Diary of a JSE Stock Operator Edition 7

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2010-04-18T01:28:00.001-07:00

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Toyota Falls From Top in Auto Supplier Survey as Honda Climbs

2009-05-24T21:29:00.001-07:00

(Bloomberg) -- Toyota Motor Corp., the automaker that expanded its U.S. market share by more than half since 2002, was knocked from the top spot in a ranking of supplier relations in North America for the first time by Honda Motor Co.

Toyota came in second in the annual survey started in 2002 by consulting firm Planning Perspectives Inc. Among U.S. automakers, Ford Motor Co. climbed from the bottom two years ago to gain its largest lead over General Motors Corp., while Chrysler LLC ranked last for the second straight year.

The relationships matter because suppliers can help trim costs, improve performance and speed work on new models, often providing 70 percent of the content. Toyota, which has made cars in the U.S. for more than 20 years, dropped from first place after a decade of broadening its lineup to more closely match U.S. rivals’ and posting its first quarterly losses.

“Research we began in the early 1990s always showed Toyota as having the best relationship with its suppliers, but something seems to be changing,” said John Henke Jr., president of Birmingham, Michigan-based Planning Perspectives. “They’re looking a little more like U.S. automakers.”

Auto suppliers have been under pressure from tight credit and production declines in line with falling sales. Chrysler idled all of its plants while it restructures in bankruptcy and GM said it will idle 14 North American assembly plants for as much as 9 weeks.

More than 40 major suppliers filed for Chapter 11 last year, according to the Motor & Equipment Manufacturers Association. At least five have filed for bankruptcy this year, and many of the country’s largest suppliers, such as Lear Corp. and Visteon Corp., have amended or gotten waivers on loans to stay in compliance with lending terms.

Toyota’s Growth

Henke attributed Toyota City, Japan-based Toyota’s decline to a combination of less-experienced employees on its parts- purchasing team and stricter demands on suppliers from its engineers. The automaker’s U.S. auto sales fell 38 percent this year through April, while industry volumes slid 37 percent.

Toyota increased U.S. market share to 17 percent in 2008 from 10 percent in 2002, according to Autodata Corp., based in Woodcliff Lake, New Jersey. Now the world’s largest automaker, it has added models such as the FJ Cruiser sport-utility vehicle, Lexus brand hybrids, a Venza wagon and four Scion cars. It also makes full-size Tundra pickups in San Antonio.

The 72-year-old automaker’s loss was 766 billion yen, or $8.2 billion, for the three months that ended in March, capping its first annual deficit in 59 years. For the quarter, Toyota’s loss was wider than GM’s $5.98 billion and Ford’s $1.43 billion.

Gauging Trust

“Toyota’s supplier-relations approach is based upon long- standing principles and practices such as mutual trust and prosperity,” Tania Blersch, a Toyota spokeswoman, wrote in an e-mail. “These principles and practices do not change over time.”

Planning Perspectives surveyed 231 companies that supply the country’s six largest automakers on topics such as “trust” and a carmaker’s concern for supplier profit margins. The ranking is determined by Planning Perspective’s Working Relations Index measuring supplier perceptions of how automakers relate to them.

Honda, based in Tokyo, came in first even after slipping 10 points to 349 on the 500-point scale, besting Toyota, which slid to 339 from 415 two years earlier. Nissan Motor Co.’s third-place score improved to 268, followed by Ford at 232, GM at 183 and Chrysler at 162.

None ‘Good’

Toyota and Honda scored below 350, Planning Perspective’s threshold for “good to very good” relationships for the first time since 2003. The three Japanese automakers scored within the “average” range, while the U.S. automakers, with ratings of less than 250, had “very poor to poor” ratings.

“We work really hard with suppliers on communication and personal visits and transparency,” said Ed Miller, a Honda spokesman, who declined to comment specifically on the survey. “When you do that, when there is a problem you can spot it sooner and you can help each other sooner.”

Ford’s score improved the most, 22 percent from last year, 43 percent over two years.

Suppliers said Ford helped them get acceptable margins, and the partsmakers have grown more likely to share technology. The Dearborn, Michigan-based automaker has begun paying upfront for engineering and testing instead of reimbursing over the life of a program, said Tony Brown, the purchasing chief.

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BofA seeks to repay $45 billion by year-end

2009-05-20T21:41:00.001-07:00

(Reuters) - Bank of America Corp wants to pay back $45 billion in bail-out funds by the end of the year, accelerated by a program to raise capital, the Financial Times reported on its website late on Wednesday.

The largest U.S. bank by assets is on track to raise more than $35 billion in capital by the end of September, the report said, citing people familiar with the matter.

Bank of America said on Tuesday it raised $13.47 billion through a share sale, marking a major step toward meeting the U.S. government's requirements for capital-raising following the recent "stress testing" of the bank.

Including proceeds from the sale of part of its stake in China Construction Bank Corp for $7.3 billion, the bank is now more than halfway to plugging a $33.9 billion capital shortfall identified by the government.

The report also said the bank is in negotiations to sell some of its non-core assets.

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Geithner works to fill out Treasury team

2009-05-19T21:44:00.000-07:00

(Reuters) - Treasury Secretary Timothy Geithner is surrounding himself with former aides to President Bill Clinton as he attempts to rebound from a rocky start even as top-tier vacancies have slowed decision-making.

Former Clinton press secretary Jake Siewert, who has been chief communications officer at aluminum giant Alcoa, is headed to Treasury soon as a senior adviser, sources said.

He will join an advisory team that also includes former Clinton economic adviser Gene Sperling and Lee Sachs, who was an assistant Treasury secretary for financial matters under Clinton.

Stephanie Cutter, who has been Treasury spokeswoman, is headed to the White House for a time to help manage the rollout of President Barack Obama's nominee to fill a vacancy on the Supreme Court.

The former Clinton aides have credibility because Clinton's tenure in the 1990s was marked by a strong economy, though the economic problems they encountered bear little resemblance to the crushing challenges President Barack Obama faces.

For all of their influence, however, there are real limits on the counselors' authority, including an inability to testify before Congress that effectively shifts more of those duties onto the officials who have been vetted by lawmakers.

And there is strength in numbers. The Washington Post reported this week that some key decisions are on hold because of an absence of top-level deputies to Geithner.

One anecdote cited by the Post was that Rick Wagoner was still technically on General Motors' payroll seven weeks after he was ousted as the automaker's top executive.

Nominees have not even been named yet for some posts, like that of under secretary for domestic finance, a key position because that person must help devise strategy for raising the staggering sums of money Treasury will have to borrow to keep the government operating.

Bill Galston, an economic expert at the Brookings Institution think tank who was a Clinton policy adviser, said Geithner's Treasury Department is being slowed by an absence of a top layer under Geithner.

It is a result, he said, of a Senate confirmation process taken to the extreme. The background checks on potential nominees got tougher after Geithner was damaged by the news that he had failed to pay back taxes and Tom Daschle's bid to become health and human services secretary was derailed over a similar issue.

SYSTEM 'ALMOST BROKEN'

"We have at this point a system of nominating, vetting and confirming that is almost broken," Galston said. "We have piled layer upon layer upon layer of reviews, questionnaires, disclosures etc. over the last 30 years that it has now reached a point where even people who are willing to go through the process have to wait around forever."

Still waiting for a Senate hearing is Lael Brainard, another former economic adviser in the Clinton administration who was nominated for the position of under secretary for international affairs.

If confirmed, she would become top financial diplomat for Treasury and take on much of the responsibility for sensitive issues from China currency policy to laying the groundwork for economic summits with other countries.

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U.S. housing starts and permits plumb record lows

2009-05-19T21:41:00.001-07:00

(Reuters) - U.S. housing starts and permits fell to record lows in April, weighed down by a slump in multifamily units, according to data on Tuesday that still hinted the U.S. recession may be drawing to a close.

The Commerce Department said housing starts fell 12.8 percent to an annual rate of 458,000 units last month, the lowest since records began in January 1959.

The drop reflected a 46.1 percent plunge in breaking ground for multifamily units and indicated homebuilding remains a drag on the economy. However, starts for single-family homes, rose 2.8 percent, a second straight gain that showed the worst-hit part of the market was stabilizing.

"There is some stability. When you look at the housing starts numbers, they are going to be vulnerable to kind of two steps forward, one step back," said Nick Kalivas, vice president of financial research at MF Global in Chicago. "Housing starts are at a level where they are bottoming out."

Analysts said the decline in starts should help the housing market work through a huge stock of unsold homes and lay the foundation for a recovery from a three-year slump, which was the main trigger of the economic downturn.

Compared to the same period last year, housing starts were down 54.2 percent.

"This is essentially a good thing. It means supply will eventually come back in line with demand," said Joseph Brusuelas, an economist at Moody's Economy.com in West Chester, Pennsylvania.

Shares of U.S. homebuilders fluctuated in choppy trade. The Dow Jones home construction index ended slightly lower following strong gains on Monday after data showed homebuilder sentiment had improved.

In related news, shares of Home Depot Inc, the world's largest home improvement chain, fell 5 percent after the company reported an almost 10 percent drop in quarterly sales.

GLIMMERS OF HOPE

New building permits, which give a sense of future construction activity, fell 3.3 percent to 494,000 units in April, the lowest since records were started in January 1960.

The decline in permits reflected a 19.9 percent decrease in new building plans for multifamily units. Building permits for single family homes rose 3.6 percent.

Compared to April of last year, permits were down 50.2 percent.

While housing activity continues to fall, the report still offered glimmers of hope for an economy in its 17th month of recession, according to analysts.

A National Association of Home Builders survey on Monday showed U.S. home builder sentiment surged to an eight-month high this month, with industry leaders hopeful the slump was nearing a bottom and market stability was around the corner.

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GM's Opel might make cars for other brands

2009-05-17T21:32:00.000-07:00

(Reuters) - General Motors' (GM.N) Opel unit might make cars for other manufacturers if car parts maker Magna (MGa.TO) becomes its partner, German paper Welt am Sonntag reported, citing unidentified sources close to Magna.

Germany's hunt for a partner for struggling Opel has boiled down to two rival groups, Italy's Fiat (FIA.MI) and Austrian-Canadian Magna, which have been asked to present a full plan within a week, Economy minister Karl-Theodor zu Guttenberg said on May 14.

If Opel has to reduce output of its cars, it could offer capacity to other carmakers such as Peugeot (PEUP.PA) or Ford (F.N), for example in its factory in Ruesselsheim, the sources close to Magna said, according to the weekly newspaper.

Magna therefore does not plan to close any Opel factories in Germany, while it might shut plants in Belgium's Antwerp and in Luton in the UK, the paper said.

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Japan’s Machinery Orders Fall as Factories Sit Idle

2009-05-14T21:45:00.000-07:00

(Bloomberg) -- Orders for Japanese machinery resumed falling in March, a sign that managers remain wary of upgrading factories and equipment before an economic recovery takes hold.

Bookings, an indicator of capital investment in the next three to six months, fell 1.3 percent from February, when they gained a revised 0.6 percent, the Cabinet Office said today in Tokyo. Economists surveyed predicted a 4.6 percent drop.

Although Japan’s worst recession since World War II probably bottomed last quarter, the collapse in global demand has forced manufacturers to cut production by more than a third from last year’s peak. With factory lines sitting idle and profits falling, companies have little reason to invest in new equipment, spending that accounts for about 16 percent of the world’s second-largest economy.

“The economy is still in bad shape,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Companies are still reluctant to make new investments.”

The Nikkei 225 Stock Average climbed 1.7 percent as of the lunch break in Tokyo. The yen traded at 95.97 versus the dollar from 96.10 before the report.

From a year earlier, orders fell 22.2 percent in March compared with 30.1 percent in February. The Cabinet Office said the “pace of declines has eased,” changing the wording of its assessment from “the orders trend continues to decline.”

China’s Demand

Bookings from abroad, which aren’t included in the headline number, jumped 46.4 percent, the biggest monthly gain on record. The Cabinet Office doesn’t give any information about the geographic origin of the orders, though an official said China is likely to have been a source of demand.

Analysts predict a government report next week will show the economy shrank at an annual 16.2 percent pace last quarter, the worst showing since records started in 1955 and the fourth contraction in a row.

Data released in the past month suggest gross domestic product may rise this quarter, albeit building from a low point.

Confidence among merchants and small businesses improved in April. Exports increased in March from a month earlier, and factory production rose for the first time in six months. Bank of Japan Governor Masaaki Shirakawa said this week that the gain in output shows the economy is “leveling out.”

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U.S. banking crisis may last until 2013: S&P

2009-05-13T21:29:00.001-07:00

(Reuters) - A day after saying big U.S. banks probably needed to raise only one-fourth the capital demanded by the government, Standard & Poor's said the nation's banking crisis has "merely entered a new phase" and might not end before 2013.

The credit rating agency said the industry is being propped up by hundreds of billions of dollars of government support, especially for lenders considered too important to the financial system to fail.

While efforts to spur lending, take bad assets off banks' balance sheets, and restart the market for packaging and selling securities may help the sector, S&P said banks will have a tough time surviving absent a bigger capital cushion than regulators require.

"There's nothing to say that this banking crisis can't go on for another three or four years," S&P Managing Director Tanya Azarchs said.

S&P did not immediately return a request for comment.

On Tuesday, S&P said major U.S. banks need to raise about $18 billion of capital to protect themselves from the economic downturn, though this amount could grow if conditions worsen.

The amount is well below the $74.6 billion that the government last week ordered 10 of the largest U.S. banks, led by Bank of America Corp and Wells Fargo & Co, to plug potential capital shortfalls.

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BofA, other U.S. banks scramble for capital

2009-05-12T21:36:00.000-07:00

(Reuters) - Several large U.S. banks undertook big capital-raising efforts on Tuesday, hoping to satisfy regulators who want bigger cushions against a deep recession, or proof that they have enough of a buffer already.

Bank of America Corp, which regulators last week ordered to find $33.9 billion of capital, sold $7.3 billion of China Construction Bank Corp (CCB) shares to a group of investors, according to a person directly involved in the sale who was not authorized to discuss it. The bank declined to comment. CCB could not be reached.

Meanwhile, U.S. Bancorp and Bank of New York Mellon Corp sold a respective $2.5 billion and $1.2 billion of common stock, as they look to repay taxpayer bailout funds.

Unlike Bank of America, both were deemed in U.S. government "stress tests" to have sufficient capital buffers. BB&T Corp, which also got a clean bill of health, is expected to sell $1.5 billion of stock.

Dozens of lenders are hoping to convince regulators that they can withstand a steep economic downturn, or are healthy enough to repay money from the $700 billion Troubled Asset Relief Program.

TARP was designed to spur lending, but banks now consider it a burden because it imposes too many restrictions, including some on pay, and suggests that recipients are weak.

Bank of America took $45 billion from TARP, U.S. Bancorp $6.6 billion, BB&T $3.1 billion and Bank of New York Mellon $3 billion. Lenders say it is up to regulators to decide when money can be repaid. The government does not want banks to repay funds, only to find later that they need more.

"It is now a negative to have TARP," Bank of New York Mellon Chief Executive Robert Kelly said at a UBS financial services conference. "When I was traveling in the Middle East, Asia and in Europe over the past couple of months ... I got a pretty clear message (from clients) that it would differentiate us if we were able to get out."

Ten of the 19 large banks that underwent stress tests were ordered last week to raise $74.6 billion of capital to ward off a potentially severe downturn. Many banks said they do not expect conditions to sour as much.

Federal Deposit Insurance Corp Chairman Sheila Bair said on Tuesday the release of stress test results was a catalyst for capital raising by banks. She added that while the banking industry is gaining a better footing, "there's still some more pain to go.

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Communists Can’t Outspend Capitalists as China Jobless Increase

2009-05-11T21:54:00.001-07:00

(Bloomberg) -- Over bowls of chili tofu and mushrooms at a restaurant in Shenzhen in China’s humid Pearl River Delta, Terence Yap says he’s not alarmed that U.S. investors drove his company’s share price down 58 percent over the past year.

“We are in the right business in the right place at the right time,” Yap, 38, says as he gestures toward a gray industrial landscape that disappears into a pollution-blurred horizon. His occupation: selling surveillance equipment to a Chinese government that’s stepping up security spending as the economy slows, unemployment rises and the population grows restless. “We are in the business of providing peace of mind,” he says.

Peace of mind is getting harder to find for China’s leaders. Premier Wen Jiabao has pledged to ensure “social stability” as the government estimates that as many as 30 million rural migrants -- those Chinese who work in factories or seek urban construction jobs -- may have no income.

“We will launch intensive campaigns to ensure public security and maintain law and order,” Wen told the National People’s Congress in Beijing on March 5. China’s unemployment rate is about 9.4 percent, according to an estimate by the Chinese Academy of Social Sciences -- more than double the government’s March figure of 4.3 percent for the registered urban unemployed it officially tracks. Adding to the burden are a record 6 million Chinese college graduates who are entering the job market this year.

Jobs Jostle

Demand for work is so high that 5,000 students jostled at a Shanghai employment fair in March for 400 jobs available in the funeral industry. One woman with a management degree applied for a position as a mortician’s assistant to “make up the faces of the dead,” state media reported. The attraction: It paid 4,000 yuan ($585) a month, equal to what she might have earned in an office job two years ago.

By global standards, China is growing at a brisk pace; its 9 percent expansion in 2008 made it the best performer among the 10 largest economies. Gross domestic product slumped to 6.1 percent in the first quarter of this year, still a world-beating rate as the global recession cut demand for Chinese-made goods. Even as the country’s leaders assert themselves on the diplomatic stage, they are preoccupied with keeping a lid on popular discontent as the 20th anniversary of the crackdown on the democracy movement at Tiananmen Square draws near.

‘Sensitive Year’

“This is a very sensitive year,” says Jimmy Lai, chief executive officer of Hong Kong-based Next Media Ltd., who was banned by the Chinese government from the mainland in 1994 after condemning Beijing’s leaders for crushing the democracy movement. “If the economy implodes, the risk of instability is high.” Lai, 59, founder of Hong Kong-based clothing retailer Giordano International Ltd., was forced to sell his Giordano shares after China shut down mainland stores in retaliation for his criticism.

As the country’s leaders fret about unrest at home, they’ve stepped up their rhetoric about the economic policies of trading partners in the west such as the U.S., where China has invested some $1.2 trillion, which includes $744 billion in U.S. Treasury bonds. “We lent such huge amounts to the United States, and of course, we’re concerned about the security of our assets,” Wen said at a press conference in Beijing on March 13. “And to speak truthfully, I am a little bit worried.”

China now holds almost $2 trillion in foreign reserves. “The Chinese Communist Party is now the world’s most liquid financial institution,” says Andy Rothman, a Shanghai-based strategist at CLSA Ltd., the Asian brokerage unit of Credit Agricole SA.

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BofA needs $33.9 billion, eyes stock and asset sales

2009-05-07T21:43:00.001-07:00

(Reuters) - Bank of America Corp, ordered by the government to find $33.9 billion of capital, said on Thursday it planned to sell assets and issue more common stock to cover the shortfall.

The capital-raising, half of which will come from common stock issuance, was announced after the government concluded that the largest U.S. bank faced a potential $136.6 billion of losses from loans, investments and trading in 2009 and 2010 under "more adverse" conditions.

Bank of America said the results overstated the bank's risks, especially on seemingly safe residential mortgages, and understated its earnings potential, and pledged to repay the $45 billion of government aid it has taken as soon as it can.

"Our game plan is designed to get the government out of our bank as quickly as possible," Chief Executive Kenneth Lewis said on a conference call.

Bank of America is one of 19 large U.S. banks that underwent government "stress tests" to see how much capital they need to weather a deep recession.

Ten were told to find capital. Bank of America's $33.9 billion shortfall is more than twice the $13.7 billion that Wells Fargo & Co, deemed to have the second greatest capital need, was told to raise.

Bank of America's capital needs add to pressure on Lewis, who called it a "humbling experience" when shareholders last week narrowly voted to oust him as chairman, largely because of its falling share price and a takeover of Merrill Lynch & Co.

The board of directors replaced him with Walter Massey, the president emeritus of Morehouse College in Atlanta. Bank of America said it will seek new directors, perhaps loosening Lewis' control over a board long supportive of him.

Shares of Bank of America rose $1.21 in after-hours trading to $14.72, after closing up 82 cents at $13.51 in regular trading. They traded at $33.74 before the Merrill merger was announced last September 15.

CAPITAL RAISING PLANS

Bank of America plans to raise $17 billion of common equity, including through converting at less than face value some preferred shares held by private investors. The bank said this could involve issuance of 1.25 billion common shares.

It said it also plans to raise $10 billion from asset sales, including its Columbia asset management unit and First Republic Bank, and may enter into several joint ventures. The bank plans to raise another $7 billion through other means.

Lewis said the Charlotte, North Carolina-based bank wants to remain a strategic partner with China Construction Bank Corp and "always have a substantial ownership position" in the bank. Analysts have said Bank of America could post a $8 billion or larger gain from selling its 16.6 percent stake.

Asked if he would consider selling any of Merrill Lynch's investment banking business, Lewis said: "Absolutely not."

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Shaved Heads Keep Barbers Idle as Drought Sears California

2009-05-06T21:20:00.000-07:00

(Bloomberg) -- The drought in California’s Central Valley is so severe that it’s drying up money for haircuts.

One customer waited six months to get a $10 haircut, then asked to have his head shaved so he could wait another six months, said Armando Ramirez, a barber in Firebaugh.

“People come in and say, ‘Hey Armando, how about I give you a dollar for a cut, it’s all I have,’” said Ramirez, 63, who has owned his shop for four decades. “Saturday is supposed to be my busiest day, but I’m lucky if I get one customer before I go to lunch.”

Businesses are casualties of the three-year drought that is forcing farmers to leave hundreds of thousands of acres fallow in the Central Valley, the semi-arid agricultural region running 400 miles (600 kilometers) down the middle of the state. The drought may cost the valley 35,000 jobs and $959 million in lost revenue this year, said Richard Howitt, chairman of agricultural and resource economics at the University of California, Davis.

“I’ve never seen a drought this bad,” said Bob Diedrich, who has been farming near Firebaugh, 140 miles southeast of San Francisco, since 1973. “It’s putting a chokehold on us.”

Diedrich laid off all five of his full-time workers in anticipation of receiving no water this year to irrigate the 1,000 acres (400 hectares) of land where he grows almonds and tomatoes. The U.S. Bureau of Reclamation in February cut off water deliveries to Central Valley farmers for the first time in 15 years because reservoir levels were low. The reservoirs collect rain and melted snowpack from the Sierra Nevada for transport to farm irrigation systems.

Multiplier Effect

Farms hire workers for planting, picking, sorting, packing and other jobs. Most wages are spent locally, so when fields aren’t cultivated it hurts stores and other businesses, and a multiplier effect rolls through the economy, Howitt said.

“Our mom-and-pop shops are hurting,” said Hope Morikawa, director of the Hanford Chamber of Commerce, 30 miles south of Fresno, which has lost dozens of its 700 members this year and began offering its services for free.

Stacey Marshall can look out the window of her women’s clothing boutique in Hanford and see four empty storefronts.

“We’ve lost the scrapbook store, a cigar store and the bakery,” said Marshall, whose sales are dropping at a rate of about 13 percent this year. “The wine cellar and Boogie’s, a restaurant, closed.”

Rainfall in February and March eased the shortage, said Wendy Martin, drought coordinator for the California Water Resources Department, “bringing us back from the edge of disaster.” Still, Martin said she thinks this drought may rank among the state’s worst.

Third Dry Year

Snowpack runoff is forecast to be 66 percent of average in the year ending Sept. 30, following years of 58 percent and 51 percent, said Elissa Lynn, senior meteorologist for California’s Water Resources Department. Governor Arnold Schwarzenegger declared a state of emergency in February, asking residents of the world’s eighth-biggest economy and the most populous U.S. state to cut water use by 20 percent.

In the heart of Central Valley, half of the 30 communities in Fresno County had unemployment rates above 20 percent in March, when the state rate was 11.5 percent.

Farmers in the Westlands Water District, which includes Fresno County and part of Kings County, are planting about 200,000 acres, down from 500,000 in wetter years, said Sarah Woolf, spokeswoman. It’s the largest agricultural irrigation district in the U.S., she said.

Almonds, cotton, beans, grapes, tomatoes and other crops are raised in the area about halfway between San Francisco and Los Angeles. Fresno County grew $5.35 billion of produce in 2007, said Steve Lyle, a spokesman for California’s Food and Agriculture Department.

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Bernanke Warns of Danger of Credit Market ‘Relapse’

2009-05-05T21:25:00.000-07:00

(Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke warned that another shock to the financial system would undercut the central bank’s forecast that the U.S. recession will give way this year to a slow recovery.

“A relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall,” Bernanke said today in testimony to the congressional Joint Economic Committee. He highlighted that the economic contraction may be slowing and that the housing market has “shown some signs of bottoming” after a three-year slump.

The Fed chief gave no indication the Fed intends to retreat from its unprecedented policy of keeping the main interest rate near zero and boosting credit through emergency-loan programs and asset purchases. His remarks echo last week’s Fed statement that, while the outlook has “improved modestly” since March, the economy may “remain weak for a time.”

Bernanke also said the Fed will soon provide on its Web site more information on its lending programs. That includes the number of borrowers, concentration of credit among borrowers, ratings of collateral and some details on contracts with private firms. The central bank will “continue to expand the range of information” it publishes, he said.

ISM Report

The chairman spoke as a private survey reinforced evidence the recession is easing. The Institute for Supply Management said its index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 43.7, the highest level since October. Readings below 50 signal contraction.

Stocks declined after rising yesterday. The Standard & Poor’s 500 Index was down 0.38 percent at 903.8 in New York. Treasuries were little changed, with the benchmark 10-year note yields at 3.16 percent compared with 3.15 percent yesterday.

“We continue to expect economic activity to bottom out, then to turn up later this year,” Bernanke said today. “Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters.”

After the testimony, Bernanke met with the Senate Republican Policy Committee. Bernanke told the senators that the economy could grow around 2 percent next year and 4 percent in 2011, John Ensign of Nevada, who chairs the committee, said in a Bloomberg Television interview.

‘Exactly Right’

“But as Fed chairmen always say, there are a lot of underlying conditions that have to be exactly right,” Ensign said. “One of them is that we don’t have more problems in the financial markets, especially with the banks, and that’s a big assumption, and he actually said that’s a big assumption.”

Bernanke, who spoke two days before the planned release by the Fed and other U.S. regulators of the results from stress tests on the country’s 19 largest banks, gave little hint of the results to members of Congress. He said in Washington that banks “will be required to develop comprehensive capital plans” and that funds from the government “will be available as needed.”

Fed officials are “now satisfied” that the data accurately reflect banks’ financial conditions after discussions with the firms to review and “not negotiate” initial results, he said.

The lenders get their assessments from officials today, according to people familiar with the matter. About 10 of the banks will need additional capital to protect against a deeper recession, they said. Bank of America Corp. and Citigroup Inc. are among those requiring a bigger buffer, people familiar with the issue have said.

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Short Selling of Banks Accelerates as New Financial Stress Test

2009-05-04T21:22:00.001-07:00

(Bloomberg) -- Short sellers, the bane of Wall Street executives last year, are back.

The number of Citigroup Inc. shares borrowed and sold short increased sixfold since Feb. 27, the day the U.S. Treasury announced it would convert some of its preferred shares in the New York-based bank into common stock.

Short interest in Bank of America Corp., MetLife Inc. and American Express Co. climbed more than 40 percent in the same period, according to data compiled by Bloomberg. In total, short sales of the 18 publicly traded financial companies undergoing government stress tests were twice as high on April 15 as they were at their peak last year in July, two months before Lehman Brothers Holdings Inc. collapsed.

“People are either positioning themselves for the potential of a preferred-to-common conversion, or they have an increased perception of risk in these companies,” said Andrew Baker, an equity strategist at Jefferies & Co. in New York.

The Federal Reserve plans to release results of the tests on May 7. At least six of the 19 firms under review will require additional capital to absorb losses if the recession worsens, people briefed on the preliminary results said last week.

Short sellers borrow shares and sell them hoping to make a profit by replacing the stock after prices fall.

Douglas Cliggott, manager of the Dover Long/Short Sector Fund in Greenwich, Connecticut, said he is shorting some bank stocks on expectations they will lose value as earnings deteriorate. New York-based hedge fund manager Daniel Loeb is betting that financial firms needing more capital will exchange preferred shares for common to bolster their balance sheets. He’s seeking to profit from the price difference between the two securities by buying preferreds and shorting the common.

Converting Preferreds

Citigroup is in the process of converting as much as $52.5 billion of preferred, including $25 billion held by the government. Charlotte, North Carolina-based Bank of America, the largest U.S. lender by assets, will change $25 billion to $45 billion of preferred shares into common to raise capital, said Richard Staite, an analyst at Atlantic Equities LLP in London, in a report to clients last week.

Wells Fargo & Co., based in San Francisco, and three smaller rivals -- BB&T Corp., SunTrust Banks Inc. and Regions Financial Corp. -- also may have to turn their preferred shares into common as a result of the stress tests, according to analysts at New York-based Creditsights Inc.

To entice investors to accept common shares, companies may offer preferred holders a premium to the current price, said Phillip Jacoby, a managing director of Stamford, Connecticut- based Spectrum Asset Management Inc., which oversees $6 billion. Citigroup is offering holders of the $2.04 billion 8.5 percent Series F preferred $21.70 worth of common shares, 24 percent more than their price of $17.48 as of May 1.

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China cancels US credit card

2009-05-03T21:32:00.001-07:00

China, wary of the troubled US economy, has already "cancelled America's credit card" by cutting down purchases of debt, a US congressman said on Thursday.

China has the world's largest foreign reserves, believed to be mostly in dollars, along with around $800bn in US Treasury bonds, more than any other country.

But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.

Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments.

"It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group.

"I'm not sure too many people on Capitol Hill realise that this is now happening," he said.

The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the US government due to the financial crisis.

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Gates Makes Lifetime Pledge to Buffett’s Berkshire

2009-04-28T21:26:00.000-07:00

(Bloomberg) -- Microsoft Corp. co-founder Bill Gates, recruited by his friend Warren Buffett to join the board at Berkshire Hathaway Inc., said he’s committed to the firm for the rest of his life.

Gates and fellow Berkshire board member Don Keough, the former president of Coca-Cola Co., said in separate interviews with Bloomberg Television that their role with Omaha, Nebraska- based Berkshire is to protect the company’s culture and values after Buffett, 78, steps down. Buffett has pledged the majority of his Berkshire shares to Gates’s charitable foundation.

“I’ve got a commitment to stay involved with Berkshire as a lifelong thing,” Gates, 53, said in an interview scheduled to be broadcast today. “We always have to think about what might happen and make sure Berkshire is not just great now, but forever.”

Buffett, Berkshire’s chairman and chief executive officer, has said the board’s most important job will be to replace him when he’s unable to perform his duties. He will host about 35,000 people on May 2 at Omaha’s Qwest Center arena for the annual shareholder meeting -- an occasion where he typically fields questions about the succession plan.

“It’s the most important issue there is,” Buffett said in an interview with Bloomberg Television at Berkshire’s headquarters last month. “There’s nothing more important. Nobody knows on any given day where I’ll be the next day.”

‘Intense and Real’

Buffett built Berkshire over four decades from a failing manufacturer of men’s suit linings into a $140 billion company by investing in out-of-favor stocks and buying dozens of businesses ranging from insurance and underwear to ice cream and utilities. Buffett says his ideal time horizon to hold a stock is “forever,” and he purchases operating companies for Berkshire with the promise to their owners never to sell them.

“When you’re sitting on the board, you’re talking about sustainability of Berkshire Hathaway long-term, the issue of management down the road,” said Keough, 82. “The culture he’s built into Berkshire is intense and real and, I think, permanent.” Berkshire is the largest shareholder in Coca-Cola, and Buffett served on the soft-drink maker’s board with Keough.

Buffett said in letters to shareholders and at past annual meetings that the chairman post will go to his son, Howard Buffett, to keep the culture intact, and said the remainder of his work will be split between at least two people: a CEO and person or group that handles investing.

‘Total Confidence’

“All candidates currently work for or are available to Berkshire and are people in whom I have total confidence,” he said in the company’s most recent annual report. Buffett said in an interview March 5 that the CEO candidates hadn’t changed in a year. He declined to name them.

“You could water-board me,” and he still wouldn’t tell, Buffett joked.

Berkshire stockholders and Buffett-watchers have long speculated about who will fill the CEO position. Barron’s has reported that David Sokol, the head of Berkshire’s MidAmerican Energy Holdings Co., was the most likely successor. Sokol said in an interview with Bloomberg Television he hasn’t discussed succession with Buffett.

“Never a word,” Sokol said. “Unfortunately my name comes up because people try to come up with names.”

Tony Nicely, the head of Berkshire’s Geico Corp. car insurance business, and Ajit Jain, who runs a unit that sells reinsurance, are also on media lists of potential successors. Buffett biographer Alice Schroeder, now a Bloomberg News columnist, has suggested Buffett adviser Byron Trott, formerly at Goldman Sachs Group Inc., is an ideal candidate.

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Baidu quarterly profit up 24%, forecast tops estimates

2009-04-27T21:41:00.000-07:00

(MarketWatch) -- Baidu Inc.'s first-quarter net income grew 24% on higher-than-expected revenue, as traffic to the site improved since it launched a new marketing campaign.

Baidu's American Depositary Shares rose 4% to $233.07 in after-hours trading as the company's second-quarter revenue forecast topped analysts' estimates.
The company, which holds a commanding share of the Internet-search market in China, had warned earlier this year that its online marketing customers might scale back on spending. The company was also hit by negative publicity late last year when it was criticized by state media for carrying ads from unlicensed medical companies.
The company spent an additional CNY40 million ($5.85 million) on marketing in the first quarter, including a high-profile television ad campaign over the Chinese New Year holiday in January.

Baidu reported first-quarter net income of CNY181.1 million ($26.5 million), or CNY5.22 (76 cents) per ADS, compared with CNY146.6 million, or CNY4.22 per ADS, a year earlier. Excluding stock-based compensation, earnings rose to 86 cents per ADS from 68 cents. Analysts polled by Thomson Reuters expected 76 cents.
Revenue climbed 41% to CNY810.7 million, or $118.6 million, above the company's February forecast of $114 million-$117 million.

The company said it expects revenue in the second quarter to be between $157 million and $161 million, topping analyst forecasts of $146.5 million, according to Thomson Reuters.

Active online-marketing customers increased 15% to more than 185,000, as revenue per customer grew 22%.

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Pressure builds on BofA's Ken Lewis

2009-04-23T21:11:00.000-07:00

(Fortune) -- Questions about whether Bank of America breached its duties to shareholders come at an inconvenient time for embattled CEO Ken Lewis.

According to documents released Thursday by a top state prosecutor, the BofA (BAC, Fortune 500) chief met repeatedly late last year with federal regulators and the bank's board to discuss the deteriorating condition of Merrill Lynch, the struggling brokerage BofA had agreed to acquire in September.

At one point, according to an account released by New York Attorney General Andrew Cuomo, Lewis told then-Treasury Secretary Henry Paulson that BofA was considering backing out of the Merrill deal -- only to relent when Paulson said regulators, fearing a financial sector collapse, might respond by removing Lewis and his directors.

The Cuomo report certainly won't go down as a shining moment for a government that has twisted itself in knots claiming it wasn't pulling the strings at financial firms it invested in.

But worse, to some observers, is BofA's failure to disclose any of this information to its shareholders -- regardless of Lewis's claim he was being leaned on by Paulson.

The report could increase the pressure on Lewis as he and some members of the BofA board face re-election next week at the company's annual shareholder meeting.

"It's hard for me to believe the Treasury and the Federal Reserve would tell Ken Lewis to violate securities laws," said Jonathan Finger, a longtime BofA investor who has been critical of Lewis' penchant for empire building at shareholder expense. "Regardless of the pressure he may have felt, Ken Lewis still had a duty to protect shareholders and disclose relevant information."

Cuomo wrote in a letter to congressional leaders and other top federal officials Thursday that facts unearthed in his investigation raise questions about "corporate governance and disclosure practices at Bank of America."

BofA dismisses questions about its handling of the deal.

"We believe we acted legally and appropriately in the Merrill Lynch transaction," spokesman Scott Silvestri said.

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Eskom may miss tariff deadline

2009-04-22T21:31:00.001-07:00

South Africa's utility Eskom, which has delayed an application for a tariff increase, is in danger of missing a July 1 deadline for any tariff hike to be implemented, the power regulator said.

Mbulelo Ncetezo, the executive director at the power regulator Nersa, said it takes three to four months to process an application, and state-owned Eskom was running out of time.

Should Eskom miss the deadline, the utility may have to wait until next year for any tariff increase to be enforced, or it may have to accept an increase of 34% that has been proposed by the Treasury.

Ncetezo said Nersa had yet to consider treasury's proposal.

"The national treasury sent a note to municipalities in the country saying that they should implement a 34% rise as of July if there is nothing coming from Eskom by then," he told Reuters late on Tuesday at a power conference in Johannesburg.

"We have told Eskom what the implications would be if they submit their application late," Ncetezo said.

He said the increase proposed by Treasury was "not far off from what Nersa had indicated last year if you add inflation".

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Yen Weakens, Snaps 3-Day Gain, as Trade Deficit May Damp Demand

2009-04-20T21:24:00.001-07:00

(Bloomberg) -- The yen fell for the first time in four days against the euro and the dollar before a government report tomorrow that may show Japan posted a trade deficit last month, damping the currency’s appeal as a refuge.

Japan’s currency dropped from a five-week high against the euro as technical indicators showed its recent gains were excessive. The euro traded near the lowest in a month against the dollar on speculation the European Central Bank will cut interest rates and signal it may pump money into the economy to spur growth. South Korea’s won dropped the most in almost two weeks as widening U.S. credit losses curbed demand for emerging- market assets.

“The Japanese economy is in a terrible way and people are very pessimistic,” said Sean Callow, Sydney-based senior currency strategist at Westpac Banking Corp., Australia’s biggest bank by market value. “If we get much further deterioration in the trade position, it should be a yen negative.”

The yen dropped to 127.16 per euro as of 12:42 p.m. in Tokyo from 126.48 in New York yesterday. It has still gained 3.2 percent against the euro in the past week and earlier reached 126.09, the strongest level since March 16. Japan’s currency declined to 98.26 per dollar from 97.89, and weakened to 68.94 against Australia’s dollar from 68.20.

The greenback traded at $1.2939 per euro from $1.2921 yesterday, when it reached $1.2889, the highest level since March 16. The won fell 1.3 percent, the most since April 8, to 1,352.70 per dollar.

Trade Deficit

Japan’s currency weakened against all 16 of the most-traded currencies before the finance ministry releases its trade report in Tokyo tomorrow. The nation had a trade deficit of 27 billion yen ($275 million) in March, the fifth shortfall in six months, according to a Bloomberg News survey of economists.

The yen fell from a five-week high versus the euro as the European currency’s 14-day stochastic oscillator against Japan’s dropped to 8 today, below the 20 level that signals the euro may have fallen too quickly and is poised to strengthen.

“There’s a sense the yen has been overbought,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest bank. “Market participants are probably unwinding long yen positions.” A long position is a bet an asset will gain.

Stocks Slump

Declines in the yen were tempered as Asian stocks extended a global slump in equities, spurring demand for the relative safety of the Japanese currency. The MSCI Asia-Pacific Index of regional shares slipped 2.8 percent.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed at 86.642. U.S. stocks tumbled yesterday after Bank of America Corp. put aside $6.4 billion to cover a growing pool of uncollectible loans. JPMorgan Chase & Co. said banks will likely realize about $400 billion more in losses on soured assets.

“Stocks are falling and uncertainty over the credit markets is returning,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second- biggest bank. “The yen may be bought.”

President Barack Obama said on April 19 that he will demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen.

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Google profit beats estimates

2009-04-16T21:48:00.000-07:00

(CNNMoney.com) -- Shares of Google Inc. rose in after-hours trading Thursday after the Internet search company said its first-quarter profit climbed 8.9% and topped Wall Street's forecast, amid a tough advertising environment.

Net income for the three months ended March 31 totaled $1.42 billion, or $4.49 per share, compared with $1.31 billion, or $4.12 per share, a year ago.

Results included charges of 67 cents per share for special items. Without the charges, earnings were $5.16 per share for the Mountain View, Calif.-based company.

A consensus estimate of analysts polled by Thomson Financial, who typically exclude one-time items from their estimates, predicted $4.93 per share.

Sales rose almost 6% to $5.51 billion from $5.19 billion last year. Excluding commissions paid to advertising partners, sales totaled $4.07 billion, which missed analysts' forecast of $4.08 billion.

In the previous earnings period, Google posted its first-ever drop in quarterly profit.

Google (GOOG, Fortune 500) stock was trading almost 1% higher to $392.24 in after-hours action Thursday after rising as high as 5.7% following the earnings release.

"It's not an expensive stock, and stocks are rallying even on bad news," said Jeff Rath, analyst at Canaccord Adams. "There's a building belief that the worst is behind us."

January and February were difficult months for Web search, but the trends started to improve in March and may be stabilizing, Rath said.

'Feeling the impact'
"Despite the tough economic climate, we had a good quarter," chief executive Eric Schmidt said in a conference call. "But no company is recession-proof, and Google is definitely feeling the impact."

Consumers are still searching on Google, but they're buying less, Schmidt said. "The shift to online gives us an advantage, so we're well-placed for the recovery when it occurs," he said.

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China Economy to Rebound as Stimulus Spurs Investment

2009-04-16T21:24:00.001-07:00

(Bloomberg) -- China’s economy, the world’s third largest, may rebound this quarter as Premier Wen Jiabao’s 4 trillion yuan ($585 billion) stimulus package cushions the effects of the global recession.

Urban fixed-asset investment surged by almost a third in March and industrial-output growth accelerated, reports accompanying China’s gross domestic product figures showed yesterday. First-quarter GDP grew 6.1 percent, the slowest pace in almost a decade, as exports slumped.

“The economy has gained significant momentum since February,” said Sun Mingchun, an economist at Nomura Holdings Inc. in Hong Kong, who predicts the economy will expand 8 percent this year. “We still expect a V-shaped recovery.”

A pickup in China will contribute “strongly” to growth in the rest of Asia by increasing demand for commodities and products from around the region, according to the World Bank. Wen has cautioned that while the economy is in better-than- expected shape, China is yet to establish a solid foundation for a recovery.

“China has bounced and I think it’s very important,” Barclays Plc President Robert Diamond said in an interview yesterday in New York. “The impact that that can have, if we’re right and we see this continuation in stronger Asian countries, is pretty phenomenal.”

UBS AG yesterday raised its estimate for economic growth this year to as much as 7.5 percent from 6.5 percent previously and Royal Bank of Scotland increased its estimate to 7 percent from 5 percent. Merrill Lynch expects second-quarter growth of 7.2 percent, climbing to 8 percent for 2009.

Newman’s Optimism

“China got its stimulus plan started months ahead of the U.S. and it’s really working,” said Frank Newman, chairman of Shenzhen Development Bank, who served as a deputy secretary at the U.S. Treasury from 1994 to 1995. “We see a lot of it in action because we are financing it.”

Economists have been increasing their forecasts since February. The median estimate of 15 surveyed by Bloomberg News before the release of yesterday’s data was for 7.7 percent growth this year, up from 7.2 percent in February.

Nissan Motor Co. said its sales of passenger cars in China rose 36 percent in March from a year earlier as stimulus measures boosted confidence and attracted more buyers into showrooms. Anhui Conch Cement Co., China’s biggest maker of the building material, said this month that sales volume jumped 15 percent in the first quarter from a year earlier.

Wen’s Target

The government has targeted 8 percent economic growth for the year, a level deemed necessary to create enough jobs for its growing population.

The closure of thousands of factories has cost the jobs of millions of migrant workers, raising the risk of social unrest as China approaches the anniversary of the anti-government protests and crackdown in Tiananmen Square in June 1989.

While stimulus measures have started to produce results, China faces faltering export demand, industrial overcapacity, unemployment and weak private investment sentiment, Wen said yesterday. A rebound in industrial-output growth lacks momentum, the premier said.

“Growth may have bottomed out in the first quarter but with private sector and overseas demand still weak, China will not emerge from this downturn as rapidly as it went in,” said Mark Williams, an economist with Capital Economics Ltd. in London.

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Mobius Says Thai Economy at Risk; SET Falls Most in Two Weeks

2009-04-15T21:20:00.000-07:00

(Bloomberg) -- Mark Mobius, whose Templeton Asset Management Ltd. has invested in Thailand for two decades, says the nation’s political turmoil poses a risk to Southeast Asia’s second-largest economy. Stocks fell the most in two weeks.

“In the near and medium term, Thailand will need to restore consumer confidence and revive investment,” Mobius, who helps oversee $20 billion in emerging-market assets at San Mateo, California-based Templeton, said in an e-mail response to questions. “Failure to do so due to these political conflicts could present a risk to Thailand’s growth.”

Thailand’s benchmark SET Index dropped 0.9 to 449.91 at 10:02 a.m. as it resumed trading today after a three-day holiday marred by street clashes and weekend demonstrations that forced the cancellation of the Association of Southeast Asian Nations summit in the resort town of Pattaya on April 10. The protests left two dead and 123 injured.

The drop wiped out the SET’s gain for the year, compared with the 14 percent increase in MSCI’s developing-nation index. The Thai index tumbled 48 percent last year, the steepest drop since 1997, when the devaluation of Thailand’s baht triggered an economic crisis in Asia. The measure trades for 8.2 times its companies’ projected earnings for 2009, the lowest valuation among Asian equity benchmark gauges tracked by Bloomberg.

Abhisit

The demonstrations have dealt a blow to Prime Minister Abhisit Vejjajiva, 44, who called off the summit after so-called Red Shirt protesters stormed the meeting venue.

The group supports exiled former Premier Thaksin Shinawatra and says Abhisit came to power illegitimately in December. Opponents of Thaksin, in exile to avoid a two-year jail sentence for corruption, seized airports in the country last year. Abhisit said today Thaksin is in Dubai.

The past week of protests forced Abhisit to declare emergency rule April 12 after he failed to curb demonstrations, which have since subsided.

“The current political situation means that less foreigners will invest in the country and that portfolio managers may actually be sellers of equity,” investor Marc Faber, who publishes the Gloom, Boom and Doom report, said in an April 13 interview. “The two parties will not agree on anything for a long time to come and that has a negative impact on business and in particular tourism.”

The country relies on visitors for about 12 percent of its economy, according to the tourism authority.

Read more at Bloomberg

Warren Buffett takes charge

2009-04-15T04:12:00.000-07:00

(Fortune Magazine) -- Warren Buffett is famous for his rules of investing: When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact. You should invest in a business that even a fool can run, because someday a fool will. And perhaps most famously, Never invest in a business you cannot understand.

So when Buffett's friend and longtime partner in Berkshire Hathaway (BRKB), Charlie Munger, suggested early last year that they invest in BYD, an obscure Chinese battery, mobile phone, and electric car company, one might have predicted Buffett would cite rule No. 3 above. He is, after all, a man who shunned the booming U.S. tech industry during the 1990s.

But Buffett, who is 78, was intrigued by Munger's description of the entrepreneur behind BYD, a man named Wang Chuan-Fu, whom he had met through a mutual friend. "This guy," Munger tells Fortune, "is a combination of Thomas Edison and Jack Welch - something like Edison in solving technical problems, and something like Welch in getting done what he needs to do. I have never seen anything like it."

Read more at Fortune

Asian Stocks Decline on U.S. Retail Sales, Yen; Nomura Slumps

2009-04-14T22:15:00.000-07:00

(Bloomberg) -- Asian stocks dropped for the first time in five days after U.S. retail sales unexpectedly declined and a stronger yen dimmed the earnings outlook for Japan’s electronics and auto companies.

Li & Fung Ltd., the biggest supplier of toys and clothing to Wal-Mart Stores Inc., tumbled 9.8 percent in Hong Kong. Canon Inc., which generates more than half of its sales from U.S. and Europe, declined 3.2 percent in Tokyo as the yen rose to a two- week high against the dollar. Nomura Holdings Inc., Japan’s largest brokerage, slumped 7.3 percent, leading declines by finance shares, the region’s best performers in the past month.

“This is a reality check,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, which manages $28 billion. “The collapse the global economy was experiencing has come to an end, but investors moved too quickly in predicting a recovery.”

Read more at Bloomberg

Whats up with Asian currencies?

2008-03-27T07:10:00.001-07:00

... ever more efficient and scalable production facilities. China emerged as a clear winner in this ... in and out of the region. Local stock markets make international headlines as thinly traded markets ...

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Metals - Gold rises as dollar weakness continues to spur buying

2008-03-27T06:59:00.001-07:00

... dollar dropped against the euro after the German Ifo business climate index in March boosted ... from over and any major falls in equity markets are likely to spark fresh risk aversion, ...

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Dubai Ports International plans to invest in Iraq

2008-03-27T06:56:00.001-07:00

... March 2008 (Voices of Iraq) -- Iraqs Stock Exchange (ISX) index decreased by 0.661 % to ... Cairo International Industrial Exhibition, organized by the Egyptian Ministry of Trade and Industry from (18 ...

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Aust dollar ends firmer

2008-03-26T11:45:00.001-07:00

... since March 2003 when American-led forces invaded Iraq. The question asking Americans about their expectations ... news out of the States and the stock market. The US dollar ended the Australian session ...

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Cold winter warms natural gas prices

2008-03-26T11:42:00.001-07:00

... these levels. In all, he says, the equity market has been focused on the deteriorating financial ... Addax Petroleum Corp., which has properties in Nigeria as well as interests in Gulf of ...

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FirstAlert: 8-9:50 A.M. Investrend / Bestcalls

2008-03-26T11:38:00.001-07:00

... economic releases. (By Dr. Joe Duarte) The stock market seems to have decided that for now ... Menachem Begin and Jimmy Carter signed the Israel-Egypt Peace Treaty in Washington, DC in 1979. ...

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Iraqi Minister of Trade: Damascus Summit Bolsters Arab Relations

2008-03-26T11:35:00.001-07:00

Read more at EINnews

Bears in charge, says U.S. fund guru

2008-03-26T11:30:00.001-07:00

... much to worry about in the Chinese stock market, which many others speculate may burst after ... is buying Chinese renminbi (yuan), yen and Swiss francs. The U.S. dollar will no longer ...

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TABLE-China Baoshan Iron and Steel 2007 net drops

2008-03-26T11:26:00.001-07:00

... news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Reuters ...

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Asian bond spreads widen after weak US economic data

2008-03-26T11:21:00.001-07:00

... stock markets provided support. The iTRAXX Asia ex-Japan high-yield index -- a key measure of ... a US-led global economic slowdown. But regional equity markets held up well, adding some support the ...

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Stability hopes rest with Gilani

2008-03-26T11:17:00.001-07:00

... YORK (MarketWatch) -- The swearing in of Pakistans new prime minister Tuesday is a step ... 31%. The market capitalization of the Karachi Stock Exchange is about $75 billion, while Pakistans GDP ... indicates the enormous potential of the local stock market, Dzierwa said. Local retail investors dominate Pakistans ...

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Why the Pension Fund Act Must Be Amended

2008-03-25T09:37:00.001-07:00

... that 35 per cent of the fund be invested in equities quoted in the Nigerian Stock Exchange (NSE). The architects of the law were very conscious of the fact that the ...

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Interview transcript: Dmitry Medvedev

2008-03-25T09:32:00.001-07:00

... Foreign investors interest in Russias financial and stock markets is as high as ever and we ... new charges? Because as you know a Swiss court has said it is politically motivated, ... US and in Great Britain and in Switzerland they have had to take measures to ...

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Force Protection CEO says company pressing on amid bad news...

2008-03-25T09:29:00.001-07:00

... By Noelle Phillips Mar. 25--With the Nasdaq Stock Market threatening to remove Force Protection from its ... Humvee, which is used by troops in Iraq and Afghanistan. The company has placed a ...

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Vietnam, 6th largest country to attract FDI

2008-03-25T09:26:00.001-07:00

... Vietnam to be only behind China, India, Russia, the US and Brazil. According to the ... a report on initial public offerings and stock market listings last year. The forums agenda included ...

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NBAD shareholders okay $378m bond

2008-03-25T09:22:00.001-07:00

... in the fourth-quarter, beating analysts forecasts, on stock market-related income and said it planned to expand ... plans to open eight new branches in Egypt to take the total to 30 by ...

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Iraq participates in Cairo International Industrial Fair

2008-03-25T09:18:00.001-07:00

... week with the inauguration of a new stock exchange system in Baghdad. 24 March 2008 (Iraq ... Cairo International Industrial Exhibition, organized by the Egyptian Ministry of Trade and Industry from (18 ...

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Asia-Pacific stocks follow Wall Street higher - Summary

2008-03-25T09:15:00.001-07:00

... Seng Index surged 6.43 per cent and Australias ASX200 index rose 3.7 per cent after ... Indias benchmark 30-stock Sensex on the Bombay Stock Exchange ended trading at 16,217, up by 928 ...

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Sasol unveils S.Africas biggest empowerment deal

2008-03-25T09:10:00.001-07:00

... 3,11% higher at R392 in morning trade compared to a 1,75% rise in the JSE Securities Exchange Top-40 index. Some previous BEE deals have been criticised by unions and opposition politicians ...

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South Africa: Heres Hoping the Market is Right About Bell column

2008-03-24T07:33:00.001-07:00

... price:earnings ratio for financial 2007 was 12,8. At the close of trade on the JSE on Monday, and following the publication of the results, the share price was R44,70 ...

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The Ultimate Gold Trade

2008-03-24T07:25:00.001-07:00

What a week for the precious metals! Gold blasts past $1000 per ounce, and silver trades above $21, and then suddenly the floor drops out from under both metals. In fact, the financial markets in general seem to be reeling from the

Will Biofuels replace Crude Oil products?

2008-03-24T00:39:00.001-07:00

Commodity OnlineMUMBAI: As Crude Oil prices skyrocket, the world is these days increasingly talking about alternative energy methods. Can Biofuel products replace Crude Oil products.?

BoE, Fed deny mortgage security buyout plan

2008-03-24T00:07:00.001-07:00

LONDON/WASHINGTON (Reuters) - The Federal Reserve and Bank of England denied a report on Saturday that they were in talks over possibly using public funds to make mass purchases of mortgage-backed securities to ease the global credit crisis.

Dollar edges up, posts gains after rough week

2008-03-22T01:50:00.001-07:00

TOKYO (Reuters) - The dollar edged higher against the yen and Swiss franc on Friday, recovering to post a rise on the week after initially plunging to record lows as the collapse of Bear Stearns stirred fears about the broadening credit crunch.

Can you stop a money train wreck?

2008-03-22T01:49:00.001-07:00

When you see a loved ones financial disaster coming and he or she doesnt, the stage is set for drama. Heres when you should intervene -- and when you shouldnt.

Why Visas IPO should charge you up

2008-03-22T01:47:00.001-07:00

The credit card behemoths initial public offering hits the market today as the biggest ever in the US. Even if you dont carry a piece of the company in your wallet, you may want it in your portfolio.

New arrest in SocGen trading scandal

2008-03-12T08:16:00.001-07:00

(Reuters) - Police arrested another employee of Societe Generale on Wednesday as they probe the world's biggest rogue trading scandal, Paris prosecutors said.

In January, France's second-biggest listed bank SocGen unveiled 4.9 billion euros ($7.53 billion) of losses which it blamed on rogue deals carried out by Jerome Kerviel, a 31-year old junior trader at the bank.

The losses have made SocGen a possible bid target.

The Paris prosecutor's office identified the latest person being held as a trader from a subsidiary of SocGen.

A source close to the matter said the person being held works for SG Securities, the bank's share brokerage arm.

SocGen declined to identify the person or the division.

Read more at Reuters

House's Frank Says Muni-Bond Ratings Are `Ridiculous'

2008-03-12T08:10:00.001-07:00

Bloomberg) -- U.S. Representative Barney Frank said it is ``ridiculous'' that bond-rating companies apply tougher standards to local government debt as he prepares to hold a hearing on the soaring interest costs of municipalities.

California Treasurer Bill Lockyer and other state officials are calling for Standard & Poor's, Moody's Investors Service, and Fitch Ratings to change a system they say costs taxpayers by exaggerating the risk that states and cities will default on their debts. Every state except Louisiana would be AAA if measured by the scale used for corporate borrowers, according to research by Moody's Investors Service.

``This notion of having a separate standard for the municipals because they would do too well on the other standard is ridiculous,'' Frank, the Democrat who chairs the House Financial Services Committee, told reporters in Washington yesterday.

Frank's committee today opens a hearing into how states, local governments and other tax-exempt borrowers, which have $2.6 trillion of debt outstanding, are being hurt by the crisis in confidence in U.S. financial markets. The interest costs on auction-rate securities, a type of debt used by municipalities, has almost doubled since January and investors have also demanded higher yields on tax-exempt bonds backed by insurers that are struggling to maintain their own credit ratings.

Insurers' Investments

``The bad investments they have made have dragged down the value of the municipal issuers and cost money for people who want to build schools and roads,'' Frank said in a Bloomberg Television interview today.

Lockyer at today's hearing plans to ask Congress to pressure the rating companies to change their system, spokesman Tom Dresslar said. Other witnesses set to testify include Ajit Jain, the chairman of Berkshire Hathaway Assurance Corp., Laura Levenstein, a senior managing director for Moody's, and New York's superintendent of insurance, Eric Dinallo.

``The current system makes no sense,'' said Dresslar. ``Taxpayers wind up paying billions of dollars in higher interest rates and insurance premiums.''

Because ratings are typically lower on the municipal scale, local governments have paid insurance companies to back their bonds with AAA ratings, seeking to reduce borrowers' costs. With insurers' ratings under pressure because of losses on mortgage debts, states, cities and hospitals have faced higher interest costs on floating-rate bonds backed by the guarantors as investors shun the debt.

Read more at Bloomberg

U.S. Stocks Rise, Led by Industrials, on Caterpillar Forecast

2008-03-12T08:05:00.001-07:00

(Bloomberg) -- U.S. stocks gained for a second day, extending the market's biggest rally in five years, after forecasts from Caterpillar Inc. and Bear Stearns Cos. spurred speculation that profits will rebound this year.

Caterpillar, the largest maker of bulldozers, rose the most in three months after saying emerging markets will boost sales. Bear Stearns, the second-biggest underwriter of U.S. mortgage bonds, climbed after Chief Executive Officer Alan Schwartz told CNBC the firm has enough money to weather market fluctuations.

The Standard & Poor's 500 Index increased 2.26 points, or 0.2 percent, to 1,322.91 at 10:44 a.m. in New York. The Dow Jones Industrial Average climbed 49.99, or 0.4 percent, to 12,206.8. The Nasdaq Composite Index added 9.1, or 0.4 percent, to 2,264.86. Four stocks gained for every three that fell on the New York Stock Exchange. Shares in Europe and Asia gained.

Industrial shares contributed the most to the rally after Caterpillar said machinery orders in emerging markets and efforts to improve public works in North America and Europe will boost sales.

Read more at Bloomberg

Blackstone says tough conditions hit results

2008-03-10T08:23:00.001-07:00

(Reuters) - Private equity and real estate company Blackstone Group LP (BX.N: Quote, Profile, Research) posted lower-than-expected quarterly results on Monday, citing tough market conditions and a write-down of bond insurer FGIC, and said it did not know when business would improve.

Under a measure known as economic net income (ENI), Blackstone earned a fourth-quarter profit of $128.2 million, or 8 cents a share, compared with a pro forma adjusted figure of $894.9 million, or 72 cents, a year ago.

Analysts polled by Reuters had expected it to report 16 cents a share.

"Lack of available financing in the U.S. and Europe for large leveraged transactions limited our transaction fees," Blackstone's Chairman and Chief Executive Stephen Schwarzman said in a statement. "Difficult market conditions in the U.S. and Europe continue in 2008 and there is little visibility on when these conditions might improve."

The company cited decreases in the value of Blackstone's portfolio investment in Financial Guaranty Insurance Company, which was hit by turmoil in the credit markets, and lower net appreciation of portfolio investments in other sectors as compared with the prior year.

ENI is net income excluding income taxes, noncash charges related to vesting of equity-based compensation and amortization of intangible assets. Blackstone prefers to focus on ENI because of the huge payouts associated with its more than $4 billion initial public offering in June.

On a generally accepted accounting principles basis, Blackstone posted a net loss of $170 million. That compares with net income of $1.18 billion a year earlier.

Read more at Reuters

McDonald's February Sales Increase 12%, Led by Europe

2008-03-10T08:18:00.001-07:00

(Bloomberg) -- McDonald's Corp.'s February sales rose more than analysts estimated as the world's biggest restaurant company lured customers with burgers and chicken sandwiches in Europe and breakfast in China.

The stock rose the most in more than a month in New York trading.

Sales at U.S. outlets open more than 13 months rose 8.3 percent, the Oak Brook, Illinois-based company said today in a statement. Comparable-store sales in Europe advanced 15 percent while gaining 11 percent in the region encompassing Asia, the Middle East and Africa. Last month's extra day for the leap year added 4 percentage points to worldwide same-store sales.

Specialty burger and chicken sandwiches spurred sales in Europe, McDonald's largest region by revenue, while breakfast boosted sales in China and longer hours helped out in Australia. In the U.S., a McSkillet breakfast burrito promotion and dollar- menu advertising lured consumers pinched by declining home values and higher fuel prices.

``McDonald's put up another remarkably strong result in Europe,'' Jason West, an analyst at Deutsche Bank Securities, wrote in a note today. The U.S. results suggest ``McDonald's is not losing share to U.S. competitors as some may have feared.''

McDonald's climbed $1.79, or 3.4 percent, to $54.06 at 10:14 a.m. in New York Stock Exchange composite trading, the biggest increase since Jan. 31. The stock dropped 11 percent this year through last week after rising in each of the past five years.

The median estimate of four analysts in a Bloomberg survey was for an increase of 7.3 percent in same-store U.S. sales.

Read more at Bloomberg

ECB's Trichet `Concerned' About Euro's Appreciation

2008-03-10T08:13:00.001-07:00

(Bloomberg) -- European Central Bank President Jean- Claude Trichet said he's ``concerned'' about the euro's appreciation, intensifying his rhetoric after the currency climbed to a record against the dollar.

``We're concerned about excessive exchange-rate moves in the present circumstances,'' Trichet told reporters in Basel, Switzerland today. It's the first time Trichet has specifically expressed worry about the currency since November, when he opposed ``brutal'' moves.

The euro fell as much as 0.3 percent after the comments before rebounding, as investors decided Trichet's ability to weaken the currency is limited. The strongest European inflation in 14 years is preventing the ECB from cutting interest rates while the Federal Reserve is slashing borrowing costs to stave off recession in the world's largest economy.

``Trichet is making a distinct change in emphasis,'' said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. Still, ``while the ECB is on hold and the Fed is cutting rates, rate differentials will continue to move in support for the euro.''

The euro rose to a record $1.5459 on March 7, a day after Trichet declined to sound a warning following the ECB's decision to leave its key rate unchanged at 4 percent.

`Strong Dollar'

On that occasion Trichet noted only that U.S. authorities support a ``strong dollar,'' an observation he repeated today with ``extreme attention.'' U.S. Treasury Secretary Henry Paulson said March 7 that a strong dollar is ``in our nation's interest.''

Unlike the Fed, which has cut its benchmark interest rate 2.25 percentage points since September, Trichet's ECB has refused to reduce rates with inflation in breach of its 2 percent goal.

By signaling an unwillingness to take action, the ECB is indicating ``tacit support for its record-high euro as it uses currency policy to contain inflationary pressures rather than monetary policy,'' said Ashraf Laidi, a currency analyst at CMC Markets in New York.

ECB Executive Board member Juergen Stark told a conference in Paris on March 7 that the ECB does not target a euro-dollar exchange rate. Currency developments ``should be taken into account by monetary policy only to the extent that they have a medium-term influence'' on inflation, he said.

Read more at Bloomberg

ECB holds rates, seen forecasting lower growth

2008-03-06T06:09:00.000-08:00

(Reuters) - The European Central Bank kept euro zone interest rates unchanged at 4.0 percent on Thursday, and will publish updated economic forecasts which analysts will scrutinize for guidance on future monetary policy.

ECB President Jean-Claude Trichet is due to comment on the competing threats of high euro zone inflation and slower growth at 1330 GMT when he holds his monthly news conference and delivers a quarterly update to the bank's economic projections.

All 72 economists polled by Reuters last week expected the ECB to keep rates on hold this month for a ninth month in a row <ECB/INT>, and the euro was little moved versus the dollar <EUR=>, despite hitting a record high of $1.5349 earlier in the day.

Economists expect ECB staff to forecast lower growth but higher inflation for this year and possibly for 2009, highlighting the Governing Council's dilemma as food and energy prices climb. It is not helped by the strong euro, which holds back inflation but also hampers growth.

Annual inflation in the 15-nation region hit a record high of 3.2 percent in January and February, dampening expectations that the ECB would soon follow other major central banks and loosen monetary policy.

Many economists believe the inflation projections will be revised up. BNP Paribas economist Ken Wattret said he expected the 2009 forecast to be raised to 1.9 or 2.0 percent from the current midpoint forecast of 1.8 percent.

A worsening inflation outlook would make it difficult for the ECB to justify lower interest rates, and mixed economic data and high uncertainty will color the discussion.

Read more at Reuters

Wal-Mart February same-store sales up 2.6 pct

2008-03-06T06:04:00.001-08:00

(Reuters) - Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research) on Thursday reported a 2.6 percent rise in sales, excluding fuel, at U.S. stores open at least a year in February.

Analysts, on average, were expecting the company to report a rise of 1.1 percent, according to Reuters Estimates, while the company had forecast same-store sales to be between flat and up 2 percent.

Read more at Reuters

Oil Advances to Record $105.97 as Dollar Drops to All-Time Low

2008-03-06T05:53:00.001-08:00

(Bloomberg) -- Crude oil rose to a record $105.96 a barrel in New York as the U.S. dollar fell to its lowest ever against the euro.

Gold and copper also advanced to all-time highs as the sinking dollar made commodities priced in the U.S. currency cheaper. Oil closed at a record yesterday after U.S. crude inventories fell for the first time in eight weeks and OPEC refrained from raising production.

``The reason we've gone above $105 is that the market is still focused on the weakness of the dollar,'' Olivier Jakob, managing director of Petromatrix Gmbh in Zug, Switzerland, said. ``It's going to take more signs of demand destruction around the world before oil stops gaining on the dollar.''

Crude oil for April delivery rose as much as $1.45, or 1.4 percent, to a $105.97 a barrel on the New York Mercantile Exchange, the highest since futures began trading in 1983. The contract traded for $105.15 at 1:11 p.m. in London.

Brent crude for April settlement rose as much as $1.31, or 1.3 percent, to match the $102.95 a barrel record previously set on March 3. The contract was at $102 on London's ICE Futures Europe exchange at 1:14 p.m. local time.

The euro climbed to $1.5347, the highest level since the single currency's debut in 1999, on speculation the European Central Bank will hold its key interest rate at a more than six- year high as the Federal Reserve keeps cutting its benchmark rate.

``If you think the dollar will weaken then you may choose to sell the dollar and go long commodities,'' said Harry Tchilinguirian, senior analyst at BNP Paribas SA in London. ``Robust fundamental outlooks, as in the case for oil, present potential to strongly offset the decline in the nominal value of the dollar.''

Read more at Bloomberg

Copper May Rise on Dollar Slide; Lead Gains to Four-Month High

2008-03-04T07:10:00.000-08:00

(Bloomberg) -- Copper may advance in London on speculation declines in the dollar will accelerate investor demand for the metal used in plumbing and power plants.

The U.S. currency reversed gains and fell against the euro and declined for a sixth day against the yen. Copper has climbed 29 percent this year as an index of the dollar against six currencies including the euro and the pound has dropped 4.1 percent.

``The dollar is helping to support commodity prices,'' said Leon Westgate, a metals analyst at Standard Bank Ltd. in London. ``The main driver is money flow.''

Copper for delivery in three months gained $10 to $8,585 a metric ton as of 12:48 p.m. on the London Metal Exchange. Prices yesterday rose to $8,661, the highest since May 2006 when copper gained to a record $8,880 a ton.

The higher prices have curbed demand in China, the world's biggest user, said Eric Yan, head of China trade at Triland Metals Ltd. in London.

``If copper goes up to $10,000, Chinese demand will be dramatically reduced,'' he said. ``Chinese demand is quite weak and I don't think it will recover very soon.''

Nickel rose $400 to $33,600 a ton. Prices have climbed 15 percent since a strike began Feb. 28 at a Colombian mine owned by BHP Billiton Ltd. The workers are still on strike, Illtud Harri, a spokesman for BHP in London, said in an e-mail today.

Global nickel inventories in warehouses monitored by the London Metal Exchange dropped 120 tons to 47,592 tons, the exchange said today in its daily warehouse report. Supplies are little changed this year.

Read more at Bloomberg

Porsche Profit Rises on Cayenne SUV, Volkswagen Stake

2008-03-04T07:04:00.000-08:00

(Bloomberg) -- Porsche SE, maker of the 911 sports car, said first-half profit jumped 44 percent as a revamped Cayenne sport-utility vehicle won buyers and the company added to its stake in Volkswagen AG.

Net income in the six months ended Jan. 31 rose to 1.3 billion euros ($1.97 billion) from 897 million euros a year earlier, the Stuttgart, Germany-based company said in a statement today. Pretax profit increased 24 percent to 1.66 billion euros.

Porsche doubled first-half sales of the Cayenne to 20,340 SUVs, boosting overall deliveries 19 percent, even as demand for the 911 and the Boxster roadster waned. The company has been raising its stake in Volkswagen, Europe's biggest carmaker, since buying a holding in September 2005. Porsche said yesterday that it plans to own a stake exceeding 50 percent.

First-half revenue increased 14 percent to 3.49 billion euros, Porsche said today, reiterating figures announced in January. Earnings figures were adjusted to take account of the effects of the expanding stake in Volkswagen as well as by hedging transactions related to the stock purchases, it said.

While Porsche has cut U.S. inventories to prepare for a possible economic slowdown, three new models and demand from emerging markets should spur sales in the financial year ending July 31 and produce a result prompting ``tears of joy,'' Wiedeking told investors Jan. 25.

Read more at Bloomberg

Canada Cuts Rate a Half Point, Signals More Is Needed

2008-03-04T07:01:00.001-08:00

(Bloomberg) -- The Bank of Canada cut its benchmark interest rate a half point, the first such move since 2001, and signaled it will have to act again to offset a slump in exports to the U.S.

Mark Carney, in his first decision as governor, cut the target rate for overnight loans between commercial banks to 3.5 percent, the lowest since March 2006. Thirteen of 26 economists surveyed by Bloomberg News predicted the move.

``Further monetary stimulus is likely to be required in the near term,'' the central bank said today in a statement from Ottawa. Signs of economic slowdown in Canada are ``materializing and, in some respects, intensifying.''

Tumbling exports to the U.S. will limit 2008 economic growth to a seven-year low of 1.8 percent, the central bank says, and have erased the country's broad trade surplus for the first time since 1999. The bigger rate cut today also helps catch up with moves this year by the U.S. Federal Reserve, and may slow the Canadian dollar's advance that has battered manufacturers.

``There are clear signs that the U.S. economy is likely to experience a deeper and more prolonged slowdown than had been projected,'' which will have ``significant spillover effects on the global economy,'' the Bank of Canada said today.

Canada's decision comes two days before meetings of the Bank of England, and the European Central Bank, where economists predict policy makers will keep rates unchanged.

Further Cuts

``With further rate cuts clearly needed to insure against the downside risks from a rapidly softening U.S. economy, and since monetary policy acts with a lag, we see no reason for the Bank of Canada to wait,'' Jacqui Douglas, economics strategist at TD Securities in Toronto, said before the decision.

The Fed is expected to cut borrowing costs again on March 18. Canada's benchmark is now half a point greater than that of the U.S., narrowing what was the biggest gap since June 2004. That premium has helped keep Canada's currency close to a record high.

The currency rose to a record 90.58 Canadian cents per U.S. dollar on Nov. 7 and has gained 26 percent in three years. Today it weakened 0.3 percent to 99.32 Canadian cents per U.S. dollar at 9:19 a.m. in Toronto.

Canada sends about three-quarters of its exports to the U.S., making the two countries the world's biggest trading partners, and the high dollar makes those goods less competitive. The U.S. economic woes have sapped demand for Canadian lumber and automobiles, two of the five biggest exports.

Read more at Bloomberg

Electronic Arts bids for Take-Two

2008-02-25T06:12:00.001-08:00

(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.

Read more at Reuters

Auction-Rate Bonds Force `Predatory' Yields on Cities

2008-02-25T06:06:00.001-08:00

(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.

Read more at Bloomberg

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

2008-02-25T05:58:00.000-08:00

(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.

Read more at Bloomberg

Allianz cuts jobs, structured finance at Dresdner

2008-02-21T08:40:00.001-08:00

(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.

Read more at Reuters

Reed to buy ChoicePoint, sell info division

2008-02-21T08:37:00.001-08:00

(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.

Read more at Bloomberg

Morgan Stanley Hires Kenneth deRegt to New Role Overseeing Risk

2008-02-21T08:30:00.000-08:00

(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.

Read more at Bloomberg

Sharper Image Files for Bankruptcy Following Losses

2008-02-20T10:34:00.001-08:00

(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.

Read more at Bloomberg

Ackman Proposes Bond Insurer Split, Policyholder Veto

2008-02-20T10:29:00.001-08:00

(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.

Read more at Bloomberg

Port Authority Auction Bonds Reset at 8% After Surge

2008-02-20T10:18:00.001-08:00

(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.

Read more at Bloomberg

Wal-Mart Profit Climbs on Grocery, Electronics Sales

2008-02-19T06:51:00.001-08:00

(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.''

Read more at Bloomberg

Foodmakers squeezed by costs, strapped consumers

2008-02-19T06:45:00.001-08:00

(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.

Read more at Reuters

Penny-pinching shoppers boost Wal-Mart profit

2008-02-19T06:38:00.001-08:00

(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.

Read more at Reuters

Four bidders go through in Vin & Sprit auction: paper

2008-02-18T08:36:00.001-08:00

(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.

Read more at Reuters

Fed's Lower Rates Pressure China to Strengthen Yuan

2008-02-18T08:31:00.001-08:00

(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.

Read more at Bloomberg

Bond Insurer Split May Trigger Lawsuits, Analysts Say

2008-02-18T08:25:00.001-08:00

(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.

Read more at Bloomberg

Bond insurer FGIC asks to split in two

2008-02-15T06:28:00.001-08:00

(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.

Read more at Reuters

Banks at Risk From $203 Billion Writedowns, Says UBS

2008-02-15T06:22:00.001-08:00

(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.

Read more at Bloomberg

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

2008-02-14T07:19:00.001-08:00

(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

2008-02-14T07:12:00.001-08:00

(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.

Read more at Bloomberg

YRC to cut 1,100 jobs

2008-02-13T10:14:00.001-08:00

(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

2008-02-13T09:40:00.001-08:00

(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

2008-02-13T09:33:00.001-08:00

(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

2008-02-12T11:18:00.001-08:00

(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.

Rand regroups, gains nearly 1%

2008-02-12T11:15:00.001-08:00

(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."

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

2008-02-12T10:57:00.001-08:00

(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

2008-02-12T10:53:00.001-08:00

(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

2008-02-12T10:45:00.001-08:00

(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

2008-02-11T06:45:00.001-08:00

(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

2008-02-11T06:43:00.001-08:00

(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.

IMF sees sharp U.S. slowdown

2008-02-11T06:34:00.001-08:00

(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

2008-02-11T06:25:00.001-08:00

(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

2008-02-11T06:17:00.001-08:00

(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

2008-02-11T06:11:00.001-08:00

(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

2008-02-07T07:24:00.000-08:00

(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

2008-02-07T07:21:00.001-08:00

(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

2008-02-07T07:16:00.001-08:00

(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

2008-02-07T07:14:00.001-08:00

(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