(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.
Read more here
Sunday, May 24, 2009
Wednesday, May 20, 2009
BofA seeks to repay $45 billion by year-end
(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.
Read more here
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.
Read more here
Tuesday, May 19, 2009
Geithner works to fill out Treasury team
(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.
Read more here
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.
Read more here
U.S. housing starts and permits plumb record lows
(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.
Read more here
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.
Read more here
Sunday, May 17, 2009
GM's Opel might make cars for other brands
(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.
Read more here
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.
Read more here
Thursday, May 14, 2009
Japan’s Machinery Orders Fall as Factories Sit Idle
(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.”
Read more here
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.”
Read more here
Wednesday, May 13, 2009
U.S. banking crisis may last until 2013: S&P
(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.
Read more here
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.
Read more here
Tuesday, May 12, 2009
BofA, other U.S. banks scramble for capital
(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.
Read more here
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.
Read more here
Monday, May 11, 2009
Communists Can’t Outspend Capitalists as China Jobless Increase
(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.
Read more here
“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.
Read more here
Thursday, May 7, 2009
BofA needs $33.9 billion, eyes stock and asset sales
(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."
Read more here
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."
Read more here
Wednesday, May 6, 2009
Shaved Heads Keep Barbers Idle as Drought Sears California
(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.
Read more here
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.
Read more here
Tuesday, May 5, 2009
Bernanke Warns of Danger of Credit Market ‘Relapse’
(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.
Read more here
“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.
Read more here
Monday, May 4, 2009
Short Selling of Banks Accelerates as New Financial Stress Test
(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.
Read more here
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.
Read more here
Sunday, May 3, 2009
China cancels US credit card
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.
Read more here
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.
Read more here
Tuesday, April 28, 2009
Gates Makes Lifetime Pledge to Buffett’s Berkshire
(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.
Read more here
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.
Read more here
Monday, April 27, 2009
Baidu quarterly profit up 24%, forecast tops estimates
(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%.
Read more here
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%.
Read more here
Thursday, April 23, 2009
Pressure builds on BofA's Ken Lewis
(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.
Read more here
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.
Read more here
Wednesday, April 22, 2009
Eskom may miss tariff deadline
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".
Read more here
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".
Read more here
Monday, April 20, 2009
Yen Weakens, Snaps 3-Day Gain, as Trade Deficit May Damp Demand
(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.
Read more here
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.
Read more here
Thursday, April 16, 2009
Google profit beats estimates
(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.
Read more here
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.
Read more here
China Economy to Rebound as Stimulus Spurs Investment
(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.
Read more here
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.
Read more here
Wednesday, April 15, 2009
Mobius Says Thai Economy at Risk; SET Falls Most in Two Weeks
(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
“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
(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
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
Tuesday, April 14, 2009
Asian Stocks Decline on U.S. Retail Sales, Yen; Nomura Slumps
(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
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
Subscribe to:
Posts (Atom)
