(Bloomberg) -- The Federal Reserve will tell a congressional committee today that it is reluctant to extend guarantees to California and other municipal market borrowers struggling to sell bonds.
The House Financial Services Committee, chaired by Massachusetts Democrat Barney Frank, is conducting hearings on four municipal finance bills, including one that would give the Fed authority to guarantee the repayment of variable-rate bonds and short-term notes. Another measure would create a public finance office in the Treasury Department to reinsure $50 billion of municipal bonds through 2015. Insurers, including MBIA Inc. and Ambac Financial Group Inc., have lost top ratings, limiting the value of that coverage.
The Fed has “important misgivings” about guaranteeing municipal bonds, David Wilcox, the deputy director of the Fed’s research and statistics division, said in prepared remarks for the hearing that the committee released late yesterday. He urged Congress to “narrowly” tailor any program if it does proceed, ensuring a quick exit for the government.
“The Federal Reserve believes that such a role is better suited to elected officials and the administration than to the central bank,” Wilcox said in his remarks regarding the proposed legislation.
State and federal lawmakers have pressed the Fed and Treasury to extend support to municipal securities since the Troubled Asset Relief Program, or TARP, was introduced last year. Municipal bond sales tumbled after the bankruptcy of Lehman Brothers Holdings Inc. in September, according to data compiled by Bloomberg.
California Plea
California Treasurer Bill Lockyer wrote to Treasury Secretary Timothy Geithner on May 13 asking him to extend the TARP to states and local governments facing “a severe cash flow crunch in the near term due to eroding tax revenues resulting from the current economic downturn.”
California, which is rated A by Standard & Poor’s, the lowest for a U.S. state, may need as much as $23 billion in short-term borrowing, according to state’s Legislative Analyst’s Office. Voters rejected a package of budget-balancing measures this week, increasing the need for such financing.
A federal backstop may lower the cost of issuing the securities by about $1 billion, said James Reynolds, chief executive officer at Loop Capital Markets LLC. California sold two short-term note issues totaling $5.8 billion last year, according to Thomson Reuters.
“That’s real money,” said Reynolds, whose Chicago-based company led the sale of $2.5 billion of municipal bonds last year, according to Thomson Reuters. “That’s real jobs,” he said, referring to the threat of more state worker terminations in California, where the state plans to fire 5,000 of its 200,000 workforce.
Variable-Rate Notes
Municipal borrowers selling short-term notes or variable- rate demand notes, or VRDNs, often seek a bank guarantee to buy the securities if there is no demand from investors when rates periodically reset. Variable-rate bonds mature in as many as 30 years with rates resetting weekly or monthly. The notes mature within 13 months.
Illinois sold two series of 4 percent notes totaling $1 billion on May 14, the largest deal this year -- a $500 million series maturing on April 26, 2010, and the other maturing May 20, 2010.
“Things have improved a lot, but this California situation is highlighting the vulnerability of the market right now,” said Chris Mier, a municipal market strategist at Loop Capital.
Bernanke Letter
Fed Chairman Ben S. Bernanke said in a March 31 letter to members of the House that a $1 trillion program under the TARP for reviving the asset-backed securities market wasn’t appropriate for variable-rate demand notes. Bernanke also said that much of the municipal market had improved this year, permitting states to resume conventional fixed-rate sales.
Frank, the chairman of the House committee, has pressed for changes in the municipal market since last year when demand for state and local government securities plummeted amid the global credit crisis. One of the four bills being heard today is the revival of his legislation prohibiting credit rating companies from evaluating municipal debt with standards differing from those used for corporate bonds.
The committee will also consider legislation requiring state and local government financial advisers to register with the U.S. Securities and Exchange Commission. The measure would aim to curb so-called pay for play in which advisers sell services to public agencies by currying favor among public officials.
Read more here
Wednesday, May 20, 2009
Tuesday, May 19, 2009
AIG investors to get $843 million: SEC
(Reuters) - A federal court has approved the distribution of more than $843 million to harmed investors at insurer American International Group, the U.S. Securities and Exchange Commission said on Tuesday.
The court estimates that checks will soon be mailed to more than 257,000 AIG investors that were affected by an alleged accounting fraud at the company, the SEC said.
AIG, which has been propped up by billions of dollars in taxpayer funds, was charged with accounting fraud in 2006. The SEC alleged that the insurer falsified its financial statements from at least 2000 until 2005 and reported misleading information about its financial condition.
The company, which did not admit or deny the allegations, had repaid its ill-gotten gains, as well as penalties to the government. In 2007, a federal court authorized the SEC to establish a 'fair fund' to distribute the money to harmed AIG investors.
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The court estimates that checks will soon be mailed to more than 257,000 AIG investors that were affected by an alleged accounting fraud at the company, the SEC said.
AIG, which has been propped up by billions of dollars in taxpayer funds, was charged with accounting fraud in 2006. The SEC alleged that the insurer falsified its financial statements from at least 2000 until 2005 and reported misleading information about its financial condition.
The company, which did not admit or deny the allegations, had repaid its ill-gotten gains, as well as penalties to the government. In 2007, a federal court authorized the SEC to establish a 'fair fund' to distribute the money to harmed AIG investors.
Read more here
Sunday, May 17, 2009
Asian consumers go back to basics in downturn
(Reuters) - Forget about bells and whistles. Asians have gone back to basics in the economic slowdown and are opting for no-frills, lower-priced products rather than brand names and items with fancy features that rarely get used.
Manufacturers across the region, the world's largest producer of electronics and white goods, are more than happy to oblige as they scramble for orders that will keep their heads above water until the economic tide changes.
"People are hesitant to buy top-notch, expensive models, but they still want to buy decent ones with some useful functions," said Kohei Ueda, a general manager at Bic Camera, a major consumer electronics chain in Japan.
From laptops without standard accessories such as CD-roms, to rice cookers and microwave ovens with minimal functions, brands such as Samsung and LG Electronics are quickly introducing basic items that can be sold at lower price points.
It's all about surviving the slowdown which has dealt a severe blow to Asia's export-dependent economies such as South Korea which saw exports drop 25 percent in the first quarter of the year alone.
"In an economic downturn, liquidity problems outweigh the factor of profits. Therefore, it would be important to keep their factories running and pay back debt," said Choe Soon-kyoo, a professor of Yonsei University's business school in Seoul.
"They are adopting that (low-price) strategy to maintain liquidity rather than to make profits," he added.
Buoyant sales from these products are providing relief, and much needed cash flow, to companies that posted heavy profit falls or swung to quarterly losses early this year such as Samsung Electronics whose earnings plummeted to 619 billion won in the March quarter from 2.2 trillion won a year ago.
Read more here
Manufacturers across the region, the world's largest producer of electronics and white goods, are more than happy to oblige as they scramble for orders that will keep their heads above water until the economic tide changes.
"People are hesitant to buy top-notch, expensive models, but they still want to buy decent ones with some useful functions," said Kohei Ueda, a general manager at Bic Camera, a major consumer electronics chain in Japan.
From laptops without standard accessories such as CD-roms, to rice cookers and microwave ovens with minimal functions, brands such as Samsung and LG Electronics are quickly introducing basic items that can be sold at lower price points.
It's all about surviving the slowdown which has dealt a severe blow to Asia's export-dependent economies such as South Korea which saw exports drop 25 percent in the first quarter of the year alone.
"In an economic downturn, liquidity problems outweigh the factor of profits. Therefore, it would be important to keep their factories running and pay back debt," said Choe Soon-kyoo, a professor of Yonsei University's business school in Seoul.
"They are adopting that (low-price) strategy to maintain liquidity rather than to make profits," he added.
Buoyant sales from these products are providing relief, and much needed cash flow, to companies that posted heavy profit falls or swung to quarterly losses early this year such as Samsung Electronics whose earnings plummeted to 619 billion won in the March quarter from 2.2 trillion won a year ago.
Read more here
Central banks may need more power for financial stability
(Reuters) - Central banks might need more power to oversee banks if they are to play a larger role in maintaining financial stability in the post-crisis world, a Bank for International Settlements (BIS) report said on Sunday.
The report also said central banks should examine issues such as the make-up of policymaking bodies, their independence, voting habits and finances as their role evolves.
"The current global financial crisis could well have ... important implications for central banks, particularly with respect to their role in fostering financial stability," said the report, by the Central Bank Governance group.
"If central banks are to play a key role in dealing with systemic risk when applying a more macroprudential approach, they may also need to have closer oversight of systemically significant institutions."
But the report said there was no magic bullet for arranging central bank governance to deal with the new challenges, as their roles as well as political and economic conditions differ from each other.
"What is suitable for one country will not be for another. Hence, setting down a single set of best practices is not feasible."
Financial stability, for its part, would be difficult to codify in central bank objectives, as it is not as simple as naming a range for consumer price growth as an inflation target.
"Financial stability is ... somewhat incomplete as a guiding light for policy actions and as a basis for accountability," it said.
"Financial stability is not an absolute objective -- most economists would agree that financial variables should be flexible, and should change, and sometimes sharply. The question is by how much and in what circumstances."
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The report also said central banks should examine issues such as the make-up of policymaking bodies, their independence, voting habits and finances as their role evolves.
"The current global financial crisis could well have ... important implications for central banks, particularly with respect to their role in fostering financial stability," said the report, by the Central Bank Governance group.
"If central banks are to play a key role in dealing with systemic risk when applying a more macroprudential approach, they may also need to have closer oversight of systemically significant institutions."
But the report said there was no magic bullet for arranging central bank governance to deal with the new challenges, as their roles as well as political and economic conditions differ from each other.
"What is suitable for one country will not be for another. Hence, setting down a single set of best practices is not feasible."
Financial stability, for its part, would be difficult to codify in central bank objectives, as it is not as simple as naming a range for consumer price growth as an inflation target.
"Financial stability is ... somewhat incomplete as a guiding light for policy actions and as a basis for accountability," it said.
"Financial stability is not an absolute objective -- most economists would agree that financial variables should be flexible, and should change, and sometimes sharply. The question is by how much and in what circumstances."
Read more here
Thursday, May 14, 2009
U.S. financial reform to be unveiled despite clashes
(Reuters) - The Obama administration's plan to reshape the opaque world of derivatives trading, unveiled on Wednesday, is only a preview of sweeping financial reform proposals that may be announced as soon as next week.
The White House and Treasury, responding to the global financial crisis, have firm ideas about tightening oversight of hedge funds, streamlining bank regulation, shaking up executive pay standards and protecting consumers.
But two key components of the administration's approach -- policing "systemic risk" and winding down troubled financial firms -- are dividing senior officials and lawmakers, which will likely cause delays in getting broad reforms enacted.
Treasury Secretary Timothy Geithner, a chief architect, acknowledged on Wednesday the proposals might not sit well with everyone. "It's not going to be comfortable for everybody but it's important to do," he told a group of bankers.
The regulatory reform drive comes as economies around the globe continue to reel from a credit market paralysis triggered by a sudden plunge in the value of exotic securities created during the U.S. real estate boom. U.S. President Barack Obama has vowed to pursue changes to prevent another such crisis.
His administration's approach centers on a powerful, new "systemic risk" regulator, likely to be the U.S. Federal Reserve, backed by a council of regulators, including the Federal Deposit Insurance Corp, which will also get new powers, according to sources briefed on the plan.
That compromise has emerged after a debate between advocates of centralized financial supervision and skeptics who fear making the Fed too powerful, especially in view of its shaky record in handling troubled insurer AIG (AIG.N).
The administration looks poised to put the FDIC at the center of newly streamlined bank regulations. Other agencies' rulebooks will be rewritten to conform with an FDIC standard, preventing banks from shopping around for a lax regulator.
But other bank overseers, such as the Comptroller of the Currency and the Office of Thrift Supervision, for now, will not be slated for shutdown, the sources said.
As part of its effort, the Treasury will emphasize the need for global cooperation, wary of the risk that financial firms might flee to jurisdictions with looser regulations.
PLANS IN CONGRESS
Geithner said on May 8 that Congress would get "the broad comprehensive framework within the next couple weeks, and we hope to move forward quickly with legislation."
Democratic lawmakers and the White House want to enact reforms by the year-end, but the deadline looks less realistic as the proposal expands.
"The problem is that as you start adding more new issues, the consensus starts breaking down," said Wayne Abernathy, an executive at the American Bankers Association.
Many of the proposals involve sensitive structural changes that threaten existing bureaucracies and cross jurisdictional lines among congressional committees.
Read more here
The White House and Treasury, responding to the global financial crisis, have firm ideas about tightening oversight of hedge funds, streamlining bank regulation, shaking up executive pay standards and protecting consumers.
But two key components of the administration's approach -- policing "systemic risk" and winding down troubled financial firms -- are dividing senior officials and lawmakers, which will likely cause delays in getting broad reforms enacted.
Treasury Secretary Timothy Geithner, a chief architect, acknowledged on Wednesday the proposals might not sit well with everyone. "It's not going to be comfortable for everybody but it's important to do," he told a group of bankers.
The regulatory reform drive comes as economies around the globe continue to reel from a credit market paralysis triggered by a sudden plunge in the value of exotic securities created during the U.S. real estate boom. U.S. President Barack Obama has vowed to pursue changes to prevent another such crisis.
His administration's approach centers on a powerful, new "systemic risk" regulator, likely to be the U.S. Federal Reserve, backed by a council of regulators, including the Federal Deposit Insurance Corp, which will also get new powers, according to sources briefed on the plan.
That compromise has emerged after a debate between advocates of centralized financial supervision and skeptics who fear making the Fed too powerful, especially in view of its shaky record in handling troubled insurer AIG (AIG.N).
The administration looks poised to put the FDIC at the center of newly streamlined bank regulations. Other agencies' rulebooks will be rewritten to conform with an FDIC standard, preventing banks from shopping around for a lax regulator.
But other bank overseers, such as the Comptroller of the Currency and the Office of Thrift Supervision, for now, will not be slated for shutdown, the sources said.
As part of its effort, the Treasury will emphasize the need for global cooperation, wary of the risk that financial firms might flee to jurisdictions with looser regulations.
PLANS IN CONGRESS
Geithner said on May 8 that Congress would get "the broad comprehensive framework within the next couple weeks, and we hope to move forward quickly with legislation."
Democratic lawmakers and the White House want to enact reforms by the year-end, but the deadline looks less realistic as the proposal expands.
"The problem is that as you start adding more new issues, the consensus starts breaking down," said Wayne Abernathy, an executive at the American Bankers Association.
Many of the proposals involve sensitive structural changes that threaten existing bureaucracies and cross jurisdictional lines among congressional committees.
Read more here
GM near deal with UAW
(Reuters) - Under the direction of the U.S. Treasury, General Motors Corp is close to a deal with the United Auto Workers that would cut its hourly labor costs by more than $1 billion a year, the Wall Street Journal said, citing people familiar with the matter.
GM expects to halve its remaining cash outlays for retiree health costs to about $10 billion, and supplement that contribution with a 39 percent equity stake in the reorganized company, the people told the paper.
Read more here
GM expects to halve its remaining cash outlays for retiree health costs to about $10 billion, and supplement that contribution with a 39 percent equity stake in the reorganized company, the people told the paper.
Read more here
Wednesday, May 13, 2009
Panasonic seen posting $1.1 billion loss in 2009/10
(Reuters) - Japan's Panasonic Corp (6752.T) is likely to post a net loss of more than 100 billion yen ($1.1 billion) for the year ending in March 2010, the Yomiuri newspaper reported, as the consumer electronics maker grapples with a stronger yen and slowing demand.
That is in line with an average estimate of a 105.4 billion yen net loss in a poll of 17 analysts by Thomson Reuters.
Analysts expect the company to suffer a second straight year of losses this financial year, as the industry is mired in a global slump that is shaping up to be nastier than the last major downturn in 2001 after the IT bubble.
Separately, the Sankei newspaper said Panasonic was likely to forecast an operating profit for this financial year but project a net loss due to costs to pull out of unprofitable operations.
Panasonic spokesman Akira Kadota said the reported figure was not something the company had announced.
Read more here
That is in line with an average estimate of a 105.4 billion yen net loss in a poll of 17 analysts by Thomson Reuters.
Analysts expect the company to suffer a second straight year of losses this financial year, as the industry is mired in a global slump that is shaping up to be nastier than the last major downturn in 2001 after the IT bubble.
Separately, the Sankei newspaper said Panasonic was likely to forecast an operating profit for this financial year but project a net loss due to costs to pull out of unprofitable operations.
Panasonic spokesman Akira Kadota said the reported figure was not something the company had announced.
Read more here
Most U.S. homeowners think a bottom has been reached: Zillow
(Reuters) - Most American homeowners believe their home's value has declined over the past year, but a majority also think a bottom has been reached, real estate website Zillow.com said on Thursday.
A majority, or 60 percent, believe their home lost value during the past 12 months, according to the Zillow Q1 Homeowner Confidence Survey.
In reality, 80 percent of homes across the country lost value during the past 12 months, according to Zillow's first-quarter Real Estate Market Reports.
Additionally, 18 percent believe their home gained value in the past 12 months, and 22 percent believe its value remained the same, according to the survey.
That resulted in a Zillow Home Value Misperception Index of five -- the lowest it has been since Zillow introduced the index in the second quarter of 2008 and down from 10 in the fourth quarter of 2008. A Misperception Index of zero would mean homeowners perceptions' were in line with actual values.
"The perception of American homeowners is finally catching up to reality, which is that 80 percent of all homes in the country lost value during this past year," Dr. Stan Humphries, Zillow's vice president of data and analytics, said in a statement accompanying the survey.
"While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward, with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months. Unfortunately, there are few markets we expect to perform this well," he said.
Most homeowners -- 74 percent -- believe their home will not decline in value in the coming six months, effectively calling a bottom to their own home's housing slide, Zillow said.
Specifically, one in four homeowners, or 27 percent, think their home's value will increase in the next six months, while nearly half, or 47 percent, believe its value will remain the same. Homeowners were similarly optimistic when it came to predicting home values in their local markets, the survey showed.
Read more here
A majority, or 60 percent, believe their home lost value during the past 12 months, according to the Zillow Q1 Homeowner Confidence Survey.
In reality, 80 percent of homes across the country lost value during the past 12 months, according to Zillow's first-quarter Real Estate Market Reports.
Additionally, 18 percent believe their home gained value in the past 12 months, and 22 percent believe its value remained the same, according to the survey.
That resulted in a Zillow Home Value Misperception Index of five -- the lowest it has been since Zillow introduced the index in the second quarter of 2008 and down from 10 in the fourth quarter of 2008. A Misperception Index of zero would mean homeowners perceptions' were in line with actual values.
"The perception of American homeowners is finally catching up to reality, which is that 80 percent of all homes in the country lost value during this past year," Dr. Stan Humphries, Zillow's vice president of data and analytics, said in a statement accompanying the survey.
"While homeowners are now more realistic when looking backward, they are still pretty starry-eyed when looking forward, with three out of four homeowners believing that their own homes' prices will increase or be flat over the next six months. Unfortunately, there are few markets we expect to perform this well," he said.
Most homeowners -- 74 percent -- believe their home will not decline in value in the coming six months, effectively calling a bottom to their own home's housing slide, Zillow said.
Specifically, one in four homeowners, or 27 percent, think their home's value will increase in the next six months, while nearly half, or 47 percent, believe its value will remain the same. Homeowners were similarly optimistic when it came to predicting home values in their local markets, the survey showed.
Read more here
Tuesday, May 12, 2009
Hitachi down 10 percent, sees wider loss than consensus
(Reuters) - Shares in Hitachi Ltd (6501.T), Japan's biggest electronics maker, tumbled 10 percent after its wider-than-expected loss estimate spooked investors who expected its restructuring steps would help improve its earnings.
A price slump and weak demand have hurt almost every corner of Hitachi's sprawling operations, hitting its auto and chip businesses especially hard and forcing the company to book the biggest-ever annual loss by a Japanese manufacturer.
Hitachi shares lost 128 billion yen ($1.3 billion) in market value on Wednesday after it forecast a 270 billion yen net loss for the year to next March, more than double the consensus of a 125.2 billion yen loss predicted in a poll of 16 analysts by Thomson Reuters.
The loss estimate, meaning it would lose money for a fourth straight year, would still be much smaller than the 787.3 billion yen loss for last financial year.
That massive loss had prompted Hitachi to map out a $5 billion cost-cutting plan for the current year and shift resources to more stable infrastructure operations, and it had said it expected tough going again this year.
"Hitachi is making progress in structural reforms at its challenged businesses such as automotive and digital media/consumer electronics," Credit Suisse analyst Hideyuki Maekawa said in a note to clients.
"But its latest projection seems to make clear that its cost-cutting efforts will not be enough to offset the impact of reduced revenues in its profitable businesses."
Read more here
A price slump and weak demand have hurt almost every corner of Hitachi's sprawling operations, hitting its auto and chip businesses especially hard and forcing the company to book the biggest-ever annual loss by a Japanese manufacturer.
Hitachi shares lost 128 billion yen ($1.3 billion) in market value on Wednesday after it forecast a 270 billion yen net loss for the year to next March, more than double the consensus of a 125.2 billion yen loss predicted in a poll of 16 analysts by Thomson Reuters.
The loss estimate, meaning it would lose money for a fourth straight year, would still be much smaller than the 787.3 billion yen loss for last financial year.
That massive loss had prompted Hitachi to map out a $5 billion cost-cutting plan for the current year and shift resources to more stable infrastructure operations, and it had said it expected tough going again this year.
"Hitachi is making progress in structural reforms at its challenged businesses such as automotive and digital media/consumer electronics," Credit Suisse analyst Hideyuki Maekawa said in a note to clients.
"But its latest projection seems to make clear that its cost-cutting efforts will not be enough to offset the impact of reduced revenues in its profitable businesses."
Read more here
Monday, May 11, 2009
Honda May Pass Chrysler in North America Production
(Bloomberg) -- Honda Motor Co., Japan’s second- biggest automaker, may build more vehicles than bankrupt Chrysler LLC in North America this year, further weakening Detroit’s grip on its home market.
Honda narrowed the gap to 17,011 vehicles at the end of April from 236,645 a year earlier, and with most Chrysler plants shut for as long as 60 days analysts expect the Japanese automaker to overtake its rival. Honda may also surpass Chrysler in U.S. sales to trail only bankruptcy-threatened General Motors Corp., Toyota Motor Corp. and Ford Motor Co.
“There’s a sea change under way,” said Michael Robinet, an analyst at forecaster CSM Worldwide in Northville, Michigan. “This crisis with Chrysler and GM has acted as an accelerant to the systemic change that was already occurring.”
Toyota passed Chrysler in U.S. sales in 2006 and then Ford in 2007, as Japanese automakers lured customers with more fuel- efficient vehicles. The big three U.S. automakers’ market share has plunged to 44.4 percent this year, from more than 70 percent a decade ago, while overall sales have slumped to the lowest volume in about three decades.
Honda, fifth in the U.S. since 1988, has outsold Chrysler this year as of April. Its sales in the country slid 32 percent to 332,014, compared with a 46 percent drop for Auburn Hills, Michigan-based Chrysler to 323,890. Overall U.S. sales are down 37 percent through the first four months of the year.
Chrysler Plunge
“Market share isn’t something we target,” said David Iida, a spokesman for Honda’s U.S. unit, based in Torrance, California. “We’re very committed to local production, irrespective of what other companies are doing.”
The automaker fell 1.6 percent to 2,855 yen as of 12:03 p.m. in Tokyo trading. The stock has risen 50 percent this year.
Industrywide North American car and light-truck production plunged 49 percent through April, with Chrysler leading declines among major manufacturers, according to Haig Stoddard, an IHS Global Insight analyst. Chrysler’s production in the period fell 57 percent to 322,773, based on company figures.
Honda built 305,762 autos at assembly plants in the U.S., Canada and Mexico through last month, down 40 percent from a year ago. The maker of Civic and Accord cars has U.S. plants in states including Ohio, Indiana and Alabama.
Chrysler, hoping to emerge from bankruptcy within 60 days as a new company led by Fiat SpA, halted work at most plants on May 4 while it reorganizes. The company also said it’s closing six factories that won’t be part of the Chrysler-Fiat deal.
Read more here
Honda narrowed the gap to 17,011 vehicles at the end of April from 236,645 a year earlier, and with most Chrysler plants shut for as long as 60 days analysts expect the Japanese automaker to overtake its rival. Honda may also surpass Chrysler in U.S. sales to trail only bankruptcy-threatened General Motors Corp., Toyota Motor Corp. and Ford Motor Co.
“There’s a sea change under way,” said Michael Robinet, an analyst at forecaster CSM Worldwide in Northville, Michigan. “This crisis with Chrysler and GM has acted as an accelerant to the systemic change that was already occurring.”
Toyota passed Chrysler in U.S. sales in 2006 and then Ford in 2007, as Japanese automakers lured customers with more fuel- efficient vehicles. The big three U.S. automakers’ market share has plunged to 44.4 percent this year, from more than 70 percent a decade ago, while overall sales have slumped to the lowest volume in about three decades.
Honda, fifth in the U.S. since 1988, has outsold Chrysler this year as of April. Its sales in the country slid 32 percent to 332,014, compared with a 46 percent drop for Auburn Hills, Michigan-based Chrysler to 323,890. Overall U.S. sales are down 37 percent through the first four months of the year.
Chrysler Plunge
“Market share isn’t something we target,” said David Iida, a spokesman for Honda’s U.S. unit, based in Torrance, California. “We’re very committed to local production, irrespective of what other companies are doing.”
The automaker fell 1.6 percent to 2,855 yen as of 12:03 p.m. in Tokyo trading. The stock has risen 50 percent this year.
Industrywide North American car and light-truck production plunged 49 percent through April, with Chrysler leading declines among major manufacturers, according to Haig Stoddard, an IHS Global Insight analyst. Chrysler’s production in the period fell 57 percent to 322,773, based on company figures.
Honda built 305,762 autos at assembly plants in the U.S., Canada and Mexico through last month, down 40 percent from a year ago. The maker of Civic and Accord cars has U.S. plants in states including Ohio, Indiana and Alabama.
Chrysler, hoping to emerge from bankruptcy within 60 days as a new company led by Fiat SpA, halted work at most plants on May 4 while it reorganizes. The company also said it’s closing six factories that won’t be part of the Chrysler-Fiat deal.
Read more here
Sunday, May 10, 2009
Spanish Solar Subsidy Seduces FPL, Scorches Consumers
(Bloomberg) -- Spain has turned itself into the world’s biggest builder of solar-energy plants, attracting developers from the U.S. and France by guaranteeing prices that weigh down Spanish consumers.
The government promotes clean fuels by letting generators charge as much as 10 times more for power from the sun or wind than from burning coal. The premium, added to bills of homes and businesses, has spawned a solar-investment boom by utilities, from Florida’s FPL Group Inc. to Electricite de France SA.
As a result, developers now plan enough solar thermal projects to generate the power of nine new atomic reactors, or 14,000 megawatts if all get built, Spain’s industry ministry said. That’s the biggest project pipeline, beating sun-blessed Australia and the U.S., where Congress increased aid this year for alternative energy, an Emerging Energy Research study said.
“Who wouldn’t want to enter a business that’s paid many times more than the market rate, and where the customer is guaranteed for life?” said Gabriel Calzada, an economist and professor at Rey Juan Carlos University in Madrid.
Spanish law forces distributors to buy all clean energy produced in the first 25 years of a plant’s life and resell it to consumers. With little oil and lots of sun, Spain is betting the sacrifice will pay off as fossil fuels get more expensive and need costly emission permits under global-warming treaties.
Forty-two percent of power bills, or 95 euros ($127) for every Spaniard, will cover subsidized clean energy in 2009, the ministry estimates.
‘Heavy Price’
“We’re all paying a heavy price for green power,” said Calzada, an opponent of subsidies.
The government raised rates in May 2007 for solar thermal plants, which concentrate sunlight to make steam for power generation. They now earn about 300 euros a megawatt-hour, seven times the average rate coal- or natural gas-fired plants got this year.
A megawatt-hour supplies about 1,500 Spanish homes for an hour, or about half as many homes in the U.S.
“The guarantee is more attractive than what other countries offer,” said Karsten von Blumenthal, an industrial analyst at Hamburg-based SES Research GmbH. “Actually the U.S. has better space for solar, in the deserts of California and Nevada.” Still, the combination of U.S. tax credits and grants are a lesser incentive for developers, he said.
Florida to Spain
Spain’s solar deal was interesting enough for Juno Beach, Florida-based FPL to cross the Atlantic and propose two 50- megawatt solar thermal plants. EDF, France’s biggest power company, raised its stake last year to 90 percent in Fotosolar, a Spanish photovoltaic developer. FPL, the largest U.S. producer of wind power, wouldn’t say which subsidy system it preferred.
“I would not define Spain as more or less attractive, rather it is a new opportunity,” Steven Stengel, a spokesman for FPL unit NextEra Energy Resources LLC, said in an e-mailed response. FPL plans two U.S. plants totaling 325 megawatts.
Neither country gets more than 1 percent of power yet from solar thermal or photovoltaic plants, which use a technology that turns sunlight directly into electricity. Spain installed the most of both technologies last year, trade group data shows.
The two nations lead the world in solar thermal projects coming online by 2011, according to Cambridge, Massachusetts- based Emerging Energy Research. About 1,750 megawatts will be switched on in the U.S. by that year and twice that level in Spain, the research firm said in April.
U.S. Momentum
The U.S. now is regaining momentum lost almost 10 years ago when the government “changed policy, leaving solar technology on the shelf,” said Edward Soler, a business development executive for Spanish builder Abengoa SA. During that decade “Spain underwent a learning curve that was aided by a change in regulations” that improved incentives, he said.
Abengoa, which set up a 20-megawatt solar thermal plant near its Seville, Spain, headquarters, plans one 14 times that size, billed as the world’s biggest, about 60 miles outside of Phoenix to feed local utility Arizona Public Service Co.
In the U.S., where President Barack Obama backed increased incentives this year, 6,000 megawatts of solar thermal projects are under way, said Fred Morse, an official at the Washington- based Solar Energy Industries Association trade group.
Promoters in the U.S. must convince utilities to contract their power, a necessary step for most project financing. Also, they may be reimbursed for 30 percent of the plant’s cost through a tax credit or grant and can apply for federal loan guarantees. They earn no special power rate.
The U.S. can’t catch up until more rules on aid are published, Morse said.
Read more here
The government promotes clean fuels by letting generators charge as much as 10 times more for power from the sun or wind than from burning coal. The premium, added to bills of homes and businesses, has spawned a solar-investment boom by utilities, from Florida’s FPL Group Inc. to Electricite de France SA.
As a result, developers now plan enough solar thermal projects to generate the power of nine new atomic reactors, or 14,000 megawatts if all get built, Spain’s industry ministry said. That’s the biggest project pipeline, beating sun-blessed Australia and the U.S., where Congress increased aid this year for alternative energy, an Emerging Energy Research study said.
“Who wouldn’t want to enter a business that’s paid many times more than the market rate, and where the customer is guaranteed for life?” said Gabriel Calzada, an economist and professor at Rey Juan Carlos University in Madrid.
Spanish law forces distributors to buy all clean energy produced in the first 25 years of a plant’s life and resell it to consumers. With little oil and lots of sun, Spain is betting the sacrifice will pay off as fossil fuels get more expensive and need costly emission permits under global-warming treaties.
Forty-two percent of power bills, or 95 euros ($127) for every Spaniard, will cover subsidized clean energy in 2009, the ministry estimates.
‘Heavy Price’
“We’re all paying a heavy price for green power,” said Calzada, an opponent of subsidies.
The government raised rates in May 2007 for solar thermal plants, which concentrate sunlight to make steam for power generation. They now earn about 300 euros a megawatt-hour, seven times the average rate coal- or natural gas-fired plants got this year.
A megawatt-hour supplies about 1,500 Spanish homes for an hour, or about half as many homes in the U.S.
“The guarantee is more attractive than what other countries offer,” said Karsten von Blumenthal, an industrial analyst at Hamburg-based SES Research GmbH. “Actually the U.S. has better space for solar, in the deserts of California and Nevada.” Still, the combination of U.S. tax credits and grants are a lesser incentive for developers, he said.
Florida to Spain
Spain’s solar deal was interesting enough for Juno Beach, Florida-based FPL to cross the Atlantic and propose two 50- megawatt solar thermal plants. EDF, France’s biggest power company, raised its stake last year to 90 percent in Fotosolar, a Spanish photovoltaic developer. FPL, the largest U.S. producer of wind power, wouldn’t say which subsidy system it preferred.
“I would not define Spain as more or less attractive, rather it is a new opportunity,” Steven Stengel, a spokesman for FPL unit NextEra Energy Resources LLC, said in an e-mailed response. FPL plans two U.S. plants totaling 325 megawatts.
Neither country gets more than 1 percent of power yet from solar thermal or photovoltaic plants, which use a technology that turns sunlight directly into electricity. Spain installed the most of both technologies last year, trade group data shows.
The two nations lead the world in solar thermal projects coming online by 2011, according to Cambridge, Massachusetts- based Emerging Energy Research. About 1,750 megawatts will be switched on in the U.S. by that year and twice that level in Spain, the research firm said in April.
U.S. Momentum
The U.S. now is regaining momentum lost almost 10 years ago when the government “changed policy, leaving solar technology on the shelf,” said Edward Soler, a business development executive for Spanish builder Abengoa SA. During that decade “Spain underwent a learning curve that was aided by a change in regulations” that improved incentives, he said.
Abengoa, which set up a 20-megawatt solar thermal plant near its Seville, Spain, headquarters, plans one 14 times that size, billed as the world’s biggest, about 60 miles outside of Phoenix to feed local utility Arizona Public Service Co.
In the U.S., where President Barack Obama backed increased incentives this year, 6,000 megawatts of solar thermal projects are under way, said Fred Morse, an official at the Washington- based Solar Energy Industries Association trade group.
Promoters in the U.S. must convince utilities to contract their power, a necessary step for most project financing. Also, they may be reimbursed for 30 percent of the plant’s cost through a tax credit or grant and can apply for federal loan guarantees. They earn no special power rate.
The U.S. can’t catch up until more rules on aid are published, Morse said.
Read more here
Thursday, May 7, 2009
Oracle won't divest Sun's hardware business
(Reuters) - Oracle Corp Chief Executive Larry Ellison said he won't sell off Sun Microsystems Inc's hardware business, dispelling speculation that he only wanted the company for its software units.
Ellison shook up Silicon Valley last month by sealing a more than $7 billion deal to buy Sun, the world's No. 4 maker of server computers and also the developer of Java and Solaris software. Oracle unexpectedly swooped in after Sun's talks with International Business Machines Corp broke apart.
"We are definitely not going to exit the hardware business," Ellison said in an email interview with Reuters. "If a company designs both hardware and software, it can build much better systems than if they only design the software. That's why Apple's iPhone is so much better than Microsoft phones."
His comments fly in the face of the belief of some analysts that Oracle, the world's largest database software maker, may divest Sun's server business and retain just its software assets, such as Java and Solaris.
Oracle's steadily rising profit margins have impressed Wall Street in recent years, and analysts say it is a risky move for it to buy Sun, which has lost $2 billion in the first three quarters of its current fiscal year.
Ellison declined to respond to a question on what he would do if efforts to turn around Sun's computer server business run into trouble. Sun's losses have piled up after losing market share to IBM as well as Hewlett-Packard Co.
His comments may reassure businesses that were hesitant to buy Sun hardware due to uncertainty over its future, said Charles King, an analyst with Pund-IT Research.
"There has been some speculation that Oracle is going to auction off Sun by bits and pieces to the highest bidder," King said. "You end up with customers, many of whom own millions or tens of millions of dollars of Sun hardware, looking for another vendor to deal with."
INVESTING IN SPARC CHIPS
Ellison said he plans to boost investment in Sun's SPARC microprocessors, which serve as the brains in its line of high-end Unix computers. The biggest buyers of these servers are large corporations and government agencies.
He believes that by jointly developing Oracle's existing arsenal of software with Sun's computers and SPARC chips, they can build machines designed for specific purposes that work better than ones pulled together from separate components.
Oracle has sought to do this in the past through partnerships with hardware makers, including HP.
"Once we own Sun, we'll be able to plan and synchronize new features from silicon to software, just like IBM and the other big system suppliers," Ellison said in the interview.
Oracle plans to work with Japan's Fujitsu Ltd, which helps Sun design its SPARC microprocessors, to add new features that will improve the performance of Oracle's database software when used on Sun's servers. That will make Sun hardware more competitive versus rival products from IBM than it is today, the CEO added.
The acquisition makes Oracle the world's fourth-largest maker of servers, and puts the software maker into the No. 2 slot in the high end of the server market, which was worth about $17 billion last year.
Read more here
Ellison shook up Silicon Valley last month by sealing a more than $7 billion deal to buy Sun, the world's No. 4 maker of server computers and also the developer of Java and Solaris software. Oracle unexpectedly swooped in after Sun's talks with International Business Machines Corp broke apart.
"We are definitely not going to exit the hardware business," Ellison said in an email interview with Reuters. "If a company designs both hardware and software, it can build much better systems than if they only design the software. That's why Apple's iPhone is so much better than Microsoft phones."
His comments fly in the face of the belief of some analysts that Oracle, the world's largest database software maker, may divest Sun's server business and retain just its software assets, such as Java and Solaris.
Oracle's steadily rising profit margins have impressed Wall Street in recent years, and analysts say it is a risky move for it to buy Sun, which has lost $2 billion in the first three quarters of its current fiscal year.
Ellison declined to respond to a question on what he would do if efforts to turn around Sun's computer server business run into trouble. Sun's losses have piled up after losing market share to IBM as well as Hewlett-Packard Co.
His comments may reassure businesses that were hesitant to buy Sun hardware due to uncertainty over its future, said Charles King, an analyst with Pund-IT Research.
"There has been some speculation that Oracle is going to auction off Sun by bits and pieces to the highest bidder," King said. "You end up with customers, many of whom own millions or tens of millions of dollars of Sun hardware, looking for another vendor to deal with."
INVESTING IN SPARC CHIPS
Ellison said he plans to boost investment in Sun's SPARC microprocessors, which serve as the brains in its line of high-end Unix computers. The biggest buyers of these servers are large corporations and government agencies.
He believes that by jointly developing Oracle's existing arsenal of software with Sun's computers and SPARC chips, they can build machines designed for specific purposes that work better than ones pulled together from separate components.
Oracle has sought to do this in the past through partnerships with hardware makers, including HP.
"Once we own Sun, we'll be able to plan and synchronize new features from silicon to software, just like IBM and the other big system suppliers," Ellison said in the interview.
Oracle plans to work with Japan's Fujitsu Ltd, which helps Sun design its SPARC microprocessors, to add new features that will improve the performance of Oracle's database software when used on Sun's servers. That will make Sun hardware more competitive versus rival products from IBM than it is today, the CEO added.
The acquisition makes Oracle the world's fourth-largest maker of servers, and puts the software maker into the No. 2 slot in the high end of the server market, which was worth about $17 billion last year.
Read more here
Wednesday, May 6, 2009
Australia Unexpectedly Adds 27,300 Jobs, Pushing Up Currency
(Bloomberg) -- Australian employers unexpectedly added workers in April and the jobless rate dropped, driving the local currency to a seven-month high on signs the nation’s economy is skirting the worst of a global recession.
The number of people employed climbed 27,300 from March, the statistics bureau said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a decline of 25,000. The jobless rate fell to 5.4 percent from 5.7 percent.
Bonds yields rose on speculation the Reserve Bank of Australia’s record round of interest-rate cuts may be close to an end. A New Zealand report today showed that nation’s unemployment rate increased less than expected and U.S. figures yesterday revealed companies cut fewer jobs in April, adding to evidence the global contraction may be abating.
“We’re starting to see signs the global economy is recovering,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “The fundamentals for the Australian economy were very sound before this global economic crisis. Employers are a lot more hesitant in culling staff.”
Central bank Governor Glenn Stevens said this week that the effect on the economy of six interest-rate cuts since early September, which have taken the benchmark to a 49-year low of 3 percent, and government spending are “yet to be observed.”
Supermarket chains Woolworths Ltd. and Aldi are among companies that have announced plans to hire more workers in Australia.
Rate Expectations
The Australian dollar jumped to 75.57 U.S. cents at 12:11 p.m. in Sydney from 74.72 cents before the report was released. The two-year government bond yield climbed 11 basis points, or 0.11 percentage point, to 3.47 percent.
Traders now expect Australia’s benchmark interest rate will be higher in a year, according to a Credit Suisse Group index based on swaps trading.
Traders forecast the overnight cash rate target will be 8 basis points higher in 12 months, the index showed at 12:19 p.m. today in Sydney. Earlier today, they expected it to be 13 basis points lower and at the start of April, they forecast 37 basis points in reductions.
Reports yesterday showed Australian retail sales surged 2.2 percent in March from February, more than four times the increase that economists had forecast, and the trade surplus widened to the second highest on record as farm exports jumped.
Full-Time Jobs
The number of full-time jobs gained 49,100 in April and part-time employment decreased 21,800, today’s report showed.
“These are extraordinary numbers,” said Brian Redican, senior economist at Macquarie Group Ltd. in Sydney. “Things are not as bad in the economy as some people thought.”
To underpin the economy, Prime Minister Kevin Rudd is spending almost A$90 billion ($66 billion) on infrastructure, bond-market guarantees and cash handouts to consumers.
The central bank also moved to stoke domestic demand after the economy shrank in the fourth quarter for the first time in eight years. Policy makers cut the benchmark rate by a record 4.25 percentage points between September and April.
“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Governor Stevens said on May 5, when he left the rate unchanged.
Aldi said in February it will hire 2,600 people along Australia’s eastern coast this year as it opens as many as 30 new supermarkets. Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.
Read more here
The number of people employed climbed 27,300 from March, the statistics bureau said in Sydney today. The median estimate of 19 economists surveyed by Bloomberg was for a decline of 25,000. The jobless rate fell to 5.4 percent from 5.7 percent.
Bonds yields rose on speculation the Reserve Bank of Australia’s record round of interest-rate cuts may be close to an end. A New Zealand report today showed that nation’s unemployment rate increased less than expected and U.S. figures yesterday revealed companies cut fewer jobs in April, adding to evidence the global contraction may be abating.
“We’re starting to see signs the global economy is recovering,” said Savanth Sebastian, an economist at Commonwealth Bank of Australia in Sydney. “The fundamentals for the Australian economy were very sound before this global economic crisis. Employers are a lot more hesitant in culling staff.”
Central bank Governor Glenn Stevens said this week that the effect on the economy of six interest-rate cuts since early September, which have taken the benchmark to a 49-year low of 3 percent, and government spending are “yet to be observed.”
Supermarket chains Woolworths Ltd. and Aldi are among companies that have announced plans to hire more workers in Australia.
Rate Expectations
The Australian dollar jumped to 75.57 U.S. cents at 12:11 p.m. in Sydney from 74.72 cents before the report was released. The two-year government bond yield climbed 11 basis points, or 0.11 percentage point, to 3.47 percent.
Traders now expect Australia’s benchmark interest rate will be higher in a year, according to a Credit Suisse Group index based on swaps trading.
Traders forecast the overnight cash rate target will be 8 basis points higher in 12 months, the index showed at 12:19 p.m. today in Sydney. Earlier today, they expected it to be 13 basis points lower and at the start of April, they forecast 37 basis points in reductions.
Reports yesterday showed Australian retail sales surged 2.2 percent in March from February, more than four times the increase that economists had forecast, and the trade surplus widened to the second highest on record as farm exports jumped.
Full-Time Jobs
The number of full-time jobs gained 49,100 in April and part-time employment decreased 21,800, today’s report showed.
“These are extraordinary numbers,” said Brian Redican, senior economist at Macquarie Group Ltd. in Sydney. “Things are not as bad in the economy as some people thought.”
To underpin the economy, Prime Minister Kevin Rudd is spending almost A$90 billion ($66 billion) on infrastructure, bond-market guarantees and cash handouts to consumers.
The central bank also moved to stoke domestic demand after the economy shrank in the fourth quarter for the first time in eight years. Policy makers cut the benchmark rate by a record 4.25 percentage points between September and April.
“The stance of monetary policy, together with the substantial fiscal initiatives, will provide significant support to domestic demand over the period ahead,” Governor Stevens said on May 5, when he left the rate unchanged.
Aldi said in February it will hire 2,600 people along Australia’s eastern coast this year as it opens as many as 30 new supermarkets. Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.
Read more here
Tuesday, May 5, 2009
Bankruptcy Sleuths Find Cash in Trader Receipts for Lap Dancers
(Bloomberg) -- As Sentinel Management Group Inc. neared collapse in August 2007, piling up $950 million in losses, the Northbrook, Illinois-based investment firm wrote clients, saying it was yet another victim of the credit crunch -- an asset manager that grew too fast as it tried to ratchet up gains for customers.
The Securities and Exchange Commission didn’t buy the explanation of the 28-year-old company, which had about $1.4 billion under management, most of it for futures or commodities traders and hedge funds.
After a week-long examination, the SEC filed a civil suit against Sentinel in U.S. District Court in Chicago, accusing the company of, among other things, using client money to secure a $500 million credit line.
“The clients had no way of knowing that their assets had been used by Sentinel to obtain financing for its own purposes,” the SEC complaint says.
The task of unwinding Sentinel’s affairs and recovering money for an estimated 200 customers now falls to 56-year-old Frederick Grede, a former Chicago Board of Trade executive who is among the nation’s more than 1,400 federally appointed bankruptcy trustees.
These trustees -- along with overseers known as receivers -- find themselves in brisk demand these days as they sort through an avalanche of companies felled by the credit crisis and an assortment of alleged crooks and con artists who may have played a role in it.
Avalanche of Cases
On March 12, Bernard Madoff pleaded guilty to 11 counts of fraud as the operator of a $65 billion Ponzi scheme, the largest such fraud in history. With 64,318 companies filing for some form of bankruptcy last year -- a 50 percent increase from 2007 -- the job seldom has been more crucial.
“What receivers do is indispensable,” says Lewis Freeman, a Miami forensic accountant who has served as both a receiver and a trustee in overseeing the recovery and disposition of assets of companies that have collapsed as a result of frauds and the credit crunch.
“If you think of a case such as Madoff, the receiver all of a sudden is the CEO of a $50 billion fraud, responsible for preserving the assets, gathering information and figuring out where all the money went.”
Trustees and receivers bring broad powers to their jobs, sometimes sparking controversy. They can file civil suits on behalf of creditors, including investors, to recover money. Results of their civil investigations may lead to criminal charges by state or federal prosecutors.
Broad Powers
Federal bankruptcy law has evolved as a loosely regulated field, with no uniform application from jurisdiction to jurisdiction and no standard set of qualifications for those like Grede who get assigned to undertake the often complex work of mopping up defunct or troubled firms.
Grede is new to the trustee field. He won appointment by a federal bankruptcy judge in August 2007 after being nominated by a Sentinel creditors committee, whose members knew him from his 30-year career as a commodities executive. He started out in the Chicago Board of Trade’s surveillance department, conducting spot audits of traders.
A lawyer by education, he brings to his new job a digger’s mentality and a detective’s suspicious mind. His work on the Sentinel case is emblematic of what is core to a trustee’s job: to get to the bottom of a company’s collapse in order to recover assets for creditors.
As he delved into Sentinel’s demise, Grede says the case began to look like a parable of the current economic crisis. Grede laid out that case in a lawsuit filed in October 2007 in Chicago’s U.S. bankruptcy court against Sentinel’s chief trader, Charles Mosley, and its controlling shareholders, CEO Eric Bloom and his father, Philip Bloom, the company’s founder.
‘Phony’ Returns
In that suit, he alleges that the company defrauded and misled clients with “phony” returns while assuring those customers their cash was being parked in safe, liquid commercial paper or U.S. Treasuries. Grede says Sentinel was actually making huge bets on unorthodox 30-year instruments that turned out to be another example of financial engineering gone awry -- and hiding those bets with misleading accounting.
Grede says he began to understand Sentinel’s fondness for those instruments as he probed the machinations of Mosley, who had an alleged fondness for boozy lap dances, limousine rides and, according to additional lawsuits filed by Grede against outside brokers, bribes.
“I call it leverage gone wild,” Grede says. Neither Mosley, nor his lawyers, returned phone calls or e-mails seeking comment. The Blooms, in a settlement of Grede’s suit, agreed to return $10.7 million to Sentinel’s estate in exchange for a release of all claims.
Read more here
The Securities and Exchange Commission didn’t buy the explanation of the 28-year-old company, which had about $1.4 billion under management, most of it for futures or commodities traders and hedge funds.
After a week-long examination, the SEC filed a civil suit against Sentinel in U.S. District Court in Chicago, accusing the company of, among other things, using client money to secure a $500 million credit line.
“The clients had no way of knowing that their assets had been used by Sentinel to obtain financing for its own purposes,” the SEC complaint says.
The task of unwinding Sentinel’s affairs and recovering money for an estimated 200 customers now falls to 56-year-old Frederick Grede, a former Chicago Board of Trade executive who is among the nation’s more than 1,400 federally appointed bankruptcy trustees.
These trustees -- along with overseers known as receivers -- find themselves in brisk demand these days as they sort through an avalanche of companies felled by the credit crisis and an assortment of alleged crooks and con artists who may have played a role in it.
Avalanche of Cases
On March 12, Bernard Madoff pleaded guilty to 11 counts of fraud as the operator of a $65 billion Ponzi scheme, the largest such fraud in history. With 64,318 companies filing for some form of bankruptcy last year -- a 50 percent increase from 2007 -- the job seldom has been more crucial.
“What receivers do is indispensable,” says Lewis Freeman, a Miami forensic accountant who has served as both a receiver and a trustee in overseeing the recovery and disposition of assets of companies that have collapsed as a result of frauds and the credit crunch.
“If you think of a case such as Madoff, the receiver all of a sudden is the CEO of a $50 billion fraud, responsible for preserving the assets, gathering information and figuring out where all the money went.”
Trustees and receivers bring broad powers to their jobs, sometimes sparking controversy. They can file civil suits on behalf of creditors, including investors, to recover money. Results of their civil investigations may lead to criminal charges by state or federal prosecutors.
Broad Powers
Federal bankruptcy law has evolved as a loosely regulated field, with no uniform application from jurisdiction to jurisdiction and no standard set of qualifications for those like Grede who get assigned to undertake the often complex work of mopping up defunct or troubled firms.
Grede is new to the trustee field. He won appointment by a federal bankruptcy judge in August 2007 after being nominated by a Sentinel creditors committee, whose members knew him from his 30-year career as a commodities executive. He started out in the Chicago Board of Trade’s surveillance department, conducting spot audits of traders.
A lawyer by education, he brings to his new job a digger’s mentality and a detective’s suspicious mind. His work on the Sentinel case is emblematic of what is core to a trustee’s job: to get to the bottom of a company’s collapse in order to recover assets for creditors.
As he delved into Sentinel’s demise, Grede says the case began to look like a parable of the current economic crisis. Grede laid out that case in a lawsuit filed in October 2007 in Chicago’s U.S. bankruptcy court against Sentinel’s chief trader, Charles Mosley, and its controlling shareholders, CEO Eric Bloom and his father, Philip Bloom, the company’s founder.
‘Phony’ Returns
In that suit, he alleges that the company defrauded and misled clients with “phony” returns while assuring those customers their cash was being parked in safe, liquid commercial paper or U.S. Treasuries. Grede says Sentinel was actually making huge bets on unorthodox 30-year instruments that turned out to be another example of financial engineering gone awry -- and hiding those bets with misleading accounting.
Grede says he began to understand Sentinel’s fondness for those instruments as he probed the machinations of Mosley, who had an alleged fondness for boozy lap dances, limousine rides and, according to additional lawsuits filed by Grede against outside brokers, bribes.
“I call it leverage gone wild,” Grede says. Neither Mosley, nor his lawyers, returned phone calls or e-mails seeking comment. The Blooms, in a settlement of Grede’s suit, agreed to return $10.7 million to Sentinel’s estate in exchange for a release of all claims.
Read more here
Monday, May 4, 2009
Fiat Raises Opel Offer To EUR1 Billion - Union Source
(AFP)--Italian auto maker Fiat SpA (F.MI) has raised its offer for troubled German rival Adam Opel AG to EUR1 billion, a labor leader told AFP Monday.
"Fiat has raised its offer a little to EUR1 billion," Rainer Einenkel, head of the Opel works committee at Opel's factory in Bochum in west Germany, said.
Another German union leader, Armin Schild, had said previously that the offer was worth less than EUR750 million.
But Einenkel, who works at the Opel plant in western Bochum, said one billion wasn't enough, noting that Opel needed EUR3.3 billion to keep running and develop further.
Fiat has not yet unveiled a true "financial plan and production plan," he added.
Read more here
"Fiat has raised its offer a little to EUR1 billion," Rainer Einenkel, head of the Opel works committee at Opel's factory in Bochum in west Germany, said.
Another German union leader, Armin Schild, had said previously that the offer was worth less than EUR750 million.
But Einenkel, who works at the Opel plant in western Bochum, said one billion wasn't enough, noting that Opel needed EUR3.3 billion to keep running and develop further.
Fiat has not yet unveiled a true "financial plan and production plan," he added.
Read more here
Sunday, May 3, 2009
Colleges Flunk Economics Test as Harvard Model Destroys Budgets
(Bloomberg) -- On a Thursday morning in March, the $32 million School of Management building at Simmons College in Boston is all but deserted. Three students lounge in armchairs facing floor-to-ceiling windows that look over the quad with its winding walkways and greening lawn; another makes photocopies.
“This building is always empty,” says Raya Alazzouni, a sophomore from Saudi Arabia who’s studying graphic design and taking courses in the management school.
Simmons, home to 4,700 students, opened the 66,500-square- foot (6,200-square-meter) center in January, two months before the U.S. stock market hit its lowest point in 12 years. Even before the ribbon cutting, enrollment in the management school had been dropping.
Now, the vacant halls are reminders of the new math confounding U.S. colleges. Students, pummeled by scarce loans and savings plans that have fallen as much as 40 percent, are heading for less expensive schools. The perks designed to lure them during boom times -- from hot tubs to dorm-suite kitchenettes, to in-room cable TV -- are crushing universities with debt. Even projects like Simmons’s “green” management building, with its rain-absorbing roof patio and toilets with two flushing modes, can turn into burdens as schools struggle with rising expenses, plummeting endowments and needier applicants.
‘Spending Binge’
“The spending binge by colleges and universities was part of the same trend that created the bubble in the rest of the economy,” says Ronald Ehrenberg, an economics professor at Cornell University in Ithaca, New York, and author of “Tuition Rising: Why College Costs So Much” (Harvard University Press, 2000). “Now we’re seeing it burst.”
From Harvard University to California’s 3 million-student community college network, the American system of higher education is in turmoil. The economic crash is upending each step in the equation that families use to determine where students will spend four of their most formative -- and expensive -- years. Today is the deadline that most schools set to receive a decision from accepted applicants.
Independent colleges that lack a national name or must-have majors are hardest hit. Many gorged on debt for construction, technology and creature comforts. Now, as endowments tumble and bills mount, they’re struggling to attract cash-strapped families who are navigating their own financial woes.
Shutter Their Doors
Such mid-tier institutions may be forced to change what they do to survive. In the best case, they’ll merge with bigger schools, sell themselves to for-profit organizations or offer vocational training that elite colleges eschew, says Sandy Baum, a senior policy analyst at the College Board. In the worst case, they’ll shutter their doors for good.
Standard & Poor’s predicts bankruptcies will rise from the typical one or two schools that fold each year.
“Small colleges with no reputation could go out of business,” Baum says. “They’re very tuition-driven, so if they can’t get tuition revenues, they’ll be in really bad shape.”
College of Santa Fe, a private liberal arts institution, is one casualty. On March 24, the 1,900-student school in New Mexico announced it was closing. The reasons: It couldn’t pay its $30 million in debt, and talks to join with New Mexico Highlands University, a state school, broke down.
Richard Kneedler, a former president of Franklin & Marshall College, a Lancaster, Pennsylvania-based college founded in 1787 with financial support from Benjamin Franklin, says many small schools face the same predicament.
Read more here
“This building is always empty,” says Raya Alazzouni, a sophomore from Saudi Arabia who’s studying graphic design and taking courses in the management school.
Simmons, home to 4,700 students, opened the 66,500-square- foot (6,200-square-meter) center in January, two months before the U.S. stock market hit its lowest point in 12 years. Even before the ribbon cutting, enrollment in the management school had been dropping.
Now, the vacant halls are reminders of the new math confounding U.S. colleges. Students, pummeled by scarce loans and savings plans that have fallen as much as 40 percent, are heading for less expensive schools. The perks designed to lure them during boom times -- from hot tubs to dorm-suite kitchenettes, to in-room cable TV -- are crushing universities with debt. Even projects like Simmons’s “green” management building, with its rain-absorbing roof patio and toilets with two flushing modes, can turn into burdens as schools struggle with rising expenses, plummeting endowments and needier applicants.
‘Spending Binge’
“The spending binge by colleges and universities was part of the same trend that created the bubble in the rest of the economy,” says Ronald Ehrenberg, an economics professor at Cornell University in Ithaca, New York, and author of “Tuition Rising: Why College Costs So Much” (Harvard University Press, 2000). “Now we’re seeing it burst.”
From Harvard University to California’s 3 million-student community college network, the American system of higher education is in turmoil. The economic crash is upending each step in the equation that families use to determine where students will spend four of their most formative -- and expensive -- years. Today is the deadline that most schools set to receive a decision from accepted applicants.
Independent colleges that lack a national name or must-have majors are hardest hit. Many gorged on debt for construction, technology and creature comforts. Now, as endowments tumble and bills mount, they’re struggling to attract cash-strapped families who are navigating their own financial woes.
Shutter Their Doors
Such mid-tier institutions may be forced to change what they do to survive. In the best case, they’ll merge with bigger schools, sell themselves to for-profit organizations or offer vocational training that elite colleges eschew, says Sandy Baum, a senior policy analyst at the College Board. In the worst case, they’ll shutter their doors for good.
Standard & Poor’s predicts bankruptcies will rise from the typical one or two schools that fold each year.
“Small colleges with no reputation could go out of business,” Baum says. “They’re very tuition-driven, so if they can’t get tuition revenues, they’ll be in really bad shape.”
College of Santa Fe, a private liberal arts institution, is one casualty. On March 24, the 1,900-student school in New Mexico announced it was closing. The reasons: It couldn’t pay its $30 million in debt, and talks to join with New Mexico Highlands University, a state school, broke down.
Richard Kneedler, a former president of Franklin & Marshall College, a Lancaster, Pennsylvania-based college founded in 1787 with financial support from Benjamin Franklin, says many small schools face the same predicament.
Read more here
Tuesday, April 28, 2009
The new China rules for investing
(Fortune) -- It feels nothing like 2007 these days, except in one respect: Chinese stocks are outperforming again. The MSCI China Index, which tracks stocks traded in Hong Kong, has climbed 67% since late October (the S&P 500 has risen 2% in that time).
Analysts are debating whether or not the rally - which has slowed in recent weeks - will persist. Morgan Stanley strategist Jerry Lou warned investors last week that Chinese stocks were overvalued, writing in a note, "Although we now envision a marginally less severe earnings recession in 2009...the market has rallied ahead of fundamentals." Meanwhile, Goldman Sach's Hong Kong strategist, Timothy Moe, raised his forecasts for two Chinese stock indexes on Monday.
"People are worried that these stocks have run up too far," says Hong Hao, an analyst at Brean, Murray, Carret & Co. "But we're still talking about extremely low valuation multiples." The price to earnings ratio of the MSCI China index is currently 12 - three points higher than it was last fall, but twenty points lower than it was in late 2007.
Like U.S. companies, Chinese businesses are reporting underwhelming (although less dismal) earnings. Telecom China Mobile's 5% profit growth last quarter fell below analyst estimates, and state-owned carrier Air China's earnings declined 6%. But while the U.S. market has received little support from its sagging economy, China's economic data has perked up.
"Just about every indicator in China suggests that things have been looking up for months," says Larry Kantor, the head of research at Barclays Capital. "If I had to pinpoint a bottom, I'd say it happened in November or December."
Last fall, the Chinese market was stuck in a rut - stocks sank 60% from August through October, and the country' once-unstoppable gross domestic product growth began to peter out. When American investors' emerging market funds plummeted, they learned that China's export-driven economy was far from decoupled from the U.S.
Read more here
Analysts are debating whether or not the rally - which has slowed in recent weeks - will persist. Morgan Stanley strategist Jerry Lou warned investors last week that Chinese stocks were overvalued, writing in a note, "Although we now envision a marginally less severe earnings recession in 2009...the market has rallied ahead of fundamentals." Meanwhile, Goldman Sach's Hong Kong strategist, Timothy Moe, raised his forecasts for two Chinese stock indexes on Monday.
"People are worried that these stocks have run up too far," says Hong Hao, an analyst at Brean, Murray, Carret & Co. "But we're still talking about extremely low valuation multiples." The price to earnings ratio of the MSCI China index is currently 12 - three points higher than it was last fall, but twenty points lower than it was in late 2007.
Like U.S. companies, Chinese businesses are reporting underwhelming (although less dismal) earnings. Telecom China Mobile's 5% profit growth last quarter fell below analyst estimates, and state-owned carrier Air China's earnings declined 6%. But while the U.S. market has received little support from its sagging economy, China's economic data has perked up.
"Just about every indicator in China suggests that things have been looking up for months," says Larry Kantor, the head of research at Barclays Capital. "If I had to pinpoint a bottom, I'd say it happened in November or December."
Last fall, the Chinese market was stuck in a rut - stocks sank 60% from August through October, and the country' once-unstoppable gross domestic product growth began to peter out. When American investors' emerging market funds plummeted, they learned that China's export-driven economy was far from decoupled from the U.S.
Read more here
Monday, April 27, 2009
Bair Looks Beyond Stress Tests, Seeks End to ‘Too Big to Fail’
(Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair, looking beyond stress tests that will determine the health of the top 19 U.S. banks, said her agency should have the authority to close even the biggest lenders.
The “too-big-to-fail concept” should be “tossed into the dustbin,” and the FDIC should have the power to close “systemically important” financial firms, Bair said in a New York speech yesterday. “Given our many years of experience resolving banks and closing them, we’re well-suited to run a new resolution program,” she said.
Analysts are recalibrating their estimates of the results of the federal bank examinations after the government announced the test methodology last week. Lenders were given preliminary results on April 24 and have time to discuss them with regulators before the full readings are released on May 4.
“If the FDIC had the authority to close down non-banks as they’ve been able to close down banks, the cost to the taxpayer would have been much less,” said Sung Won-Sohn, former chief economist at Wells Fargo & Co. who is now a professor of economics and finance at California State University Channel Islands in Camarillo. “With the authority she’s talking about, the government could take preemptive action.”
U.S. regulators have provided more than $90 billion to Citigroup Inc. and Bank of America Corp., given more than $180 billion in loans to American International Group Inc. and established debt-guarantee programs. The FDIC wound down 29 failed banks and thrifts this year.
‘Unnecessary’
Analysts including Richard Bove of Rochdale Securities say the stress tests aren’t useful.
“This test still strikes me as being unnecessary, dangerous, and poorly conceived,” Bove wrote in an April 25 note to clients. “My fear is that this program will not only fail to raise more capital, but it will force banks to contract.”
Regions Financial Corp., the Alabama bank that has accepted $3.5 billion in U.S. assistance, declined 12 percent in New York trading yesterday as analysts said regulators may push the company to raise more capital to offset mounting losses.
The bank “probably has been told to raise additional equity capital with $7 billion to $8 billion of projected 2009- 2010 losses vs. $4 billion to $5 billion of pretax, pre- provision income,” analyst Jeff Davis of Howe Barnes Hoefer & Arnett Inc. said in a report yesterday.
Read more here
The “too-big-to-fail concept” should be “tossed into the dustbin,” and the FDIC should have the power to close “systemically important” financial firms, Bair said in a New York speech yesterday. “Given our many years of experience resolving banks and closing them, we’re well-suited to run a new resolution program,” she said.
Analysts are recalibrating their estimates of the results of the federal bank examinations after the government announced the test methodology last week. Lenders were given preliminary results on April 24 and have time to discuss them with regulators before the full readings are released on May 4.
“If the FDIC had the authority to close down non-banks as they’ve been able to close down banks, the cost to the taxpayer would have been much less,” said Sung Won-Sohn, former chief economist at Wells Fargo & Co. who is now a professor of economics and finance at California State University Channel Islands in Camarillo. “With the authority she’s talking about, the government could take preemptive action.”
U.S. regulators have provided more than $90 billion to Citigroup Inc. and Bank of America Corp., given more than $180 billion in loans to American International Group Inc. and established debt-guarantee programs. The FDIC wound down 29 failed banks and thrifts this year.
‘Unnecessary’
Analysts including Richard Bove of Rochdale Securities say the stress tests aren’t useful.
“This test still strikes me as being unnecessary, dangerous, and poorly conceived,” Bove wrote in an April 25 note to clients. “My fear is that this program will not only fail to raise more capital, but it will force banks to contract.”
Regions Financial Corp., the Alabama bank that has accepted $3.5 billion in U.S. assistance, declined 12 percent in New York trading yesterday as analysts said regulators may push the company to raise more capital to offset mounting losses.
The bank “probably has been told to raise additional equity capital with $7 billion to $8 billion of projected 2009- 2010 losses vs. $4 billion to $5 billion of pretax, pre- provision income,” analyst Jeff Davis of Howe Barnes Hoefer & Arnett Inc. said in a report yesterday.
Read more here
Thursday, April 23, 2009
Easing bottleneck shifts the bet on oil futures
(MarketWatch) - The fast-shrinking price gap between crude-oil futures for prompt delivery and crude destined for delivery months down the road is backfiring on investors who bet big that the gap would widen.
At the same time, the trend is playing nicely into the hands of investors in oil exchange-traded funds, who stand to benefit from the loss of a somewhat obscure hidden cost along the lengthy supply chain.
That cost loops back to Cushing, Oklahoma, the delivery point for light sweet crude contracts traded on the New York Mercantile Exchange. As a weak economy slowed demand for oil, crude supplies backed up at Cushing, with sellers wanting to hold barrels in anticipation of a price rebound. This, in turn, put further pressure on near-term prices as storage became a problem.
Late last year, this situation resulted in the January crude contract trading at a $8.49 discount to crude for delivery in February, a record between two successive months' contracts, and a situation known among futures traders as contango. The discount was so steep it got the label "super contango." See related story.
Demand for storage prompted oil supertankers around the world to drop anchor and become floating oil storage tanks.
But since December the contango gap has dropped sharply to less than $2, as Midwest refiners slowly shipped oil stored at Cushing to their refineries.
That drop has been a blow to the mostly institutional investors who took part in these complex trades, betting that the gap would stay wide. But for individual investors, who tend to simply bet on the direction of a single-month contract, the drop in the price gap has brought some relief from a so-called "roll-yield" cost that hits exchange-traded funds.
This cost, which is caused when ETFs that hold the front-month oil contract move their holdings into the next month contract, can penalize holders of funds like the United States Oil Fund , the biggest oil ETF.
The narrowing of contango will help reduce this cost, the fund says.
That relief may soon disappear, however. As summer driving season approaches, analysts expect contango to change course again, although not to approach its earlier record.
"You really have demand destruction now," said Tariq Zahir, managing member of New York-based trading firm Tyche Capital Advisors. Weak demand is pressuring the price of the front-month contract, he said.
"But you get a little bit support [in the following months] with the hurricane season coming up, and of course the driving season coming up, that can keep the price further out high," he added.
Zahir said he is betting on a wider contango going into summer. But he said he isn't trading the front-month contract because of "higher volatility," instead choosing to enter a contango trade between the July and August contracts.
As of Thursday's close, contango between the front-month June contract and July contract stood at $1.45 a barrel, while contango between the July and August contract stood at $1.26.
On Thursday oil ended up 77 cents, or 1.6%, to $49.62 a barrel. Front-month contracts have gained 11% so far this year
Read more here
At the same time, the trend is playing nicely into the hands of investors in oil exchange-traded funds, who stand to benefit from the loss of a somewhat obscure hidden cost along the lengthy supply chain.
That cost loops back to Cushing, Oklahoma, the delivery point for light sweet crude contracts traded on the New York Mercantile Exchange. As a weak economy slowed demand for oil, crude supplies backed up at Cushing, with sellers wanting to hold barrels in anticipation of a price rebound. This, in turn, put further pressure on near-term prices as storage became a problem.
Late last year, this situation resulted in the January crude contract trading at a $8.49 discount to crude for delivery in February, a record between two successive months' contracts, and a situation known among futures traders as contango. The discount was so steep it got the label "super contango." See related story.
Demand for storage prompted oil supertankers around the world to drop anchor and become floating oil storage tanks.
But since December the contango gap has dropped sharply to less than $2, as Midwest refiners slowly shipped oil stored at Cushing to their refineries.
That drop has been a blow to the mostly institutional investors who took part in these complex trades, betting that the gap would stay wide. But for individual investors, who tend to simply bet on the direction of a single-month contract, the drop in the price gap has brought some relief from a so-called "roll-yield" cost that hits exchange-traded funds.
This cost, which is caused when ETFs that hold the front-month oil contract move their holdings into the next month contract, can penalize holders of funds like the United States Oil Fund , the biggest oil ETF.
The narrowing of contango will help reduce this cost, the fund says.
That relief may soon disappear, however. As summer driving season approaches, analysts expect contango to change course again, although not to approach its earlier record.
"You really have demand destruction now," said Tariq Zahir, managing member of New York-based trading firm Tyche Capital Advisors. Weak demand is pressuring the price of the front-month contract, he said.
"But you get a little bit support [in the following months] with the hurricane season coming up, and of course the driving season coming up, that can keep the price further out high," he added.
Zahir said he is betting on a wider contango going into summer. But he said he isn't trading the front-month contract because of "higher volatility," instead choosing to enter a contango trade between the July and August contracts.
As of Thursday's close, contango between the front-month June contract and July contract stood at $1.45 a barrel, while contango between the July and August contract stood at $1.26.
On Thursday oil ended up 77 cents, or 1.6%, to $49.62 a barrel. Front-month contracts have gained 11% so far this year
Read more here
Wednesday, April 22, 2009
Li Scraps Bid to Buy Out PCCW After Hong Kong Court Blocks Deal
(Bloomberg) -- PCCW Ltd. Chairman Richard Li abandoned his $2.1 billion bid to buy out Hong Kong’s biggest phone company after the city’s Court of Appeal blocked the deal, prompting the stock’s biggest decline in more than eight years.
Li and co-bidder China United Network Communications Group Corp. will not extend the offer beyond the original deadline of today, PCCW said in a statement to the city’s stock exchange. The shares, which resumed trading after being suspended since April 16, plunged 14 percent to HK$3.54 as of 10:01 a.m., the biggest decline since September 2000.
The Court of Appeal yesterday overturned a lower-court verdict on April 6, blocking Li’s five-month effort to buy the city’s biggest phone company. The ruling may prevent Li, who has tried to reduce his PCCW stake three times in the past three years, from taking over the company for at least 12 months.
“Regulations prohibit another bid for a year,” Anand Ramachandran, an analyst at Citigroup Inc., wrote in a report today. “An aborted stake sale process has proven other acquirers are not willing to pay what shareholders desire.” Citigroup downgraded the stock to “sell” from “hold” and cut the share- price estimate 27 percent to HK$3.
Li, the 42-year-old son of Hong Kong’s richest man, and co- bidder China United, which is the second-biggest shareholder in the phone company, offered to pay HK$4.50 a share to take over the company.
PCCW will continue with the planned payment of a special dividend of HK$1.30 per share and will resume its regular payout policy, the company said in the statement.
Read more here
Li and co-bidder China United Network Communications Group Corp. will not extend the offer beyond the original deadline of today, PCCW said in a statement to the city’s stock exchange. The shares, which resumed trading after being suspended since April 16, plunged 14 percent to HK$3.54 as of 10:01 a.m., the biggest decline since September 2000.
The Court of Appeal yesterday overturned a lower-court verdict on April 6, blocking Li’s five-month effort to buy the city’s biggest phone company. The ruling may prevent Li, who has tried to reduce his PCCW stake three times in the past three years, from taking over the company for at least 12 months.
“Regulations prohibit another bid for a year,” Anand Ramachandran, an analyst at Citigroup Inc., wrote in a report today. “An aborted stake sale process has proven other acquirers are not willing to pay what shareholders desire.” Citigroup downgraded the stock to “sell” from “hold” and cut the share- price estimate 27 percent to HK$3.
Li, the 42-year-old son of Hong Kong’s richest man, and co- bidder China United, which is the second-biggest shareholder in the phone company, offered to pay HK$4.50 a share to take over the company.
PCCW will continue with the planned payment of a special dividend of HK$1.30 per share and will resume its regular payout policy, the company said in the statement.
Read more here
Monday, April 20, 2009
DRDGold less risky by Sept '09
DRDGold is ramping up gold output from surface and underground operations as it looks for project-level acquisitions to grow the company, an issue further down on its list of priorities.
"We are not a one big-deal company. If something is for sale that fits a profile of making money or is close to making money that is not ultra-deep, or a company killer, like we used to own at Buffelsfontein, we would look at buying it," said DRDGold CEO Niel Pretorius.
"We would look to grow our production by way of small, intelligent acquisitions, maybe at project level and not so much at corporate level," he told Miningmx in a recent interview.
However, acquisitions are not top of mind at the moment, with management preferring to focus on bringing its Ergo surface treatment operation into steady state production from September, keeping output disruptions at its Crown and City Deep operations at a minimum and working on ramping up tonnages from its Blyvoor mine.
DRDGold's output is drawn equally from surface and tailings operations. That will change when Ergo hits its stride, with two-thirds of the group's gold coming from a cheaper, safer surface project.
Ergo is forecast to produce 75 000 ounces/year at $550/oz. Crown produced 87 400 oz in financial 2008, at a cost of $553/oz.
"A larger percentage of ounces coming in below $600/oz will soften the impact of those months when underground costs spiral," Pretorius said. "Not only that, but having more surface ounces significantly de-risks the company."
Management wants infrastructure in place to pump material from its Crown and City Deep projects once the deposition sites they are using are full.
"What we want to look at once we achieve steady state production is how quickly we can link Central Rand to the far East Rand in order to perpetuate life of Crown and City Deep," Pretorius said.
"We are in the hands of the contractor there and it depends how nervous they get. We've enough time to finish Top Star, but that might change tomorrow," he said.
"We have enough deposition space on the East Rand to provide for Ergo and Central Rand. I want to get running sooner rather than later on linking Central Rand to Ergo, because I don't want to see an interruption to any of our production."
Read more here
"We are not a one big-deal company. If something is for sale that fits a profile of making money or is close to making money that is not ultra-deep, or a company killer, like we used to own at Buffelsfontein, we would look at buying it," said DRDGold CEO Niel Pretorius.
"We would look to grow our production by way of small, intelligent acquisitions, maybe at project level and not so much at corporate level," he told Miningmx in a recent interview.
However, acquisitions are not top of mind at the moment, with management preferring to focus on bringing its Ergo surface treatment operation into steady state production from September, keeping output disruptions at its Crown and City Deep operations at a minimum and working on ramping up tonnages from its Blyvoor mine.
DRDGold's output is drawn equally from surface and tailings operations. That will change when Ergo hits its stride, with two-thirds of the group's gold coming from a cheaper, safer surface project.
Ergo is forecast to produce 75 000 ounces/year at $550/oz. Crown produced 87 400 oz in financial 2008, at a cost of $553/oz.
"A larger percentage of ounces coming in below $600/oz will soften the impact of those months when underground costs spiral," Pretorius said. "Not only that, but having more surface ounces significantly de-risks the company."
Management wants infrastructure in place to pump material from its Crown and City Deep projects once the deposition sites they are using are full.
"What we want to look at once we achieve steady state production is how quickly we can link Central Rand to the far East Rand in order to perpetuate life of Crown and City Deep," Pretorius said.
"We are in the hands of the contractor there and it depends how nervous they get. We've enough time to finish Top Star, but that might change tomorrow," he said.
"We have enough deposition space on the East Rand to provide for Ergo and Central Rand. I want to get running sooner rather than later on linking Central Rand to Ergo, because I don't want to see an interruption to any of our production."
Read more here
Thursday, April 16, 2009
S.Africa says growth, jobs targets "implausible"
(Reuters) - South Africa's target of lifting economic growth to an average of 6 percent between 2010 and 2014 appears "implausible" due to the global economic downturn, the government said on Thursday.
It will also struggle to meet its aim of halving unemployment.
It added, however, that the government would not yet lower the targets due to the uncertainty surrounding the global recession.
An economic plan formed in 2006, known as the Accelerated and Shared Growth Initiative for South Africa, set out plans to boost growth and cut poverty in Africa's biggest economy.
But the latest annual report of the programme warns the global economic recession, which it says may continue for longer than previously expected, made its goals difficult.
"The result is that the original AsgiSA target of growing at an average rate of 6 percent between 2010 and 2014 now may appear implausible," the report said.
"In turn, the target of reducing poverty by half ... or less in 2010 may appear to be endangered, and possibly also the target of halving poverty between 2004 and 2014."
South Africa's economy expanded by an average 5 percent in the four years to 2007, but growth slowed to 3.1 percent last year, knocked by electricity shortages and slowing world growth.
Read more here
It will also struggle to meet its aim of halving unemployment.
It added, however, that the government would not yet lower the targets due to the uncertainty surrounding the global recession.
An economic plan formed in 2006, known as the Accelerated and Shared Growth Initiative for South Africa, set out plans to boost growth and cut poverty in Africa's biggest economy.
But the latest annual report of the programme warns the global economic recession, which it says may continue for longer than previously expected, made its goals difficult.
"The result is that the original AsgiSA target of growing at an average rate of 6 percent between 2010 and 2014 now may appear implausible," the report said.
"In turn, the target of reducing poverty by half ... or less in 2010 may appear to be endangered, and possibly also the target of halving poverty between 2004 and 2014."
South Africa's economy expanded by an average 5 percent in the four years to 2007, but growth slowed to 3.1 percent last year, knocked by electricity shortages and slowing world growth.
Read more here
Wednesday, April 15, 2009
China keeps hold on commodities reins
(MarketWatch) -- Oil and metals mining shares traded on a mixed note in the Asian markets Thursday, as analysts stressed that China remained a key force that will ultimately decide the fate of demand for most major global commodities.
And while economic growth in China appears to be improving, the outlook remains uncertain.
On Thursday, government data showed that the nation's economy grew a slightly better-than-expected 6.1% in the first quarter from a year earlier, after expanding 6.8% in the fourth quarter.
Overall, "China continues to walk a very thin tightrope" and growth remains "below the optimal level to avoid major civil unrest," said Kevin Kerr, editor of Global Commodities Alert.
But that also means that "demand for key commodities such as energy and agriculture, industrial metals and soft commodities will continue to be brisk in China as they try to stave off a major collapse by continuing to use every means possible to stimulate the economy and create infrastructure projects," he said.
"China will clearly be the driving force in commodities during this cycle and perhaps for decades to come," he said.
Read more at MarketWatch
And while economic growth in China appears to be improving, the outlook remains uncertain.
On Thursday, government data showed that the nation's economy grew a slightly better-than-expected 6.1% in the first quarter from a year earlier, after expanding 6.8% in the fourth quarter.
Overall, "China continues to walk a very thin tightrope" and growth remains "below the optimal level to avoid major civil unrest," said Kevin Kerr, editor of Global Commodities Alert.
But that also means that "demand for key commodities such as energy and agriculture, industrial metals and soft commodities will continue to be brisk in China as they try to stave off a major collapse by continuing to use every means possible to stimulate the economy and create infrastructure projects," he said.
"China will clearly be the driving force in commodities during this cycle and perhaps for decades to come," he said.
Read more at MarketWatch
Fiji's central bank devalues currency by 20%
(MarketWatch) -- The Reserve Bank of Fiji said Wednesday that it has devalued its currency by 20%, the same day it appointed a new governor for the central bank, news reports said.
Sada Reddy was named as the new Reserve Bank governor. He said the devaluation was made to the Fijian dollar to cushion the severe effects of the global financial crisis on the nation's economy, according to a report from Agency France-Presse.
The Fiji dollar will now be in line with its major trading partners, such as Australia and New Zealand, the report cited Reddy as saying. The central bank governor also said that correcting the value of the currency will likely benefit exporters and boost tourism.
Read more at MarketWatch
Sada Reddy was named as the new Reserve Bank governor. He said the devaluation was made to the Fijian dollar to cushion the severe effects of the global financial crisis on the nation's economy, according to a report from Agency France-Presse.
The Fiji dollar will now be in line with its major trading partners, such as Australia and New Zealand, the report cited Reddy as saying. The central bank governor also said that correcting the value of the currency will likely benefit exporters and boost tourism.
Read more at MarketWatch
Tuesday, April 14, 2009
Carry Trade Comeback Means Biggest Gains Since 1999
(Bloomberg) -- The carry trade is making a comeback after its longest losing streak in three decades.
Stimulus plans and near-zero interest rates in developed economies are boosting investor confidence in emerging markets and commodity-rich nations with interest rates as much as 12.9 percentage points higher. Using dollars, euros and yen to buy the currencies of Brazil, Hungary, Indonesia, South Africa, New Zealand and Australia earned 8 percent from March 20 to April 10, that trade’s biggest three-week gain since at least 1999, data compiled by Bloomberg show.
Goldman Sachs Group Inc., Insight Investment Management and Fischer Francis Trees & Watts have begun recommending carry trades, which lost favor last year as the worst financial crisis since the Great Depression drove investors to the relative safety of Treasuries. Now efforts to end the first global recession since World War II are sending money into stocks, emerging markets and commodities.
“The global economy seems to have reached an inflection point,” said Dale Thomas, head of currencies at Insight Investment Management in London, which oversees $121 billion. “We’re set for a period of some classic risk currency trades, where you sell the dollar against emerging-market currencies.”
Carry trades use funds in countries with lower borrowing costs to invest in those with higher rates, allowing investors to pocket the difference. Speculators fled the strategy last year as central banks cut rates to revive growth, narrowing spreads, and as currency swings increased risks. Foreign- exchange volatility expectations surged 73 percent in three days to a record on Oct. 24, a JPMorgan Chase & Co. index shows.
Aussie, Real
Thomas recommends the Australian dollar and real in Brazil, where the benchmark central bank rate is 11.25 percent, or about 11 points more than the corresponding U.S. rate.
Borrowing U.S. dollars at the three-month London interbank offered rate of 1.13 percent and using the proceeds to buy real and earn Brazil’s three-month deposit rate of 10.51 percent rate would net an annualized 9.38 percent, as long as both currencies remain stable.
Carry trades were profitable for most of the past three decades. They produced average annual returns of 21 percent in the 1980s with no down years, the best of four commonly used currency strategies, according to ABN Amro Holding NV indexes.
Three Down Years
In the 1990s, carry-trade investors suffered three down years, including a 54 percent slide in 1992, ABN Amro data compiled by Bloomberg show. From 2000 to 2005, the trade was again on top with average gains of 16 percent.
Then it dropped three years in a row in 2006-08, the longest streak since 1976-78, for an annualized average loss of 16.5 percent through Feb. 28. Most of the decline came after June 2008 as the collapse of U.S. subprime mortgages froze credit markets and led to the bankruptcy of New York-based Lehman Brothers Holdings Inc., the biggest corporate failure in history.
As investors fled to the safest assets, the greenback climbed 26 percent between July 15 and March 4, when it reached its highest in almost three years, according to the Intercontinental Exchange Inc. Dollar Index against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona. Prices for Treasuries rose, sending the 10-year note yield to a record low of 2.0352 percent on Dec. 18, from 4.07 percent on Oct. 14.
Read more at Bloomberg
Stimulus plans and near-zero interest rates in developed economies are boosting investor confidence in emerging markets and commodity-rich nations with interest rates as much as 12.9 percentage points higher. Using dollars, euros and yen to buy the currencies of Brazil, Hungary, Indonesia, South Africa, New Zealand and Australia earned 8 percent from March 20 to April 10, that trade’s biggest three-week gain since at least 1999, data compiled by Bloomberg show.
Goldman Sachs Group Inc., Insight Investment Management and Fischer Francis Trees & Watts have begun recommending carry trades, which lost favor last year as the worst financial crisis since the Great Depression drove investors to the relative safety of Treasuries. Now efforts to end the first global recession since World War II are sending money into stocks, emerging markets and commodities.
“The global economy seems to have reached an inflection point,” said Dale Thomas, head of currencies at Insight Investment Management in London, which oversees $121 billion. “We’re set for a period of some classic risk currency trades, where you sell the dollar against emerging-market currencies.”
Carry trades use funds in countries with lower borrowing costs to invest in those with higher rates, allowing investors to pocket the difference. Speculators fled the strategy last year as central banks cut rates to revive growth, narrowing spreads, and as currency swings increased risks. Foreign- exchange volatility expectations surged 73 percent in three days to a record on Oct. 24, a JPMorgan Chase & Co. index shows.
Aussie, Real
Thomas recommends the Australian dollar and real in Brazil, where the benchmark central bank rate is 11.25 percent, or about 11 points more than the corresponding U.S. rate.
Borrowing U.S. dollars at the three-month London interbank offered rate of 1.13 percent and using the proceeds to buy real and earn Brazil’s three-month deposit rate of 10.51 percent rate would net an annualized 9.38 percent, as long as both currencies remain stable.
Carry trades were profitable for most of the past three decades. They produced average annual returns of 21 percent in the 1980s with no down years, the best of four commonly used currency strategies, according to ABN Amro Holding NV indexes.
Three Down Years
In the 1990s, carry-trade investors suffered three down years, including a 54 percent slide in 1992, ABN Amro data compiled by Bloomberg show. From 2000 to 2005, the trade was again on top with average gains of 16 percent.
Then it dropped three years in a row in 2006-08, the longest streak since 1976-78, for an annualized average loss of 16.5 percent through Feb. 28. Most of the decline came after June 2008 as the collapse of U.S. subprime mortgages froze credit markets and led to the bankruptcy of New York-based Lehman Brothers Holdings Inc., the biggest corporate failure in history.
As investors fled to the safest assets, the greenback climbed 26 percent between July 15 and March 4, when it reached its highest in almost three years, according to the Intercontinental Exchange Inc. Dollar Index against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona. Prices for Treasuries rose, sending the 10-year note yield to a record low of 2.0352 percent on Dec. 18, from 4.07 percent on Oct. 14.
Read more at Bloomberg
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