Rock raises £2.25bn from mortgage sale

(FT.com) - Northern Rock expects to raise £2.25bn through the sale of its portfolio of Lifetime home equity release mortgages to JPMorgan Chase at a premium to its balance sheet value.

 

The move is likely to be seen as an encouraging sign that buyers are beginning to emerge for mortgage assets owned by the stricken bank that are regarded as good quality.

 

However it may raise concerns that Northern Rock is selling off the better quality assets, leaving the government and shareholders with less attractive portfolios.

A spokesman for Northern Rock said: "It's not a question of degrees of quality. This was an opportunity to sell a relatively small percentage of our assets."

In another twist in the Northern Rock saga, trustees of the pension scheme have asked the company to place members on the same footing as depositors by setting aside enough mortgage assets to guarantee that all promised benefits could be fully paid if the bank becomes insolvent.

The move, detailed in a letter to scheme members sent on Friday, puts yet more pressure on a government that has already extended more than £25bn in loans to keep Northern Rock solvent.

But the bank would be unable to meet the trustees' request to pledge assets as security without the permission of its regulator and the guarantors of its loans - the Financial Services Authority, Bank of England and the Treasury.

In the letter, Sir David Chapman, chairman of the Trustees, notes that if Northern Rock were to become insolvent immediately "significant additional funds would need to be paid into the scheme" of around £150m to £200m.

Last October, as the lender's woes mounted, Trustees moved to shift the scheme's assets into much less risky areas. Nearly half is currently invested in index-linked government gilts.

But Friday's sale of the mortgage portfolio may raise hopes at the Treasury, the FSA and the Bank that a private sale may still be possible.

However, among leading shareholders concerns that the bank is selling the lender's most desirable assets may rise.

The sale value of £2.2bn, represents a premium of 2.25 per cent or about £50m over the balance sheet value, bringing the total cash proceeds from the agreed sale to £2.25bn. The Lifetime assets comprise about 2 per cent of the company's total assets.

Andy Kuipers, new chief executive, welcomed the sale.

"This...is a positive development in the company's ongoing strategic review," he said in a statement.

"It illustrates the quality of our assets, which has enabled us to achieve a sale at a premium despite continuing difficult financial markets, and will allow the company to reduce its debt to the Bank of England."

Read more at FT.com

FTSE falls amid global weakness, food stocks weigh

(Reuters) - Britain's top share index fell on Friday amid global weakness in equities fuelled by fears of more subprime-related writedowns and as food stocks suffered from a brokerage downgrade and profit-warning talk.

Britain's FTSE 100 .FTSE shed 0.3 percent to end at 6,202.0 points, while the pan-European FTSEurofirst 300 benchmark hit its lowest level in over a year before ending down 0.5 percent.

The New York Times reported Merrill Lynch (MER.N: Quote, Profile, Research) is expected to suffer $15 billion in losses stemming from soured mortgage investments, reminding investors the jury was still out on the extent of the fallout of the credit crisis.

This came on the heels of a profit warning from American Express (AXP.N: Quote, Profile , Research).

Worries over global growth pushed the price of crude further off record highs hit last week, taking oil stocks along with it. BP (BP.L: Quote, Profile, Research) fell 0.7 percent and Royal Dutch Shell (RDSa.L: Quote, Profile, Research) shed 1.6 percent as crude slipped to near $93 a barrel.

Unilever (ULVR.L: Quote, Profile, Research) was among the biggest percentage losers on the index after Morgan Stanley downgraded its rating on the consumer goods giant late on Thursday to "underweight" from "equal weight".

Elsewhere in the sector Reckitt Benckiser (RB.L: Quote, Profile, Research) fell 3.4 percent and Associated British Foods (ABF.L: Quote, Profile, Research) fell 0.9 percent. Cadbury (CBRY.L: Quote, Profile, Research) shed nearly 3 percent, with traders citing market talk the confectionery group would issue a profit warning. The company had no immediate comment.

 

Read more at Reuters

Merrill seen suffering $15 billion loss: report

(Reuters) - Merrill Lynch (MER.N: Quote, Profile, Research) is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost twice the company's original estimate, the New York Times reported on Friday.

The losses were prompting the company to raise additional capital from an outside investor, the newspaper said in a report on its Web site. Merrill is expected to disclose the huge write-down when it reports earnings next week, the New York Times said, citing people who had been briefed on the company's plans.

The loss exceeds the $12 billion hit that many Wall Street analysts had forecast, the newspaper said.

 

Read more at Reuters

Wal-Mart Beats Estimates; Limited Brands' Sales Fall

(Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, said December sales climbed 2.4 percent, higher than analysts' estimates. Limited Brands Inc. cut its fourth-quarter profit forecast after sales declined during what may have been the worst holiday season since 2002.

Women's clothing retailers AnnTaylor Stores Corp., Chico's FAS Inc., and Cato Corp. also projected earnings less than analysts' estimates after December sales at stores open at least a year fell.

A drop in customer visits at American Eagle Outfitters Inc. and other retailers have hurt profit. Consumers facing $3- a-gallon gasoline and the worst housing market in 27 years reined in spending and only bought items on sale. Stores typically count on November and December for about a fifth of their annual sales.

``It's a very challenging period for the retailers,'' Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, with $77 billion in assets including retailers' shares, said on Jan. 8. ``The sales numbers obviously don't look that great, and the promotional activity in most cases was above last year, so margins are probably going to suffer.''

The International Council of Shopping Centers on Jan. 8 said same-store sales in November and December probably increased ``a little under'' its 2.5 percent forecast. Same- store sales are considered a key measure of a retailer's performance because they exclude locations that have recently opened or closed.

Food, Drugs

Discounters benefited as cash-strapped consumers sought out lower prices. Wal-Mart's December gains were driven by sales of food, prescription drugs and consumer electronics. The results were within the company's forecast of a 1 percent to 3 percent increase and beat analysts' estimates of a 1.8 percent rise.

Costco Wholesale Corp., the largest U.S. warehouse-club chain, said December sales at stores open at least a year rose 7 percent, exceeding analysts' projections for a 5.5 percent gain. TJX Cos., which sells designer clothes at discounted prices at its Marshalls chain, raised its fourth-quarter forecast.

American Eagle, the U.S. retailer of clothes for 15- to 25-year-olds, fell 6 cents to $17.72 yesterday in New York Stock Exchange composite trading. Limited Brands, based in Columbus, Ohio, dropped 4 cents to $15.69. Wal-Mart, based in Bentonville, Arkansas, climbed 93 cents, or 2 percent, to $46.90.

The Standard & Poor's 500 Retailing Index rose less than 1 percent to 375.15 yesterday. The index has dropped 8.5 percent this year through yesterday following an 18 percent decline in 2007.

Macy's Falls

Macy's Inc., the second-largest department-store company, said sales dropped 7.9 percent, missing analysts' estimate for 6.4 percent fall.

``Macroeconomic trends led customers to spend cautiously for the holiday,'' Chief Executive Officer Terry Lundgren said in a statement.

Gap Inc., the biggest U.S. clothing retailer, said same- store sales fell 6 percent, more than double Retail Metrics LLC's estimate for a 2.4 percent decline. Abercrombie & Fitch Co. said comparable-store sales retreated 2 percent. Analysts estimated a 0.9 percent decline.

December sales may have gained at a pace slower than the council's 1.5 percent estimate as shoppers waiting for discounts spent less at the beginning of the month, Michael Niemira, the ICSC's chief economist, said last week.

A calendar shift moved a week of holiday sales into November from December, hurting last month's results and helping November post a 3.5 percent increase.

 

Read more at Bloomberg

Rates yet to halt spending

(Fin24) -  Latest retail sales figures show consumers are   struggling to shell out money for big-ticket items as interest  rates begin to bite.

However, economists point out that retail sales growth is calculated off a high base and credit spending remains robust. 

The retail sales figures for October show that there was an 8.1% decline in sales of household furniture, appliances and equipment in  the three months from August to October compared with the same three months last year.

The Reserve Bank Quarterly Bulletin also says there was a decline year-on-year in real household expenditure on durable goods.  

The bulletin shows overall consumption spending cooled down to a fairly sedate 4.5% in the third quarter of last year from a robust 8.25% for the whole of 2006. 
 

Read more at FIN24

S.Africa Dec new vehicle sales fall 15.1 pct yr/yr

(Reuters) - South African new vehicle sales dropped 15.1 percent year-on-year in December on higher interest rates and tighter credit laws, and should moderate further this year, the National Association of Automobile Manufacturers said on Wednesday.

NAAMSA said new vehicle sales fell to 41,813 units in December compared to the same month in 2006.

New sales incorporating Associated Motor Holdings were 44,926 vehicles in December compared to 54,874 over the same period the year before.

AMH is an importing and distributing company whose data is reported separately because it does not provide some of the vehicle sale breakdowns required by NAAMSA.

New vehicle sales during the whole of 2007 fell by 5.2 percent to 612,707 compared to 2006, after registering four successive record years previously, NAAMSA added.

"During 2007, the automotive industry was buffeted by a series of negative events (including) progressive increases in interest rates, the introduction of the National Credit Legislation ... which introduced stricter disciplines governing the granting of credit," it said.

 

Read more at Reuters Africa

King Likely to Win New Term Leading Bank of England

(Bloomberg) -- Prime Minister Gordon Brown was speechless when asked yesterday whether he would reappoint Mervyn King as governor of the Bank of England, silently nodding toward Chancellor of the Exchequer Alistair Darling to repeat the promise of a decision in ``the next few weeks.''

When the time does come, Brown will probably say yes.

Brown has little choice but to overlook King's delay in acting on the financial crisis at Northern Rock Plc last year, say former colleagues, economists and lawmakers from the three main parties. They say the political costs of pushing King aside would outweigh any benefit.

 

Read more at Bloomberg