(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
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