China Pacific Insurance to Launch $6 Bln IPO

SHANGHAI - China Pacific Insurance (Group) Co, the country's No. 3 life underwriter, will soon launch initial public equity offerings in Shanghai and Hong Kong, which analysts said could raise more than $6 billion.

The China Securities Regulatory Commission will review China Pacific Insurance's (CPIC) plan to issue local currency A shares for a listing in Shanghai on Monday, the regulator said in a statement posted on its Web site late on Thursday.

CPIC plans to issue 1 billion A shares, or 13 percent of its expanded share capital, for a listing on the Shanghai Stock Exchange, with proceeds to be used to supplement its capital base, the company said in a share issue prospectus.

It was not immediately clear when the company's H-share issue plan would be reviewed by Hong Kong regulators.

"CPIC has a relatively important role in China's sunrise insurance sector," said industry analyst Wang Xiaogang at Orient Securities. "Its IPO will be welcomed by the market, with a pricing reflecting its potential and leave leeway for gains in its listing debut."

Analysts forecast CPIC to price its Shanghai A shares at around 25 yuan each, allowing its domestic offer to raise 25 billion yuan ($3.4 billion) to become the mainland's eighth largest initial public equity offering.

CPIC said its H shares would be priced no less than its Shanghai shares. Based on analysts' forecasts for the Shanghai pricing, its Hong Kong sale could raise $3 billion and bring the total amount raised in its IPO to $6.4 billion.

CPIC recorded a net profit of 3.823 billion yuan in the first half of 2007, more than triple full-year earnings in 2006 and 2005, according to the prospectus.

The company had a 9.5 percent share of China's life insurance market and 11.6 percent of the country's property insurance market in the first half of this year. Life insurance accounted for 65 percent of its total premium income and property 35 percent.

CPIC predicted its net profit would reach 6.446 billion yuan for the full-year 2007, giving it per-share earnings of 0.84 yuan, jumping from 0.23 yuan in 2006 and 0.26 yuan in 2005.

Analysts forecast that Shanghai IPO price would give CPIC a price-to-earnings (PE) ratio of 30 times based on its 2007 forecast earnings, leaving room for a strong debut.

But Chinese analysts insist China's insurance industry has extremely strong potential because of low penetration in a country which has only begun to dismantle a cradle-to-grave welfare system.

By the end of 2006, China's per-capita life insurance premium was only $34, compared with $2,829 for Japan and $1,790 for the United States, CPIC quoted industry data as showing.
($1 = 7.39 Yuan)

UPDATE 2-US quarterly home price drop largest on record-S&P

The S&P/Case-Shiller National Home Price Index fell 1.7 percent from June, marking the largest quarterly decline in the index's 21-year history, S&P said in a statement.

Robert Shiller, a Yale University economist and co-developer of Standard and Poor's S&P/Case-Shiller Home Price Indices, on a Standard & Poor's teleconference following the release, said that at this point there is substantial concern and uncertainty about the outlook for the U.S. housing market.

"The downward momentum is looking impressive right now and at the very least ought to be a source of worry about the future for home prices," he said.

The futures market for the S&P Case-Shiller Composite Index is indicating home prices down another 5 percent in 2008, he said.

On the teleconference, titled "Current & Future State of U.S. Housing Market", Shiller said he is not able to predict the bottom for the U.S. housing market at this point of time.

"We do not know where it is going to go from here," he said. "I would hope that it would motivate people to start thinking about hedging their real estate risk."

The quarterly S&P/Case-Shiller index has been falling since the second quarter of 2006 as lenders clamp down on lending to risky borrowers who had depended on home price gains to keep their homes. Rising foreclosures are adding to soaring inventories of unsold homes, depressing prices further.

The composite month-over-month index of 20 metropolitan areas fell 0.9 percent to 195.62 in September from August, bringing the measure down 4.9 percent from a year earlier.

S&P said its older, composite month-over-month index of 10 metropolitan areas declined 0.9 percent in September to 212.65, for a 5.5 percent year-over-year drop.

Florida is the hardest hit state, with prices in the Tampa and Miami areas down 11.1 percent and 10 percent respectively over the past year, the indexes show. Home prices around San Diego, California, and economically depressed Detroit, Michigan declined by 9.6 percent over the 12-month period.

Lehman Brothers said the decline in home prices is the start of an extended decline in the market.

"We look for home prices to fall well into 2009 as excess inventory is slowly cleared and foreclosed homes return to the market at a discounted price," the company said in commentary published Tuesday.

This will translate to a 15 percent decline in national home prices from peak to trough, Lehman Brothers said.

Tax credit change 'more costly'

Reforms to the tax credit system will cost three times more than the Treasury has claimed, the BBC has learned.

Parliament has been told that the 10-fold increase to the current tax credit threshold will cost £850m.

The new "tax credit income disregard" means that from April a family's income can rise to £25,000 before tax credits are clawed back by the government.

HM Revenue and Customs (HMRC) said the reforms would in fact save families a total of £2.5bn over five years.

Opposition politicians have said that the Treasury has been hiding the real cost by using "smoke and mirrors".

However, a Treasury spokesman said this accusation was absurd.

"The Treasury has provided information on the cost of the higher income disregard to Parliament in an entirely open and transparent manner," he said.

"We have always striven to be very clear on the difference between 'costs' to the Exchequer and changes in entitlement, which, although sometimes confused by commentators, are in fact separate issues."

Restoring faith

The decision to boost the income disregard from £2,500 to £25,000 was taken to restore faith in the tax credit system and save the Chancellor from more embarrassing headlines.

Since they were introduced in 2003, the recovery of tax credit overpayments has been hugely controversial, causing hardship to many families.

Some have even ended up depending on food parcels from the Salvation Army.

Old system

In the past, when asked the cost of the income disregard, government ministers gave figures showing how much more money would go to claimants.

Now the Treasury has calculated what it calls the 'Exchequer effect'.

This involves a different definition of the cost.

On the basis of this calculation, the reform in its first year will mean families get £500m more in tax credits.

However, the Treasury says this will in fact cost just an extra £50m.

Its argument goes that if the old system - with the lower disregard limits - continued in place, it would have paid out about £500m in overpayments.

Much of that would be unlikely to be recovered, or the recovery payments would be spread out over several years.

Last year, failure to recover overpayments led HMRC to write off £397m and make provision for a further £409m of 'doubtful debts'.

Thus the real difference, in the Treasury's view, between continuing with the less generous and often inefficient current system, compared to the new one with more generous limits, is estimated at just £50m a year.

'Acting disgracefully'

Mark Francois, the shadow Paymaster General, said that it appeared the "Treasury has been using 'smoke and mirrors' to try and mask the real cost, in which case UK taxpayers may have been misled."

Liberal Democrats work and pensions spokesman David Laws said: "This confirms what many people suspected all along.

"The Treasury has been engaged in an absurd attempt to cover up the costs of trying to mend Gordon Brown's defective tax credit system."

He accused the Treasury of "acting disgracefully by persistently denying this information to Parliament."

Both will be asking urgent questions of the government about the real cost of the reform.

Tax credit changes welcome but overpayments still need addressing

David Harker, Chief Executive of Citizens Advice:

"We are pleased with the increases in Child benefit and the commitment to continue to raise the child element of Child Tax Credit above earnings, and measures to help reduce overpayments, but urgent change is still needed to help the thousands of families experiencing huge problems with the system.”
"We welcome the introduction of a 4 week run-on entitlement to Working Tax Credit for people whose hours drop below 16 as a way of reducing the number of overpayments for people who move in and out of work. However, families still find themselves struggling to repay large overpayments without receiving proper explanations of how they have arisen, and without being given notice before recovery starts.

"Thousands of families are also being threatened with court action for the recovery of overpayments about which they are still challenging or awaiting explanation, sometimes not even knowing yet the amount due.

"Additional money will only make a difference if there are improvements to tax credit administration, specifically the handling of overpayments. Our evidence shows that some eligible families who have had problems are now reluctant to claim what they are entitled to.”

In the last financial year (2005/2006) Citizens Advice Bureaux dealt with more than 150,000 problems relating to working and child tax credits. In addition bureaux dealt with an additional 10,000 problems relating to debt as a result of overpayments of working and child tax credits.

Case studies

In February 2007 a woman received notices warning that legal action would be taken to recover an overpayment that she had been trying to resolve for a couple of years. She had also been told that the 2004/05 overpayment would be recovered by stopping all further payments until it was all recovered. At the beginning of the 2006/07 tax year she was told that she still had an overpayment and had trying to get more details ever since. She had all the relevant paperwork but could not get any explanation of the overpayment. She found the legal warnings very distressing and was very frustrated by the fact that different sections of the Tax credit office did not hold all the same information.

A woman received a letter from HMRC advising that her £500 overpayment would not be recovered as it had arisen from an official error. She has now received a letter threatening recovery of the overpayment through court action. The tax credit helpline advised that the computer now had the overpayment down as recoverable and she would need to send them a copy of her original letter. She was very worried by the threat of court action, particularly over a matter she thought had been resolved a couple of years ago. This was made worse by the fact that the letter referred to Sheriff’s courts – and these only exist in Scotland.

Freddie credit loss may surpass historic high

Freddie Mac's credit losses may surpass its historic high, if the U.S. mortgage market deteriorates more than what is forecast by the No. 2 mortgage finance company, Moody's Investors Service said.
Such a spike in credit losses at the government-sponsored enterprise, which reported a $2 billion quarterly loss earlier this week, could result in Moody's downgrading the ratings on Freddie Mac's bank financial strength, subordinated debt and preferred stock ratings, the debt rating agency said in a statement dated Thursday.
Freddie Mac expects credit losses stemming from its subprime mortgage exposure to rise through at least 2009, equaling 11 basis points of its credit guarantee portfolio, which was the historic high in credit losses for the GSE, Moody's said.
"In Moody's view, continued deterioration in the mortgage market, resulting in further decline in these books may lead to credit losses in excess of their 11 basis point loss forecast," Moody's said.
On September 30, Freddie Mac reported total assets of $792.9 billion and guaranteed securities totaling $1.3 trillion.
Moody's revised outlook on these ratings on Freddie Mac, followed similar moves by Fitch Ratings and Standard & Poor's.
For now, Moody's said it affirmed the credit ratings on Freddie Mac including the all-important "Aaa" senior debt rating, which is vital for investors to gauge the company's default risk.