NAB prepares Northern Rock takeover, Manufacturing sector slides: Economy Roundup

National Australia Bank is reportedly preparing to takeover nationalised British lender Northern Rock, according to The Observer.

The bank already owns the Clydesdale and Yorkshire banks in Britain, but the paper reports it has hosted presentations by Citigroup, Credit Suisse and Morgan Stanley as preparations for a takeover.

Additionally, NAB may also be preparing for a bid for hundreds of branches currently being sold off by the Royal Bank of Scotland and Lloyds, a sale organised as part of a penalty ordered by the European Commission.

Northern Rock was nationalised last year due to a rise in wholesale borrowing costs, which made it reliant on government loans. The bank has been split in half in order to restore savings and lending health.

Meanwhile, manufacturing activity contracted for the first time in four months in December due to a higher exchange rate and a third consecutive interest rate rise, new figures reveal.

The Australian Industry Group-PricewaterhouseCoopers Performance of Manufacturing Index fell 2.7 points to 48.5, which is below the 50-point level separating contraction and expansion.

AIG chief executive Heather Ridout said in a statement the result shows the industry “remains patchy”, and that the weak world economy has put pressure on the sector.

“The new orders index has remained volatile over recent months indicating ongoing caution among buyers of manufactures,” the survey said.

“Manufacturers facing the long-term pressures of a higher Australian dollar and competition from lower cost economies are continuing to face a squeeze on manufacturing profitability which shows no signs of abating,” PricewaterhouseCoopers global head of Industrial Manufacturing, Graeme Billings said in a statement.

“The weakness in manufacturers’ markets here and overseas is keeping pressure on pricing while input prices and wage costs continue to grow.

Shares open flat on first trading day of 2010

The Australian sharemarket has opened flat in the first trading week of the year, kept down by mixed leads overseas along with higher metals and oil prices.

The benchmark S&P/ASX200 index was up 15 points or 0.32% to 4886.1 at 12.00 AEST, while the Australian dollar also rose slightly to US89c.

AMP shares rose 0.7% to $6.82, while NAB also rose 0.4% to $27.50. Westpac lost 0.1% to $25.27, while Commonwealth Bank shares also increased 0.1% to $43.17.

As reported in The Age, superannuation funds will face pressure to merge during the next year due to the impact of the financial crisis.

SuperRatings managing director Jeff Bresnahan said new memberships to funds were falling due to the number of people choosing to have contributions paid to existing funds when moving jobs.

“That is going to put more pressure on funds that have not been run as a business,” he said, also noting super funds were on target to deliver double-digit returns during 2009.

Meanwhile, UBS head of mergers and acquisitions, Anthony Sweetman, has told The Australian that M&A activity will increase during 2010.

“The conditions are becoming more conducive for M&A. People are well capitalised, the equities market in Australia is very supportive of companies raising money generally. We think we will continue to see some more raisings for recapitalistions but companies that raise money to grow will be well supported.”

Chinese expect economy to grow in 2010

Overseas, the Chinese State Council Development Research Centre has said it expects the country’s economy to grow by 9.5% in 2010, up from last year’s figure due to real estate investment and mild inflation.

“In 2010 the external (economic) environment will remain quite grim, but it will not deteriorate any further,” the centre’s report stated, which was published in the China Economic Times.

“Against a backdrop of ample production and supplies, we forecast that in 2010 there will not be marked inflation,” it said.

In Japan, the president of Japan Airlines has said he is against a bankruptcy proceeding to be made under a state restructuring plan, and said he has no plans to withdraw the airline from overseas flights.

The company has been seeking a bailout from Enterprise Turnaround Initiative Corp of Japan, which is state-backed, with a decision regarding the support of JAC to be made this month.

“The image (of bankruptcy) would affect us and we would lose customers,” JAC president Haruka Nishimatsu told the Asahi Shimbun. “If we lose recognition from customers, restructuring would be difficult and this will trouble the ETIC too.”

On Wall Street, investors were confident last week due to the Dow’s best performance in six years over 2009, but data to be released this week including employment figures may put a dampener on recent rallies.

The Labor Department report on non-farm payrolls is out this week, along with the Institute for Supply Management’s manufacturing report.