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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (33492)	7/11/2005 2:57:59 AM
From: regli	Respond to of 116555

Also includes comments about repatriation of funds. Dollar's strength weakens overseas earnings news.ft.com By Dan Roberts and Jennifer Hughes in New York Published: July 10 2005 22:07 \| Last updated: July 10 2005 22:07 Corporate America will have to do without one of its largest sources of growth this earnings season as the rapidly strengthening dollar reverses its flattering effect on overseas profits. Year-on-year comparisons for multinational companies had been inflated for 12 quarters in a row by a weakening dollar. Its steep rise against the euro and other currencies since January means second quarter figures out soon will instead see foreign profits translated at roughly the same rate as this time last year. But the currency volatility means more than just an end to the quarterly supercharging of reported earnings. It also threatens to disrupt the repatriation of hundreds of billions of dollars of foreign earnings built up over several years. These real flows of money stem from a one-year tax amnesty granted by the US Congress to encourage US multinationals to reinvest money earned overseas in their businesses back home. Since the amnesty began in January, large companies have announced plans to repatriate more than $100bn (£57.6bn)and earmarked up to another $150bn. The problem is that delays in receiving guidance from tax authorities mean most companies have barely started the process. Based on public disclosures, foreign exchange flows and client discussions, Citigroup estimates barely $50bn, a fifth of the total, has been returned so far. Since the euro buys 12 per cent fewer dollars now than it did when companies first announced their repatriation plans, this could prove an expensive delay.Opinions differ on the exact scale of the problem, not least because some companies already have the offshore money in dollars. Mark Graham, Citigroup's expert on repatriation, estimates that more than $100bn remains to be converted, mostly from euros, but also yen, sterling and Swiss francs. He said: “People have been frustrated that they missed the opportunity [to bring back money when the dollar was weaker]. “We are beginning to have a lot more hedging discussions and in the last two or three weeks there has been a definite pick-up in awareness of this issue.” But Bank of America said estimates of foreign exchange exposure were exaggerated because companies with the biggest planned repatriations, such as drug and computer makers, were most likely to account in dollars already. Pfizer which plans to bring back the largest amount, nearly $37bn said: “We have almost no exposure to exchange rates on the repatriation as substantially all our offshore cash was already held in dollars.”