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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: C Hudson who wrote (2949)	1/7/1999 10:46:00 PM
From: ForYourEyesOnly	Read Replies (1) \| Respond to of 82217

OK! But let's keep our cool.....still very early ...... Good luck, THC

To: C Hudson who wrote (2949)	1/11/1999 12:29:00 AM
From: ForYourEyesOnly	Read Replies (1) \| Respond to of 82217

ANALYSIS-Bank mergers tightening bullion belts By Patrick Chalmers LONDON, Jan 8 (Reuters) - Job losses and reduced credit lines from bank restructuring and mergers risk draining liquidity from bullion forwards and derivatives markets, making life tougher for miners, dealers and central bankers alike. Last year saw major changes affecting the bullion trade including Union Bank of Switzerland's merger with the Swiss Bank Corp, Deutsche Bank's purchase of Bankers Trust and Merrill Lynch's closure of some its metals derivatives trade. ''It does seem to me that all these changes are pretty significant,'' said Terry Smeeton, former head of treasury at the Bank of England and now a non-executive director with Standard Bank London. ''The conclusion one has to draw from all that is that the capacity of the market is going to be very significantly reduced. That does seem to me to have quite important implications even if they are not immediately apparent. ''Presumably, the ability of producers to hedge production is going to be impaired. It's going to be less easy for them to do it or it's going to be more expensive,'' Smeeton said. As with debt and equity issues, hardest hit will be the smaller mines, for which credit questions inevitably loom larger. Anglogold Executive Director Kelvin Williams, marketing chief at the world's largest gold producer, said his company's balance sheet attracted large enough counterparties to avoid the ill-effects of any liquidity squeeze. He said banks' slimmed-down bullion operations were due to credit issues rather than lack of profit, with some banks choosing to withdraw from a market which soaked up credit without making enough money. ''The fact that these things are taking place amongst major bullion banking institutions is of concern,'' he said. ''However, we believe there are a number of institutions which are still committed to staying in this particular commodity market and they are institutions with very large balance sheets,'' he added. Mitsui metals analyst Andy Smith said financially savvy miners and central bankers now drove harder bargains, meaning the heyday of easy profit for bullion banks was gone. ''Just as miners have had to revalue their reserves to within a spit of reality, so have the banks had to change their internal valuation of precious metals business. ''This is primarily a low-margin, volume business. The risks you have to take to make a profit are often much more than many appear comfortable with,'' he added. Smith said banks' bullion desks no longer took the big proprietary market positions they had done during the 1980s. ''Since then there has been a drawing in of horns, the supply of less sophisticated counter-parties has run out, particularly on the miners' side,'' he said. Another London analyst, who asked not to be named, said lower gold prices as well as banks' merger mania had caused the shake-up in bullion markets. ''For the other existing players, competition is going to remain very fierce because volumes have contracted and everyone's lean and hungry,'' he said. ''We'll probably find that in a couple of years' time, it will pick up again. Bankers are terrible in the way they build up big departments and then a couple of years later the business isn't there so they 'let people go', as they say,'' he added. Not all banks have shrunk their operations. Republic National Bank announced last December the hiring of new bullion marketing staff to its Zurich branch. Jeremy Charles, deputy managing director of precious metals operations at Republic National Bank London, said then that market changes were not necessarily bad news. ''Typically in our market we are finding fewer and fewer participants. Whether that's a good thing or a bad thing depends on where you are standing. It certainly doesn't do our business any harm,'' Charles said. Central banks, under increasing pressure to produce investment returns from reserves, particularly gold, will also suffer from the fall in potential gold borrowers. ''If the number of counterparties goes down...the amount they will be able to lend will be diminished and so the whole market gets condensed,'' said Smeeton, the man formerly responsible for managing the Bank of England's gold. Central banks now lend thousands of tonnes of gold to the market each year, offering a pool of liquidity for mine financing, forward and options trade and allowing a mask for their own long-term gold trades. ''Though central banks will still lend, they may have to reappraise who they lend to,'' said Smith. 08:35 01-08-99