics and Hyundai Heavy Industries has been accelerated to mid-2001 and the end of 2001.
  • Farmland west of Seoul is expected to be worth 600 billion won.
  • The group's headquarters building in Seoul is thought to be worth 162 billion won.
  • Unspecified job cuts were also mentioned as a possibility (even though the unions seem highly allergic to this idea).

• Brazil's 3Q macroeconomic growth rate was an annualized 4.52%, leading to a cumulative rate so far of annualized 3.89%. This makes an annualized macroeconomic growth rate of 4% for the year appear plausible.

• Total debt held by Japanese firms that went bankrupt in Oct. 2000 was 13.5 times higher than the comparable figure for Oct. 1999 -- ¥8.56 trillion. This was driven largely by Chiyoda Mutual Life Insurance Co. and Kyoei Life Insurance Co, who combined accounted for 87% of the above figure.

• The Korea Federation of Trade Unions staged a mass protest of Daewoo Motors' forced bankruptcy in Hehwa north of Seoul, paralyzing traffic. There was some minor physical conflict with local police. The unions wish to force the government to renege on its plans to make 18 non-viable companies close and 11 non-viable companies to enter court receivership. The latter includes South Korea's second-largest construction firm, Dong Ah Construction. The union estimates these forced closures would cause 180,000 jobs to be lost among suppliers of these 29 non-viable firms.

• Japan's latest budget substantially reduced the amount dedicated to macroeconomic boosting: ¥3.9 trillion rather than ¥6.6 trillion (cumulative) for last year. Of this, only ¥2 billion or so in Japanese Government bonds are expected to be required for financing.
• Daewoo Motors has formally filed for court receivership. Poland has indicated that it will take over Daewoo's Polish manufacturing plant if production stops there. GM Holden's Ltd. [the Australian division of GM] is expected to cut 300 jobs of 2000, and suspend production at its engine manufacturing plant for ten days in November 2000, followed by resuming production in Dec. 2000 at 900 engines/day instead of 1,400 engines/day. This may be optimistic, since Daewoo Motors was the market for 700 engines/day before its main plant shut down. Uzbekstan doesn't know whether they can make cars for export successfully; local demand can be handled for months. Daewoo's India plant has enough parts and money to avoid shutting down for 4 months; Daewoo's Romania plant has enough resources to avoid shutting down for six months

• The European Central Bank intervened to maintain its defense level of 1 Euro/U.S.$0.86 today, the fourth time in the past seven days [Nov. 3-Nov. 9, 2000]. There is speculation that the ECB's intervention is an act of desperation, since former pledges to seek joint intervention have been abandoned.

• Hyundai Engineering and Construction Co. was informed that its creditor banks would refuse to grant any more loans to it. They have been bailed out four times this year already....

• Daewoo Motors' Bupyeong/Pupyong plant has been shut down, due to parts suppliers refusing letters of credit and insisting on cash payment. Daewoo Motors' plants in Changwon and Kunsan are operating normally.

• Japan's Ministry of Finance announced that it had spent ¥143.5 billion in Euro defense in Sept. 2000. This was close to analysts' estimates.

• Daewoo Motors' main creditor (Korea Development Bank) granted an extra day in a last-ditch attempt to convince Daewoo Motors' union to agree the banks' conditions for refinancing...to no avail. Daewoo Motors is now bankrupt under South Korean law, having defaulted on its commerical paper for three days [rather than the typical two].

• Daewoo Motors failed to make a 40 million won payment on 44.5 billion won of loans today.
• The European Central Bank intervened again, pushing the Euro to stronger than 1 Euro/U.S.$0.86. Current speculation is that a Republican sweep in the U.S. elections will seriously weaken the U.S. Treasury market.

• South Korea's finance minister said on state TV that Daewoo Motors' union so far has prevented successful restructuring -- and that if the union cannot agree to an effective restructuring plan soon, Daewoo Motors cannot survive (since this will ruin the sell-off talks with GM). Daewoo Motors' creditor banks are requiring, in exchange for refinancing Daewoo Motors' loans, selling off unprofitable overseas units and cutting 3,500 of 18,000 jobs. The union appears willing to reject this request outright, viewing this as equivalent to killing union members with their own hands.

• The U.S. Labor Department reported a combination of employment growth and measurable wage inflation, reducing confidence that the Fed would consider a neutral bias at its next meeting.
• The European Central Bank found that the combined Euro weakness and oil price surge caused an overall inflation rate of 2.8% in the Euro zone: way above their 2% target. Two interventions both failed to cause a sustained rise above 1 Euro/U.S.$0.86 . It is suspected that the ECB intervened against both the U.S.$ and the Japanese yen.

• Yasuda Fire & Marine Insurance Co. Ltd., Nissan Fire & Marine Insurance Co. and Taisei Fire & Marine Insurance Co. Ltd have started talks with intent to merge in April 2002. Also, Sumitomo Marine & Fire Insurance and Sumitomo Life Insurance (being in the same keiretsu i.e. business group) plan to create a broad business alliance. Both of these appear to have the informal approval of Hideyuki Aizawa, chairman of Japan's Financial Reconstruction Commission.

• The People's Bank of China released new estimates of how much bad debt has to be written off: 2.5 trillion yuan, i.e. 31% of annual GDP. These more pessimistic estimates are in agreement with optimistic private-sector estimates; pessimistic the highest private-sector estimates approach 50% of annual GDP. The expectations of debt recovery via asset-management companies has been reduced to the empirical 15%. Red China's intended breakdown for financing is 60% taxes, 30% note issuance, and 10% to the Big Four Red Chinese banks. The first is empirically problematic: the required amount is equal to the projected tax revenues for 2000, and Red China has successfully (with serious difficulties) managed to keep the total revenues collected in taxes over the past decade just barely above 10% of annual GDP. There are also serious questions whether the bad debt can be kept from growing significantly further.