... in local currency, led by gains in China. For the first quarter, consumer business operating ... of third-party contracts, the impact of the stock market conditions on its share repurchase program, fluctuations ...
Thursday, March 27, 2008
McCormick Reports Record Results for First Quarter of 2008 -- Sales increased 11%. Consumer business sales rose 10% and industrial business sales rose 13%. -- Earnings per share reached $0.39. On a comparable basis, excluding rest
Asian economic and business calendar -- to April 10
... expected to April 10 Thursday March 27 -Japan weekly capital inflows -Hong Kong Feb trade ... unemployment Friday March 28 -Japan Feb CPI, Tokyo March CPI -Japan Feb unemployment rate -Japan ... condition -Malaysia Feb industrial output -Malaysia end-March forex reserves -Czech Feb foreign trade -US Alcoa ...
Deutsche Bank Says Challenging Economic Conditions May Weigh-down FY08 Profit; Warns Of Write-downs
... profitability target for the year 2008. The German bank is expecting a pre-tax profit of ... the market turbulence and uncertainties in global equity markets. Meanwhile, the bank anticipates that its Private ...
Dollar edges up vs euro, but more weakness seen
... rate cut have been erased by forecast-beating German and French business confidence surveys and continued ... and rose to 99,74. Strong performance in equity markets helped boost risk appetite, propping up the ...
Egypts Torah Cement 2007 net profit soars 66 pct
... CAIRO, March 27 (Reuters) - Egypts Torah Portland Cement TORA.CA reported a 66 ... 384.74 million Egyptian pounds ($70.34 million), the stock exchange said on Thursday. Net profit stood at ...
Wednesday, March 26, 2008
Fighting in Iraqi oil city kills 40 and wounds 200
... news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Reuters ...
Heavy metal magic for rich
... Sun, is still listed on the Australian Stock Exchange. Last years richest man, James Packer, slips ... year. Mr Forrests affluence is based on Chinas thirst for iron ore as well as ...
Profit-takers move in on US markets
... A rebound in commodity prices saw American equity markets recoup most of their early losses overnight ... rates, it was at 0.5870 euros; 91.80 Japanese yen; 45.79 pence Sterling; and against the ...
Albanese sees Chinq link as Rios edge
... Chinalco could use the global fall in equity markets to increase its 9 per cent stake ... should be welcomed not blocked, just as Japanese investment was welcomed in the 1970 and ...
Asian stocks turn mixed on lackluster Wall Street; yen weighs in Tokyo UPDATE2
... in Tokyo UPDATE2 SINGAPORE (Thomson Financial) - Stock markets across Asia pared early gains to trade ... gains are South Africa, Mexico, Sri Lanka, Pakistan and Taiwan. Investors are understandably cautious in ...
Tuesday, March 25, 2008
Economic Imperialism In The Garb Of Globalisation
... million people, ranging from 68 million in Egypt to 565,000 in Qatar. The report notes ... Mega mergers have been fuelled by the stock market frenzy and vice versa. This has led to problems for the stock markets and economies as well. Further, we have ...
Klondike Star Pursuing TSX-V Listing
... Flinn says, "The move to a major stock exchange would better serve our existing and prospective ... enterprise with world-class projects in Canada and Egypt. The company has majority or 100% interests ...
Software offers visibility into enterprise IP telephony usage.
... sales offices in the USA, Europe and Australia, and via a global channel-driven distribution network. ... include the worlds largest bank, telecommunications company, stock exchange and computer hardware manufacturer. For more information ...
IST Market Review: Introduces Questerre Energy to our Toronto Exchange Watch List
... world renowned independent research firm, based in Johannesburg, South Africa. Along with walking investors through ... of 1933 and Sections 21E of the Securities Exchange Act of 1934, and are subject to ...
Monday, March 24, 2008
Company Upgrade: Introduces Universal Power to our Canadian Juniors Radar
... world renowned independent research firm, based in Johannesburg, South Africa. Along with walking investors through ... of 1933 and Sections 21E of the Securities Exchange Act of 1934, and are subject to ...
Ex-HerdBuoy moving up at Absa
... Holdings, the broad-based womens empowerment group, has joined the board of Protech Khuthele, the JSE-listed fast-track bulk earthworks operation. Nkosis appointment follows Lidongas purchase of a 5% stake in ...
Stocks Rise on Bear Stearns Deal
Wall Street extended its big advance Monday as investors grew upbeat over a revised agreement that will give Bear Stearns Cos. shareholders five times the payout than was outlined in a deal a week ago. Investors were also pleased by a stronger-than-expected housing report.
UAE decides to go nuclear
Commodity Online ABU DHABI: The UAE on Sunday decided to set up an agency to assess and develop a peaceful and fully transparent nuclear energy programme.
Vodafone wants stake in South Africas MTN - report
JOHANNESBURG (Reuters) - Global mobile phone giant Vodafone is in preliminary talks seeking a stake in South African-based cellphone company MTNs international operations, a newspaper reported on Sunday.
Saturday, March 22, 2008
Chinas looming Olympics disaster
The Beijing games are supposed to showcase Chinas stature on the world stage. But theyre producing protests at home and may shut down big hunks of the nations economy.
Why Exxon wont produce more oil
The energy giant is being managed to achieve an acceptable investment return for shareholders, not for the benefit of consumers. Less supply of crude oil means higher prices -- and record profits.
Wednesday, March 12, 2008
GO Capital Halts Redemptions From Global Hedge Fund
(Bloomberg) -- GO Capital Asset Management BV blocked clients from withdrawing cash from its Global Opportunities Fund, at least the seventh hedge fund in the past month forced to take steps to protect itself from falling markets.
Frans van Schaik, the former head of equity research at ABN Amro Holding NV who founded the Amsterdam-based fund in 2000, wrote to investors that the fund is not leveraged and not facing margin calls. The fund, which bets both on rising and falling prices, has assets of about 570 million euros ($881 million).
``A temporary suspension of redemptions is the best defensive measure to protect the interests of the participants,'' van Schaik and other members of GO Capital's management said in a letter posted on their Web site and dated March 11. ``Current market circumstances do not allow the fund to sell investments at a reasonable price.''
At least six hedge funds totaling more than $5.4 billion have been forced to liquidate or sell holdings since Feb. 15 as contagion from the U.S. subprime slump spreads for a seventh month. Others include Peloton Partners LLP's $1.8 billion ABS Fund, Tequesta Capital Advisor's mortgage fund and Focus Capital Investors LLC, which invested in midsize Swiss companies.
GO focused mostly on listed European equities, although it was not restricted in investments it could make, the Web site says. The fund planned to make bets on between 10 and 30 stocks and looked for ``situations of overreaction or stress,'' according to the Web site.
House's Frank Says Muni-Bond Ratings Are `Ridiculous'
Bloomberg) -- U.S. Representative Barney Frank said it is ``ridiculous'' that bond-rating companies apply tougher standards to local government debt as he prepares to hold a hearing on the soaring interest costs of municipalities.
California Treasurer Bill Lockyer and other state officials are calling for Standard & Poor's, Moody's Investors Service, and Fitch Ratings to change a system they say costs taxpayers by exaggerating the risk that states and cities will default on their debts. Every state except Louisiana would be AAA if measured by the scale used for corporate borrowers, according to research by Moody's Investors Service.
``This notion of having a separate standard for the municipals because they would do too well on the other standard is ridiculous,'' Frank, the Democrat who chairs the House Financial Services Committee, told reporters in Washington yesterday.
Frank's committee today opens a hearing into how states, local governments and other tax-exempt borrowers, which have $2.6 trillion of debt outstanding, are being hurt by the crisis in confidence in U.S. financial markets. The interest costs on auction-rate securities, a type of debt used by municipalities, has almost doubled since January and investors have also demanded higher yields on tax-exempt bonds backed by insurers that are struggling to maintain their own credit ratings.
Insurers' Investments
``The bad investments they have made have dragged down the value of the municipal issuers and cost money for people who want to build schools and roads,'' Frank said in a Bloomberg Television interview today.
Lockyer at today's hearing plans to ask Congress to pressure the rating companies to change their system, spokesman Tom Dresslar said. Other witnesses set to testify include Ajit Jain, the chairman of Berkshire Hathaway Assurance Corp., Laura Levenstein, a senior managing director for Moody's, and New York's superintendent of insurance, Eric Dinallo.
``The current system makes no sense,'' said Dresslar. ``Taxpayers wind up paying billions of dollars in higher interest rates and insurance premiums.''
Because ratings are typically lower on the municipal scale, local governments have paid insurance companies to back their bonds with AAA ratings, seeking to reduce borrowers' costs. With insurers' ratings under pressure because of losses on mortgage debts, states, cities and hospitals have faced higher interest costs on floating-rate bonds backed by the guarantors as investors shun the debt.
Monday, March 10, 2008
Market slips on economic fears, McDonald's gains
(Reuters) - U.S. stocks slipped on Monday as mounting concerns about the economy overshadowed stronger-than-expected same-store sales from McDonald's Corp
Carlyle Capital Says Lenders May Force Further Sales
(Bloomberg) -- Carlyle Group's mortgage-bond fund said creditors may liquidate as much as $16 billion of securities unless the two sides reach agreement on debt repayments.
The fund has asked lenders to refrain from further sales after they liquidated collateral securing $5 billion of debt, Carlyle Capital Corp. said in a statement today. It is meeting lenders to discuss more than $400 million of margin calls and is ``evaluating all options,'' the Guernsey, Channel Islands-based fund said.
Carlyle Capital used loans to buy about $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac, which the firm says have an ``implied guarantee'' from the U.S. government. Even the safest mortgage bonds have slumped following the collapse of the subprime-mortgage market, leading to the failure of hedge funds led by Peloton Partners LLP.
``This particular Carlyle entity wasn't prepared,'' said Philip Keevil, a senior partner in London at Compass Advisers LLP and former head of European mergers at Salomon Smith Barney Inc. ``They hadn't started selling ahead of time and now they're having trouble liquidating their positions.''
Started by David Rubenstein 21 years ago, Carlyle expanded its mortgage investments last year, selling $300 million of shares in Carlyle Capital.
``Due to recent turmoil in the market for mortgage-backed securities, the company's lenders have significantly reduced the amount they are willing to lend against the company's portfolio of U.S. government agency AAA-rated residential mortgage-backed securities,'' Carlyle Capital said today.
Blackstone Profit Falls 89% on Credit Market Meltdown
(Bloomberg) -- Blackstone Group LP, manager of the world's largest buyout fund, said fourth-quarter profit plunged 89 percent after a ``meltdown'' in the credit markets and warned that getting loans for takeovers will be hard in 2008.
Profit excluding costs tied to its June initial public offering declined to $88 million, or 8 cents a share, from $808.1 million, or 72 cents, a year earlier, the New York-based company said today in a statement. Blackstone fell as much as 5.2 percent in New York trading as earnings missed analysts' estimates.
``Credit market problems persist and if anything have gotten worse,'' Blackstone President Tony James said on a conference call with reporters today. ``We're looking to 2009 before we see much of an improvement.''
Blackstone, which has lost 55 percent of its market value since the IPO, hasn't completed a takeover of more than $2 billion in five months as credit costs doubled and the LBO market shut down. It's struggling to close the $6.6 billion buyout of Alliance Data Systems Corp., the Dallas-based credit- card processor, announced in May.
Earnings were hurt by a decline in fees earned by completing acquisitions and a writedown of its investment in New York-based bond insurer Financial Guaranty Insurance Co. Blackstone invested $2.33 billion of capital in the quarter, down 31 percent from a year earlier.
Net Loss
``Among the risks are that LBO financing conditions continue to worsen and erode Blackstone's ability to earn sufficient private-equity returns,'' Bank of America Corp. analyst Michael Hecht wrote in a March 6 report to investors. Hecht, who is based in New York, cut his fourth-quarter estimate to 11 cents from 25 cents. The average estimate of seven analysts surveyed by Bloomberg was 20 cents a share.
Blackstone fell 55 cents, or 3.7 percent, to $14.03 at 10:17 a.m. in New York Stock Exchange composite trading. It earlier fell to $13.82, the lowest since the IPO.
Blackstone reported a fourth-quarter net loss of $170 million because of compensation costs tied to the IPO. Revenue rose 17 percent to $3.05 billion. The firm agreed to buy GSO Capital Partners LP for as much as $930 million in January to expand investments in distressed debt and leveraged loans.
``Despite the meltdown'' in credit markets, the company sees deal opportunities, especially in Asia, Chairman Stephen Schwarzman said in the statement.
Assets under management jumped 47 percent to $102.4 billion, driven by real estate, which doubled to $26.1 billion. Money-management assets rose 65 percent to $44.5 billion. Private-equity assets gained 7 percent to $31.8 billion.
Blackstone as Proxy
LBO financing evaporated last July as banks and investors pulled out of the market amid the fallout from rising subprime- mortgage delinquencies. The value of deals announced in the second half of 2007 plunged two-thirds from the first six months, according to data compiled by Bloomberg.
``We're a proxy for the credit markets,'' Blackstone President Hamilton James said at the Super Returns private equity conference in Munich on Feb 26.
Still, seven of the eight analysts who rate Blackstone recommend clients buy the stock, including Hecht. The other recommendation is a ``hold.''
Other publicly traded companies that make private-equity investments also have suffered. New York-based Fortress Investment Group LLC has fallen 58 percent in the past year, while 3i Group Plc of London has lost 42 percent.
Thursday, March 6, 2008
Lego wants to build business with girls
(Reuters) - Nine-year-old Ida Fraende, who likes to play with Lego bricks, is not so unusual in Scandinavia but globally speaking she is not typical: Jorgen V. Knudstorp hopes to change that.
The Chief Executive of Europe's largest toymaker, who has brought the once-troubled group back to profit and renewed its growth ambitions, has a keen eye on the market where Mattel and Hasbro of the United States are the mom and pop.
Girls are an area where "we'll never stop trying," Knudstorp, who joined the family-owned firm in 2001 from consultancy McKinsey & Company, told Reuters.
"I think there is something that genetically skews us towards boys, but we can do better."
To win girls over Lego -- whose iconic plastic bricks have entertained children and wounded unwary barefoot parents since the late 1940s -- is working to change its mindset, and taking its bid for their custom online.
The firm founded in 1932 by carpenter Ole Kirk Christiansen intends next year to launch an online Lego Universe, to tap into a booming market that has created successes such as Second Life and World of Warcraft.
The group which started out with wooden toys like ducks and trucks has recovered from a massive 1.9 billion Danish crowns ($388 million) loss in 2004 and managed to build market share in a stagnant global market.
Wal-Mart's February Sales Rise; Gap, AnnTaylor Fall
(Bloomberg) -- Wal-Mart Stores Inc.'s February sales gained more than it expected as cash-strapped consumers seeking food and basic clothing cut spending at Limited Brands Inc., AnnTaylor Stores Corp. and Gap Inc.
Wal-Mart, the world's largest retailer, said today in a statement that sales at stores open at least a year rose 2.6 percent last month, beating its estimate for a gain of 2 percent or less.
Shoppers headed to discounters and warehouse clubs to stock up on food and necessities, shunning lightweight jackets and sweaters at department stores and mall-based retailers. A decline in jobs, gasoline costing more than $3 a gallon and the continued erosion of the housing market have caused consumers to limit spending.
``We are seeing the consumer trading down,'' Fred Crawford, managing director at AlixPartners LLP, a Southfield, Michigan-based consulting firm, said in a Bloomberg Radio interview. ``You've got a large swing set in Middle America. In good times, they buy up into department store categories, and in tougher times, they buy down into mass categories.''
U.S. retailers' same-store sales may have risen 0.5 percent to 1 percent last month, according to the International Council of Shopping Centers. The New York-based trade organization reports monthly results later today.
Companies in the U.S. unexpectedly lost 23,000 jobs in February, the first decline in almost five years, according to a private report based on payroll data from ADP Employer Services released yesterday. The University of Michigan/Reuters index of consumer confidence fell last month to its lowest level since 1992.
Retail Shares
Wal-Mart climbed 55 cents, or 1.1 percent, to $50.10 at 8:19 a.m. in trading before the New York Stock Exchange opened. Gap fell 4.7 percent.
The 31-member Standard & Poor's 500 Retailing Index has dropped 5.2 percent this year before today, compared with a 9.2 percent decline for the S&P 500 Index.
Limited Brands, the owner of the Victoria's Secret lingerie chain, said February same-store sales dropped 9 percent, better than analyst estimates for a 10.9 percent drop.
Staples Inc., the world's largest office-supplies retailer, reduced its full-year profit and sales forecast March 4 as customers at its North American retail stores reduced purchases of copiers and desks.
``The core economy, the part that's really relevant to Staples and Staples' customers, is declining,'' Staples Chief Financial Officer John Mahoney said in a telephone interview. ``From the perspective of our customers and our business, this is a recession now.''
February Sales
February tends to be the least important sales month in the first quarter for many retailers, comprising about 30 percent of discounters' quarterly revenue, according to Christine Augustine, a retail analyst at Bear Stearns Cos.
With ``sluggish'' traffic, most retailers may be ``playing defense'' by managing inventory and cutting costs, she wrote in a Feb. 29 research note.
``Aside from Valentine's Day and President's Day, and the demand for consumables and other necessities, we think consumers had few reasons to shop in February, particularly given the tough economic backdrop,'' Augustine wrote.
AnnTaylor, the clothing retailer that caters to women ages 25 to 55, said February same-store sales dropped 1.7 percent, less than the average analyst forecast for a 3.1 percent decrease. Gap, the largest U.S. clothing retailer, said sales fell 6 percent, almost twice the 3.1 percent decline estimated by analysts.
European Stocks, U.S. Index Futures Decline; Asian Shares Rise
(Bloomberg) -- European stocks fell for the third day this week and U.S. index futures declined on concern credit- market losses will widen at financial companies and record oil prices will curb airline earnings.
UBS AG sank to the lowest since 2003 after JPMorgan Chase & Co. said Europe's biggest bank probably sold $24 billion in holdings of mortgage-backed securities in a ``fire sale.'' Aegon NV, the second-largest Dutch insurer, lost the most in three weeks on a 26 percent drop in earnings. British Airways Plc had its steepest decline in a week, saying its profit margin will drop.
A rally in mining companies helped Asian stocks rise for the first time in six days, while U.S. index futures fell before a report that will probably show contracts to buy previously owned homes slipped in January for a third month.
``News from the financial industry brings a negative wind,'' said Laurent Vallee, who helps oversee $6.1 billion at Richelieu Finance in Paris. ``We remain cautious on financial stocks.''
Europe's Dow Jones Stoxx 600 Index lost 0.3 percent to 314.62 as of 12:45 p.m. in London. Futures on the Standard & Poor's 500 Index slipped 0.5 percent, while the MSCI Asia Pacific Index added 1.8 percent.
Stocks maintained their losses after the European Central Bank left its key interest rate unchanged. ECB President Jean- Claude Trichet is scheduled to brief reporters at 2:30 p.m. Frankfurt time. The Bank of England earlier kept its benchmark rate on hold.
The Stoxx 600 has lost 14 percent this year on concern the collapse of subprime mortgages and a slowdown in the U.S. economy will curb profit growth in Europe. UBS may have writedowns of about $18 billion after unloading 25 billion Swiss francs of mortgage-backed securities, according to JPMorgan.
Money Markets
Carlyle Capital Corp., which invests in AAA rated mortgage securities, failed to meet margin calls and said today it received a notice of default, while Thornburg Mortgage Inc., a U.S. specialist in adjustable-rate loans too big to be sold to Fannie Mae and Freddie Mac, also received a default notice on a $320 million loan.
The cost of borrowing euros for three months rose to the highest level in seven weeks, fueling concern a coordinated effort by central banks to limit the fallout from the U.S. housing slump and revive lending is faltering.
UBS dropped 2 percent to 31.6 francs. Europe's biggest bank by assets ``likely'' sold its 25 billion francs ($24 billion) prime Alt-A portfolio in a ``fire sale,'' JPMorgan said as it lifted its ``credit-crisis'' writedown estimate for the bank to 18.5 billion francs.
Tuesday, March 4, 2008
Staples Net Income Falls 1% on Lower Retail Sales
(Bloomberg) -- Staples Inc., the world's largest office-supplies retailer, said fourth-quarter profit fell 1 percent on lower North American retail sales to small companies and consumers.
Staples dropped in Nasdaq Stock Market trading.
Net income declined to $333.2 million, or 47 cents a share, from $336.5 million, or 46 cents, a year earlier, Staples said today in a statement. Profit met some analysts' estimates. Revenue for the three months ended Feb. 2 rose less than 1 percent to $5.32 billion. Staples cut its full-year forecast.
Sales at U.S. and Canadian stores open at least a year dropped 6 percent. Office-supply retailers' sales slowed as customers concerned about a declining job market and the worst housing slump in a quarter century reduced purchases of copiers and desks. North American sales have also declined at smaller competitors such as Office Depot Inc.
``The environment is hitting everyone pretty hard,'' Walter Todd, who helps manage $800 million for Greenwood Capital Associates LLC in Greenwood, South Carolina, said yesterday in an interview. ``It's all macro-driven.'' The firm held 175,048 Staples shares as of Dec. 31.
The retailer predicted a ``mid single-digit'' percentage increase in sales and ``high single-digit'' percentage growth in earnings per share for the year ending next Jan. 31. Staples said in November that it expects earnings per share this year to increase by a percentage in the ``low teens,'' with ``high single-digit'' sales growth.
Staples Stock
Staples, based in Framingham, Massachusetts, fell 54 cents, or 2.4 percent, to $21.95 at 9:44 a.m. in Nasdaq Stock Market composite trading. The stock lost 2.5 percent of its value this year through yesterday, compared with a 20 percent decline for Office Depot, the second-largest office-supplies retailer.
``In the context of a tough retail environment, we view Staples as relatively stable,'' Jack Murphy, an analyst at William Blair & Co. in Chicago, wrote yesterday in a research note. He rates Staples shares a ``buy.''
Analysts estimated fourth-quarter profit of 47 cents a share, the average projection of 16 analysts surveyed by Bloomberg. Eleven analysts, on average, estimated sales of $5.4 billion.
In November, Staples forecast a ``low double-digit'' sales growth in the fourth quarter, with North American same-store sales unchanged or ``slightly negative.''
Porsche Profit Rises on Cayenne SUV, Volkswagen Stake
(Bloomberg) -- Porsche SE, maker of the 911 sports car, said first-half profit jumped 44 percent as a revamped Cayenne sport-utility vehicle won buyers and the company added to its stake in Volkswagen AG.
Net income in the six months ended Jan. 31 rose to 1.3 billion euros ($1.97 billion) from 897 million euros a year earlier, the Stuttgart, Germany-based company said in a statement today. Pretax profit increased 24 percent to 1.66 billion euros.
Porsche doubled first-half sales of the Cayenne to 20,340 SUVs, boosting overall deliveries 19 percent, even as demand for the 911 and the Boxster roadster waned. The company has been raising its stake in Volkswagen, Europe's biggest carmaker, since buying a holding in September 2005. Porsche said yesterday that it plans to own a stake exceeding 50 percent.
First-half revenue increased 14 percent to 3.49 billion euros, Porsche said today, reiterating figures announced in January. Earnings figures were adjusted to take account of the effects of the expanding stake in Volkswagen as well as by hedging transactions related to the stock purchases, it said.
While Porsche has cut U.S. inventories to prepare for a possible economic slowdown, three new models and demand from emerging markets should spur sales in the financial year ending July 31 and produce a result prompting ``tears of joy,'' Wiedeking told investors Jan. 25.
Bernanke Urges Banks to Forgive Portion of Mortgages
(Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, battling the worst housing recession in a quarter century, urged lenders to forgive portions of mortgages for more borrowers whose home values have declined.
``Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' Bernanke said in a speech in Orlando, Florida today. ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''
Bernanke's call goes beyond the stance of the Bush administration and previous Fed comments. By comparison, the central bank's Feb. 27 report to Congress called for lenders to ``pursue prudent loan workouts'' through means such as modifying mortgage terms and deferring payments.
``Delinquencies and foreclosures likely will continue to rise for a while longer,'' Bernanke said in the comments to the Independent Community Bankers of America. ``Supply-demand imbalances in many housing markets suggest that some further declines in house prices are likely.''
Subprime borrowers are about to see their mortgage rates increase more than 1 percentage point, he said. ``Declines in short-term interest rates and initiatives involving rate freezes will reduce the impact somewhat, but interest-rate resets will nevertheless impose stress on many households.''
`Vigorous Response'
In the past, homeowners could refinance, though that option is now ``largely'' gone because sales of bonds backed by subprime mortgages ``have virtually halted,'' Bernanke said. ``This situation calls for a vigorous response.''
Bernanke didn't comment in his speech text on the outlook for the economy or interest rates. Traders expect the Federal Open Market Committee to lower the benchmark rate by 0.75 percentage point by or at the panel's next meeting on March 18, based on futures prices.
Bernanke signaled in congressional testimony last week that the Fed is prepared to lower rates again even amid signs of accelerating inflation.
Yesterday, the Fed and other regulators sent letters to institutions they supervise, encouraging the banks to report on their efforts to modify mortgages at risk of default.
``This will make it easier for regulators, the mortgage industry, lawmakers and homeowners to assess the effectiveness of these efforts,'' Fed Governor Randall Kroszner said in a statement yesterday.
Foreclosures Climb
The number of U.S. homeowners entering foreclosure rose 75 percent in 2007, with more than 1 percent in some stage of foreclosure during the year, according to RealtyTrac Inc. of Irvine, California. For the year, more than 2.2 million default notices, auction notices and bank repossessions were reported on about 1.3 million properties.
``Lenders tell us that they are reluctant to write down principal,'' Bernanke said. ``They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.''
The Fed chairman countered that by reducing the amount of the loan, this ``may increase the expected payoff by reducing the risk of default and foreclosure.''
Bernanke spoke in a state that's among the worst affected by the housing collapse. Miami home prices have dropped 17.5 percent in the past year, the most of 20 large U.S. cities, according to the S&P/Case-Shiller index. Foreclosures in Florida jumped at more than double the nationwide pace, rising 158 percent in the past year, according to RealtyTrac.
Monday, February 25, 2008
Dresdner Bank says to support Ambac rescue
(Reuters) - Dresdner Bank, part of the Allianz (ALVG.DE: Quote, Profile, Research) insurance group, intends to support a rescue package for U.S. bond insurer Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) with a sum in the low double-digit millions of euros, the head of Dresdner's investment banking operations said on Monday.
Various rescue options for Ambac were now under discussion, Stefan Jentzsch told reporters. "If what is now on the table comes to pass then we will take part in the package," he said.
Home Resales in U.S. Probably Dropped, Further Eroding Growth
(Bloomberg) -- Sales of existing homes in the U.S. probably dropped in January to the lowest level in at least nine years, according to a survey of economists, signaling the housing slump is deepening and will weigh on growth in 2008.
The National Association of Realtors will report that purchases fell 1.8 percent to an annual rate of 4.8 million, the fewest since record-keeping began in 1999, according to the median forecast in a Bloomberg News survey of 63 economists.
Mounting foreclosures are adding to a glut of unsold homes that is driving down property values. Would-be homebuyers may be waiting for even lower prices, keeping the housing market depressed for a third year and dragging the economy close to a recession.
``With the backdrop of elevated inventories of unsold homes and continued falling home prices, prospects for the housing market in general seem quite grim,'' said Dana Saporta, an economist at Dresdner Kleinwort in New York.
The Realtors group is scheduled to release the report at 10 a.m. in Washington. Estimates in the Bloomberg News survey ranged from 4.65 million to 5 million.
For all of last year, sales of single-family homes declined 13 percent, the most since 1982, the group said Jan. 24. Earlier this month, it forecast sales this year would slip to 5.38 million, from 5.65 million for all of 2007.
The effects of the worst housing recession in 25 years have spread into other areas of the economy. The Federal Reserve Bank of Philadelphia's general economic index fell this month to minus 24, the weakest reading in seven years.
Visa May Raise as Much as $17 Billion in Initial Sale
(Bloomberg) -- Visa Inc. may raise as much as $17 billion in what would be the biggest U.S. initial public stock offering.
Visa, the world's largest payment-card network, plans to sell 406 million Class A shares for $37 to $42 each, the San Francisco-based company said in a regulatory filing today. Banks have the option of selling an additional 40.6 million shares, pushing the potential size of the deal to $18.8 billion.
The company is trying to replicate the success of its smaller rival, MasterCard Inc., whose shares have surged more than fivefold since a May 2006 IPO. Demand for initial public offerings has waned this year, with 97 companies raising $12 billion, or 43 percent less than in the same period last year, according to data compiled by Bloomberg.
At the high end of the projected range, Visa's transaction would be the world's second-biggest IPO, after the $22 billion raised by Industrial & Commercial Bank of China Ltd. in 2006.
Thursday, February 21, 2008
Allianz cuts jobs, structured finance at Dresdner
(Reuters) - Europe's biggest insurer, Allianz , is axing hundreds of jobs at its Dresdner Kleinwort investment bank and slashing its complex structured finance business, after suffering big fourth-quarter writedowns.
Allianz confirmed on Thursday it made a record net profit of nearly 8 billion euros ($11.79 billion) in 2007, despite the writedowns that pushed Dresdner into the red and halved the insurer's profit in the final three months of the year.
Allianz finance head Helmut Perlet said the market situation at the end of last month pointed to possible further writedowns of 300-400 million euros at Dresdner for the first quarter after about 1.5 billion euros of subprime writedowns in 2007.
Allianz unit Dresdner Bank, which in turn owns Dresdner Kleinwort, said it was shedding 450 jobs, most already axed, and cutting back on activity in structured investment vehicles (SIV) and other structured debt products, which spread the U.S. subprime loans crisis across the global banking system.
"Dresdner Bank will reduce its engagement in the SIV business, as the model of interest arbitrage faces a tough future," Allianz Chief Executive Michael Diekmann said.
Dresdner Bank said it would support its SIV, called K2, to ensure repayment of its senior debt, and had cut its size to $18.8 billion now from $31.2 billion in July.
Allianz said it was not clear whether, or to what extent, it might have to take K2 onto Dresdner's books, but it did not believe that supporting K2 would have a big impact on the group.
UBS to Shorten Ospel Term to One Year at Re-election
(Bloomberg) -- UBS AG said it would reduce Chairman Marcel Ospel's next term of office to one year from three after Europe's largest bank by assets reported a record loss.
Ospel, 58, was a force behind the merger of Swiss Bank Corp. and Union Bank of Switzerland that created UBS in 1998 and has been chairman for seven years. UBS posted a 12.5 billion-franc ($11.4 billion) fourth-quarter loss after an expansion into debt trading led to writedowns when the U.S. housing market slumped.
``Shareholders have a lack of confidence and that is linked to Ospel's name,'' said Vinzenz Mathys, an analyst at the Ethos Foundation, an investor in UBS calling for a special audit of the bank's risk controls. ``We are disappointed because UBS could have proposed new candidates.''
Shareholders will vote on re-electing Ospel and two other board members to shortened terms at the annual general meeting on April 23, Zurich-based UBS said in an e-mailed statement today. Sergio Marchionne, Fiat SpA's chief executive officer, was named a non-executive vice chairman.
UBS's losses already led to the departures of former CEO Peter Wuffli, 50, his finance chief Clive Standish, 54, and Huw Jenkins, 50, who ran the investment bank.
``It will take at least a year, if not longer, to clean up things at UBS and Ospel being around means there will be no clean cut with mistakes of the past,'' said Ralf Rybarczyk, who manages 1.5 billion francs at DWS Investment GmbH, including UBS shares.
`Current Challenges'
Peter Voser, finance director at Royal Dutch Shell Plc, and Larry Weinbach, the former chairman of Unisys Corp., will also stand for re-election to one-year board terms at the annual meeting, UBS said. Voser, 49, will take over from Weinbach, 68, as chairman of the audit committee. In subsequent elections, all board members will be elected for one year, the company said.
Marchionne, 55, was named non-executive vice chairman to replace Marco Suter, 49, who was an executive vice chairman before taking on the role of chief financial officer in October. Italian newspaper MF reported on Feb. 15 that Marchionne was a possible replacement for Ospel, which the Fiat executive denied. He said in a statement today his new role is ``absolutely compatible'' with running Fiat.
``With these moves we have strengthened the leadership structure in order to manage UBS's current challenges,'' Ospel said in the statement. ``I proposed the new tenure rule to the board, and am prepared, pursuant to their request, to stand for re-election for one year.''
UBS rose 48 centimes, or 1.3 percent, to 36.80 francs by 2:08 p.m. in Swiss trading. The stock has fallen 30 percent this year, the fourth-worst performance on the 60-member Bloomberg Europe Banks and Financial Services Index.
U.S. Stocks Fall, Erasing Early Gains; Exxon, GE Shares Retreat
(Bloomberg) -- U.S. stocks fell after manufacturing in the Philadelphia region unexpectedly contracted the most in seven years and a drop in oil prices dragged down energy shares.
Exxon Mobil Corp., Chevron Corp. and General Electric Co. declined, helping erase a 76-point gain in the Dow Jones Industrial Average. The market's losses were limited by gains in technology companies after Citigroup Inc. told clients to buy shares of Cisco Systems Inc., the largest maker of computer- networking equipment.
Wednesday, February 20, 2008
AT&T, Verizon May Fall Further as Flat Rates Portend Price War
(Bloomberg) -- AT&T Inc. and Verizon Communications Inc. declined for the second straight day in New York trading after adopting flat-rate mobile calling plans that could be the opening salvos in a price war.
AT&T and Verizon Wireless, the two top U.S. wireless carriers, announced plans yesterday to sell unlimited calls for a flat fee of $99.99 a month. Credit Suisse cut its ratings on shares of AT&T and Verizon Communications, co-owner of Verizon Wireless. Robert W. Baird & Co. lowered its AT&T rating to match its neutral stance on Verizon Communications.
The unlimited plans, including another announced by T-Mobile USA Inc., pose a competitive challenge as U.S. mobile carriers already struggle to reach the remaining fifth of Americans that don't yet have a wireless phone. While analysts estimated the new rates may not hurt sales, they worried about future price cuts.
``There's no going back,'' said Credit Suisse's Christopher Larsen, who cut AT&T and Verizon shares to a neutral rating from the equivalent of a buy recommendation. ``It's extremely unlikely prices go up from $99, so now you've created a ceiling for what unlimited pricing will be.''
AT&T, based in San Antonio, fell $2.41, or 6.7 percent, to $33.48 at 10:13 a.m. in New York Stock Exchange composite trading, the biggest drop in five years. The shares lost 5.3 percent yesterday. New York-based Verizon declined $1.60, or 4.5 percent, to $33.74, extending yesterday's 6.6 percent loss.
While the pricing plans may only affect the less than 5 percent of subscribers who pay more than $100 a month, they will convince more customers to replace their home phones with mobile handsets, said Larsen, who is based in New York.
Upper Tier
The plans announced yesterday aim at the upper tier of customers who spend about twice what an average mobile-phone user paid last quarter, as reported by AT&T and Verizon.
The new rate plans reminded Stanford Group Co.'s Michael Nelson of the day the old AT&T Wireless began selling local and long-distance service for one price.
``It turned the wireless industry upside down,'' the New York-based analyst said in an interview yesterday. ``It caused all the carriers to come up with completely new calling plans, to really revisit their entire business models.''
The flat-rate movement ``raises the risk profile for a pricing war across the entire industry,'' said Nelson.
The former AT&T Wireless, which is now part of AT&T's mobile-phone unit, started its Digital One Rate plan in 1998, erasing the distinction between local and long-distance calls on mobile phones, keeping rates flat regardless of the caller's location.
Ackman Proposes Bond Insurer Split, Policyholder Veto
(Bloomberg) -- Hedge fund manager William Ackman distributed a plan to restructure bond insurers that may prevent dividends from being paid to the parent companies and minimize losses for holders of asset-backed securities.
Ackman, the managing partner of Pershing Square Capital Management LP in New York, calls for a corporate structure in which dividends would flow to the so-called structured finance unit from the municipal insurer, according to his proposal, sent yesterday to regulators, lawmakers and banks.
Ackman, who is betting against MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, stands to benefit from his plan. He has short positions that would gain in value if the holding companies were to default on their debts.
The proposal ``offers the best prospect for protecting the most policyholders and ensuring a viable ongoing municipal bond insurance market,'' New York law firm Edwards Angell Palmer & Dodge LLP, which performed an analysis for Pershing, said in a memo included with the presentation. Copies were obtained by Bloomberg News and confirmed by Ackman.
Ackman's plan has two separate boards of directors, one for the municipal insurer and the other for the structured finance unit. Each board would include policyholders. The municipal insurer would pay dividends to its structured-finance parent only when the board was satisfied the unit could remain AAA rated. The structured finance insurer would send dividends to the holding company only after its board determined the money wasn't needed to cover claims.
Tuesday, February 19, 2008
Bernanke Turns Notes Into Losers as Refinancing Rises
(Bloomberg) -- The more Federal Reserve Chairman Ben S. Bernanke cuts interest rates, the less appealing 10-year Treasuries become to investors like Doug Dachille, chief executive officer of First Principles Capital Management LLC.
Consumers taking advantage of lower borrowing costs have pushed the Mortgage Bankers Association's refinancing index to its highest level since March 2004. Ten-year notes fell 4.83 percent in April 2004 as the extra cash homeowners pocketed from replacing high-rate loans spurred bigger gains in retail sales and consumer confidence than forecast.
As then, a drop in rates may help ease the burden of consumers' monthly payments and contribute to forecasts of a rebound in the economy, diminishing the appeal of government debt. The price of the 10-year note has fallen 3.15 percent since Jan. 23, according to Merrill Lynch & Co. index data, and St. Louis Fed President William Poole said Feb. 11 that ``the best bet is that we will not have a recession.''
``There is no reason for people to bring the 10-year note yield down,'' said Dachille, 43, who manages $7 billion in assets at New York-based First Principles. Given that ``the Fed is cutting rates and the administration is providing a stimulus package, you'd expect that over the next two or three years the economy will recover.''
Policy makers slashed their target rate for overnight bank loans by 2.25 percentage points to 3 percent between Sept. 18 and Jan. 30. Bernanke indicated last week that he's prepared to cut rates further to revive the economy and encourage banks to lend.
Yields Climb
``More-expensive and less-available credit seems likely to continue to be a source of restraint,'' Bernanke told the Senate Banking Committee on Feb. 14. The Fed ``will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' he said.
Ten-year note yields rose 12 basis points, or 0.12 percentage point, to 3.77 percent last week, according to New York-based bond broker Cantor Fitzgerald LP. The price of the 3 1/2 percent security due in February 2018 fell 31/32, or $9.69 per $1,000 face amount, to 97 25/32. The yield climbed 9 basis points to 3.86 percent as of 9:19 a.m. in New York.
Yields are up from a low this year of 3.285 percent on Jan. 23, the day after the Fed reduced rates between policy meetings for the first time since the September 2001 terrorist attacks. They will rise to 3.89 percent by year-end, according to the median forecast of 65 economists in a Bloomberg News survey that puts a higher weighting on the most recent estimates.
A separate poll shows growth will likely accelerate to a 2.5 percent annual rate in the final three months of the year from 0.6 percent last quarter.
Past as Prologue
Mortgage refinancing applications soared ninefold between July 2001 and May 2003, according to the Mortgage Bankers trade group in Washington. The yield on the 10-year Treasury rose to 4.65 percent in the following 12 months from 3.37 percent.
The MBA's refinancing index surged to 5,103.60 on Jan. 25, its highest level since June 2003, from 1,620.90 in the week ended Dec. 28, 2007. The average rate on a 30-year fixed loan fell to 5.48 percent on Jan. 24, according to Freddie Mac. That means a homeowner would save $81.40 a month on every $100,000 borrowed now compared with June, when rates rose to 6.74 percent.
The rise in refinancings may be skewed by borrowers submitting multiple applications for loans as bankers tighten lending standards, according to Joseph Mason, an associate professor of finance at Drexel University in Philadelphia.
`Restricting Access'
``I don't see a housing market recovery right now,'' said Mason, 43, who predicts Treasury yields will fall as investors continue to buy the debt as a haven from losses in higher risk markets. ``People can't get a mortgage'' because ``banks are restricting access to credit,'' he said.
Declining property values are also making it harder for a growing number of homeowners to refinance. By year-end as many as 15 million households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc.
Even so, the drop in rates is helping homeowners with subprime adjustable-rate mortgages. Most of those loans are tied to the six-month London interbank offered rate, which has declined to 2.96 percent from last year's peak of 5.86 percent in September.
The decline in Libor will probably reduce scheduled increases through 2010 in subprime borrowers' payments to 8 percent on average, or $182, according to analysts at Wachovia Corp. in Charlotte, North Carolina. During August, the rise in Libor pointed to increases of 33 percent on average.
Cadbury profits dip, shares slip on no cash return
(Reuters) - The world's largest confectionery maker, Cadbury Schweppes (CBRY.L: Quote, Profile, Research), missed analyst forecasts with a 2 percent fall in 2007 profits and its shares dipped as it warned there will be no cash return from its drinks demerger.
Cadbury also gave a cautious outlook on Tuesday for the North American soft drinks business which is to be spun off at the end of the second-quarter, with profit margins down sharply in 2007 and unlikely to start to recover until 2009.
The London-based group had intended to return cash to shareholders on the demerger but has now decided against this in order to preserve investment-grade ratings for both companies. Cadbury shares slumped 6.1 percent to 575 pence, the FTSE 100's biggest loser, by 5 a.m. EST.
"There is unlikely to be a return of cash to shareholders as we have decided to maintain both companies on investment-grade ratings," Chief Executive Todd Stitzer told a conference call.
Cadbury decided last October to spin off its 7 billion pound ($13.7 billion) drinks business -- to be called Dr Pepper Snapple Group -- and list it in New York, after a world credit squeeze derailed a lucrative sale to private-equity buyers.
The group, which makes Dairy Milk chocolate, Trident gum and Halls cough drops, reported 2007 underlying pretax profit of 915 million pounds, below an analyst forecast range of 922 to 936 million and a consensus forecast of 929 million pounds.
Cadbury is raising the 2007 dividend by 11 percent to 15.5p.
Medtronic quarterly net falls
(Reuters) - Medical device maker Medtronic Inc (MDT.N: Quote, Profile, Research) on Tuesday said quarterly earnings fell on charges related to the acquisition of Kyphon.
Fiscal third-quarter net earnings were $77 million, or 7 cents a share, compared with $710 million, or 61 cents a share, a year earlier.
Monday, February 18, 2008
Toshiba to give up on HD DVD, end format war: source
(Reuters) - Toshiba Corp (6502.T: Quote, Profile, Research) is planning to give up on its HD DVD format for high definition DVDs, conceding defeat to the competing Blu-Ray technology backed by Sony Corp (6758.T: Quote, Profile, Research), a company source said on Saturday.
The move will likely put an end to a battle that has gone on for several years between consortiums led by Toshiba and Sony vying to set the standard for the next-generation DVD and compatible video equipment.
The format war, often compared to the Betamax-VHS battle in the 1980s, has confused consumers unsure of which DVD or player to buy, slowing the development what is expected to be a multibillion dollar high definition DVD industry.
Toshiba's cause has suffered several setbacks in recent weeks including Friday's announcement by U.S. retailing giant Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research) that it would abandon the HD DVD format and only stock its shelves with Blu-ray movies.
A source at Toshiba confirmed an earlier report by public broadcaster NHK that it was getting ready to pull the plug.
"We have entered the final stage of planning to make our exit from the next generation DVD business," said the source, who asked not to be identified. He added that an official announcement could come as early as next week.
No one answered the phone at Toshiba's public relations office in Tokyo.
Four bidders go through in Vin & Sprit auction: paper
(Reuters) - Sweden's centre-right government has chosen four bidders in its auction of Vin & Sprit that will be allowed to perform due diligence of the Absolut vodka maker, business daily Dagens Industri reported on Sunday.
The four selected bidders -- Fortune Brands Inc (FO.N: Quote, Profile, Research), Pernod Ricard SA (PERP.PA: Quote, Profile, Research), Bacardi and private equity group EQT in cooperation with investment firm Investor AB (INVEb.ST: Quote, Profile, Research) -- have been widely seen as the front-runners to buy Vin & Sprit.
The newspaper, which did not disclose its sources, said the four bidders would proceed to more closely scrutinize Vin & Sprit in a due diligence process before finalizing their offers.
Vin & Sprit is to be sold as part of Sweden's biggest-ever privatization, which also includes stakes in telecom operator TeliaSonera AB (TLSN.ST: Quote, Profile, Research), Nordea Bank AB (NDA.ST: Quote, Profile, Research), mortgage lender SBAB SBAB.UL and real estate firm Vasakronan ABVASA.UL.
Rio Seeks Higher Prices Than Vale in Iron-Ore Talks
(Bloomberg) -- Rio Tinto Group, the world's second- largest iron-ore producer, is seeking bigger price increases from Asia steelmakers than Brazilian rival Cia. Vale do Rio Doce.
Rio wants to receive a ``freight premium'' to reflect the lower cost for customers in China, Japan and South Korea of shipping ore from ports in Australia rather than Brazil, it said today in a statement distributed by the Regulatory News Service. Nippon Steel Corp., JFE Holdings Inc. and Posco today said they agreed to a 65 percent increase in Vale's prices from April 1.
This ``could mark the end of the `one price fits all' settlements of the last few decades,'' Michael Rawlinson, head of mining, resources and energy at Liberum Capital Ltd. in London, wrote today in a report. A full recovery by Rio of the freight premium to China would mean a ``massive'' 154 percent boost in ore prices, he said.
In comparison, JFE agreed to a 71 percent boost for higher- grade ore from Vale's Carajas mine in Brazil, while the biggest- ever annual gain was 71.5 percent in the year that started April 1, 2005.
Contract prices for the steelmaking ingredient have risen to a record for a sixth straight year as China boosts output of the metal to feed a construction boom. Soaring freight fees last year added to the price increases for Asian steelmakers and made iron ore from Australia more cost effective than Brazilian supplies.
Carajas Settlement
Rio Tinto ``will continue to negotiate to obtain a freight premium, to reflect its proximity to Asia and its major customers,'' Sam Walsh, chief executive officer of the London- based company's iron ore unit, said today in the statement.
Rio will also seek ``further customer clarification about the settlements, and in particular the settlement for Carajas ore, which is the relevant reference ore for Rio Tinto products,'' Walsh said.
BHP Billiton Ltd., the world's largest mining company, tried and failed to negotiate a freight premium in 2005, Macquarie analyst Jim Lennon said today by telephone from London. The company didn't get the support of Rio and other producers at the time, he added.
``This has never happened before, but it's certainly a possibility,'' Lennon said. ``The fact that spot prices are three times higher than contract prices means that 65 percent is almost being viewed as a disappointment by the market.''
BHP, based in Melbourne, has started seeking regulatory approvals for its increased $141 billion all-share hostile bid for Rio, which was rejected by Rio on Feb. 6 as too low. A combination of the companies would rival Vale in iron-ore output.
Friday, February 15, 2008
Best Buy Cuts Forecast, Citing Fourth-Quarter Sales
(Bloomberg) -- Best Buy Co., the largest U.S. consumer electronics chain, cut its full-year earnings forecast to $3.05 to $3.10 a share, saying fourth-quarter revenue will fall short of targets.
The company had previously predicted earnings per share of $3.10 to $3.20 for the year ending March 1, Richfield, Minnesota- based Best Buy said in a statement today. Analysts surveyed by Bloomberg estimated $3.17 a share on average.
``Soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets,'' Chief Executive Officer Brad Anderson said in the statement. ``Our December revenue results were in line with our expectations.''
U.S. Stock-Index Futures Fall; Bear Stearns, Caterpillar Drop
(Bloomberg) -- U.S. stock-index futures fell after analysts said banks face up to $203 billion more in credit writedowns and former Federal Reserve Chairman Alan Greenspan warned the economy is on the verge of a recession.
Futures extended declines after a Fed report showed manufacturing in New York unexpectedly declined for the first time in almost three years and the Labor Department said prices of imported goods climbed more than economists had forecast.
Goldman Sachs Group Inc. and Bear Stearns Cos. dropped after UBS AG said banks are at risk of further losses as bond insurers such as MBIA Inc. and Ambac Financial Group Inc. face credit-ratings cuts. Caterpillar Inc., the world's largest maker of earthmoving machines, led a decline in industrial shares after Greenspan said the economy may shrink for the first time in six years. European stocks fell and Asia's benchmark rose.
``The banks are now looking into the headlights like worried rabbits,'' said David Buik, market analyst at BGC Partners in London, in an interview with Bloomberg Television. ``They don't know how much money they've lost, the size of their balance sheets has collapsed.''
Thursday, February 14, 2008
Kerviel's Fimat Broker Denies Knowledge of Unauthorized Bets
(Bloomberg) -- Fimat broker Moussa Bakir said he had no knowledge of any wrongdoing by Jerome Kerviel, distancing himself from the trader blamed by Societe Generale SA for a loss of 4.9 billion euros ($7.2 billion).
``I gave two or three pieces of advice to Jerome,'' he told police during a 48-hour interrogation between Feb. 7 and Feb. 9, according to Isabelle Montagne, the spokeswoman for the Paris prosecutors' office.
Bakir, 32, named a material witness in the Kerviel probe, was questioned after Societe Generale provided financial police with e-mail exchanges between the two men. Kerviel passed his trades through Fimat, which merged last month with Credit Agricole SA's futures brokerage to form a new entity, Newedge.
Societe Generale, France's second-largest bank, said Kerviel amassed 50 billion euros in authorized bets backed by fake hedges. It liquidated the positions in a three-day sell-off that resulted in the biggest trading loss in banking history. Kerviel, 31, has been charged with hacking into the bank's computers, falsifying documents and breach of trust. He is in police custody.
Bakir and Kerviel exchanged 164 text messages between Nov. 13 and Dec. 13, following queries from Eurex, Europe's biggest futures exchange, about the size of Kerviel's transactions, Montagne said. Kerviel had earlier told prosecutors he had been able to explain away Eurex's concerns.
More Questioning
Bakir's remarks to the financial police were reported today by Le Parisien. Bakir's lawyer, Jean-David Scemama, didn't return calls for comment.
``Between us, there was a kind of complicity you normally find in a professional context,'' Bakir told police, according to the prosecutors' spokeswoman. ``I knew he had a problem with his bosses without knowing why.''
Over the weekend, Le Nouvel Observateur reported on its Web site a series of e-mail exchanges between the two men, confirmed by a lawyer on the case, where Kerviel refers to ``our trades.''
In an Oct. 11 message, Kerviel asks Bakir, ``Did you speak to him about what we're doing?'' After Bakir says that the unidentified person ``returns tonight,'' Kerviel says: ``You didn't tell him about our trades, did you? Or else I'll knock your head off.''
Bakir, who was released on Feb. 9, may be called in for another round of interrogation, although a date has yet to be set, Montagne said.
Second Friend
Bakir's classification as a material witness shows that ``although the judge feels that there might be something there, there might be something against him, he has not made up his mind,'' said Stephane Bonifassi, a Paris-based lawyer and member of FraudNet, the International Chamber of Commerce's commercial crime unit.
The prosecutors' office also confirmed the Parisien report that a second friend of Kerviel's had received 1,218 calls from him in recent months and would be questioned soon.
Societe Generale said on Jan. 24 that it discovered Kerviel's bets on Jan. 18 and liquidated the positions between Jan. 21 and Jan. 23. The trading loss forced the bank to raise 5.5 billion euros by selling stock to replenish its capital.
Separately, a computer expert aiding Kerviel's lawyers said in an interview in Paris Match magazine today that the bank must have known about Kerviel's transactions.
``The bank could not have not known,'' Jean-Raymond Lemaire told the magazine, after spending a day with Kerviel to review his trades. Christophe Reille, a spokesman for Kerviel's legal team, confirmed his comments.
Wednesday, February 13, 2008
Financial sector loses 52,500 jobs in 6 months
(Reuters) - Financial companies slashed 52,500 jobs from July to December 2007, revealing how badly the subprime debacle has hurt these employers, but such companies based in New York City hired 1,900 people during that period, a new report said on Wednesday.
However, the securities industry, which is concentrated in New York City, is just one sector of the overall financial arena that includes mortgage brokers and real estate credit companies.
Mortgage and real estate lenders tend to be located outside New York City, which helps explain why financial companies in the city were still adding staffers, explained New York City Comptroller William Thompson in a quarterly economic report.
However, many of New York City's securities companies have taken multibillion dollar write-downs from sinking subprime mortgage investments and they sliced 3,700 jobs in just the last three months of last year, the Democrat said.
U.S. Stocks Advance for Third Day, Led by Tech, Energy Shares
(Bloomberg) -- U.S. stocks rose for a third day, the longest stretch of gains in 2008, after increased demand at Applied Materials Inc. spurred a technology rally and energy shares climbed on higher gas-station sales.
Applied Materials, the largest maker of semiconductor- production equipment, advanced the most in four years on a surge in orders for machines that make flat screens. Exxon Mobil Corp. and ConocoPhillips led oil companies higher after the Commerce Department said rising prices at filling stations helped boost retail sales last month. Genentech Inc., the biggest U.S. maker of anti-cancer drugs, rallied the most in a month after its Avastin treatment helped slow the spread of breast tumors.
``The rally could last,'' said Eric Green, who helps manage $5 billion as senior managing partner at Penn Capital Management in Cherry Hill, New Jersey. ``We see the market heading higher.''
The Standard & Poor's 500 Index added 8.71 points, or 0.7 percent, to 1,357.57 at 11:31 a.m. in New York. The Dow Jones Industrial Average gained 89.98, or 0.7 percent, to 12,463.39. The Nasdaq Composite Index increased 31.57, or 1.4 percent, to 2,351.51. About five stocks rose for every two that fell on the New York Stock Exchange. European and Asian benchmarks dropped.
Applied Materials' report of increasing demand spurred speculation that technology companies' earnings will withstand an economic slowdown sparked by the collapse of the subprime mortgage market. The S&P 500 Information Technology Index has lost 14 percent this year, the worst performance among 10 industries.
Applied Materials
Applied Materials rose $1.26, or 7 percent, to $19.33. The company said orders for machines that make flat screens will rise as much as 5 percent this quarter, exceeding some analysts' estimates.
A gauge of computer-chip makers gained 1.8 percent, the second most among 24 industries in the S&P 500, led by Applied Materials, its third-biggest member.
Exxon, the largest U.S. crude producer, climbed $1.16 to $85.54. ConocoPhillips, the third-biggest, rallied 98 cents to $77.38. Energy companies in the S&P 500 climbed 1.4 percent even as oil for March delivery fell 44 cents to $92.34 a barrel in New York.
Filling station sales rose 2 percent in January after remaining unchanged the prior month, the Commerce Department said, as regular gasoline rose as high as $3.11 a gallon in early January. Total retail sales climbed 0.3 percent, compared with economists' forecast for a drop of 0.3 percent. Excluding gas, purchases rose 0.1 percent last month, the Commerce Department said.
Retailers in the S&P 500 fell 0.2 percent as a group after the report.
Genentech Rallies
Genentech added $1.46 to $71.38. The results were from a trial called Avado, which included patients who took Avastin with docetaxel chemotherapy.
Industrial companies also rose, led by Rockwell Automation Inc., the world's largest maker of factory controls, after the report on purchases by consumers bolstered confidence in the sagging economy. Rockwell increased $2.02, or 3.6 percent, to $57.60.
Deere & Co., the world's largest maker of farm tractors and combines, fell 97 cents, or 1.1 percent, to $85.51. Deere's comments that the U.S. housing slump will maintain ``continued pressure'' on sales of construction and forestry equipment overshadowed its increased annual forecast and first-quarter earnings surge.
A survey of Bloomberg users showed benchmarks for the world's biggest stock markets probably will fall for the next six months as economic growth slows, and investors are the most pessimistic in the U.S. and the U.K.
Fed Interest-Rate Cuts Fail to Lower Borrowing Costs
(Bloomberg) -- The Federal Reserve's interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.
Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co. Rates on so-called jumbo mortgages, those above $417,000, have increased in the past month, making it tougher to sell properties and risking further price declines.
``It's the clogging up of the credit markets that worries me most,'' Harvard University economist Martin Feldstein said in an interview in New York. ``The Fed has done a lot of cutting, the question is whether it's going to get the traction that it did in the past.''
Banks and investors are demanding greater compensation for offering credit as losses mount on subprime-mortgage securities and concerns grow that ratings of bond insurers will be cut. Elevated borrowing costs mean Fed Chairman Ben S. Bernanke will have to reduce rates further to revive the economy, Fed watchers said.
``The problem is that every piece of news we're getting continues to be bad,'' said Stephen Cecchetti, a former New York Fed bank research director, and now a professor at Brandeis University in Waltham, Massachusetts. ``They will have to ease more. It's the only thing they can do.''
`Close to 50-50'
Feldstein, who heads the National Bureau of Economic Research, the group that sets the dates for U.S. economic cycles, said the chance of a recession is ``close to 50-50.''
Traders now see a 100 percent chance of at least a half- point reduction at or before the Federal Open Market Committee's March 18 meeting, up from 68 percent on Jan. 31, when the Fed cited tighter credit conditions as a reason for lowering rates. Futures show 20 percent odds of a three-quarter point move.
Futures rallied even after a government report today showed retail sales rose 0.3 percent in January from December, against the median forecast in a Bloomberg News survey for a decline. Economists said the gain, led by car and gasoline purchases, wasn't enough to indicate Fed rate cuts are affecting spending.
Bernanke may give an update of his outlook tomorrow when he testifies before the Senate Banking Committee at a hearing on the economy and financial markets. Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox are also scheduled to appear.
Bond Premiums
The extra yield investors demand to buy investment-grade U.S. corporate bonds rose to 2.37 percentage point Feb. 12 from 2.24 percentage point on Jan. 21, Merrill data show. For high- risk, high-yield securities, premiums over Treasury securities have risen a quarter-point, Merrill data show.
``The increase in credit spreads has sort of worked against our policy,'' San Francisco Fed President Janet Yellen told reporters at her bank yesterday. ``The fact that the spreads went up so dramatically really resulted in an effective tightening of financial conditions that our cuts were partly meant to address.''
Those cuts were the fastest since the federal funds rate became the principal policy tool around 1990. The Fed lowered the rate by 75 basis points on Jan. 22 in an emergency move, then by an additional 50 basis points at the regular meeting on Jan. 30. A basis point is 0.01 percentage point.
More Rate Cuts
Beyond March, traders expect quarter-point rate reductions at the following FOMC meetings in April and June, based on futures prices on the Chicago Board of Trade.
In the market where banks lend to each other, borrowing costs have receded since the Fed began special auctions of funds in December. The three-month dollar London Interbank Offered Rate fell to 12 basis points over the Fed's target rate today, from more than 1 percentage point above it two months ago.
Yellen acknowledged in a Feb. 7 speech, repeated yesterday, that borrowers with greater default risk are paying more for loans. The markets for securities backed by mortgages ``are not functioning efficiently, or may not be functioning much at all,'' she said.
``As long as the credit strains remain and might even still be intensifying, it certainly supports the case for continuing to ease aggressively,'' said Brian Sack, a former Fed research manager who is now senior economist at Macroeconomic Advisers LLC in Washington. ``We don't need spreads to come down. We do need them to stop widening.''
Tuesday, February 12, 2008
Economy near contraction in 1st quarter: Philly Fed
(Reuters) - The U.S. economy will struggle to grow in the first quarter of this year and faces an almost 50 percent chance of contracting, a quarterly survey issued by the Philadelphia Federal Reserve Bank showed on Tuesday.
Unemployment will edge higher given feeble job creation in the first three months of the year as the world's largest economy teeters on the brink of shrinking for a second consecutive quarter.
Forecasters saw a 47 percent probability of contraction in gross domestic product this quarter and a 43 percent chance in the second quarter, levels not seen since the recession in 2001 in the wake of the dot-com bubble, the survey said.
"Although the forecasters' median estimate for real GDP this quarter and the next suggests slow but positive growth, they think the risk of a contraction is high," it said.
"These current-quarter and one-quarter-ahead risks have not been this high since the survey of 2001 Q4, when they were 82 percent and 49 percent, respectively," the survey added.
The 50 forecasters pegged current-quarter growth in real GDP at a rate of just 0.7 percent, a sharp drop from the previous forecast of 2.2 percent.
According to the government's initial estimates, U.S. GDP grew just 0.6 percent in the fourth quarter of 2007.
AIG says potential derivatives loss not material
(Reuters) - American International Group Inc (AIG.N: Quote, Profile, Research) on Tuesday moved to calm investors shaken by its earlier disclosure that derivatives losses could more than triple to about $5 billion, a development that earned it a rebuke from its auditor for a "material weakness" in internal controls.
AIG, the world's largest insurer, said in a statement on Tuesday that the size of any write-down was not expected to be material to the company.
AIG shares gained 4 percent to $46.60, after falling nearly 12 percent on Monday to the stock's lowest level in five years.
Investors pushed the shares down on Monday, after AIG disclosed in a regulatory filing that its mark-to-market unrealized losses on a credit default swap portfolio within its AIG Financial Products unit were expected to be about $4.88 billion through November, compared with an earlier indication of a loss of up to $1.5 billion.
The loss could wipe out AIG's fourth-quarter earnings, some analysts said.
AIG, which is expected to release quarterly results later this month, has not yet disclosed whether it saw further deterioration in December.
"The valuation adjustment as of December 31, 2007, is likely to be significant, and will likely cause AIG to report an accounting loss for the quarter," S&P credit analyst Rodney Clark said.
Miller Says Microsoft Needs to Enhance Yahoo Offer
(Bloomberg) -- Legg Mason Inc. fund manager Bill Miller, the second-biggest shareholder of Yahoo! Inc., said Microsoft Corp. will need to raise its $44.6 billion offer to buy the Internet company.
``We think Microsoft will need to enhance its offer if it wants to complete a deal,'' Miller, 58, wrote in a Feb. 10 letter to shareholders released today by the Baltimore-based company.
Miller heads Legg Mason Capital Management, which owned about 80 million shares, or 6 percent, of Yahoo on Sept. 30, Bloomberg data show. Microsoft, the biggest software maker, on Jan. 31 bid $31-per-share to buy Yahoo, 62 percent more than the closing price the day before the offer. Yahoo yesterday rejected the bid, saying it ``substantially undervalues'' the company.
``We think this deal is a strategic imperative for Microsoft, and that Yahoo is in a tough spot if it wishes to remain independent,'' Miller wrote. ``It will be hard for Yahoo to come up with alternatives that deliver more value than Microsoft will ultimately be willing to pay.''
Microsoft, based in Redmond, Washington, responded yesterday to the Yahoo board's rejection with a statement calling its offer a ``full and fair proposal.'' The company didn't disclose its next steps and said it is ``moving forward'' with its $31-a-share bid for Sunnyvale, California-based Yahoo.
Miller said Legg Mason's own calculations put Yahoo's value in the range of $40 or more per share.
Countrywide Deal
Miller, whose subsidiary is the biggest holder of Countrywide Financial Corp., said in the letter released today that he hasn't decided to back the bid by Bank of America Corp. to buy the largest U.S. home lender.
The offer has ``truncated'' any gains in Countrywide's shares, Miller said. Bank of America, based in Charlotte, North Carolina, on Jan. 11 agreed to buy Countrywide after the stock lost 85 percent of its value in a year. The bank's takeover bid equates to less than $8 a share for Calabasas, California-based Countrywide.
Buffett Bids for MBIA, Ambac Municipal Bond Contracts
(Bloomberg) -- Billionaire investor Warren Buffett said he offered to shore up $800 billion of municipal bonds guaranteed by troubled MBIA Inc., Ambac Financial Group Inc. and FGIC Corp. in a bid to gain 33 percent of the debt insurance market.
Buffett's Omaha, Nebraska-based Berkshire Hathaway Inc. would assume the risk of the debt, he told CNBC television. The offer excludes the bond insurers' subprime-related obligations. One company has already rebuffed the proposal and the two others haven't responded, Buffett said.
The offer drove U.S. stocks higher on optimism the plan would help calm credit markets and prevent a slump in the value of municipal debt. MBIA and Ambac dropped on concern Buffett's proposal would leave them with mortgage securities that caused more than $5 billion of losses last quarter, while Berkshire would gain a municipal guaranty business that has generated profit for more than 14 years.
``He is offering to take the fattest, most profitable part of their business,'' said Jerry Bruni, president and portfolio manager, at J.V. Bruni and Co. in Colorado Springs, Colorado. Bruni has $650 million under management including Berkshire shares. The firm sold MBIA last month. ``I can't imagine why they would want to do that. If I were MBIA or Ambac, this does not sound like a good offer.''
$5 Billion
Berkshire would put up $5 billion as capital for the plan and is offering to insure the municipal debt for 1.5 times the premium charged by the bond insurers to take on the guarantee. The insurers could accept the offer and back out within 30 days for a fee, Buffett said.
Berkshire spokeswoman Jackie Wilson didn't return calls seeking more information on the plan, which Buffett announced during the CNBC interview. Spokespeople for MBIA, Ambac and FGIC didn't return calls seeking comment.
Armonk, New York-based MBIA, the largest bond insurer, Ambac and FGIC are on the verge of losing their AAA credit ratings, potentially crippling their sales to municipalities after losing $5 billion from insuring mortgage-related securities.
The bond insurers lend their AAA stamp to $2.4 trillion of debt, and face potential losses of as much as $41 billion if the value of debt they insure continues to decline, according to JPMorgan Chase & Co. analysts.
MBIA, which started as the Municipal Bond Insurance Association in 1974, Ambac and FGIC are reeling from their expansion beyond guaranteeing municipal debt to collateralized debt obligations, which repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. As the value of some CDOs plummets, ratings companies are pressing the insurers to add more capital.
`Ceding the Book'
``If you gave up your entire municipal business, that's the book of business where the value in the companies is right now,'' said Robert Haines an analyst in New York for CreditSights Inc., an independent bond research firm. ``You'd essentially be ceding that whole book to Buffett and what you'd be left with would be the book of business where all the troubles are.''
MBIA's AAA insurance rating is being reviewed by Moody's Investors Service, Standard & Poor's and Fitch Ratings. Ambac's insurance unit had its AAA rating cut to AA by Fitch and is being scrutinized by Moody's and S&P. FGIC's guaranty business had its top rating cut to AA by Fitch and S&P and is being reviewed by Moody's.
MBIA fell $1.86, or 14 percent, to $11.72 at 12:45 p.m. in New York Stock Exchange composite trading. New York-based Ambac, the second-largest bond insurer, dropped $1.65 to $8.83. Berkshire declined $200 to $139,750.
U.S. Stocks Rise
Fourth-ranked FGIC, based in Stamford, Connecticut, is a closely held company owned in part by New York private-equity firm Blackstone Group LP and mortgage insurer PMI Group Inc. PMI, based in Walnut Creek, California, rose 20 cents, or 2.4 percent, to $8.47, and Blackstone rose 40 cents, or 2.3, to $18.18.
The Standard & Poor's 500 Index added 18.6 points, or 1.4 percent, to 1,357.73 on optimism Buffett's plan would protect municipal bonds, even if it comes at the expense of the insurers. Treasuries fell after the plan reduced demand for the safety of government debt.
``This news is encouraging,'' said Michael Ross, a municipal bond analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``For weeks the focus has been on rating reviews and watching bonds tumble and stocks stumble. It tells us that behind the scenes discussions are occurring.''
Credit-Default Swaps
Credit-default swaps on MBIA were trading at 17.5 percent upfront and 5 percent a year, up from 16 percent initially and 5 percent a year yesterday, according to London-based CMA Datavision. That means it costs $1.75 million upfront and $500,000 a year to protect $10 million in MBIA bonds for five years.
Ambac's upfront price rose to 17.5 percent from 15.5 percent yesterday, CMA data show. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates worsening perceptions of credit quality; a decline, the opposite.
The threat of downgrades was great enough for New York Insurance Superintendent Eric Dinallo to attempt to organize a bank-led rescue of bond insurers.
Bank Rescue
Buffett's proposal ``provides one option to protect municipal issuers and investors,'' Dinallo said in a statement today in response to Buffett's plan.
``It would be a great deal for Berkshire Hathaway and a great deal for the municipal bondholders,'' though not the bond insurers, said David Havens, a credit analyst at UBS AG in Stamford, Connecticut. ``The regulators and the politicians would love to see this happen.''
Eight banks including New York-based Citigroup Inc. and UBS in Zurich are working on financing for Ambac, a person briefed on the plan said two weeks ago. Credit Agricole SA's Paris-based Calyon unit is leading talks to bail out FGIC, the Wall Street Journal reported last week, citing people familiar with the situation.
Buffett, 77, has built Berkshire into a company with a market capitalization of $216 billion by making contrarian bets, purchasing stocks he regards as undervalued and selling insurance on risks that others won't cover.
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