Electronic Arts bids for Take-Two

(Reuters) - Video game giant Electronic Arts on Sunday said it had made an unsolicited $1.9 billion offer for "Grand Theft Auto" publisher Take-Two Interactive Software, escalating its battle with Activision for the title of biggest video game maker.

Electronic Arts said it had pursued the deal privately since December, and Take-Two on Sunday immediately rejected the offer, a 50 percent premium to its Friday close, and accused EA of trying to scoop up a company in turnaround with an "inadequate" bid just before the publication of its next hit.

The $26-per-share all-cash bid is Electronic Arts' answer to Activision Inc's $18 billion acquisition of the gaming unit of French media and telecoms giant Vivendi. That combination, announced last November, is set to challenge EA's long-standing industry dominance.

Electronic Arts, publisher of blockbuster games like "Madden" and "Need for Speed," would become the largest sports game maker by far if it buys Take Two.

The offer follows months of speculation that Take-Two would be acquired by a major games publisher or media firm, with News Corp and Viacom often mentioned as possible suitors as they eye the fast-growing video game industry.

Take-Two said the offer valued it at a "significant discount" to peers. EA's offer would be about 18 times its expected fiscal 2008 earnings, while France's Ubisoft trades at 34 times expected earnings in the year ending March 2009 and Activision, with a similar year, trades at 24 times.

Take-Two Chairman Strauss Zelnick, who helped oust former management last March after it was laid low by accounting scandals and controversy over its games, said he hadn't ruled out a potential deal.

 

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Auction-Rate Bonds Force `Predatory' Yields on Cities

(Bloomberg) -- U.S. municipal borrowers from Camden, New Jersey, to Sacramento, California, may face a third week of higher interest costs as failures in the auction-rate bond market persist.

Auctions run by banks to determine the rate on more than $45 billion of bonds didn't attract enough buyers last week, according to JPMorgan Chase & Co. research. Even some successful auctions resulted in rates that were twice what borrowers paid in January, as investors who submitted bids demanded higher yields.

``The market right now is very predatory,'' said Marcia Maurer, chief financial officer of the Sacramento Regional County Sanitation District. The agency's weekly expense on $250 million of debt more than doubled to $343,000 from last month.

Investors enticed by rates that jumped as high as 20 percent are seeking opportunities in the $330 billion market no longer supported by dealers from Goldman Sachs Group Inc. to Citigroup Inc. and UBS AG that for years committed their capital to prevent failures. Thousands of unsuccessful auctions have driven up taxpayers' borrowing costs and left investors in the securities unable to get their money.

``Aggressive institutional investors have moved in to pick up auction-rate issues at short-term rates ranging from 5 percent to as much as 15 percent or more,'' George Friedlander, a municipal strategist at Citigroup in New York, said in a report at the end of last week.

Failure Rate

Four of the biggest agents that collect orders from bond dealers and determine winning rates reported failures on 258, or 67 percent, of 386 auctions Feb 22. That's in line with the average since Feb. 15, according to data compiled by Bank of America Corp. and Bloomberg.

Auction bonds, created in 1984, had until recent months allowed municipalities, hospitals, student lenders and funds to borrow long-term at money-market costs by adjusting interest rates through bidding every seven, 28 or 35 days.

When an auction fails, the rate reverts to a ``maximum'' specified in bond documents, or one pegged to money-market benchmarks. Holders of the bonds are stuck with the securities until a later auction attracts enough demand.

Hedge funds and other non-traditional investors showed ``strong interest'' last week in tax-exempt deals with high rates, Alex Roever, a JPMorgan fixed-income analyst, said in an e-mail. The average rate for seven-day municipal auction bonds rose to a record 6.59 percent on Feb. 13 from 4.03 percent the previous week, according to a Securities Industry and Financial Markets Association index.

Closed-End Funds

Many of last week's failures occurred at auctions of debt issued by closed-end funds with penalty rates ranging from 3 percent to 6 percent, data compiled by Deutsche Bank AG, Bank of New York Mellon Corp., Wells Fargo & Co. and Wilmington Trust Corp. show. Closed-end funds have about $60 billion in auction securities outstanding. Municipalities have $166 billion.

The auction-rate market began unraveling late last year as investor confidence in the health of bond insurers backing many of the securities waned. A bank bailout of New York-based Ambac Financial Group Inc. might come as soon as this week, according to a person familiar with rescue talks.

The collapse accelerated as banks including Citigroup and UBS, which have taken losses of about $162 billion from securities related to the collapse of subprime mortgages, grew unwilling to commit capital to support the auctions.

 

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Stocks Advance in Europe, Asia, Led by UBS; U.S. Futures Fall

(Bloomberg) -- Stocks gained in Europe and Asia, led by financial companies, on speculation bond insurers will avoid a cut in their credit ratings and limit further losses related to subprime mortgages. U.S. index futures declined.

UBS AG and BNP Paribas SA led banks higher in Europe, while Millea Holdings Inc., Japan's biggest insurer, and Commonwealth Bank of Australia climbed in Asia. Royal Bank of Scotland Group Plc gained on expectations Qatar Investment Authority may buy a stake, while Alliance & Leicester Plc jumped on speculation it may get a bid from Lloyds TSB Group Plc.

The MSCI World Index gained 0.7 percent to 1,458.88 as of 1:24 p.m. in London, while Standard & Poor's 500 Index futures slipped 0.1 percent. The MSCI World Financials Index jumped 1.3 percent, the most in almost two weeks, as investors speculated Ambac Financial Group Inc. may get new capital.

``We're making our way toward a rescue plan for Ambac,'' said Salah Seddik, who helps oversee $5.9 billion at Richelieu Finance in Paris. ``This is reassuring and good news for financial stocks. It means that in terms of writedowns, the worst is behind us.''

Speculation that companies in the bond-insurance industry may not be able to maintain the AAA credit ratings they rely on to insure about $2.4 trillion in securities has contributed to an 8.1 percent decline in the MSCI World this year.

Europe's Dow Jones Stoxx 600 Index advanced 1.3 percent, with all 18 national markets gaining. Germany's DAX added 1 percent, while France's CAC 40 rose 1.5 percent. The U.K.'s FTSE 100 jumped 1.4 percent.

Asian Indexes

The MSCI Asia Pacific Index climbed 1.4 percent. Japan's Nikkei 225 Stock Average increased 3.1 percent to 13,914.57, the highest close since Jan. 15.

UBS, Europe's largest bank by assets, rallied 2.5 percent to 36.58 Swiss francs. BNP Paribas, France's biggest bank, advanced 4.3 percent to 63.84 euros. Deutsche Bank AG, Germany's largest lender, gained 1.9 percent to 75.79 euros.

Millea jumped 8.9 percent to 4,030 yen, the most since Oct. 2. Commonwealth Bank, Australia's biggest mortgage lender, rose 4.9 percent to A$44.67.

Ambac may get $3 billion in new capital as part of a rescue agreement with banks, according to a person with knowledge of the discussions. Ambac spokeswoman Vandana Sharma declined to comment specifically on the discussions.

Bailout Plan

Stocks climbed in late trading in the U.S. on Feb. 22 after CNBC on-air editor Charles Gasparino said that a bailout may be announced this week, citing bankers working on the deal. Gasparino also said ``the entire deal could fall apart.''

``The efforts to prevent Ambac from collapsing will push the market up today, particularly financial stocks,'' said Erhan Aslan, a sales trader at Concord Investmentbank AG in Frankfurt.

Royal Bank of Scotland rallied 6.2 percent to 401.5 pence. The Qatari government is considering an investment in the U.K.'s second-largest bank, the Sunday Telegraph Business reported, citing unidentified people with knowledge of the matter.

Alliance & Leicester gained 7.4 percent to 547.5 pence, and Bradford & Bingley Plc jumped 7.2 percent to 202 pence.

Lloyds TSB, the biggest U.K. provider of personal loans, is in the ``early stages'' of assessing approaches to smaller rivals Alliance & Leicester and Bradford & Bingley, the Sunday Telegraph reported, citing unidentified people close to the bank.

 

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Allianz cuts jobs, structured finance at Dresdner

(Reuters) - Europe's biggest insurer, Allianz , is axing hundreds of jobs at its Dresdner Kleinwort investment bank and slashing its complex structured finance business, after suffering big fourth-quarter writedowns.

Allianz confirmed on Thursday it made a record net profit of nearly 8 billion euros ($11.79 billion) in 2007, despite the writedowns that pushed Dresdner into the red and halved the insurer's profit in the final three months of the year.

Allianz finance head Helmut Perlet said the market situation at the end of last month pointed to possible further writedowns of 300-400 million euros at Dresdner for the first quarter after about 1.5 billion euros of subprime writedowns in 2007.

Allianz unit Dresdner Bank, which in turn owns Dresdner Kleinwort, said it was shedding 450 jobs, most already axed, and cutting back on activity in structured investment vehicles (SIV) and other structured debt products, which spread the U.S. subprime loans crisis across the global banking system.

"Dresdner Bank will reduce its engagement in the SIV business, as the model of interest arbitrage faces a tough future," Allianz Chief Executive Michael Diekmann said.

Dresdner Bank said it would support its SIV, called K2, to ensure repayment of its senior debt, and had cut its size to $18.8 billion now from $31.2 billion in July.

Allianz said it was not clear whether, or to what extent, it might have to take K2 onto Dresdner's books, but it did not believe that supporting K2 would have a big impact on the group.

 

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Reed to buy ChoicePoint, sell info division

(Reuters) - Reed Elsevier announced the acquisition of U.S. risk-management business ChoicePoint Inc for $4.1 billion including debt alongside its results, as well as a renewed cost-savings drive and the planned sale of an advertising-dependent information business.

Shares in Anglo-Dutch publisher Reed, which have outperformed the DJ Stoxx European media sector by 5 percent over the past year, jumped 6 percent to 619 pence on the news on Thursday.

The $4.1 billion for ChoicePoint comprises $3.5 billion in cash for the equity, at $50 per share, and 600 million pounds in debt. CheckPoint shares closed at $33.66 on Wednesday.

Reed said that combining ChoicePoint with its LexisNexis risk-information and its Analytics group would create a risk-management business with $1.5 billion in revenue and a leading position in a fast-growing market.

The London-based company said buying ChoicePoint had the unanimous backing of the U.S. company's board and now required shareholder and regulatory approval. ChoicePoint is based in Alpharetta, Ga. and employs around 5,500 people.

Reed also announced that it would divest its Reed Business Information (RBI) arm to reduce its exposure to cyclical advertising markets. The Reed exhibitions business will be kept.

Advertising accounts for around 60 percent of revenues at RBI, which itself generates around 20 percent of Reed's 4.6 billion pound group revenues.

 

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Morgan Stanley Hires Kenneth deRegt to New Role Overseeing Risk

(Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm by market value, hired Kenneth deRegt to a new position in the office of the chairman, where he will oversee risk management and internal controls.

 

DeRegt, who worked at Morgan Stanley for 20 years before joining Aetos Capital in 2002, will start on Feb. 25 and join the firm's management committee, according to an internal memo today from John Mack, Morgan Stanley's chief executive officer. The contents of the memo were confirmed by Mark Lake, a spokesman in New York.

 

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Sharper Image Files for Bankruptcy Following Losses

(Bloomberg) -- Sharper Image Corp., the seller of $300 electric shavers and $1,999 massage chairs, filed for bankruptcy protection after losing money in 11 of the last 13 quarters.

The 31-year-old retailer will shed 90 stores while it deals with a ``severe liquidity crisis,'' Chief Financial Officer Rebecca Roedell said in papers filed last night in U.S. Bankruptcy Court in Wilmington, Delaware. Sharper Image has lost more than $135 million since early 2005 on bad publicity stemming from lawsuits over its Ionic Breeze air purifiers and ``ever-tightening'' credit markets, the company said.

Former Chairman Richard Thalheimer founded Sharper Image in 1977 and built it into a company with 184 stores by selling gadgets such as the Ionic Breeze and $100 shaving mirrors. By January, sales had fallen every quarter for three years, and the San Francisco-based retailer brought in turnaround specialists to run the company last week.

The chain ousted Thalheimer, 59, in 2006 after losing more than three-quarters of its stock market value. Sharper Image, which peaked at $39.98 in February 2004, traded at 40 cents at 11:39 a.m. in Nasdaq Stock Market composite trading.

The company listed assets of $251.5 million and debt of $199 million and is in negotiations to sell its most unprofitable stores and inventory. It competes with Brookstone Inc. and New York-based Hammacher Schlemmer.

Another retailer, Virginia Beach, Virginia-based catalog company Lillian Vernon Corp., also filed for bankruptcy protection with a plan to sell its assets to help pay creditors.

 

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Ackman Proposes Bond Insurer Split, Policyholder Veto

(Bloomberg) -- Hedge fund manager William Ackman distributed a plan to restructure bond insurers that may prevent dividends from being paid to the parent companies and minimize losses for holders of asset-backed securities.

Ackman, the managing partner of Pershing Square Capital Management LP in New York, calls for a corporate structure in which dividends would flow to the so-called structured finance unit from the municipal insurer, according to his proposal, sent yesterday to regulators, lawmakers and banks.

Ackman, who is betting against MBIA Inc. and Ambac Financial Group Inc., the two largest bond insurers, stands to benefit from his plan. He has short positions that would gain in value if the holding companies were to default on their debts.

The proposal ``offers the best prospect for protecting the most policyholders and ensuring a viable ongoing municipal bond insurance market,'' New York law firm Edwards Angell Palmer & Dodge LLP, which performed an analysis for Pershing, said in a memo included with the presentation. Copies were obtained by Bloomberg News and confirmed by Ackman.

Ackman's plan has two separate boards of directors, one for the municipal insurer and the other for the structured finance unit. Each board would include policyholders. The municipal insurer would pay dividends to its structured-finance parent only when the board was satisfied the unit could remain AAA rated. The structured finance insurer would send dividends to the holding company only after its board determined the money wasn't needed to cover claims.

 

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Port Authority Auction Bonds Reset at 8% After Surge

(Bloomberg) -- Interest rates on $100 million of bonds issued by the Port Authority of New York and New Jersey were set at 8 percent in a weekly auction after surging to 20 percent on Feb. 12.

Rates had soared from 4.3 percent when too few buyers bid for the so-called auction-rate debt and Goldman Sachs Group Inc., which runs the auction, refused to put up its own capital to buy unwanted securities. That caused the yield to be set at a level predetermined in bond documents. Rates fell yesterday as the prospect of high yields enticed investors, according to data compiled by Bloomberg.

Rates in the more than $300 billion market for auction-rate debt are rising after banks including Citigroup Inc. and Goldman stopped bidding for the debt at periodic sales they oversee, prompting hundreds of so-called failures. Some investors, including OppenheimerFunds Inc., see an opportunity in the turmoil and are buying the bonds.

``Twenty percent was such an unusually high number,'' said Judy Wesalo Temel, director of credit research at Samson Capital Advisors LLC, a fixed-income manager in New York. ``I wouldn't say that the whole market has calmed down or has even begun to function normally yet. It hasn't.''

Yesterday, a Citigroup-run auction of $25 million of federally taxable debt issued by Vermont's student loan agency failed, causing the rate to remain at 18 percent for the second week in a row. The debt paid 4.5 percent as recently as Feb. 11.

Port Authority Rates

The 8 percent rate on the federally taxable Port Authority debt is still above the range of 4 percent to 5.70 percent the agency paid until this month. Port Authority Treasurer Anne Marie Mulligan didn't return a call for comment; Goldman spokesman Michael DuVally declined to comment.

Auction-rate bonds are long-term debt with interest rates that reset according to bids submitted through securities firms every seven, 28 or 35 days. When there aren't enough bids, the auction fails and the rate is set at a level spelled out in bond documents. Investors who expected to sell the debt are left holding the securities.

Until the past two weeks, bankers who ran auctions prevented failures by purchasing bonds for their own account, though they weren't required to do so. Investors grew wary of relying on bankers to support auctions as the investment firms reported more than $146 billion of losses and writedowns.

Rising Average

The average rate for seven-day municipal auction bonds rose to a record 6.59 percent on Feb. 13 from 4.03 percent the previous week, according to indexes compiled by the Securities Industry and Financial Markets Association.

Regulators allow dealers to bid when they choose, and to control auction information as long as they disclose that they might submit bids. Bankers don't have to say how often they buy or how much, and aren't required to make public the range of bids or when auctions fail.

Last week, New York Governor Eliot Spitzer cited the high rate on the Port Authority's auction-rate bonds in testimony on bond insurers before a House subcommittee on Capital Markets, Insurance and Government. Insurers such as MBIA Inc. and Ambac Financial Group Inc. that back the debt are struggling to raise capital after taking more than $8 billion in writedowns related to mortgage-linked securities they guaranteed.

``The higher max rate stuff is starting to get some traction,'' said Matt Dalton, chief executive officer of Belle Haven Investments, a money management firm based in Greenwich, Connecticut.

Massachusetts Tolls

Drivers on the Massachusetts Turnpike may face higher tolls after the state was unable to sell auction-rate securities backed by a unit of Ambac, according to state officials. The turnpike is now trying to buy a letter of credit from State Street Bank and Trust Co. and KBC Group NV so it can sell variable-rate demand obligations by mid-March instead of auction-rate securities, an advisor for the Turnpike told the agency's board yesterday.

``That is a very significant financial obligation, probably our biggest short-term problem,'' Alan LeBovidge, the turnpike authority's executive director, said at the state agency's monthly board meeting yesterday.

Auction-Rate Proposal

The Securities and Exchange Commission fined banks in a settlement over bid-rigging two years ago. The U.S. municipal bond market's main regulator, the Municipal Securities Rulemaking Board, plans to propose rules requiring banks to disclose more, including the rate, bidding details and information about failures.

Auction-rate securities were introduced in the corporate market in 1984, when American Express Co. sold $300 million of auction preferred stock. The securities, devised by Ronald Gallatin, a retired managing director at Lehman Brothers Holdings Inc., then Shearson Lehman, were used by banks and other companies before auction difficulties prompted many companies to move away from them.

American Express retired its issue in 1991-1992, and in 1995 Lehman was fined $850,000 by the SEC for manipulating auctions conducted for American Express.

The first failed auction in the municipal market occurred in 1990 for bonds issued by the Pima County, Arizona, Industrial Development Authority for Tucson Electric Power Co., now a unit of UniSource Energy Corp., based in Tucson.

 

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Wal-Mart Profit Climbs on Grocery, Electronics Sales

(Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, said fourth-quarter profit rose more than analysts estimated after it stepped up U.S. holiday discounts and boosted sales in Asia and Latin America.

Full-year earnings will be at most $3.43 a share, less than analysts' projections, the retailer said today. Wal-Mart gained 1 percent in New York trading.

International sales advanced 19 percent, led by China, Brazil and Argentina. In the U.S., Wal-Mart drew cash-strapped customers with an expanded consumer-electronics section and more discounts on groceries. Quarterly sales at stores open at least a year outpaced Target Corp. for the first time in 3 1/2 years.

``Nobody gets rich selling groceries, unfortunately, but I do think it's a great way to drive traffic,'' Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, said in a Bloomberg Television interview. ``In this economic environment, if the consumer's shifting down in terms of the way they're spending their dollars, that benefits Wal-Mart.''

Sorrentino helps oversee $12 billion in assets including Wal-Mart shares.

Net income climbed 4 percent to $4.1 billion, or $1.02 a share, from $3.94 billion, or 95 cents, a year earlier, the Bentonville, Arkansas-based company said today in a statement. Excluding one-time items, profit beat estimates by 2 cents.

Wal-Mart said it expects to earn between 70 cents and 74 cents a share in the current quarter and between $3.30 and $3.43 for the year that ends in early 2009. Analysts surveyed by Bloomberg projected profit of 74 cents for the quarter and $3.44 for the year.

Share Performance

Wal-Mart rose 51 cents to $49.95 at 9:34 a.m. in New York Stock Exchange composite trading. The shares increased 4 percent this year before today, compared with an 8.1 percent decrease in the Standard & Poor's 500 index.

Revenue for the three months that ended Jan. 31 climbed 8.4 percent to $107.4 billion, the first time it exceeded $100 billion, Wal-Mart said.

Excluding costs including a writedown at its Japan unit, Wal-Mart earned $1.04 a share. Nineteen analysts surveyed by Bloomberg projected average profit of $1.02.

``Clearly our underlying operational performance exceeded the expectations we had at the beginning of the quarter,'' Chief Executive Officer H. Lee Scott said on a recorded call. The performance of the U.S. economy ``will be a critical factor'' this year, he said.

Consumer Spending

Consumers have curtailed outlays on extras as they find themselves spending more for food, fuel and housing. Before the holiday season, Wal-Mart made price cuts earlier and on 20 percent more items. Last month, the retailer introduced its own ``economic stimulus'' package, marking down groceries, medicines, fitness equipment and electronics as much as 30 percent.

While Wal-Mart has suffered from a slowing U.S. economy because many of its customers live paycheck to paycheck, the retailer has also gained because of its appeal as a destination for cost-conscious shoppers, said David Abella, an analyst at Rochdale Investment Management in New York with $2.5 billion in assets including Wal-Mart shares.

``They are benefiting from it at the expense of competitors,'' said Abella. ``The low-price effort, which is working especially well because of the slowdown, probably helped get some market share back from Target.''

 

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Foodmakers squeezed by costs, strapped consumers

(Reuters) - For more than a year, food makers and other consumer products companies have passed on much of the burden of rising commodity costs to consumers.

In fact, companies such as H.J. Heinz (HNZ.N: Quote, Profile, Research) and Hormel Foods Corp (HRL.N: Quote, Profile, Research) proved again with earnings forecasts and announcements on Friday that this was still the case early this year, fueling a rally in food stocks.

But that relief could prove short-lived, as 2008 could be the year consumers say "enough!" and start shunning branded products for less expensive private-label alternatives, industry experts warn.

"The next round of (increases) will actually start to impact consumer behavior in a profound way," Ken Harris, a principal at consulting firm Cannondale Associates, said.

That could hit profits at the companies that already have exhausted most measures to cut costs and become more efficient over the past several years in the wake of soaring prices for wheat, cocoa, milk and energy, just to name a few.

"When you say input costs are going up 6 percent and you are only getting 4 percent net pricing, where do you make up the rest?" asked Gregg Warren, an analyst at Morningstar.

Rising commodity costs and economically stressed consumers are expected to be the key topics when consumer products company executives meet with analysts at the Consumer Analyst Group of New York conference in Florida that begins Tuesday.

 

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Penny-pinching shoppers boost Wal-Mart profit

(Reuters) - Wal-Mart Stores (WMT.N: Quote, Profile, Research) posted better-than-expected quarterly profit on Tuesday as penny-pinching U.S. shoppers scoured its discount stores for low prices on necessities like food to offset tough economic conditions.

"We know that the economy remains a critical factor in this new fiscal year," said Lee Scott, CEO of the world's largest retailer, in a statement. "Customers were more cautious in their spending in January."

For the first quarter, it forecast sales at its U.S. stores open at least a year, a key retail gauge known as same-store sales, to be flat to up 2 percent, citing the "challenging" economic environment.

Net income rose 4 percent to $4.096 billion, or $1.02 per share, for its fiscal fourth quarter ended January 31, from $3.94 billion, or 95 cents per share, a year earlier.

The most recent quarter's results included charges of 3 cents per share for dropped real estate projects and a restructuring charge for its Japanese operations, and a 1 cent per share benefit from the sale of certain real estate properties.

Excluding the items, Wal-Mart reported earnings of $1.04 per share, above analysts' average estimate of $1.02 per share, according to Reuters Estimates.

 

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Four bidders go through in Vin & Sprit auction: paper

(Reuters) - Sweden's centre-right government has chosen four bidders in its auction of Vin & Sprit that will be allowed to perform due diligence of the Absolut vodka maker, business daily Dagens Industri reported on Sunday.

The four selected bidders -- Fortune Brands Inc (FO.N: Quote, Profile, Research), Pernod Ricard SA (PERP.PA: Quote, Profile, Research), Bacardi and private equity group EQT in cooperation with investment firm Investor AB (INVEb.ST: Quote, Profile, Research) -- have been widely seen as the front-runners to buy Vin & Sprit.

The newspaper, which did not disclose its sources, said the four bidders would proceed to more closely scrutinize Vin & Sprit in a due diligence process before finalizing their offers.

Vin & Sprit is to be sold as part of Sweden's biggest-ever privatization, which also includes stakes in telecom operator TeliaSonera AB (TLSN.ST: Quote, Profile, Research), Nordea Bank AB (NDA.ST: Quote, Profile, Research), mortgage lender SBAB SBAB.UL and real estate firm Vasakronan ABVASA.UL.

 

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Fed's Lower Rates Pressure China to Strengthen Yuan

(Bloomberg) -- Like it or not, China has no choice other than to let the yuan appreciate against the dollar.

The combination of the world's fastest economic growth, the highest inflation rate in 11 years and the rising cost of intervention will force gains in the yuan to accelerate, even as policy makers in Beijing resist calls from the West to let the currency appreciate at a faster pace, say Pacific Investment Management Co. and Pictet & Cie., Switzerland's largest closely held private bank.

Central bankers in Thailand, Malaysia, Singapore and the Philippines are in the same situation, making their currencies attractive, according to money managers at the firms and Merrill Lynch & Co. Nine of the 10 best-performing currencies against the dollar in 2008 will come from Asia, surveys of foreign exchange strategists by Bloomberg show.

``You're likely to see less intervention,'' said Ramin Toloui, who helps oversee more than $60 billion in emerging- market bonds and currencies at Newport Beach, California-based Pimco. ``Several Asian central banks see more rapid exchange- rate appreciation as an important tool to fight inflation.''

After rising 7 percent last year, the yuan has appreciated 1.9 percent to 7.1623 per dollar so far in 2008. New York-based JPMorgan Chase & Co., the world's ninth-biggest currency trader, predicts a further 14 percent increase, while Citigroup Inc. in New York, the third-largest, forecasts a 6 percent advance.

Thailand's baht has climbed 3.7 percent to 32.53 this year, while the Taiwan dollar is up 2.4 percent to NT$31.75. The yuan rose 0.3 percent today, the most in six weeks, and the Singapore dollar gained as much as 0.2 percent to S$1.4107, its highest in more than a decade.

Inflation Battle

While the International Monetary Fund expects growth in Asian emerging markets will slow to 8.6 percent in 2008 from 9.6 percent last year, that's still six times faster than the 1.5 percent expansion predicted for the U.S.

Consumer prices in the region's 10 largest economies outside Japan are rising at an average annual rate of 5.30 percent, compared with 4.10 percent in the U.S., data compiled by Bloomberg show. Faster inflation raises the odds that central banks in Asia will increase interest rates, bolstering the appeal of their currencies.

``We are long Asian currencies,'' said Donald Amstad, head of Asia-Pacific fixed-income at Aberdeen, Scotland-based Aberdeen Asset Management Plc, which oversees $205 billion. ``Asia is in relatively better shape than the rest of the world.'' A ``long'' position is a bet that a currency will gain.

Costly Option

To keep their currencies from appreciating too fast and hurting exporters, Asian central banks have bought U.S. dollars, accumulating $4 trillion in foreign-exchange reserves.

The downside to intervention is that it increases the supply of the local currency, which tends to fuel inflation. To prevent that from happening, Asian central banks typically sell bonds to remove those funds from the economy.

That option has become more costly because interest on the debt is paid with income from its reserves, which are invested in dollar-denominated securities. The People's Bank of China pays 1.31 percentage points more on its six-month bills than it earns on similar-maturity Treasuries following the U.S. Federal Reserve's five rate cuts since September. Six months ago, the spread was 2.2 percentage points in favor of U.S. debt.

 

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Bond Insurer Split May Trigger Lawsuits, Analysts Say

(Bloomberg) -- Regulators' plans to break up bond insurers into ``good'' businesses covering municipal debt and ``bad'' businesses liable to subprime-related losses may trigger ``years of litigation,'' Bank of America Corp. analysts said.

New York Insurance Department Superintendent Eric Dinallo and New York Governor Eliot Spitzer said last week that insurers may need to be divided if they can't raise enough capital to compensate for losses on subprime-mortgage guarantees. FGIC Corp., the fourth-largest of the so-called monoline insurers, asked to be split on Feb. 15 after Moody's Investors Service cut the Stamford, Connecticut-based company's top Aaa ranking.

``Despite the regulatory interest in separating the exposures, the essential fact remains that all policy holders, whether municipal or structured finance, entered into contracts backed by the entire entity,'' analysts led by Jeffrey Rosenberg in New York wrote in a note to investors dated Feb. 15. A breakup is ``likely to lead to significant legal challenges holding up the resolution of the monoline issues for years.''

FGIC, owned by Blackstone Group LP and PMI Group Inc., insures about $314 billion of debt, including $220 billion in municipal bonds. The company said last week it applied for a license from New York state insurance regulators to create a standalone municipal company and separate the unit that guarantees subprime-mortgage bonds and related securities that led to rating downgrades.

New York-based Ambac Financial Group Inc., the second- largest bond insurer, may also seek a split, the Wall Street Journal reported today, citing a person familiar with the situation.

 

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Bond insurer FGIC asks to split in two

(Reuters) - FGIC Corp, a bond insurer whose main unit has lost its top credit ratings from all three agencies, has told New York regulators it wants to split into two companies, New York Insurance Superintendent Eric Dinallo said on Friday.

 

The company would be split into a municipal bond insurer and a structured finance insurance company, in a "good-bank/bad-bank" plan that would split off the relatively safe business of insuring municipal debt from the riskier business of guaranteeing repackaged mortgages and other debt.

 

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Banks at Risk From $203 Billion Writedowns, Says UBS

 (Bloomberg) -- The world's banks ``remain at risk'' of up to $203 billion in additional writedowns, largely because the bond insurance crisis could worsen, UBS AG said.

``Banks have made progress in credit-market related writedowns,'' London-based UBS analyst Philip Finch said in a note to investors today. ``But more are expected,'' he added.

Writedowns for collateralized debt obligations and subprime related losses already total $150 billion, Finch estimated. That could rise by a further $120 billion for CDOs, $50 billion for structured investment vehicles, $18 billion for commercial mortgage-backed securities and $15 billion for leveraged buyouts, UBS said. ``Risks are rising and spreading and liquidity conditions are still far from normal,'' the note said.

U.S. monoline insurers MBIA Inc. and Ambac Financial Group Inc. are struggling to maintain the AAA ratings on their insurance units because of losses on residential mortgages, exposing banks to possible writedowns on CDOs guaranteed by the insurers. Monoline insurers guarantee the repayment of bond principal and interest in the event of defaults.

Ambac was the first monoline insurer to ever be downgraded when Fitch Ratings cut it to AA from AAA in January, citing ``significant uncertainty'' over the insurer's business model.

 

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MagtigeMoer.moermagtig2@blogger.com, MagtigeMoer.moermagtig9@blogger.com, MagtigeMoer.moermagtig6@blogger.com

(Reuters) - Federal Reserve Chairman Ben Bernanke said on Thursday the central bank will act as needed to help the struggling economy, but said the Fed has to be mindful that growth should pick up later in the year.

"The (Federal Open Market Committee) will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Bernanke said in remarks prepared for delivery to the Senate Banking Committee.

Read more at Reuters

 

Treasury 10-Year Notes Fall as U.S. Trade Deficit Narrows

(Bloomberg) -- Treasury 10-year notes fell for a third straight day as a government report showed the U.S. trade deficit narrowed more than forecast in December, renewing concern that inflation may accelerate.

Two-year notes yielded the least compared with 10-year debt since 2004 before Federal Reserve Chairman Ben S. Bernanke's economic testimony, in which he may signal the Fed is ready to cut interest rates further to keep the economy from dropping into a recession.

``The Fed is going to be aggressive and proactive, and with that you have to be concerned with inflationary pressures building,'' said Sean Simko, who oversees $8 billion in Oaks, Pennsylvania, at SEI Investments Co. ``Inflationary pressures will be tomorrow's problem, which is going to sell the long part of the curve.''

Ten-year note yields rose 4 basis points, or 0.04 percentage point, to 3.77 percent at 9:48 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 3 1/2 percent security due in February 2018 fell 11/32, or $3.44 per $1,000 face amount, to 97 3/4. Two-year note yields increased 2 basis points to 1.93 percent.

 

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YRC to cut 1,100 jobs

(Reuters) - North America's largest trucking company, YRC Worldwide Inc (YRCW.O: Quote, Profile, Research), said on Wednesday that as part of its plans to shut 27 service centers it will cut approximately 1,100 jobs.

In a presentation to analysts that was filed with the U.S. Securities and Exchange Commission, Chief Executive Bill Zollars said the company expects cash proceeds from property sales of between $8 million to $10 million.

YRC said that as part of the restructuring plan more than 600 trucks and 1,200 trailers would be removed from its fleet.

 

Read more at Reuters

Cuomo to Sue UnitedHealth, Probe Reimbursement Policy

(Bloomberg) -- New York Attorney General Andrew Cuomo said he plans to sue UnitedHealth Group Inc. and will issue 16 subpoenas in an industrywide probe of how U.S. insurers compute ``reasonable and customary'' rates to limit payouts.

Cuomo said he plans to sue Minnetonka, Minnesota-based UnitedHealth, the largest U.S. health insurer, over deceptive practices in the reimbursement policy it links to such charges, which he claims seriously shortchange patients and involve a conflict of interest.

``When insurers like United create convoluted and dishonest systems for determining the rate of reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need,'' Cuomo said in a statement today.

Cuomo said he will subpoena UnitedHealth, Aetna Inc., Cigna Corp. and Empire Blue Cross & Blue Shield over their reimbursement practices.

UnitedHealth's Ingenix unit provides data that sets ``reasonable and customary'' rates, which put a ceiling on reimbursement to patients, Cuomo said. When patients go out of network, health insurance companies generally cover only 80 percent of `reasonable and customary' charges.

Cuomo said a six-month investigation showed Ingenix has a ``defective and manipulated'' database that most health insurance companies use to set reimbursement rates for out-of-network expenses. The probe found that two subsidiaries of United ``dramatically under-reimbursed'' patients for out-of-network expenses using information from Ingenix.

United Falls

UnitedHealth fell $2.28, or 4.7 percent, to $45.99 at 12:02 p.m. in New York Stock Exchange composite trading.

``This is obviously going to be a negative for the company,'' said Sheryl Skolnick, an analyst with CRT Capital Group in Stamford, Connecticut, in a telephone interview. ``These things typically take a long time to work their way through. It does make it more difficult for United to argue that they have fixed their challenges.''

UnitedHealth Group Inc., WellPoint Inc., Aetna Inc. and other health insurers fell in New York trading this morning in anticipation of Cuomo's announcement.

Don Nathan, a spokesman for UnitedHealth, had no comment before the announcement.

Ingenix, with $1.3 billion in revenue last year, markets services to detect health-care fraud, identify preferred doctors and hospitals for insurers and help drugmakers run trials of new medicines. The company has said it has contracts with 1,500 health insurers, including rival Aetna Inc., as well as 200,000 doctors, 3,500 hospitals, 140 drug companies and government agencies.

 

Read more at Bloomberg

Fed Interest-Rate Cuts Fail to Lower Borrowing Costs

(Bloomberg) -- The Federal Reserve's interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.

Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co. Rates on so-called jumbo mortgages, those above $417,000, have increased in the past month, making it tougher to sell properties and risking further price declines.

``It's the clogging up of the credit markets that worries me most,'' Harvard University economist Martin Feldstein said in an interview in New York. ``The Fed has done a lot of cutting, the question is whether it's going to get the traction that it did in the past.''

Banks and investors are demanding greater compensation for offering credit as losses mount on subprime-mortgage securities and concerns grow that ratings of bond insurers will be cut. Elevated borrowing costs mean Fed Chairman Ben S. Bernanke will have to reduce rates further to revive the economy, Fed watchers said.

``The problem is that every piece of news we're getting continues to be bad,'' said Stephen Cecchetti, a former New York Fed bank research director, and now a professor at Brandeis University in Waltham, Massachusetts. ``They will have to ease more. It's the only thing they can do.''

`Close to 50-50'

Feldstein, who heads the National Bureau of Economic Research, the group that sets the dates for U.S. economic cycles, said the chance of a recession is ``close to 50-50.''

Traders now see a 100 percent chance of at least a half- point reduction at or before the Federal Open Market Committee's March 18 meeting, up from 68 percent on Jan. 31, when the Fed cited tighter credit conditions as a reason for lowering rates. Futures show 20 percent odds of a three-quarter point move.

Futures rallied even after a government report today showed retail sales rose 0.3 percent in January from December, against the median forecast in a Bloomberg News survey for a decline. Economists said the gain, led by car and gasoline purchases, wasn't enough to indicate Fed rate cuts are affecting spending.

Bernanke may give an update of his outlook tomorrow when he testifies before the Senate Banking Committee at a hearing on the economy and financial markets. Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox are also scheduled to appear.

Bond Premiums

The extra yield investors demand to buy investment-grade U.S. corporate bonds rose to 2.37 percentage point Feb. 12 from 2.24 percentage point on Jan. 21, Merrill data show. For high- risk, high-yield securities, premiums over Treasury securities have risen a quarter-point, Merrill data show.

``The increase in credit spreads has sort of worked against our policy,'' San Francisco Fed President Janet Yellen told reporters at her bank yesterday. ``The fact that the spreads went up so dramatically really resulted in an effective tightening of financial conditions that our cuts were partly meant to address.''

Those cuts were the fastest since the federal funds rate became the principal policy tool around 1990. The Fed lowered the rate by 75 basis points on Jan. 22 in an emergency move, then by an additional 50 basis points at the regular meeting on Jan. 30. A basis point is 0.01 percentage point.

More Rate Cuts

Beyond March, traders expect quarter-point rate reductions at the following FOMC meetings in April and June, based on futures prices on the Chicago Board of Trade.

In the market where banks lend to each other, borrowing costs have receded since the Fed began special auctions of funds in December. The three-month dollar London Interbank Offered Rate fell to 12 basis points over the Fed's target rate today, from more than 1 percentage point above it two months ago.

Yellen acknowledged in a Feb. 7 speech, repeated yesterday, that borrowers with greater default risk are paying more for loans. The markets for securities backed by mortgages ``are not functioning efficiently, or may not be functioning much at all,'' she said.

``As long as the credit strains remain and might even still be intensifying, it certainly supports the case for continuing to ease aggressively,'' said Brian Sack, a former Fed research manager who is now senior economist at Macroeconomic Advisers LLC in Washington. ``We don't need spreads to come down. We do need them to stop widening.''

 

Read more at Bloomberg

JD Group: More cases pending

(Fin24) - The Financial Services Providers' ombud is investigating eight other cases pertaining to the lending practices of furniture retailer JD Group.

This follows a ruling by FSP obmud Charles Pillai, which found that JD Group subsidiary Barnetts had circumvented the FAIS Act.

The company was ordered to pay back charges, interest on those charges and case fees to a customer who had bought a television and stove on credit, after Pillai found the customer - Ntiya Thuliswe Gumede, a domestic worker earning R300 a week - had not been made aware of the terms and conditions of the sale of a stove and television she had bought at Barnetts' Port Shepstone branch.

David Davidson at the ombud's office says they had eight cases relating to JD Group, prior to the determination being made public.

Davidson says that the cases are still to be investigated, first to determine whether they fall within their jurisdiction and also whether they any grounds.

The complaints relate to dealings with, among others: JD group businesses Bradlows, Hi-Fi Corporation, Russells, and Price n Pride, as well as Ellerines, Lewis, The Furniture Shop and OK Furniture.
 

 

Read more at Fin24

Rand regroups, gains nearly 1%

(Fin24) - The rand currency strengthened nearly one percent against the dollar and bonds also firmed, regrouping after a sharp fall over the past two weeks, as emerging market sentiment improved and stocks recovered further.

The local currency was trading at R7.71 to the dollar at 17:44 GMT, 0.9% stronger than its previous close in New York, after see-sawing between R7.6775 and R7.82 during the session.

Government bonds tracked the rand's move in relatively light trade, pulling back some of their sizable losses sparked by investor concern over an expected easing in economic growth.

Dealers said trade was largely flow-driven with dollar buying out of London early in the day paring gains before it drifted back on higher stocks and broader emerging market gains as those flows waned.

"Emerging markets are stronger, the dollar is weaker against the euro and local stocks are up on the Dow (Jones index) and we are just picking up that on the currency," ABN AMRO trader Paul Peter said.

"The slight correction today is on the back of the euro, the
JSE."
 

 

Read more at Fin24

TPG Seeks More Than $15 Billion for Buyout Fund, Investors Say

(Bloomberg) -- TPG Inc., the private-equity firm that last year bought TXU Corp. in the largest U.S. leveraged buyout, is seeking more than $15 billion for a new fund, according to potential investors.

The investment committee of Washington state's pension fund, which met with TPG co-founder David Bonderman Feb. 7, will recommend a $750 million commitment, said Liz Mendizabal, a spokeswoman in Olympia. Bonderman is set to discuss the fund, called TPG VI, with the Oregon Investment Council Feb. 27.

TPG, based in Fort Worth, Texas, is putting together the fund even as deal-making is stalled after a doubling of financing costs in the second half of 2007. Endowments and pension funds, seeking returns that top stocks and bonds, are increasing their investments with private-equity firms, whose assets may reach $5 trillion by 2012, according to research firm Private Equity Intelligence Ltd. in London.

``The public markets are down or soft and there's no other game,'' said Lyons Brewer, a managing director of C.P. Eaton Partners LLC, a Rowayton, Connecticut-based firm that helps buyout firms and hedge funds raise money.

Funds raised a record $502 billion last year, according to Private Equity Intelligence, including $21.7 billion by New York-based Blackstone Group LP, the industry's biggest pool.

TPG Partners IV, the $5.3 billion fund the firm started in 2003, has since returned an average of almost 36 percent a year to investors, according to data on the Web site of the California Public Employees' Retirement System.

 

Read more at Bloomberg

Paulson, U.S. Banks Forge Foreclosure-Freeze Deal

(Bloomberg) -- Bank of America Corp., Citigroup Inc. and four other U.S. lenders agreed with Treasury Secretary Henry Paulson to take new steps to help borrowers in danger of foreclosure stay in their homes.

Paulson and the banks offered a 30-day freeze on some foreclosures while loan modifications are considered. The Treasury chief, with Housing and Urban Development Secretary Alphonso Jackson, said today at a news conference in Washington that ``Project Lifeline'' would help stabilize communities disrupted by mortgage defaults.

``If someone is willing to make a call, to reach out, there's a chance they can save their home,'' Paulson said. ``As our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures.''

The program is designed to help a broad range of homeowners, not just subprime debtors who borrowed more than they could afford. Still, it won't help everyone, Paulson said. The U.S. housing correction ``is not over'' and ``the worst is just beginning'' for subprime borrowers who face higher interest rates in the next two years, he said.

In a statement, the banks said the program would start with a letter to homeowners more than 90 days delinquent on payments that lays out procedures for them to ``pause'' the foreclosure process. The homeowner has 10 days to respond to the notice and give additional financial information so the lender is able to weigh new payment options.

Loan Types

Subprime, Alt-A and prime borrowers are eligible, according to the plan. Subprime mortgages are made to borrowers with poor credit or high debt. Alt-A loans are for borrowers who want atypical terms, such as proof-of-income waivers or investment- property collateral, without sufficient compensating attributes, such as larger down payments.

JPMorgan Chase & Co., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. will also participate in the plan. All six are members of Hope Now, the alliance of lenders, trade groups and counselors formed last year to head off a surge of foreclosures by identifying and working with borrowers struggling to meet higher payments.

The Treasury chief said the six banks account for half of the U.S. mortgage market, and called on other lenders to adopt the plan as well.

Rate Freeze

Paulson, who as recently as last month opposed a moratorium on foreclosures, wants lenders to go beyond earlier pledges to freeze subprime interest rates for five years. The deepest housing slump in a generation is threatening consumer spending and the job market, pushing the economy to the verge of a recession.

Jackson said the plan is a ``responsible, timely effort'' aimed at encouraging borrowers to come forward if they're having trouble making payments.

``In some parts of our nation, the foreclosure crisis is have a devastating impact on neighborhoods and communities,'' said Floyd Robinson, head of Bank of America's home-loan business. He stressed that ``homeowners can only take advantage of this program by taking action -- they must respond when they hear from us.''

Democratic Complaints

Paulson last week heard complaints from Democrats in Congress that the number of homeowners receiving relief so far has been insufficient. ``We are now in the midst of one of the most serious economic crises we have seen in recent years,'' Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, said in Boston yesterday.

Federal Reserve officials project about 2 million homeowners face higher mortgage rates over the next two years as their loans reset higher. Economists at the Federal Deposit Insurance Corp. estimate foreclosures this year will be about 1 million more than average, a level that FDIC Chairman Sheila Bair has said ``is just too high.'' They average about 600,000 in a typical year.

``This is good, but we've seen this over and over again,'' said Kathleen Day, a spokeswoman for the Center for Responsible Lending in Washington. ``The fact that they keep having to roll out subsequent rescue plans every few weeks underscores that each plan is inadequate.''

 

Read more at Bloomberg

GM Posts Loss on North America; Overseas Profit Rises

(Bloomberg) -- General Motors Corp., the world's largest automaker, posted a fourth-quarter loss on shrinking sales in North America while revenue overseas rose.

The shares gained as much as 2.6 percent in New York trading as the Detroit-based company recorded a profit after excluding one-time costs. GM's net loss of $722 million followed year- earlier net income of $950 million.

The results indicate Chief Executive Officer Rick Wagoner is delivering on his pledge to rely more on overseas sales while cutting expenses at home. Wagoner said he will offer buyouts to speed the hiring of lower-paid new workers in the U.S., where industrywide sales are projected to fall to a 10-year low this year.

``Wagoner is doing the right things; he's just doing them at a time when the economy might be masking some of the favorable benefits from his actions,'' said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee. Buyouts for 74,000 United Auto Workers members would be ``money well spent,'' he said.

The quarterly per-share loss was $1.28, versus the year- earlier profit of $1.68. Automotive revenue rose 7 percent to $46.7 billion, GM said in a statement today.

Not counting costs and gains the company considers one-time, GM reported an adjusted profit of $64 million, or 8 cents a share. On that basis, analysts estimated a loss of 64 cents. In North America, GM lost $1.1 billion, excluding some costs. By that measure, analysts predicted a loss of $400 million.

Shares Rise

GM rose 46 cents to $27.58 at 11:34 a.m. in New York Stock Exchange composite trading after reaching $27.83 earlier. Through yesterday, the shares had advanced 9 percent this year, the most in the Dow Jones Industrial Average.

The adjusted profit stemmed mostly from a $1.6 billion tax benefit, Chief Financial Officer Fritz Henderson said. The tax gain stems from the sale of the Allison transmission unit and a $7.7 billion reduction in GM's overall pension and retiree health-care liabilities, he said.

``It was a tough quarter in North America,'' Henderson told reporters today in Detroit. ``Volumes were down, and there was tougher pricing because we had a full incentive load for our pickups.''

2007 Loss

The full-year deficit was a record $38.7 billion and included a $39 billion expense in the third quarter related to a tax-accounting change. In 2006, GM lost $1.98 billion, or $3.50 a share.

The third quarter included the $1.6 billion tax benefit and $768 million in one-time expenses.

GM had $27.3 billion in cash, readily available assets and funds from a retirement fund at the end of December, a decline from $30 billion at the end of September. The automaker ended 2007 with a negative adjusted automotive cash flow of $2.4 billion, a $2 billion improvement from 2006.

Outside the U.S., GM had a $424 million profit in the Latin America/Africa/Middle East region and a $72 million Asia-Pacific profit. Europe reported a fourth-quarter deficit of $445 million.

The automaker today also announced details of a buyout plan for its remaining 74,000 UAW employees in the U.S. The offers would provide payments of as much as $62,500 for the most-skilled workers with at least 30 years service.

 

Read more at Bloomberg

Sovereign's update a shocker

(Fin24) - Yet again we have a trading update that conceals as much as it purports to reveal, this time from chicken producer Sovereign Food Investments.

Bluntly, it says that HEPS for the year to February are expected to be 35%-45% less than last year.

Now, last year HEPS were 207c. If we take the midpoint of the expected decline, or 40%, which is usually what companies really expect, though they understandably give a margin for error, 60% of 207c is 124c. But in the six months to August, HEPS were up from 82c to 102c,  and the second half of the year is usually seasonally the better.

In fact, in the six months to February 2007, HEPS were 124c, 60% of the total. If the first-half momentum had been sustained, as there was every reason to expect from the interim report published last September, which talked of stronger pricing and higher volumes being expected in the second half, we could have looked for  second-half HEPS of 154c, instead of the actual implicit 24c.
 

Read more at Reuters

Eskom's buyback plan in motion

(Fin24) - State-owned power utility Eskom is negotiating to buy electricity from local industrial firms in a bid to solve an energy crisis, Public Enterprises Minister Alec Erwin said on Monday.

Eskom is under pressure to come up with a plan to increase power generation after weeks of rolling blackouts that have darkened millions of homes and forced businesses to shut. Large mining operations ground to a halt for five days last month.

"Large producers who would not normally want to be in electricity are now considering that there may be merit in them going into electricity production and selling to Eskom," Erwin told a media briefing in Cape Town.

Erwin told Reuters government was talking with Sasol, BHP Billiton and Anglo as it sought to boost power capacity.

"Clearly we are interested in that ... given the strictures on energy and the difficulties we have ... This opens an interesting possibility. We are in intensive negotiations now," Erwin said.

President Thabo Mbeki expressed confidence on Friday that the crisis would be solved quickly but did not give details of the
government's plan. There have been calls from media and opposition parties for him to sack several ministers.

Mbeki and other senior officials have blamed the country's booming economy for increasing demand for electricity, while acknowledging that warnings of such a problem went unheeded for years.
 

Read more at Fin24

IMF sees sharp U.S. slowdown

(Reuters) - Economic slowdown in the United States will be significant and will last for some time, the head of the International Monetary Fund said on Monday, calling for a coordinated response to financial turmoil around the world.

While it was unclear how long the crisis facing international banks over subprime losses would last, complex financial links between regions may mean emerging economies could also be hit if the situation worsened, IMF Managing Director Dominique Strauss-Kahn said in a speech.

Uncertainties facing markets and policymakers included a possible worsening of the U.S. housing market, which would hurt consumption, and any more disclosures from European banks on losses resulting from the market turbulence.

"The problem is today we have unknown unknowns," he said at the start of a three-day visit to India.

Last month, the IMF cut its forecast for world growth this year in the face of continued stress in global credit markets, and warned that economic activity could slow even further.

The IMF chief said the main reasons for the revision were the weak growth outlook in the United States and Europe.

 

Read more at Reuters

Auto Insurers Boost Premiums on Injury, Crash Costs

(Bloomberg) -- Allstate Corp. and Progressive Corp. are leading the push by U.S. auto insurers to raise premiums in at least 20 states as the $160 billion industry moves to end two years of price reductions.

Insurers say they need higher prices to counter climbing repair and medical costs. Allstate, ranked second by premiums, said collision bills rose 2.2 percent in the fourth quarter from a year earlier and payouts for injuries gained 9.3 percent. Safeco Corp., which gets almost half its total premiums from drivers, reported a $19 million loss on auto underwriting.

The rate adjustment may reverse the 20 percent drop in the market values of Allstate and Progressive during the past 12 months, said Bear Stearns Cos. analyst David Small. Earnings should improve this year because insurers have become better at predicting driving records and then setting prices, he said.

``There's a lag before rate increases show up on the income statement,'' said Small, who works in New York. ``But it's real, it's happening, and you'll see it in earnings by the end of the year.''

The largest car insurers include No. 1 State Farm Mutual Automobile Insurance Co., which isn't publicly traded, and Berkshire Hathaway Inc.'s fourth-ranked Geico Corp. Bear Stearns's Small rates Northbrook, Illinois-based Allstate ``outperform'' with a target of $69 a share, and has a ``peer perform'' rating on Mayfield Village, Ohio-based Progressive.

Allstate fell $1.10, or 2.3 percent, to $46.57 at 4 p.m. in New York Stock Exchange trading and Progressive fell 16 cents, or 0.9 percent, to $18.49.

Warren Buffett

``Auto insurance has been surprisingly good for quite awhile. That's turning now,'' said Warren Buffett, the billionaire chairman of Berkshire Hathaway, at an appearance in Toronto this week. ``Frequency of accidents just kept going down for three or four years, which was just amazing, and the severity was not particularly bad. Now both are picking up somewhat.''

Rising prices for new vehicles and expenses for labor and replacement parts contributed to a 45 percent increase in car repair costs during the past decade, according to information compiled by the Highway Loss Data Institute in Arlington, Virginia.

Collision costs rose 2.4 percent in the third quarter from a year earlier, according to data compiled by the Property Casualty Insurers Association of America in Des Plaines, Illinois. The cost of auto-body work was up 3.3 percent in 2007, the U.S. Department of Labor reported.

 

Read more at Bloomberg

Europe's Economy May Stay Sick Longer After Catching U.S. Cold

(Bloomberg) -- Europe's economy has caught the U.S.'s cold, and may be sick longer.

Persistent inflation and budget deficits may prevent policy makers in the 15 nations that share the euro from moving as aggressively as their U.S. counterparts to cut interest rates and taxes. Meanwhile, Europe's labor laws will make it harder for companies to speed a recovery in profits by reducing payrolls.

``A European downturn will take noticeably longer to run its course than the U.S. one,'' Nobel laureate Edmund Phelps, an economics professor at Columbia University in New York, said in an interview.

Next year ``might be a period of `reverse decoupling,' with the U.S. economy enjoying a sharp recovery and the euro-area economy stagnating,'' says Dario Perkins, senior European economist for ABN Amro Holding NV in London. ``A relatively inflexible economy and `sticky' inflation'' will hold Europe back, he says.

European Central Bank President Jean-Claude Trichet said twice last week that there is ``unusually high uncertainty'' about growth amid signs that Europe's resistance to the U.S. slowdown is finally wearing off.

``Risks are on the downside,'' he told reporters in Tokyo on Feb. 9 after a meeting of central bankers and finance ministers from the Group of Seven industrialized nations. The G- 7 officials said the U.S. economy may slow further, eroding global growth, and forecast no end to financial-market turmoil.

``Europe cannot go unscathed from the U.S.'s credit crisis,'' says Phelps.

Slower Growth

December retail sales in the euro region fell the most since 1995 and service industries grew in January at the slowest pace in more than four years. The European Union's statistics office will report Feb. 14 that the economy expanded 0.4 percent in the fourth quarter, half the pace of the previous three months, according to the median forecast of economists surveyed by Bloomberg News.

``Euro-zone growth is in trouble, and the risk of recession at some stage should not be underplayed,'' says David Brown, chief European economist at Bear Stearns International in London. He says the region will be ``very lucky'' to expand 1.5 percent this year, which would be the weakest since 2003.

Much of what ails Europe has its origins across the Atlantic. Borrowing costs for consumers and companies jumped as BNP Paribas SA and other European banks ran up losses on investments tied to U.S. mortgages. Exporters such as Heidelberg, Germany-based Heidelberger Druckmaschinen AG, the world's largest maker of printing machines, blame declines in the dollar and U.S. demand for hurting profits.

Short, Shallow Recession

Economists Jan Hatzius at Goldman Sachs Group Inc. and Richard Berner of Morgan Stanley say the U.S. economy is already in a recession, and they predict that action by policy makers will ensure it is short and shallow.

Federal Reserve Chairman Ben S. Bernanke and his colleagues have cut interest rates five times in less than five months by a total of 2.25 percentage points. Congress last week passed an economic-stimulus package worth about $168 billion.

European policy makers have been slower to administer medicine. The ECB has left its benchmark unchanged at 4 percent for eight months as inflation accelerated to the highest level in 14 years and workers sought more pay in response.

While Trichet last week signaled that he's open to cutting interest rates for the first time in almost five years, he also said he doesn't anticipate inflation will moderate until the second half of the year. Consequently, while investors increased bets on rate cuts last week, they don't expect the ECB to start easing credit before the second quarter.

Delayed Response

Trichet's ``somewhat delayed and gradual policy response'' means the euro-area economy will lag behind the U.S., growing just 1.4 percent this year and 1.6 percent in 2009, compared with 1.9 percent and 3 percent for the U.S., says Janet Henry, chief European economist at HSBC Holdings Plc in London.

Few economists yet anticipate a recession in Europe. Potential housing busts are limited to a few countries, unemployment is at a record low and demand from emerging markets offsets a decline in trade with the U.S.

Inflation still may not retreat fast enough for the ECB to continue cutting as the Fed has. Price pressures persist longer in Europe than in the U.S. for several reasons. Competition among businesses is weaker, and employers have less flexibility on wages because of regulations that set minimum levels or tie worker pay to past inflation rates. German unions are still seeking above-inflation pay agreements.

 

Read more at Bloomberg

Societe Generale Plans Offer to Raise EU5.5 Billion

(Bloomberg) -- Societe Generale SA plans to raise 5.5 billion euros ($8 billion) by selling stock at a lower price than analysts estimated to replenish capital after the worst trading loss in banking history.

France's second-biggest bank will sell shares in a rights offer at 47.50 euros each, or 39 percent less than the Feb. 8 closing price, according to a statement today. Analysts had expected a discount of as much as 30 percent. Existing shareholders can buy one share for every four held.

Societe Generale fell as much as 6.3 percent in Paris trading to 72.83 euros. The offer comes less than three weeks after the bank said bets by Jerome Kerviel had led to a 4.9 billion-euro trading loss. Societe Generale said today that net income last year fell to 947 million euros from 5.2 billion euros in 2006.

``This rights issue is a matter of life or death,'' said Pierre Flabbee, an analyst at Kepler Equities in Paris, who has a ``reduce'' rating on the stock. The discount ``doesn't show great confidence in selling the shares,'' he said.

Societe Generale fell 2.60 euros, or 3.4 percent, to 75.12 euros in Paris trading as of 12:50 a.m. The shares have declined 24 percent this year, giving the company a market value of 35 billion euros.

The Paris-based bank said the rights offer will increase its Tier 1 capital ratio, a measure of its ability to cover unexpected losses, from 6.6 percent at the end of December to 8 percent. It will also use the cash for ``sustained and balanced growth,'' maintaining lending in France and expanding in Russia, Eastern and Central Europe, the Mediterranean, India and Brazil.

Earnings Fall

The bank announced the trading loss and 2.05 billion euros of writedowns linked to risky U.S. mortgages on Jan. 24, the same day it estimated that 2007 profit would be between 600 million and 800 million euros. It raised that forecast today after lifting its debt valuation.

Operating income, including the losses that Societe Generale blames on Kerviel, fell to 1.8 billion euros from 8 billion euros in 2006. Today's figures aren't audited. Full results will be announced Feb. 21.

``The net profit figure is anecdotal compared with what's at stake,'' said Benoit de Broissia, a fund manager at Richelieu Finance in Paris, which owns Societe Generale shares.

Societe Generale said the corporate and investment banking units lost 2.22 billion euros in 2007, down from a 2.34 billion euro profit the previous year. It reported gains from private banking and its French and overseas retail-banking networks.

Bouton Stays

Although Societe Generale Chairman Daniel Bouton offered to resign after the trading loss was announced, the board has twice voted to retain him. The 57-year-old, who has been chairman or chief executive officer since 1993, will only step down once the share sale and trading scandal are resolved, said Axel Pierron, Paris-based senior analyst at Celent, a financial research firm.

``They will wait until there is some return to normalcy,'' he said. ``Finding someone with Bouton's experience isn't easy.''

Societe Generale has become a takeover candidate. BNP Paribas SA, France's largest bank, has said it's considering an offer, while the country's No. 3 lender, Credit Agricole SA, appointed advisers to study a bid, people involved in the talks said. While the government has said it wants Societe Generale to remain French, it has no legal means to block a takeover.

`Staying Independent'

The increase in borrowing costs in the past six months might deter bidders from financing an offer, Pierron said.

``If this had happened a year ago it might have been different, but the lack of liquidity in the market may help Societe Generale stay independent,'' Pierron said. ``With the rights issue, it certainly has the means to stay independent.''

Societe Generale said it's aiming for an improvement in gross operating profit of at least 1 billion euros by 2010 and repeated that it will pay a dividend of 45 percent of net income from 2008 to 2010. The ``key strengths and profit-making capacities remain intact,'' it said.

The rights will trade separately on Euronext during the subscription period from Feb. 21 to Feb. 29. The new shares will carry dividend rights from the start of 2008. Each right is worth 5.9 euros, the bank estimated.

``We're going to participate,'' said Neuflize Banque fund manager Emmanuel Soupre, who owns Societe Generale shares. ``Societe Generale's client portfolio remains of high quality.''

The offering, which is guaranteed by investment banks, is lead managed by JPMorgan Chase & Co., Morgan Stanley and Societe Generale's own investment bank. Credit Suisse Group and Merrill Lynch & Co. are co-book runners.

 

Read more at Bloomberg

Regulators should allow bond insurers to fail: Ackman

(Reuters) - Bill Ackman, whose hedge fund has been betting against bond insurers since at least 2002, said in a letter to U.S. regulators that rescuing the bond insurers will only prolong the credit crisis, and the companies should instead be allowed to fail.

In the letter obtained by Reuters, Ackman said bond insurers in recent years have become a means for banks to avoid reporting their full credit exposure and make their capital ratios appear stronger, but that banks should be forced to own up to their full credit risk.

"(W)e understand that the banking industry counterparties to the bond insurers would prefer to avoid taking these ... risks back on balance sheet -- particularly at a time when their balance sheets are strained by subprime and other losses that have not been hedged," Ackman wrote, adding that "there are no such free lunches available in the capital markets."

Bond insurers have in turn been critical of Ackman and other investors betting against the companies. On a recent conference call, MBIA Inc (MBI.N: Quote, Profile, Research) Chief Executive Gary Dunton railed against "the fear mongering and intentional distortions of facts about our business that have been pumped into the market by self-interested parties."

New York State Superintendent Eric Dinallo is working with banks to rescue bond insurers including Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) and FGIC Corp, which face billions of dollars of potential losses after guaranteeing bonds linked to risky subprime mortgages and other debt.

 

Read more at Reuters

Retailers struggle through dismal January

(Reuters) - Consumers held on to their cash and gift cards longer than usual and ignored widespread discounting in January, resulting in disappointing sales at many retailers, most notably industry leader Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research).

The world's largest retailer reported a 0.5 percent rise in January same-store sales, falling short of the 2 percent rise that analysts expected. Target Corp (TGT.N: Quote, Profile, Research), the No. 2 U.S. retailer posted a 1.1 percent drop in same-store sales, deeper than the 0.4 percent fall expected by Wall Street.

Wal-Mart said gift-card redemptions fell short of expectations, as consumers held on longer to their gift cards. Those who did, used gift cards for necessities like food and consumables, instead of higher margin discretionary items, the company said.

Reflecting the weakening economy and the tendency to trade down in tough times, warehouse retailers Costco Wholesale Corp (COST.O: Quote, Profile, Research) and BJ's Wholesale Club (BJ.N: Quote, Profile, Research) both reported better-than-expected January sales, boosted by the demand for gasoline. Costco also cited strength in its deli, candy, small appliance and automotive businesses.

January's sales data follow a disappointing holiday season for retailers and come amid mounting fears that the U.S. economy could be tipping into recession, as consumers faced with higher fuel and food costs and a crumbling housing markets cut back on spending.

"January has been no different," said Ken Perkins, president of research firm Retail Metrics in a note on Wednesday. "Given the difficult economic backdrop retailers/ consumers are facing, expectations have still been pared to lower levels despite starting out at very modest initial projections."

 

Read more at Reuters

Pending Sales of Existing U.S. Homes Fell 1.5% in December

(Bloomberg) -- The number of Americans signing contracts to buy previously owned homes fell in December for a second straight month, signaling the worst housing slump in 25 years will persist well into 2008.

The National Association of Realtors' index of signed purchase agreements decreased 1.5 percent to 85.9, the group said today. The drop follows a revised 3 percent decline for November that was larger than previously reported.

Today's report reinforces concern that the housing recession will linger as foreclosures add to a glut of unsold homes. The housing slump is weighing on the job market and consumer spending, putting pressure on Federal Reserve policy makers to lowering interest rates further to keep the economy out of a recession.

``The housing outlook has deteriorated significantly and I don't see a bottom on sales and starts until the middle of the year at the earliest,'' Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, said before the report. ``And our outlook on home prices has gotten worse.''

Economists had forecast the index would fall 1 percent, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from a drop of 3 percent to an increase of 1.8 percent.

Compared with a year earlier, the measure was down 24.2 percent.

Forecast Lowered

The Realtors lowered their forecast for existing-home sales in 2008 to 5.38 million from a January forecast of 5.7 million. Last year, 5.65 million homes were sold. Purchases of new homes will decline to 637,000 from 774,000, the group said today.

Pending resales fell in three of four regions. Purchases decreased 3.1 percent in the West, 3 percent in the South and 1.7 percent in the Northeast. They rose 3.4 percent in the Midwest.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The Realtors reported Jan. 24 that existing-home purchases, which are compiled from closings, fell 2.2 percent in December, more than economists had forecast.

New-Home Sales

Another leading indicator of the housing market, new-home sales, fell in December to a 12-year low, according to Commerce Department statistics. New home sales also are recorded when a contract is signed.

Homebuilder Pulte Homes Inc. said Jan. 30 that it had its fifth consecutive quarterly loss in the fourth quarter because of falling sales. Chief Executive Officer Richard Dugas forecast there will be a net loss from continuing operations, excluding potential land charges and tax benefits, this quarter.

``Sales levels are still depressed as compared to prior periods,'' even though the company has lowered prices, Dugas said on a conference call on Jan. 31.

Builders have little incentive to start new projects until they see inventories of unsold homes coming down. Both new and existing homes had a 9.6 months supply on the market in December.

 

Read more at Bloomberg

Euro Declines as Trichet Says U.S. Slowdown May Hurt Europe

(Bloomberg) -- The euro fell for a third day against the yen and dollar as European Central Bank President Jean-Claude Trichet said the slowdown in the U.S. may curtail economic growth in Europe, signaling lower interest rates this year.

The euro extended its drop against the yen this year to 5.3 percent and erased gains against the dollar after the ECB left interest rates unchanged today. Investors have raised bets the ECB will cut interest rates by mid-year even as policy makers say inflation is accelerating. The pound fell after the Bank of England lowered rates today.

``The market is being disappointed by the ECB's stubbornness and is selling the euro,'' said Toshi Honda, a currency strategist in London at Mizuho Corporate Bank Ltd., a unit of Japan's second-biggest bank by assets. ``The ECB will have to concede to the market eventually.'' The euro may fall to $1.40 by the middle of the year, he said.

The currency dropped to 154.49 yen as of 2:14 p.m. in London, from 155.88 yesterday in New York. It declined against the dollar to $1.4523 from $1.4632, losing 2.1 percent in the past three days.

Against the pound, it rose to 74.66 pence from 74.59 pence, after policy makers at Britain's central bank cut the benchmark interest rate by a quarter-point to 5.25 percent, citing slowing global growth and tighter credit. All but two of 61 economists surveyed by Bloomberg predicted the decision.

Carry Trades

The yen gained against all of the 16 most-active currencies as European stocks dropped and the risk of the region's companies defaulting on their bonds rose, increasing demand for safer assets and reducing appetite for so-called carry trades.

The yen traded at 106.39 against the dollar, from 106.54 yesterday. It gained the most versus the rand, rising 1.6 percent to 13.63. It climbed 0.4 percent to 95.01 against the Australian dollar.

The Dow Jones Euro Stoxx 50, a benchmark for the 15 nations that share the euro, declined 2.2 percent today, after slumping to the lowest since Jan. 24 yesterday. The Morgan Stanley MSCI World Index fell 0.9 percent.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. Higher currency volatility may discourage carry trades.

Implied volatility for one-month options on dollar-yen was 12.4 percent today and has declined from 12.8 percent a week ago. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options.

Citigroup Idea

Investors should sell the New Zealand dollar and buy the Swiss franc to hedge against currency losses on high-yielding assets and reduce their carry trades between the two countries, said Citigroup Inc., the largest U.S. bank by assets.

The New Zealand dollar will be among the hardest hit currencies if global economic growth slows, according to a report from a Citigroup research team led by Todd Elmer, a currency strategist in New York.

The ECB left its main refinancing rate at a six-year high of 4 percent, in line with the forecasts of all 56 economists surveyed by Bloomberg.

Trichet, speaking in a press conference in Frankfurt, said countering inflation remains the key for the central bank. Inflation in the 15 nations sharing the euro reached a 14- year high in January of 3.1 percent, overshooting the bank's 2 percent limit for a fifth month.

 

Read more at Bloomberg

U.S. Productivity Increases 1.8%, More Than Forecast

(Bloomberg) -- Worker productivity in the U.S. grew more than forecast in the fourth quarter as companies cut employees' hours at the fastest pace in almost five years.

Productivity, a measure of employee efficiency, rose at an annual rate of 1.8 percent, after a 6 percent pace in the third quarter, the Labor Department said today in Washington. The median forecast in a Bloomberg News survey was for a 0.5 percent gain. Labor costs rose less than forecast, the figures showed.

Businesses are trimming staff to control expenses as the economy hovers on the verge of the first recession since 2001. That may help keep consumer prices in check, giving Federal Reserve policy makers more leeway to lower interest rates, economists said.

``Productivity still looks fairly healthy and labor costs are tame,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``This gives the Fed more flexibility to respond to weakness in growth. It certainly looks like there is more easing to come.''

The median forecast for productivity was based on 71 estimates in a Bloomberg News survey. Projections ranged from a drop of 0.6 percent to a gain of 2.7 percent.

Treasury notes, which had fallen earlier in the day, stayed lower after the report. Ten-year yields advanced to 3.59 percent from 3.57 percent late yesterday.

Labor Costs

Unit labor costs, which are adjusted for gains in efficiency, rose 2.1 percent after dropping 1.9 percent in the prior three months. Economists in the Bloomberg survey had projected a 3.5 percent increase.

Hours worked dropped at a 1.5 percent pace, a second consecutive decline and the biggest since the first three months of 2003.

Compensation for each hour worked increased at an annual rate of 3.9 percent, compared with a 4 percent gain the prior quarter.

Productivity for all of 2007 rose 1.6 percent after increasing 1 percent the previous year. Labor costs rose 3.1 percent, the most since 2000.

Productivity at non-financial corporations, a measure watched by former Fed Chairman Alan Greenspan, rose at a 3.7 percent rate in the third quarter after rising 2.1 percent in the prior three months. The figures are released with a one- quarter lag.

Among manufacturers, productivity increased at a 2.5 percent pace last quarter, following a 4 percent gain.

Productivity gains may be harder to come by as the economy weakens because businesses are usually slow to reduce staff, economists said.

Slower Growth

Economic growth slowed to an annual rate of 0.6 percent in October through December, down from a 4.9 percent pace in the third quarter, according to government figures last week. A report from the Institute for Supply Management yesterday showed service industries unexpectedly contracted in January at the fastest pace since the 2001 recession.

Still, some businesses have already reacted to the demand slowdown. Companies added 1,000 workers to payrolls in January, while government agencies reduced staff. The economy lost 17,000 jobs overall, the first decline in more than four years. Hourly wages rose 0.2 percent last month, less than economists had forecast.

Labor expenses account for about two-thirds of the cost of producing a good or service.

 

Read more at Bloomberg

Wall St eyes bounce at open on media profits

(Reuters) - Stocks headed for a higher open on Wednesday as profits from Walt Disney Co (DIS.N: Quote, Profile, Research) and Time Warner Inc (TWX.N: Quote, Profile, Research) pointed to strength in earnings outside of the financial sector.

In economic news, U.S. productivity in the fourth quarter rose at a stronger-than-expected pace as the biggest cutback in working hours in nearly five years helped restrain growth in labor costs, the Labor Department said.

The market was poised to rise a day after recession fears sent Wall Street and markets in Europe tumbling, while overnight markets in Asia also slid.

"It's probably the natural inclination of markets to try to bounce after a bad day," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York. "There's no question that Disney helped and productivity numbers coming in better than expected didn't hurt either."

S&P 500 futures rose 4.7 points and were above fair value, a mathematical formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Dow Jones industrial average futures were up 20 points. Nasdaq 100 futures rose 6.5 points.

In deal news, global miner BHP Billiton Ltd/Plc (BHP.AX: Quote, Profile, Research) launched a hostile $147.4 billion bid for rival miner Rio Tinto Ltd/Plc (RIO.AX: Quote, Profile, Research) on Wednesday, ending months of speculation and setting the stage for the world's second-largest takeover.

 

Read more at Reuters