Diary of a JSE Stock Operator Edition 4

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

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Mayfair Eviction Fight Pits Credit Suisse Against Investor

2009-05-20T21:31:00.000-07:00

(Bloomberg) -- Cevdet Caner, the man at the center of Germany’s biggest real estate insolvency in 15 years, is fighting eviction from his 20 million-pound ($31 million) London townhouse, complete with basement swimming pool.

His group of investment companies called Level One owes 1.5 billion euros ($2 billion) to creditors led by Credit Suisse Group AG, according to estimates by the German administrator. The two main holding companies defaulted and were placed under court administration in August, U.K. filings show, after the group bought 27,000 units of communist-era public housing in the former East Germany over three years, almost entirely with debt.

The battles with creditors are the legacy of the boom years, when banks expanded lending to real estate investors -- even those with limited experience like Caner. Lenders blame him for mismanagement and say about 50 million euros were channeled out of the Level One businesses while they failed to pay utility and tax bills, according to six people who have seen an audit of Level One’s finances. Caner, 35, said he faults the banks for a change of heart after pledging to loan him the money.

“Level One epitomizes all that went wrong in the real estate bubble,” said Christian Koehler-Ma, an administrator of more than 50 Level One companies in Germany. “On one side you have Caner -- a good salesman, charming and intelligent -- who was looking to make money.”

On the other side were the banks, which resold the loans to investors “so they didn’t think about what they were doing as thoroughly as they should have,” he said.

Hedge Fund District

Borrower defaults such as Level One’s and falling property values led banks, insurers and government-sponsored enterprises to write down the value of loans or mortgage investments by $391 billion since September 2007. That’s 27 percent of the total losses in the global financial crisis, data compiled by Bloomberg show.

Caner’s six-story townhouse in London’s Mayfair district, the location of choice for hedge funds, is one front in the war between him and banks that is being fought in courts in Luxembourg, Berlin and Jersey, the Channel Island off the coast of France. He said he spent about 5 million pounds of his own money to buy and renovate the century-old, six-bedroom house in a neighborhood where owners include the billionaire brothers David and Simon Reuben and property investor Simon Halabi.

The property has 11,500 square feet of space if the carriage house at the rear of the garden is included. Caner got planning consent in December to demolish and rebuild this separate building as a garage with a four-bedroom apartment upstairs and a sauna, gymnasium and solarium in the basement.

Mayfair Townhouse

Caner acquired the Mayfair property for 16 million pounds in July 2007, Land Registry records show. In September 2008, the U.K. administrator of Level One Residential (Jersey) Ltd. -- Zolfo Cooper LLP, a former unit of Kroll Inc. -- demanded repayment of about 1.26 million pounds used to purchase the house, according to a March 4 report to creditors from Zolfo Cooper obtained by Bloomberg News.

The company that acquired the property, registered in St. Helier, Jersey, was put in liquidation, a court filing published Jan. 28 shows. The house was valued at 20 million pounds when the real estate brokerage arm of New York-based auction house Sotheby’s tried to find buyers in December and then withdrew it pending a court repossession order, according to the receiver, Jon Gershinson, a partner at Allsop LLP in London.

Caner’s Mayfair townhouse illustrates the lifestyle he enjoyed as money flowed from Level One into Special Opportunity Holdings Ltd., a company owned by two of his private trusts, said four people with knowledge of Level One’s insolvency who declined to be identified because the information is confidential. Katharina Gebsattel, a Frankfurt-based spokeswoman for Credit Suisse, declined to comment.

‘Stupid War’

“It’s a stupid war to try and kill me business-wise and reputation-wise,” Caner said in the wood-paneled boardroom at the townhouse, which he uses as his London office. “I don’t want to lose my investment in this property.”

No company funds were misused, Caner said, citing the money and assets he injected to satisfy lenders and avert his group’s insolvency. The 50 million euros of fees charged to Level One helped pay for his 50-employee asset management team, he said, and the rest was reinvested in the business. It was a typical private-equity fee structure, according to Caner.

“There was no wrongdoing on my side,” he said.

Caner, an Austrian who is the youngest of seven children born to Turkish immigrants, said he began property investing in 2003 after reading that rental incomes easily covered the borrowing costs for buying buildings.

Ran Call Center

Previously he ran CLC AG, a call-center operator he started while at business school in his hometown of Linz, where for two years he was president of the Young Socialists. He gradually sold his CLC stake until the board ousted him in 2002 because of a disagreement over expansion plans, he said. Two years later, CLC filed for insolvency, and creditors got just 1.36 cents for each euro owed, Vienna court documents show.

From late 2004 through 2007, Level One spent 1.85 billion euros buying apartments -- mostly from former East German municipalities -- and 400 commercial properties in Germany, Caner said.

It was a strategy already pursued by larger private-equity firms, including Terra Firma Capital Partners Ltd. in London, and Blackstone Group LP and Fortress Investment Group LLC, both based in New York.

Many investors got stuck after betting mistakenly that homeownership in Germany would rise as it did in the U.K. and the Netherlands when affordable housing was sold by municipalities, said Philip Cropper, London-based managing director of Real Estate Finance at CB Richard Ellis Group Inc.

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Japanese Bonds to Rally as Bank Deposits Increase, Mizuho Says

2009-05-19T21:28:00.001-07:00

(Bloomberg) -- Japan’s 10-year government bonds will rally in coming months as a deepening recession boosts the amount of money held at banks, said Mizuho Securities Co.

Cash will pile up as households save more and companies refrain from borrowing, leaving banks with excess cash they are likely to park in government bonds, said Yasunari Ueno, chief market economist at Mizuho in Tokyo. Japan’s yield curve is set to flatten, with the gap between two- and 10-year bonds narrowing to the least since March, according to a weighted Bloomberg survey of analysts.

“Banks will have to buy 10-year bonds, which are attractive” compared to shorter-dated notes, Ueno said. “Deposits at banks are likely to increase, while demand for business funding declines. Sooner or later, banks will invest in government bonds as opposed to holding idle funds.”

Ten-year yields jumped 25 basis points this year, compared with an increase of half a basis point for two-year securities, according to data compiled by Bloomberg. The spread between the two will narrow to 88 basis points from its current level of 104.5 points, the Bloomberg survey showed. A basis point is 0.01 percentage point.

Ten-year yields advanced 1.5 basis points to 1.42 percent yesterday at Japan Bond Trading Co., the nation’s largest interdealer debt broker. A yield curve is a chart that plots the yields of bonds with the same quality but different maturities.

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AT&T to offer cloud-based storage as a service

2009-05-17T21:33:00.001-07:00

(Reuters) - AT&T Inc, the biggest U.S. telephone company, plans to offer Web-based data storage services for corporations using "cloud computing" technologies developed by data storage equipment maker EMC Corp.

The telecommunications giant will join International Business Machines Corp, Amazon.com Inc, Symantec Corp, Iron Mountain Inc and others in offering storage as a service product, which allow companies to use the Internet to transfer information to remote storage facilities.

AT&T said on Monday it will initially run the service from two data centers in the United states, although the company intends to expand overseas.

It is still early days for the industry.

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KGI to Buy Taishin Securities for NT$29 Billion

2009-05-14T21:47:00.001-07:00

(Bloomberg) -- KGI Securities Co. will acquire the brokerage business of Taishin Financial Holdings Co. for NT$29 billion ($880 million) to become the second-biggest equity brokerage firm in Taiwan.

KGI will pay NT$28 billion in cash and NT$1 billion worth of stock for the acquisition of Taishin Securities, Taishin Futures Co. and its Hong Kong unit Taishin Securities (Hong Kong) Co., Taishin Financial said in an exchange filing today.

Shares of KGI surged 6.7 percent to NT$15.2, a four-day high, as of 9:46 a.m. in local trading. Taishin Financial shares rose 5.7 percent to NT$8.54.

Taishin Financial is the parent of Taishin Securities, while KGI Securities is a unit of Chinatrust Financial Holdings Co. Chinatrust shares gained 4.5 percent to NT$19.60 in Taipei, while the benchmark Taiex index rose 2.1 percent.

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Banks sue MBIA over $5 billion restructuring

2009-05-13T21:28:00.000-07:00

(Reuters) - A group of major banks including Citigroup Inc, JPMorgan Chase & Co and Barclays Plc has sued MBIA Inc, charging that the bond insurer illegally restructured its operations by moving $5 billion of assets and leaving a key unit effectively insolvent.

The group of around 20 financial institutions and affiliates are seeking to ensure that MBIA pays valid claims on insurance it issued on defaulting bonds, but did not put a value on such claims.

MBIA, along with rival bond insurer Ambac Financial Group Inc, suffered huge losses in the recent financial turmoil as they were hit by claims on insurance policies they issued on repackaged debt, which turned out to be more risky than they assumed.

A spokesman for MBIA, which reported a profit of $697 million last quarter, declined comment on the lawsuit, which was filed on Wednesday in New York State Supreme Court.

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Private equity investors waiting to sell: survey

2009-05-12T21:37:00.000-07:00

(Reuters) - Investors in private equity funds are prepared to wait a year or two to sell their interests because of a gulf in price, a survey said on Wednesday.

London-based private equity research firm Preqin said 11 percent of the 568 institutional investors in private equity it surveyed want to sell fund interests on the so-called "secondary market" -- which allows investors to sell stakes in funds.

But the survey said that, of those, only 10 percent are looking to sell immediately, while 43 percent want to sell in the next 12 months and 47 percent within 12 to 24 months.

Investors, such as endowment and pension funds, typically commit to invest for the life of a private equity fund. But the sharp falls in equity markets has hit overall portfolios and meant some are over-exposed to other asset classes such as private equity and are looking to sell.

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Law Firm Founder Dreier Pleads Guilty, Faces Life in Prison

2009-05-11T21:48:00.000-07:00

(Bloomberg) -- Marc Dreier, the New York law firm founder accused of defrauding hedge funds by selling $700 million in phony promissory notes, might face life in prison after pleading guilty to fraud charges.

Dreier, who turned 59 today, pleaded guilty in federal court in New York to charges of money laundering, conspiracy, securities fraud and wire fraud. Victims of Dreier’s Ponzi scheme lost more than $400 million, according to prosecutors.

“I engineered a scheme to issue and sell fictitious promissory notes purportedly issued by companies in the United States and Canada,” Dreier told U.S. District Judge Jed Rakoff, reading from a prepared text at yesterday’s hearing.

Dreier’s lawyer, Gerald Shargel, has said he will seek leniency for Dreier at his sentencing. Dreier has cooperated with court-appointed bankruptcy trustees to identify assets that can be used to pay victims and creditors, according to Shargel. Rakoff set a sentencing date of July 13.

Shargel said his client didn’t have a plea agreement with prosecutors.

Dreier has been confined to his Manhattan luxury apartment, watched around the clock by armed guards paid for by friends and relatives, a condition of his $10 million bail. Dreier’s former firm, the 250-lawyer Dreier LLP, is being liquidated in U.S. Bankruptcy Court.

Rakoff agreed to let Dreier remain on bail, confined to his apartment, until sentencing.

Arrested in Canada

Dreier was arrested in Toronto on Dec. 2 and charged with impersonating a lawyer with the Ontario Teachers’ Pension Plan. He was released on bail and arrested again Dec. 7 when he returned to New York.

Prosecutors claimed Dreier sold more than 85 phony promissory notes to at least 13 hedge funds and three individuals from 2004 to 2008. Dreier falsely told investors many of the fake notes were issued by New York developer Sheldon Solow, a client of his firm.

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Stanford’s Cowboy Lawyer DeGuerin Shows ‘No Mercy’

2009-05-10T21:40:00.000-07:00

(Bloomberg) -- In a newspaper photo on his law office wall in Houston, Dick DeGuerin stands with Robert Durst, a New York real estate heir who admitted shooting a man and using a paring knife and a hacksaw to cut up the body.

A jury in nearby Galveston voted for acquittal after DeGuerin followed his favorite trial strategy: “Embrace the ugly baby,” he said. “You don’t shrink from the problems in the case, but find a way to turn them to your advantage.”

Now the 68-year-old lawyer is representing fellow Texan R. Allen Stanford, accused of orchestrating an $8 billion Ponzi scheme. The case was brought by “storm troopers” at the U.S. Securities and Exchange Commission who “cremated” his client’s business, DeGuerin said in an interview.

“He’s out of the ‘ride ‘em hard and show no mercy’ school of defense,” said William P. Allison, a criminal law professor at the University of Texas School of Law in Austin. “It’s a reputation he’s worked hard to earn, and what people pay for.”

DeGuerin is a member of an elite group of U.S. criminal lawyers who take high-profile cases and can “charge whatever the market will bear,” Allison said.

Among the attorney’s peers, according to the professor, are Richard “Racehorse” Haynes, who won acquittals for Texas oilman T. Cullen Davis, accused of murdering his 12-year-old stepdaughter and his wife’s boyfriend and of hiring a hit man to kill her and a judge; and the late Johnnie Cochran Jr., who helped defend former Buffalo Bills football star O.J. Simpson when he was tried on charges he killed his wife and her friend.

‘Effective’ Defense

So far, DeGuerin hasn’t been paid for his work for Stanford, the lawyer said. U.S. District Judge David Godbey in Dallas is considering Stanford’s bid to unfreeze at least $10 million in assets, locked up when the SEC sued, to pay his legal bills, which the Stanford Group Co. chief executive officer said in a court filing may exceed $20 million.

The SEC and Stanford Group investors told Godbey on May 4 that they oppose giving the financier access to the money. Stanford responded today in a filing that said he needs it to “effectively defend himself.”

His civil lawyers, with the Houston firm of Nickens Keeton Lawless Farrell & Flack LLP, said in court papers that the financier’s insurance company agreed to pay for his criminal defense if he is charged with a crime.

‘Cheap’ Fees

“I’m not doing this for free,” DeGuerin said in the interview, as he leaned back in a cane-seated desk chair, exposing well-worn elephant hide boots. “This case is a huge undertaking that no lawyer in his right mind would take on. It’s going to be a hard job, but not an impossible one.”

Declining to reveal his typical fee, he called his services “cheap at any price.”

The SEC sued Stanford, 59, and two employees, Laura Pendergest-Holt and James M. Davis, on Feb. 17, saying their sale of certificates of deposit through Stanford International Bank in Antigua was a “massive” fraud.

Pendergest-Holt, 35, Stanford’s chief investment officer, was charged with obstruction of justice on Feb. 26 and released on $300,000 bail. She is innocent, said her lawyer, Dan Cogdell of Houston. Davis, 60, the chief financial officer, is in plea negotiations, according to his attorney, David Finn of Dallas.

Stanford denied wrongdoing in an April 21 interview. “I’m not a damn swindler,” he said.

TV News Cameras

He tried to surrender to U.S. marshals in the federal courthouse in Houston on April 30 and was turned away because he hasn’t been criminally charged. DeGuerin escorted him, saying he wanted to prove his client isn’t a flight risk.

Justice Department spokesman Ian McCaleb declined to comment.

DeGuerin said he doesn’t shy away from difficult or notorious clients. He doesn’t run from publicity either, said his friend Tommy Fibich, a Houston plaintiffs lawyer.

“I’d rather be in front of the bulls of Pamplona than between Dick and the TV news cameras,” Fibich said.

One of DeGuerin’s clients was David Koresh, whose mother hired the Houstonian when her son and his followers holed up in Branch Davidian headquarters near Waco, Texas, in 1993.

Federal agents had surrounded the compound, where they said the leader of the religious sect had illegal weapons. Refusing body armor, DeGuerin walked past snipers to talk to his client.

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GM burns $10 billion in first quarter as deadline looms

2009-05-07T21:46:00.000-07:00

(Reuters) - General Motors Corp said it burned through $10.2 billion in the first quarter as it relied on a federal bailout to ride out a sharp decline in global sales that overwhelmed its cost-cutting efforts.

Revenue dropped by almost half to $22.4 billion as the company cut production by about 900,000 vehicles and worked to run down costly inventories in the United States and Europe.

The results showed the extreme pressure on GM with just four weeks remaining for the embattled automaker to win deals to slash debt and operating costs with its major union and bondholders to avoid bankruptcy.

"Results were awful, as expected, however, GM's cash burn was even worse than we were expecting," Kip Penniman of KDP Investment Advisors said in a note for clients.

Chief Financial Officer Ray Young said there was evidence consumers were scared away from GM cars and trucks because of concern the automaker was headed for bankruptcy.

GM cut $3.1 billion in operating costs in the first quarter, including just over $1 billion in North America, but the latest push in a four-year campaign to cut costs failed to keep pace with the plunge in sales.

"You could not offset the revenue implosion that we experienced here," Young told reporters following release of the quarterly results on Thursday.

GM's North American operations, where it plans to cut 21,000 factory jobs and close and close more than 2,600 dealerships, posted a loss before interest cost and taxes of $2.5 billion.

European operations, which Italy's Fiat SpA has proposed taking over, posted a loss on the same basis of $1.2 billion as vehicle sales in the region dropped 29 percent.

GM still hopes to complete a debt restructuring out of court but is readying plans for what it expects would be a quick bankruptcy if that proves necessary, Young said.

He said GM expects to draw on the experience of Chrysler LLC, which filed for bankruptcy last week under the supervision of the Obama administration.

"We are very, very cognizant of this issue of revenue perishability and how consumers react to the threat of bankruptcy," Young said.

Young said GM would make a decision at the end of this month on whether an offer to extinguish $24 billion in bond debt in exchange for new shares had garnered enough support for the company to avoid a bankruptcy filing.

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Cisco sees signs of a turnaround

2009-05-06T21:40:00.000-07:00

(CNNMoney.com) -- Cisco Systems Inc. on Wednesday reported a drop in quarterly profit and sales from a year ago, but the network equipment maker said parts of its business are beginning to turn around.

"For the first time in many quarters, many of our global customers are describing business momentum and seeing stabilization," said Cisco Chief Executive John Chambers on a conference call with analysts. "We are going to be very aggressive this year to position ourselves for the eventual upturn."

Chambers cautioned that economic headwinds would continue to pressure the company, but he said he is encouraged by customers' renewed optimism. He said the company has "a very bright future" ahead.

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SEC charges money market fund with fraud

2009-05-05T21:35:00.000-07:00

(CNNMoney.com) -- The Securities and Exchange Commission has filed fraud charges against the operators of the Reserve Primary Fund for failing to provide important information to investors and trustees about the fund's exposure to Lehman Brothers.

By bringing the case, the agency is trying to get the company to release the $3.5 billion it is withholding from shareholders until all lawsuits against the company are resolved.

The money market fund "broke the buck" on Sept. 16, the day after Lehman Brothers filed for bankruptcy, meaning its net asset value fell below $1 a share. Investors seek out money market funds as conservative investments because they are designed to maintain their $1 per share value. Companies also rely on them to purchase short-term corporate debt.

The Primary Fund, however, held $785 million in Lehman-issued securities, which lost most of their worth in the bankruptcy, the SEC said. This dragged down the fund's net asset value.

The agency says that the Reserve Management Company Inc., its chairman Bruce Bent Sr., vice chairman and president Bruce Bent II and Resrv Partners Inc. misled investors and "significantly understated" the volume of redemption requests. They also failed to provide trustees with accurate information about the value of the Lehman securities.

Reserve also said it would provide the money needed to maintain the fund's share value when it "had no such intention," according to regulators.

"Fund managers have serious obligations to keep their trustees and investors informed in both good times and bad, and cannot choose to reveal only favorable facts," said James Clarkson, acting director of the SEC's New York regional office.

The company said in a statement that it intends to defend itself vigorously.

"Since we created the money fund in 1970 we have operated and grown our business by putting our shareholders' interests first," said Bruce Bent Sr. "The Lehman Brothers Bankruptcy filing created an unforeseeable and out-of-control condition for many parties and the results were serious...We remain confident that we acted in the best interest of our shareholders."

There are at least 29 different lawsuits pending against the company, according to the SEC. The agency hopes to bring all claimants together in this case and have it settled together.

The Primary Fund is currently being liquidated. Last month, the company said about $46.1 billion, or approximately 90% of fund assets as of Sept. 15, 2008, has been returned to investors. Approximately $4.5 billion remains in the fund, which once had a value of $60 billion.

The fund's independent trustees, who oversee its operations, said in a statement that they would work with the agency.

"The trustees will continue to fully cooperate with the Securities and Exchange Commission to expedite the distribution of the remaining assets to shareholders and to ensure that all decisions are made in the shareholders' best interest," the trustees said.

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‘Great Recession’ Will Redefine Full Employment as Jobs Vanish

2009-05-04T21:23:00.001-07:00

(Bloomberg) -- Post-recession America may be saddled with high unemployment even after good times finally return.

Hundreds of thousands of jobs have vanished forever in industries such as auto manufacturing and financial services. Millions of people who were fired or laid off will find it harder to get hired again and for years may have to accept lower earnings than they enjoyed before the slump.

This restructuring -- in what former Federal Reserve Chairman Paul Volcker calls “the Great Recession” -- is causing some economists to reconsider what might be the “natural” rate of unemployment: a level that neither accelerates nor decelerates inflation. This state of equilibrium is often described as “full” employment.

Fallout from the recession implies a “markedly higher” natural rate of unemployment, says Edmund Phelps, a professor at Columbia University in New York and winner of the 2006 Nobel Prize in economics. “It was 5.5 percent; maybe it will be 6.5 percent, maybe 7 percent.”

That has implications for policy makers as well as workers. The Obama administration and the Federal Reserve are counting on the jobless rate to fall to a medium-term equilibrium of about 5 percent as the economy recovers. A natural rate significantly above that would drive up the annual budget deficit -- which will top $1 trillion for the first time this year -- by reducing tax revenue and pushing up spending on unemployment benefits.

A higher rate would also require the Fed to make a choice: Accept an economy with more Americans permanently out of work, or try to boost employment at the risk of heating up inflation.

Unemployment Report

The government may report May 8 that the jobless rate jumped to 8.9 percent in April, the highest since 1983, from 8.5 percent in March, according to economists surveyed by Bloomberg.

Laurence Ball, an economics professor at Johns Hopkins University in Baltimore, says unemployment may peak at 10 percent, and “it will be a long time before we see 5 percent” again.

The more time workers spend without a job, the less attractive they become to potential employers, Ball says. That in itself helps keep the unemployment rate elevated.

“If you’re unemployed” for an extended period, “you’re not keeping up with new technology,” he says. “You become discouraged and you change your lifestyle.”

A burst of productivity growth starting in the mid 1990s helped lower the natural rate of unemployment to around 5 percent from 6 percent, as profit-flush companies took on more workers. Now the fear is that will be reversed as industries downsize.

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India's recovery hopes grow

2009-05-03T21:31:00.001-07:00

India's economy, buffeted by the global meltdown, could start recovering by mid-year amid signs of revival in business confidence, manufacturing and credit growth, economists forecast.

The upbeat outlook, boosted by expectations of a healthy harvest fuelling consumer spending, has driven India's benchmark Sensex share index to a six-month high as fund managers switch their country ratings to "overweight" from "underweight."

The "domestically driven Indian economy will begin to recover palpably from mid-year onwards," Rajeev Malik, economist at Australia's Macquarie Securities, said.

Indices measuring early changes in economic activity and business confidence and forecasts published by global financial houses in recent days suggest that India's economy is set to turn the corner.

However, the potential emergence of a politically unstable ruling coalition after general elections end on May 13 could disrupt the scenario, analysts warn.

Nevertheless, Swiss bank UBS said its "base case scenario" was for the Indian economy and corporate earnings "to bottom out by the second half of 2009/10 and for full recovery in 2010/11."

There's a "strong likelihood of an upturn in industrial activity by June," UBS economist Philip Wyatt said.

Britain's Barclays Capital has gone so far as to bullishly declare "the slump in activity in emerging Asia is over" - driven by India and China.

"Domestic leading indicators such as business sentiment are showing signs of stabilisation and the next few months of data are likely to see an upturn in most (Asian) countries," it said.

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Gulfstream, Cessna in 2-Year Slide as CEOs Shun Jets

2009-04-28T21:27:00.000-07:00

(Bloomberg) -- Gulfstream and Cessna will need at least two years to revive sales of corporate jets after the public shaming of executives like Elan Corp.’s Kelly Martin.

The Dublin-based drug company chief helped run up a bill of as much as $6 million last year flying to a San Francisco research center in a Gulfstream V. Now he will be lining up at the airport with everyone else after investors campaigned for him to switch to standard airline flights costing $1,000.

With businesses shunning luxury planes costing up to $55 million apiece, manufacturers including Bombardier Inc., General Dynamics Corp. and Dassault Aviation SA are slashing output and shedding 15,000 jobs. Gulfstream maker General Dynamics tomorrow will report the slowest profit growth in more than five years, according to analyst estimates compiled by Bloomberg, and Cessna owner Textron Inc. today said first-quarter profit from continuing operations fell 81 percent.

“Corporate aircraft make commercial airliners look like a safe haven,” said Richard Aboulafia, vice president of the Teal Group aviation consultancy in Fairfax, Virginia. “It’s the market most exposed to the huge downturn in corporate profits and where the economy really hits the tarmac.”

Business-jet deliveries may fall 50 percent this year and next, according to UBS AG. The $22 billion industry has been left reeling after companies and wealthy individuals began scrapping orders and selling business jets last year as the global economy started to contract.

Detroit Three

Pressure to avoid the planes mounted after the CEOs of General Motors Corp., Chrysler LLC and Ford Motor Co. used them to fly to Washington hearings on taxpayer bailouts, prompting Democratic Representative Gary Ackerman of New York to ask: “Couldn’t you all have downgraded to first class?”

GM terminated its leases for two Gulfstream V planes and five Gulfstream IIIs. Royal Bank of Scotland Group Plc Chairman Philip Hampton told shareholders April 3 that keeping its Dassault Falcon 7X jet would be an embarrassment following the company’s rescue by the U.K. government.

The outlook for business-jet manufacturers is bleak. Deliveries, which rose 28 percent last year to 1,138, may fall to less than 600 in 2010, according to New York-based UBS analyst David Strauss. That’s about the level of 2003, when 591 planes were built.

Wichita, Kansas-based Cessna, the largest maker of business jets by aircraft built, is eliminating almost 5,000 posts, or 30 percent of the workforce. The unit last year generated about 40 percent of revenue at parent Textron.

Top Performer

General Dynamics will scrap 1,200 jobs at Savannah, Georgia-based Gulfstream and cut production by one-fifth. The unit was previously the company’s top performer, with an 18.5 percent operating profit margin compared with an average 11 percent at marine, weapons and information-systems divisions.

Textron today said first-quarter profit from continuing operations dropped to $43 million, or 18 cents a share. Excluding some costs, profit was 26 cents a share. Analysts had predicted 1 cent a share. General Dynamics may say profit growth slowed to 3 percent, dropping below 10 percent for the first time since 2003. It lowered the 2009 earnings goal to as little as $6 a share on March 5 from as much as $6.75.

Neither company would comment yesterday prior to announcing their results.

Bombardier, the Montreal-based maker of the Learjet, is cutting almost 4,500 jobs after aerospace sales fell 4 percent in the quarter. The company said April 2 it will deliver 25 percent fewer business jets this year and declined to comment further yesterday.

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UAW to own 55% of Chrysler under restructuring deal: WSJ

2009-04-27T21:36:00.000-07:00

(MarketWatch) -- Under an agreement struck between the United Auto Workers union and Chrysler LLC, the union would eventually own 55% of the auto maker's stock once the company is restructured, according to a report late Monday from The Wall Street Journal.

The summary of the agreement also shows that Fiat SpA will "eventually" own 35% of Chrysler, and the U.S. government and Chrysler's secured lenders will own another 10% of the company following its reorganization, the report said

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American Express profits tumble 56%

2009-04-23T21:12:00.000-07:00

(CNNMoney.com) -- Profits at American Express declined by more than half in the latest quarter, the company said Thursday, as spending by cardmembers slowed and credit troubles continued to mount.

The credit card giant also said, however, that it was hoping to soon pay back money it received from the government as part of last fall's financial rescue package.

AmEx said it earned $437 million, or 31 cents a share during the first quarter ending in March, down 56% from $991 million, or 85 cents, during the same period a year ago. Revenues came in at $5.9 billion, down 18% from a year ago.

Analysts were expected a profit of just $142 million, or 12 cents a share, according to Thomson Reuters. But revenues were lower than forecasts of $6.45 billion.

American Express (AXP, Fortune 500) shares rose more than 6% in after hours trading, after finishing the session 8% higher.

But a decline in overall spending by cardmembers dragged on the firm's results, as did a boost to the company's reserves to cope for future loan losses. The company said provisions totaled $1.8 billion by quarter's end, up 49% from $1.2 billion a year ago.

Major credit card issuers like AmEx have ramped up their loan loss reserves over the past year amid rising unemployment levels and as more consumers default on their card payments.

AmEx also reported a spike in write-offs, or loans the company believes are not collectable. During the first three months of the year, write-offs soared to 8.5% from 6.7% in the previous quarter.

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Penn Stalks Las Vegas as MGM, Harrah’s Battle Debt

2009-04-22T21:26:00.000-07:00

(Bloomberg) -- Peter Carlino, chief executive officer of Penn National Gaming Inc., likens himself to a wolf stalking bigger prey.

Armed with $1.48 billion, Carlino says he’s waiting until debt-laden MGM Mirage, Harrah’s Entertainment Inc. and other ailing casino owners are forced to sell properties along the 4.5-mile Las Vegas Strip. Once financial restructuring moves are exhausted and companies face default, he will make his move.

“We’re watching things very closely but will pounce only when the sun, moon and stars align,” Carlino said in an e-mail last month. “Penn National can wait as long as need be to make acquisitions that will be opportunistic and, more importantly, return-focused.”

Penn National, a Wyomissing, Pennsylvania-based racetrack owner that expanded into slots, has cash at a time when the world’s biggest casino operators don’t. Revenue at Strip properties like Harrah’s Caesars Palace and MGM Mirage’s Bellagio has fallen, making it harder for their owners to service debt loads. Boyd Gaming Corp. and Wynn Resorts Ltd. are also in a position to bid for assets.

Penn National is expected to report first-quarter earnings of 34 cents a share tomorrow, excluding some items, on sales of $609 million, the average of analysts’ estimates compiled by Bloomberg.

Carlino’s spending money came as a divorce settlement from Fortress Investment Group LLC and Centerbridge Partners LP, private equity companies that abandoned their takeover of Penn National in July. They paid the gaming company a $225 million breakup fee and invested $1.25 billion in interest-free preferred stock.

‘The Wolf’

Carlino, 62, has been on the prowl for at least six months. “Picture a great plain and a low rise of a hill, the wolf sitting there, staring out at the horizon” and looking for weakness, he said in an Oct. 27 conference call.

Penn National was preparing to bid for Treasure Island when MGM Mirage CEO James Murren accepted a $775 million offer from investor Phil Ruffin in December, Penn Chief Financial Officer William Clifford said in an interview last month.

Ruffin’s bid was far higher than what Penn was willing to pay, Clifford said.

“We’ve passed on everything he’s sold, but he’s managed to sell everything to date,” Clifford said of Murren. “We’re not going to be one of his success stories.”

Penn rose 84 cents to $27.71 at 4 p.m. New York time in Nasdaq Stock Market trading and has gained 30 percent this year. MGM, down 61 percent this year before today, climbed 12 cents to $5.52.

Spare Cash

Las Vegas-based Boyd mothballed a resort under construction on the Strip in August and has $2 billion available to borrow. The company, operator of 16 casinos, offered to buy some assets from Station Casinos Inc., whose owners have proposed a prepackaged bankruptcy.

“We remain interested and focused on our proposal for Station’s assets,” Boyd spokesman Rob Stillwell said yesterday. He wouldn’t say whether Boyd will consider other casino offers.

Wynn Chairman Stephen Wynn, who built the Mirage, Treasure Island and Bellagio, is buying back as much as $1 billion in debt to reduce interest costs.

“We keep a quarter of a billion in case something good comes up, we keep money on the side in addition to that,” Wynn said in the November interview.

Wynn officials couldn’t be reached, Samanta Stewart, a company spokeswoman, said yesterday.

“Wynn has typically been a developer; the acquirers, you would have thought more Boyd and Penn,” Michael Paladino, an analyst at Fitch Ratings, said in a phone interview. “Still, given this environment and that MGM has basically everything up for sale, I don’t think you could discount Wynn potentially looking to take back Bellagio or Mirage.”

Read more here

Japan Eases Recession Pain as Wage Cuts Support Jobs

2009-04-20T21:25:00.001-07:00

(Bloomberg) -- Toshio Taniguchi is one of about 10,000 workers at Tokyo-based Renesas Technology Corp. who accepted a pay cut last month to keep the company alive.

“It was tough to swallow,” said Taniguchi, a 62 year-old worker at the company, Japan’s biggest unlisted chipmaker. “But most people are just thankful they still have jobs.”

Japan, the country with the most flexible wage system in the developed world, is slashing pay rather than sacking people, easing the pain of what may be the country’s worst recession since World War II. A longstanding tradition of lifetime employment gives companies such as Toyota Motor Corp. and Renesas little choice, even if millions of workers like Taniguchi have to make do with less.

“Many people are spared a tragic outcome, even if there’s a downside for everybody,” said Robert Feldman, head of Japan economic research at Morgan Stanley in Tokyo. “It helps remove the fear factor.”

Not all Japan’s workers are equally protected. In addition to paring wages for full-timers, companies are cutting temporary staff, a group that makes up more than a third of the country’s 56 million-person workforce. Before the economic bubble burst in the early 1990s, only 20 percent of workers were temporary.

Still, record declines in factory production have yet to trigger job losses of the scale seen in the U.S., where the unemployment rate jumped to 8.5 percent in March from 6.6 percent in October. Japan’s jobless rate is 4.4 percent. About 460,000 Japanese workers have lost their jobs since October, compared with 3.3 million in the U.S.

Half-Capacity

Companies are keeping people even as the volume of work falls. Production lines at the Renesas wafer-processing plants in Gunma and Shikoku are running at less than half-capacity.

“People spend a lot of time cleaning these days,” said Taniguchi, laughing at the lengths people go to in order to stay busy. “We’re cleaning the undersides of desks. We’re cleaning behind the books on shelves. These are huge factories, so there’s no end to the stuff you can find to clean.”

Renesas forecasts a record loss of 206 billion yen ($2.1 billion) in the year ended March 31 and, according to an April 16 Nikkei report, may be married off to NEC Electronics Corp. by parents Hitachi Ltd. and Mitsubishi Electric Corp. Rank-and-file employees will see wage cuts of 10 percent this year; executive pay will drop by 30 percent.

“The company’s survival is at stake,” said Hirotaka Ohno, a spokesman at the chipmaker. “There are no jobs unless you keep the company alive,” he said, adding that no one has been fired, though 600 employees have taken early retirement.

Falling Pay

What makes Japan different is the flexibility of its wage system, according to Randall Jones, head of the Japan desk at the Organization for Economic Cooperation and Development in Paris. With the exception of Japan, average nominal pay in 25 advanced economies has risen virtually every year for almost two decades -- even during recessions, OECD data show. By contrast, Japanese salaries have fallen in seven of the last 10 years.

“Rather than cut workers, they cut wages. In a sense, it’s healthy,” Jones said. “Keeping people on the job is better for the economy than having lots of people go onto unemployment or welfare. There’s a lower burden on society.”

Full-time workers typically get about a quarter of their yearly wages in two lump payments set at the start of each business year. The so-called bonuses give companies room to adjust labor costs when profits fall.

Read more here

Google beats estimates, acknowledges uncertainty

2009-04-16T21:45:00.000-07:00

(MarketWatch) -- Google Inc. on Thursday posted a first-quarter profit that beat analysts' estimates thanks to continued spending by search advertisers and a clampdown on costs, helping bolster the impression that the company is weathering the economic downturn relatively well.

But while Google's shares rose immediately after the earnings announcement, they turned lower in late trading as investors absorbed news of the company's first-ever sequential decline in net revenue since it went public, and heard Chief Executive Eric Schmidt acknowledge that he sees no end in sight for the recession.
Mountain View, Calif.-based Google said its first-quarter net income rose to $1.4 billion, or $4.49 a share, from $1.3 billion or $4.12 a share in the same period a year earlier. The company said net revenue for the period ended in March came in at $4.07 billion. Excluding special items, Google said earnings for the quarter were $5.16 a share.

Analysts on average had expected Google to post earnings excluding special items of $4.93 a share and $4.08 billion in net revenue, according to data from Thomson Reuters.

The size of the difference between Google's actual profit and Wall Street estimates was a surprise, according to Signal Hill Capital Group analyst Todd Greenwald. "It was definitely better than expected on the bottom line," he said.

Schmidt, during a conference call, said that "Google had a good quarter," though he allowed that it's nonetheless "absolutely feeling the impact" of the down economy. The chief executive added "we don't know exactly when" the economy will turn around, while his finance chief, Patrick Pichette, cautioned the company won't necessarily be able to hold costs so low in future quarters.

Google's capital expenditures in the first quarter were $263 million, a significantly smaller portion of its sales than in prior periods. But Pichette called the quarter "the perfect illustration of the lumpiness of our [capital expenditures]," warning analysts against expecting the company to report such modest costs in coming periods.

While Google's net revenue rose compared with the period a year earlier, it also declined from the $4.2 billion reported in the prior period -- marking the first sequential decline since the company went public in 2004. That indicates that while it's held up during the recession better than many peers, Google is also seeing its business affected.

Shares of Google fell slightly to $388 in after-hours trading.

'Very, very conservative'
Google said its paid clicks, or the number of times users clicked on an advertisement and generated revenue for the company, grew 17% in the quarter compared with the period last year.

That beat many analysts' estimates, though Signal Hill's Greenwald noted a growing discrepancy between high paid-click growth and slowing revenue growth, indicating that the prices advertisers are paying per keyword on Google's search service are declining.

While advertisers may want to spend less, Google also indicated that it remains committed to austerity amid the downturn.
Schmidt noted that while Google finished the quarter with nearly $18 billion in cash and equivalents on its books, it is in no hurry to spend it. "Our view at the moment is to remain very, very conservative, and I don't think that will change any time soon," he said.

Pichette, however, emphasized that Google will continue to invest heavily in its core businesses -- and likely more heavily, in some respects, than it did in the first quarter. A project building a new data center in Finland, for example, was only temporarily halted during the quarter by the cold weather in that country, the finance chief said.

Read more here

Toshiba Posts Smaller-Than-Forecast Operating Loss

2009-04-16T21:22:00.000-07:00

(Bloomberg) -- Toshiba Corp., the world’s second- largest maker of flash memory chips, posted a smaller operating loss than the company had forecast after production cuts helped ease a glut and drive up prices of the semiconductors.

The operating loss, or sales minus the cost of goods sold and administrative expenses, was 250 billion yen ($2.5 billion) in the year ended March 31, or 11 percent smaller than the company’s previous 280 billion yen loss projection, Tokyo-based Toshiba said today in a preliminary earnings statement.

The results stoked speculation that production cuts are helping reduce the excess supply that’s driven memory chipmakers to record losses. Prices of flash memory chips, which store songs and data in portable musical players and digital cameras, have surged 75 percent since Jan. 29, when Toshiba last made its earnings projections.

“Flash-memory chip prices can sustain these levels for the time being as long as chipmakers continue to scale back production,” Yuichi Ishida, an analyst at Mizuho Financial Group Inc., said by phone today. “Demand for the chips themselves isn’t likely to rise soon because demand for mobile phones and digital cameras is still weak.”

Toshiba rose 3.8 percent to 330 yen at 12:57 p.m. on the Tokyo Stock Exchange. The preliminary results are in line with figures reported by the Nikkei English News earlier today. The company will have a press briefing at 3 p.m. Tokyo time.

Read more here

Japanese Stocks Climb on Chipmaker Merger Talks, Fed Report

2009-04-15T21:19:00.000-07:00

(Bloomberg) -- Japanese stocks jumped to a three- month high on speculation consolidation will boost profitability in the computer chip industry and after a U.S. Federal Reserve survey showed economic contraction eased in some regions.

Mitsubishi Electric Corp. jumped 4 percent after its Renesas Technology Corp. affiliate was said to be in merger talks with NEC Electronics Corp., Japan’s third-biggest chipmaker. Nissan Motor Co., the nation’s No. 3 carmaker, rose 3.7 percent as almost half of the regions surveyed in the Fed’s Beige Book said there’s been a “moderation” in economic decline. Steelmakers and shipping lines gained ahead of reports from China on gross domestic product, production and inflation.

The Nikkei 225 Stock Average rose 253.43, or 2.9 percent, to 8,996.39 at the 11 a.m. break in Tokyo, the highest since Jan. 7 and snapping a three-day slide. The broader Topix index gained 16.67, or 2 percent, to 851.92.

“It’s natural when the economy turns south to see these kinds of mergers as a strategy for survival. Making money in semiconductors is difficult in any business climate,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees about $61 billion. “We aren’t on the path to a legitimate recovery, but we are seeing signs that sentiment is improving.”

The Nikkei has rallied by more than a quarter from a 26- year low on March 10. Shares in the gauge trade at an average of 183 times estimated net income for this year, up from 14 times a year ago, according to index compiler Nikkei Inc.

Read more at Bloomberg

Shock fall in retail sales

2009-04-15T04:14:00.000-07:00

SA's retail sales fell a shocking 4.5% in real terms in February from the same month a year ago, fuelling fears that SA is already in a recession and cementing the case for a further 100 basis points in interest rate cuts at the end of April.

The sharp decline in February followed an increase of 1.2% in January and a marginal decline in December. The performance in December and January had raised hopes that a bottom had been seen in retail sales.

But the latest numbers show that consumer confidence returned to the doldrums, despite a 100 basis-point cut in interest rates in February.

Stanlib economist Kevin Lings said the two main reasons for the retail sales decline were that consumers' incomes were falling in real terms, and that they were experiencing job losses.

He said credit card debt was a reliable indicator of consumer spending, and in February consumers had actually reduced their credit card debt.

"That's a rare event indeed, and is more indicative of the mood among consumers than the retail sales figures in December and January."

Lings said the better performance in December and January had been an anomaly. Consumers had probably felt buoyed by the fact that petrol prices had dropped sharply and the first interest rate cut had taken place. But this had been followed by job losses in 2009.

"Coming after very weak manufacturing figures, the February retail sales figures point to negative growth in gross domestic product in the first quarter.

"This supports the argument for another 100 basis-point cut in interest rates at the end of this month," Lings said.

Read more at Fin24

Fed Considering More Disclosure on Emergency Lending Programs

2009-04-14T22:12:00.000-07:00

(Bloomberg) -- Federal Reserve officials are considering steps to provide the public with more information about emergency programs aimed at reviving credit and ending the U.S. recession.

The central bank will probably increase disclosure on the collateral it holds against loans to financial firms, while also weighing a full range of options, including possible press conferences, according to people familiar with the matter.

Chairman Ben S. Bernanke has asked an internal committee headed by Vice Chairman Donald Kohn to review ways the central bank can boost transparency after it extended its lender-of-last resort role far beyond banks and doubled its balance sheet to more than $2 trillion to stem the credit crisis.

Read more at Bloomberg

SE Asian Stocks-Higher on gains in financials and oil plays

2008-03-27T07:11:00.001-07:00

... SINGAPORE, March 27 (Reuters) - Southeast Asian stock markets ended higher on Thursday, with further gains ... it said it was still negotiating with Chinas ICBC (1398.HK: ) about the sale of ... steep. In Vietnam, the Ho Chi Minh Stock Exchange rose on the first day of a ...

Read more at EINnews

Ten Network Profit Rises 17% on Advertising Increase at CanWest Business

2008-03-27T07:06:00.001-07:00

... 4:10 p.m. market close on the Australian Stock Exchange, extending this years decline to 20 percent. ... second half may be affected by the Beijing Olympic Games, which will be screened on ...

Read more at EINnews

Thomson Financial Europe AM at a glance share guide: Stocks slide; oil rises

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

... the stress in the housing market. BONDS: Japanese government bond prices ended Thursday morning mostly ... sales stirred worries about the US economy. FOREX: The US dollar slid against the yen ... last week and as stocks fell. EVENTS: Japan weekly capital inflows Hong Kong Feb trade ...

Read more at EINnews

ISX index down, closes at 37.550

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

... Baghdad, 26 March 2008 (Voices of Iraq) -- Iraqs Stock Exchange (ISX) index decreased by 0.661 % to settle at 37.550 points at the closuring ...

Read more at EINnews

Our Share Offer May Rise Above N25 in Second Outing - Daar

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

... Nigerians woke up on 25th of February this ... Radio stations, has gone to the Nigerian Stock Exchange, NSE to raise N10 billion for expansion ...

Read more at EINnews

FirstAlert tm 3/26: What About Oil Prices?

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

... 2008 (FinancialWire) (By Dr. Joe Duarte) The stock market seems to have decided that for now ... Menachem Begin and Jimmy Carter signed the Israel-Egypt Peace Treaty in Washington, DC in 1979. ...

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Egypts Amreya Cement 2007 net profit up 2 pct

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

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

Read more at EINnews

Stock markets falter, investors discouraged by U.S. durable goods orders

2008-03-26T11:31:00.001-07:00

... Stock markets falter, investors discouraged by U.S. durable goods ... durable goods orders TORONTO - The Toronto stock market was down slightly amid higher oil and ... Rio Doce has halted negotiations to acquire Anglo-Swiss miner Xstrata PLC in a deal that ...

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BIGresearchs Q1 China Survey: Consumer Confidence of Young Chinese Soars as U.S. Consumer Confidenc

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

... BIGresearchs Q1 China Survey: Consumer Confidence of Young Chinese Soars as U.S. Consumer Confidence Continues to ... as only 33.2% say the same. The stock market isnt the only market performing well in ...

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Cold winter warms natural gas prices

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

... given the strong demand from Europe and Japan." MacNeill believes oil should continue to trade ... these levels. In all, he says, the equity market has been focused on the deteriorating financial ...

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CFS Mk-II to run from April 7

2008-03-26T11:18:00.001-07:00

... 2008): The Securities and Exchange Commission of Pakistan (SECP) has announced that the CFS Mk-II ... announced this after a meeting with Karachi Stock Exchange management, directors of KSE, NCCPL management, representatives ...

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Nigeria: Guinness Emerges Top Stock As Divergent Views Trail SECs Reforms Programmes

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

... Guinness Nigeria Plc emerged the stock of the week on the Nigerian Stock Exchange (NSE) last week. It achieved this feat by recording the least Price Earnings (PEs) ...

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Thomson Financial Europe AM at a glance share guide: Stocks mixed, oil falls

2008-03-25T09:33:00.001-07:00

... 98.90 usd -96 cents (Intra-day trade) STOCKS: Stock markets across Asia rallied Tuesday with the Australian ... AGM Fiskars AGM SPAIN Feb producer prices SWITZERLAND UBS Feb KOF consumption indicator tfn.newsdesk@thomson.com ypv/ndi/ans ...

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Iraqs stock exchange goes electronic

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

... 25 March 2008 (Telegraph) -- Iraqs rising prosperity is to be symbolically marked ... week with the inauguration of a new stock exchange system in Baghdad. Baghdad, 24 March 2008 ...

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Sasol unveils South Africas biggest empowerment deal

2008-03-25T09:11:00.001-07:00

... JOHANNESBURG (Reuters) - Fuels and petrochemicals group Sasol ... to a 2.4 percent rise in the JSE Securities Exchange Top-40 index. Abri du Plessis, Chief Investment ...

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CANADIAN MINING PERSPECTIVES: What investors are looking for, M&A activity, and the reshaping of global mining capital markets

2008-03-24T07:34:00.001-07:00

... the Americas and Africa. LSE investors prefer Africa, Eastern Europe and the Middle East. Johannesburg Stock Exchange (JSE) investors prefer Africa, and Australian Securities Exchange (ASX) investors prefer the Asia-Pacific region. Superior valuations generally follow these preferences. For the ...

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Gold plunges on global trend

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

Commodity Online MUMBAI: Heavy selling by stockists prompted by global trend saw the yellow metal tumbled by Rs 150 per 10 gram at the bullion market here on Monday.

Japanese, Korean Markets Rise

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

Asian stock prices mostly rose in light trading Friday after a turbulent week. But trading was light, however, as most markets worldwide were closed for Good Friday.

BOJ policy board elects Shirakawa as its chairman

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

TOKYO (Reuters) - The Bank of Japans policy board has elected acting central bank governor Masaaki Shirakawa as its chairman, the BOJ said on Friday.

A tax break thats worth the hassle

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

The earned income tax credit, available to people who dont make a lot of money, can be complicated. But if you are eligible, the time it takes to file will be well spent.

Why your retirement is probably safe

2008-03-22T01:48:00.001-07:00

If youre really rich, the market turmoil of late may threaten your retirement lifestyle. But if youre middle class, the effect is likely to be smaller. Heres why.

New arrest in SocGen trading scandal

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

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

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

The losses have made SocGen a possible bid target.

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

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

SocGen declined to identify the person or the division.

Read more at Reuters

Societe Generale Says Another Employee Held by Police

2008-03-12T08:11:00.001-07:00

(Bloomberg) -- Societe Generale SA, the French bank stung by a record trading loss of 4.9 billion euros ($7.6 billion), said a second employee has been taken into police custody as part of the investigation into unauthorized trades.

The headquarters of France's second-biggest bank in La Defense, just outside Paris, were searched by police today, who took some documents, Societe Generale spokeswoman Laura Schalk said in an interview.

The latest development deepens a probe that began after the bank said in January that 31-year-old trader Jerome Kerviel amassed 50 billion euros in trades backed by fake hedges and false documents. Unwinding his bets resulted in the biggest trading loss in banking history and forced Societe Generale to replenish depleted capital.

``It's normal for the investigation to widen, and we will see where this brings us, given that many people said Kerviel could not have acted alone,'' said Arnaud Scarpaci, who helps manage about $235 million at Agilis Gestion SA in Paris. ``At an image level, it's not the best for the company.''

Societe Generale failed to follow up on 75 warnings on bets by Kerviel, independent board members concluded in a report last month. While the board has twice turned down Chairman Daniel Bouton's offer to resign, the document highlighted the shortcomings of Societe Generale's management supervision that allowed Kerviel to forge documents and emails undetected for more than two years.

Unidentified Broker

The Societe Generale employee taken into custody today is the second broker to be questioned in the Kerviel case. Moussa Bakir, a 32-year-old broker at Newedge, was questioned and released last month. Kerviel passed trades through Societe Generale's Fimat unit, which merged in January with Credit Agricole SA's futures brokerage to form Newedge.

The police are questioning the second broker, Isabelle Montagne, a spokeswoman for Paris prosecutors, said today in a telephone interview. She declined to name the broker. She said the broker was taken into custody mid-morning and would be held for 24 hours. The detention could be extended to up to 48 hours.

Kerviel, who admitted to exceeding his trading limits and faking documents to show his bets were covered by hedges, has been interrogated six times since he was incarcerated on Feb. 8. He has been charged with hacking into the bank's computers, falsifying documents and breach of trust.

The latest development comes just two days before a hearing at the Paris appeals court to consider his release.

Read more at Bloomberg

Dollar Falls to Record Low on Concern Fed Package Won't Succeed

2008-03-12T08:04:00.001-07:00

(Bloomberg) -- The dollar fell to a record below $1.55 per euro on concern that the Federal Reserve's plan to provide funds to banks won't be enough to break the gridlock in money-market lending and stem credit losses.

The U.S. currency erased more than half of yesterday's 1.6 percent rally versus the yen, the biggest in six months, which came after the Fed said it would extend $200 billion of credit to financial institutions to spur lending. Traders bet the Fed will cut rates by as much as three quarters of a percentage point next week to avert a recession, while the European Central Bank keeps borrowing costs unchanged.

``It's difficult for the dollar to gain traction,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets at Putnam Investments in Boston. ``The Fed is probably running out of options; the market is fixated on interest-rate differentials, which are clearly negative for the dollar.''

The dollar fell to $1.5504 per euro, the weakest since the euro's 1999 debut, and traded at $1.5492 at 10:12 a.m. in New York, from $1.5338 yesterday. The previous historic low was set yesterday. It dropped to 102.32 yen from 103.42, within one yen of an eight-year low. The euro traded at 158.59 yen from 158.61.

Euro gains were limited after Luxembourg Finance Minister Jean-Claude Juncker said he is ``very vigilant'' on the euro in current circumstances and that exchange rates should reflect fundamentals. He spoke to reporters in Brussels.

Gulf Pegs

The yen climbed against major currencies, including a 1.3 percent rally versus South Africa's rand, as a government report showed Japan's economy grew an annualized 3.5 percent last quarter, faster than the 2.3 percent median forecast of economists surveyed by Bloomberg News.

Forward contracts to buy United Arab Emirates dirhams rose the most in two weeks after Economy Minister Sultan Bin Saeed Al Mansouri said the dirham's dollar peg is ``contributing'' to record inflation.

A Qatari official denied in a telephone interview that Gulf central bankers will consider dropping the dollar peg when they meet next week. Gulf countries are under pressure to revalue their currencies or drop dollar pegs after the U.S. currency fell 10 percent against the euro last year and the Fed cut rates. The weaker dollar boosts the cost of imports from Europe, while Gulf states have to follow rate cuts, stoking inflation.

The euro extended its gains against the dollar earlier after a European Union report showed industrial production in the region increased for the first time in three months in January. It rose 0.9 percent from the prior month, more than twice the rate forecast by economists surveyed by Bloomberg.

`Stay Short Dollars'

The euro also rose on speculation ECB President Jean-Claude Trichet will highlight inflation risks today at a press conference. ECB council member Axel Weber yesterday said that he sees ``no room'' to lower rates.

The ECB's main rate is 1 percentage point above the Fed's 3 percent target rate for overnight loans between banks.

Policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed yesterday on a second round of emergency- loans to curb rising money-market rates. The Fed said it will lend Treasuries through a new lending tool and widen the collateral it accepts to include mortgage-backed securities.

``Read the need for such new measures as being a symptom of what ails the world and not a panacea for its problems,'' said David Simmonds, the London-based global head of currency research at Royal Bank of Scotland Plc, the world's fourth- biggest foreign-exchange trader. ``Stay short dollars.''

Read more at Bloomberg

Blackstone says tough conditions hit results

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

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

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

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

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

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

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

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

Read more at Reuters

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

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

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

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

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

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

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

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

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

Read more at Bloomberg

Oil Rises to Record $107 as Returns Outpace Financial Markets

2008-03-10T08:14:00.001-07:00

(Bloomberg) -- Crude oil rose to a record $107 a barrel in New York as investors purchased futures because the returns have outpaced those of financial markets.

Oil in New York has surged 77 percent over the past year as the S&P 500 and Dow averages dropped. Hedge-fund managers and other large speculators increased net-long positions, or bets on higher oil prices, in the week ended March 4, a Commodity Futures Trading Commission report showed.

``We're witnessing an ongoing flow of fund buying, which isn't particularly motivated by the particulars of the petroleum market,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``Prices have rallied to such an extent where sellers have backed off. Any time prices go lower the buyers come right back into the market.''

Crude oil for April delivery rose $1.36, or 1.3 percent, to $106.51 a barrel at 10:55 a.m. on the New York Mercantile Exchange. Futures surged to $107 a barrel today, the highest since trading began in 1983.

Read more at Bloomberg

Billionaire dreamlist: helipad and private beach

2008-03-06T06:11:00.001-08:00

(Reuters Life!) - Credit crunch? What credit crunch?

More billionaire house hunters than ever are scouring the globe in search of the perfect hideaway.

So how about a Parisian mansion with its own ballroom, a forest-fringed estate in Andalusia complete with helipad or maybe a villa in Anguilla with a "feather-topped beach lapped by deep turquoise waters."

Reveling in the purple prose so beloved by estate agents, the glossy magazine Country Life has picked five of the top properties on the market that even the super-rich dream about.

For $95 million, why not snap up Hillandale, an English country-style estate just 50 miles from Manhattan.

Just four minute's drive from the billionaire's playground of Monaco you could put in a bid for the Domain, a Cote d'Azur mansion with its own stud farm, paddocks and dressage arena.

The credit crunch may have hit big spenders in London's City financial district who once happily invested their huge bonuses in property. But the billionaires are not feeling the chill.

Read more at Reuters

Wal-Mart February same-store sales up 2.6 pct

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

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

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

Read more at Reuters

European Stocks, U.S. Index Futures Decline; Asian Shares Rise

2008-03-06T05:48:00.001-08:00

(Bloomberg) -- European stocks fell for the third day this week and U.S. index futures declined on concern credit- market losses will widen at financial companies and record oil prices will curb airline earnings.

UBS AG sank to the lowest since 2003 after JPMorgan Chase & Co. said Europe's biggest bank probably sold $24 billion in holdings of mortgage-backed securities in a ``fire sale.'' Aegon NV, the second-largest Dutch insurer, lost the most in three weeks on a 26 percent drop in earnings. British Airways Plc had its steepest decline in a week, saying its profit margin will drop.

A rally in mining companies helped Asian stocks rise for the first time in six days, while U.S. index futures fell before a report that will probably show contracts to buy previously owned homes slipped in January for a third month.

``News from the financial industry brings a negative wind,'' said Laurent Vallee, who helps oversee $6.1 billion at Richelieu Finance in Paris. ``We remain cautious on financial stocks.''

Europe's Dow Jones Stoxx 600 Index lost 0.3 percent to 314.62 as of 12:45 p.m. in London. Futures on the Standard & Poor's 500 Index slipped 0.5 percent, while the MSCI Asia Pacific Index added 1.8 percent.

Stocks maintained their losses after the European Central Bank left its key interest rate unchanged. ECB President Jean- Claude Trichet is scheduled to brief reporters at 2:30 p.m. Frankfurt time. The Bank of England earlier kept its benchmark rate on hold.

The Stoxx 600 has lost 14 percent this year on concern the collapse of subprime mortgages and a slowdown in the U.S. economy will curb profit growth in Europe. UBS may have writedowns of about $18 billion after unloading 25 billion Swiss francs of mortgage-backed securities, according to JPMorgan.

Money Markets

Carlyle Capital Corp., which invests in AAA rated mortgage securities, failed to meet margin calls and said today it received a notice of default, while Thornburg Mortgage Inc., a U.S. specialist in adjustable-rate loans too big to be sold to Fannie Mae and Freddie Mac, also received a default notice on a $320 million loan.

The cost of borrowing euros for three months rose to the highest level in seven weeks, fueling concern a coordinated effort by central banks to limit the fallout from the U.S. housing slump and revive lending is faltering.

UBS dropped 2 percent to 31.6 francs. Europe's biggest bank by assets ``likely'' sold its 25 billion francs ($24 billion) prime Alt-A portfolio in a ``fire sale,'' JPMorgan said as it lifted its ``credit-crisis'' writedown estimate for the bank to 18.5 billion francs.

Read more at Bloomberg

MGIC Plans Stock Sale to Bolster Mortgage Insurance

2008-03-04T07:05:00.000-08:00

(Bloomberg) -- MGIC Investment Corp., the largest U.S. mortgage insurer, said it will sell shares to increase capital.

Part of the money raised will be used to boost sales, the Milwaukee-based company said late yesterday in a statement. MGIC plans to decide on the size of the stock offering by ``mid to late March,'' and the company may consider other ways of raising capital, it said.

MGIC needs to raise capital to avoid a downgrade of its claims-paying ability after a record fourth-quarter loss of $1.47 billion, Fitch Ratings said Feb. 25. The insurer said Feb. 13 it hired an adviser to help raise money.

Mortgage insurers, which reimburse lenders when borrowers don't repay their debt, are facing a surge in claims amid the worst housing slump in 25 years.

Read more at Bloomberg

Bernanke Urges Banks to Forgive Portion of Mortgages

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

(Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, battling the worst housing recession in a quarter century, urged lenders to forgive portions of mortgages for more borrowers whose home values have declined.

``Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done,'' Bernanke said in a speech in Orlando, Florida today. ``Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.''

Bernanke's call goes beyond the stance of the Bush administration and previous Fed comments. By comparison, the central bank's Feb. 27 report to Congress called for lenders to ``pursue prudent loan workouts'' through means such as modifying mortgage terms and deferring payments.

``Delinquencies and foreclosures likely will continue to rise for a while longer,'' Bernanke said in the comments to the Independent Community Bankers of America. ``Supply-demand imbalances in many housing markets suggest that some further declines in house prices are likely.''

Subprime borrowers are about to see their mortgage rates increase more than 1 percentage point, he said. ``Declines in short-term interest rates and initiatives involving rate freezes will reduce the impact somewhat, but interest-rate resets will nevertheless impose stress on many households.''

`Vigorous Response'

In the past, homeowners could refinance, though that option is now ``largely'' gone because sales of bonds backed by subprime mortgages ``have virtually halted,'' Bernanke said. ``This situation calls for a vigorous response.''

Bernanke didn't comment in his speech text on the outlook for the economy or interest rates. Traders expect the Federal Open Market Committee to lower the benchmark rate by 0.75 percentage point by or at the panel's next meeting on March 18, based on futures prices.

Bernanke signaled in congressional testimony last week that the Fed is prepared to lower rates again even amid signs of accelerating inflation.

Yesterday, the Fed and other regulators sent letters to institutions they supervise, encouraging the banks to report on their efforts to modify mortgages at risk of default.

``This will make it easier for regulators, the mortgage industry, lawmakers and homeowners to assess the effectiveness of these efforts,'' Fed Governor Randall Kroszner said in a statement yesterday.

Foreclosures Climb

The number of U.S. homeowners entering foreclosure rose 75 percent in 2007, with more than 1 percent in some stage of foreclosure during the year, according to RealtyTrac Inc. of Irvine, California. For the year, more than 2.2 million default notices, auction notices and bank repossessions were reported on about 1.3 million properties.

``Lenders tell us that they are reluctant to write down principal,'' Bernanke said. ``They say that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again.''

The Fed chairman countered that by reducing the amount of the loan, this ``may increase the expected payoff by reducing the risk of default and foreclosure.''

Bernanke spoke in a state that's among the worst affected by the housing collapse. Miami home prices have dropped 17.5 percent in the past year, the most of 20 large U.S. cities, according to the S&P/Case-Shiller index. Foreclosures in Florida jumped at more than double the nationwide pace, rising 158 percent in the past year, according to RealtyTrac.

Read more at Bloomberg

Electronic Arts bids for Take-Two

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

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

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

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

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

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

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

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

Read more at Reuters

Visa sets possible record $18.8 billion IPO

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

(Reuters) - Visa Inc, the world's largest credit-card network, on Monday said it may raise up to $18.8 billion in its eagerly awaited public sale of shares, which could make it the largest initial public offering ever.

The company filed with the U.S. Securities and Exchange Commission to sell 406 million Class A shares at $37 to $42 each, resulting in proceeds of $15 billion to $17.1 billion. It said it might sell another 40.6 million shares to meet demand, boosting the potential size of the IPO to $18.8 billion.

A successful IPO would surpass the $10.6 billion offering in 2000 by AT&T Wireless Group.

San Francisco-based Visa plans to list its shares on the New York Stock Exchange under the symbol "V."

The timing of Visa's offering is risky, as worries that the U.S. economy might be entering a recession have chilled investor demand for stocks and IPOs.

But shares of smaller rival MasterCard Inc (MA.N: Quote, Profile, Research) have more than quintupled since that card network went public in a $2.4 billion IPO in May 2006.

"MasterCard has been an explosive stock, and investors may hope Visa will be the same," said Steve Roukis, a managing director at Matrix Asset Advisors Inc in New York, which invests $1.7 billion.

Visa intends to set aside $3 billion of net proceeds to cover a wide variety of antitrust and other litigation.

Read more at Reuters

Home Resales in U.S. Probably Dropped, Further Eroding Growth

2008-02-25T06:01:00.000-08:00

(Bloomberg) -- Sales of existing homes in the U.S. probably dropped in January to the lowest level in at least nine years, according to a survey of economists, signaling the housing slump is deepening and will weigh on growth in 2008.

The National Association of Realtors will report that purchases fell 1.8 percent to an annual rate of 4.8 million, the fewest since record-keeping began in 1999, according to the median forecast in a Bloomberg News survey of 63 economists.

Mounting foreclosures are adding to a glut of unsold homes that is driving down property values. Would-be homebuyers may be waiting for even lower prices, keeping the housing market depressed for a third year and dragging the economy close to a recession.

``With the backdrop of elevated inventories of unsold homes and continued falling home prices, prospects for the housing market in general seem quite grim,'' said Dana Saporta, an economist at Dresdner Kleinwort in New York.

The Realtors group is scheduled to release the report at 10 a.m. in Washington. Estimates in the Bloomberg News survey ranged from 4.65 million to 5 million.

For all of last year, sales of single-family homes declined 13 percent, the most since 1982, the group said Jan. 24. Earlier this month, it forecast sales this year would slip to 5.38 million, from 5.65 million for all of 2007.

The effects of the worst housing recession in 25 years have spread into other areas of the economy. The Federal Reserve Bank of Philadelphia's general economic index fell this month to minus 24, the weakest reading in seven years.

Read more at Bloomberg

Allianz cuts jobs, structured finance at Dresdner

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

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

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

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

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

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

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

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

Read more at Reuters

Microsoft to open up some key software blueprints

2008-02-21T08:35:00.001-08:00

(Reuters) - Microsoft Corp said on Thursday that it would make key technology elements of some of its best-selling software products widely available to boost interoperability of its software with that of competitors and customers.

To make connecting Microsoft products with third-party software products easier, Microsoft will publish on its Web site key software blueprints, known as application program interfaces, pertaining to its high-volume products used by other Microsoft products.

Microsoft also pledged not to sue open-source developers for development or noncommercial distribution of those software blueprints.

In January, the European Commission launched new antitrust investigations into Microsoft to see whether the company broke competition rules to help its Web browser and its Office and Outlook products.

Read more at Reuters

Dresdner Rescues $19 Billion SIV, Follows Citigroup

2008-02-21T08:32:00.001-08:00

(Bloomberg) -- Dresdner Bank AG, Germany's third- largest bank, agreed to rescue its $18.8 billion structured investment vehicle, joining Citigroup Inc. and HSBC Holdings Plc in bailing out funds crippled by the collapse of the subprime mortgage market.

Dresdner, a unit of Munich-based Allianz SE, will provide a credit line to enable the K2 fund to repay all of its senior debt, spokesman Ulrich Porwollik in Frankfurt said in a telephone interview. Dresdner will cut the size of the fund, which has been reduced from $31.2 billion since July, according to an e-mailed statement.

The bank is the last of the world's biggest financial institutions to put capital at risk salvaging a SIV from the seven-month freeze in credit markets. Banks including Citigroup, HSBC, Bank of Montreal and WestLB AG have disclosed plans to support their SIVs with $140 billion of assets.

``This is a potential threat to Dresdner Bank,'' said Thilo Mueller, managing director of MB Fund Advisory in Frankfurt. ``There is little liquidity for some of these assets and with comparative assets continuing to fall, you need to book further writedowns.''

SIVs, which use short-term borrowing to buy higher-yielding assets, have shrunk by $100 billion from $400 billion since August, according to Moody's Investors Service.

Exit Plan

``Allianz plans to exit K2 and the SIV business in general,'' Chief Financial Officer Helmut Perlet said today in an interview. ``The SIV business has no future.''

The fund, which Allianz expects will be wound down by year- end, is unlikely to cause a ``major negative hit'' if the assets are taken on to Dresdner's books because the company has the ``financial strength to sit out parts of the valuation declines,'' Perlet said.

Allianz's banking division, which is mostly Dresdner, wrote down more than 1.3 billion euros ($1.9 billion) on structured investment products, contributing to a 52 percent decline in fourth-quarter profit announced today. Europe's biggest insurer earned 665 million euros, missing the 729 million-euro median estimate of 12 analysts surveyed by Bloomberg.

Allianz, which has fallen 19 percent this year, rose 1.91 euros, or 1.61 percent, to 120.27 euros at 4:25 p.m. in Frankfurt trading.

No Subprime

K2, named after the world's second-highest mountain in the Himalayas, was started in 1999 by Paul Clarke and Alan Harley, who previously helped manage Europe's first SIVs at Citigroup.

The fund has no ``direct exposure'' to securities backed by subprime or midprime debt, the mortgages made to U.S. homeowners with poor or limited credit histories. K2 also doesn't contain collateralized debt obligations based on asset-backed notes, the statement said. CDOs are securities packaged from mortgage bonds and other assets.

One of the SIV's three portfolios has entered a ``restricted operating period,'' a rule designed to protect senior investors that prevents it making payments to lower- ranking bondholders. The credit line from Dresdner may enable K2 to end the restriction, K2 said in a separate statement today.

``Such an outcome, however, cannot be assured,'' the statement said. K2 didn't disclose the size of the portfolio.

SIV Defaults

The SIV bailouts avert the risk of forced sales of assets by the funds. Concern that fire sales by SIVs would further roil credit markets prompted U.S. Treasury Secretary Henry Paulson to begin talks on setting up an $80 billion rescue fund last year. Citigroup and JPMorgan Chase & Co. in New York and Charlotte, North Carolina-based Bank of America Corp. abandoned the so- called SuperSIV after banks began rescuing their own funds, led by London-based HSBC.

More than $20 billion of SIVs have defaulted after being forced to start winding down since August, including funds set up by New York-based Ceres Capital Partners LLC and Cheyne Capital Management (UK) LLP in London.

Whistlejacket Capital Ltd., set up by Standard Chartered Plc, may default today after the company's receiver, Deloitte & Touche LLP, froze debts last week. The London-based bank abandoned a rescue plan for SIV yesterday, prompting Moody's to downgrade Whistlejacket's senior debt rating by three steps to B2, five levels below investment grade.

``It's a positive signal that Dresdner is willing to step in and support its SIV, but the story is far from resolved as we saw with Standard Chartered's Whistlejacket SIV,'' said Henry Tabe, an analyst at Moody's in London. Moody's rates K2's senior debt at Aaa.

Read more at Bloomberg

U.S. Stocks Fall, Erasing Early Gains; Exxon, GE Shares Retreat

2008-02-21T08:26:00.001-08:00

(Bloomberg) -- U.S. stocks fell after manufacturing in the Philadelphia region unexpectedly contracted the most in seven years and a drop in oil prices dragged down energy shares.

Exxon Mobil Corp., Chevron Corp. and General Electric Co. declined, helping erase a 76-point gain in the Dow Jones Industrial Average. The market's losses were limited by gains in technology companies after Citigroup Inc. told clients to buy shares of Cisco Systems Inc., the largest maker of computer- networking equipment.

Read more at Bloomberg

Ackman Proposes Bond Insurer Split, Policyholder Veto

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

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

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

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

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

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

Read more at Bloomberg

Credit Suisse Writedowns to Cut Profit by $1 Billion

2008-02-19T06:53:00.001-08:00

(Bloomberg) -- Credit Suisse Group discovered pricing errors on bonds that will cut first-quarter profit by about $1 billion, prompting the biggest share decline in more than five years.

Switzerland's second-largest bank took $2.85 billion of writedowns on asset-backed securities after an internal review found ``mismarkings'' by a group of traders and credit markets worsened. The Zurich-based bank said in a statement today that it's assessing whether 2007 earnings were also affected.

The announcement comes two days after Qatar said it was buying shares in Credit Suisse and a week after the company reported net writedowns of 2 billion Swiss francs ($1.8 billion) for 2007, a fraction of those disclosed by bigger Swiss competitor UBS AG. Chief Executive Officer Brady Dougan said on Feb. 12 that he was ``more optimistic than many'' about prospects for a debt market recovery.

``I'm speechless,'' said Georg Kanders, an analyst at WestLB in Dusseldorf with a ``buy'' rating on Credit Suisse. ``To announce this just a week after reporting earnings is a major blow. This will again put the whole sector under pressure.''

Credit Suisse fell as much as 10 percent, and was down 4.40 francs, or 7.7 percent, to 52.35 francs by 1:15 p.m. in Swiss trading, cutting the company's market value to 60.8 billion francs. UBS AG, the biggest Swiss bank, dropped 0.8 percent.

`Loss of Confidence'

Credit-default swaps on Credit Suisse's subordinated debt rose to a record, according to Deutsche Bank AG. Credit-default swaps, used to speculate on a company's ability to repay debt, rise as perceptions of credit quality worsen.

Credit Suisse blamed the writedowns on ``significant adverse first quarter 2008 market developments'' and pricing errors ``by a small number of traders'' in the structured credit trading business. The company estimated that it remained profitable so far in the first quarter.

The announcement may raise questions about oversight at the bank less than a month after Societe Generale SA reported the worst trading loss in banking history following unauthorized bets by trader Jerome Kerviel.

``The big question mark is about the bank's control systems,'' said Stefan Raetzer, who helps manage about $28 billion at Allianz Global Investors in Frankfurt. ``The writedown isn't as much of a problem here as the loss of confidence.''

Credit Suisse spokesman Marc Dosch said a ``small number'' of traders had been suspended, declining to provide their names or location. The internal review will be finished before the publication of the annual report, scheduled for March 18, he said. The company will hold a conference call for reporters and analysts at 3 p.m. Zurich time today.

Dougan

The loss is the biggest setback for Dougan, 48, since he took over as CEO from Oswald Gruebel in May after heading the investment bank for three years. Gruebel returned the bank to stable earnings after a decade of management turnover, bungled acquisitions and the first criminal conviction of a bank in Japan. Credit Suisse's writedowns follow about $19 billion in debt and loan markdowns at UBS.

``It unfortunately just reinforces the reputation that the large Swiss banks have generated over the last year for financial ineptitude,'' Peter Thorne, a London-based analyst at Helvea Ltd., said in a note to clients. ``Whilst we had received some assurance that the Credit Suisse balance sheet is not as laden with problem securities as UBS, this disclosure just raises the prospect that they may be simply bad at knowing what problems they do have.''

Read more at Bloomberg

Cadbury profits dip, shares slip on no cash return

2008-02-19T06:48:00.001-08:00

(Reuters) - The world's largest confectionery maker, Cadbury Schweppes (CBRY.L: Quote, Profile, Research), missed analyst forecasts with a 2 percent fall in 2007 profits and its shares dipped as it warned there will be no cash return from its drinks demerger.

Cadbury also gave a cautious outlook on Tuesday for the North American soft drinks business which is to be spun off at the end of the second-quarter, with profit margins down sharply in 2007 and unlikely to start to recover until 2009.

The London-based group had intended to return cash to shareholders on the demerger but has now decided against this in order to preserve investment-grade ratings for both companies. Cadbury shares slumped 6.1 percent to 575 pence, the FTSE 100's biggest loser, by 5 a.m. EST.

"There is unlikely to be a return of cash to shareholders as we have decided to maintain both companies on investment-grade ratings," Chief Executive Todd Stitzer told a conference call.

Cadbury decided last October to spin off its 7 billion pound ($13.7 billion) drinks business -- to be called Dr Pepper Snapple Group -- and list it in New York, after a world credit squeeze derailed a lucrative sale to private-equity buyers.

The group, which makes Dairy Milk chocolate, Trident gum and Halls cough drops, reported 2007 underlying pretax profit of 915 million pounds, below an analyst forecast range of 922 to 936 million and a consensus forecast of 929 million pounds.

Cadbury is raising the 2007 dividend by 11 percent to 15.5p.

Read more at Reuters

Medtronic quarterly net falls

2008-02-19T06:40:00.001-08:00

(Reuters) - Medical device maker Medtronic Inc (MDT.N: Quote, Profile, Research) on Tuesday said quarterly earnings fell on charges related to the acquisition of Kyphon.

Fiscal third-quarter net earnings were $77 million, or 7 cents a share, compared with $710 million, or 61 cents a share, a year earlier.

Read more at Reuters

Euro zone growth may be weaker than hoped: Noyer

2008-02-18T08:42:00.001-08:00

(Reuters) - European Central Bank (ECB) Governing Council member Christian Noyer said in an interview released on Sunday euro zone growth might be weaker than hoped as a result of market turmoil but he saw no "big setback."

In an interview with the Financial Times newspaper, Noyer said French banks' exposure to the U.S. subprime market was lower than others' and the European Union economy should resist financial turmoil better than that of the United States.

"Growth may be weaker than we hoped but I don't see a big setback," Noyer said when asked about the impact of the subprime crisis on the European economy.

ECB President Jean-Claude Trichet warned after the last rate meeting on February 7 that the euro zone economy might grow slower than potential in 2008.

In December ECB economists forecast 2008 growth of around 2 percent, but a number of ECB policymakers have suggested this might need to be revised down when fresh projections are published in March.

"If we are a little bit below potential, but still close to the average we've had for a number of years... I don't think that makes (structural) reforms impossible," Noyer said in a transcript of the interview released ahead of publication in Monday's edition.

Read more at Reuters

Westland/Hallmark Recalls Record Amount of U.S. Beef

2008-02-18T08:30:00.001-08:00

(Bloomberg) -- Westland/Hallmark Meat Co., the supplier of ground beef to U.S. school lunch programs, recalled a record 143.4 million pounds of meat after the government said it was unfit for humans.

The company, based in Chino, California, withdrew all raw and frozen products made since Feb. 1, 2006, because some of the cattle weren't fully inspected, the Department of Agriculture said in a statement yesterday. A total of 37 million pounds went to nutrition programs, including schools, since October 2006.

The order relates to so-called downer cattle discovered between the normal USDA inspection before slaughter and the killing of the animals, the department said. Downer cattle, those unable to walk, are banned from the food chain as a precaution against Bovine Spongiform Encephalopathy, also known as mad-cow disease, the USDA said.

The risk of consumers contracting BSE from the meat is ``negligible,'' the USDA said in a separate statement. ``The prevalence of the disease in the United States is extremely low,'' with two animals testing positive for the disease out of 759,000 tested nationwide since June 2004, the department said.

A video taken at the plant released by the Humane Society of the U.S. shows workers kicking cows and using electric prods and forklifts to make them move. Two Westland/Hallmark former employees were charged with animal cruelty by the San Bernardino District Attorney's office Feb. 15.

Operations Ceased

The company ceased operations last month after the video was revealed. In a statement posted on the company's Web site Feb. 3, Westland/Hallmark president Steve Mendell said the company was cooperating fully with the USDA. Two messages left yesterday with Westland/Hallmark seeking comment weren't immediately returned. Today is a U.S. public holiday.

The U.S. consumed 28 billion pounds of beef in 2006 and the U.S. beef industry was worth $71 billion that year on a retail basis, according to the USDA. Beef exports totaled 1.15 billion pounds worth $1.63 billion.

The recall shouldn't create a supply problem, Kim Essex, vice president of communications at the National Cattlemen's Beef Association, said in a Bloomberg Television interview from Denver today. ``I am very confident in the safety of the beef supply,'' she said.

The recalled meat is considered a low risk to food supply because almost all the meat has either been consumed or is being held from distribution, Richard Raymond, USDA under secretary for food safety, said in a teleconference call yesterday.

Hamburger Patties

The ground beef bought for schools was processed into products such as hamburger patties, chili meat and taco meat, Bill Sessions from the USDA's Agricultural Marketing Service, said on the call, according to a transcript.

The recall is categorized as a Class II, meaning ``there is a remote probability of adverse health consequences from the use of the product,'' according to Raymond.

The recall is more than four times the size of the previous record, a 35 million-pound removal of Thorn Apple Valley Inc. ready-to-eat meats potentially contaminated with listeria in January 1999, Raymond said.

``All of the larger recalls done in the past were all Class I,'' Raymond said. ``In this one we feel there is a very, very remote possibility of anyone suffering health consequences.''

About 150 U.S. school districts are no longer using beef from Hallmark Meat Packing Co., the Associated Press reported, without saying where it got the information.

Kidney Exports

Schools in Washington state and California said they wouldn't serve students beef for now, Agence France-Presse reported, citing unidentified local officials.

Hamburger patties and meatballs in schools in South Florida are being destroyed as part of the recall, the South Florida Sun- Sentinel newspaper reported, without saying where it got the information.

Westland/Hallmark's exports last year consisted of kidneys and livers to Ivory Coast and livers to Angola, the USDA said. There have been no exports to Japan or South Korea since at least 2003, the department said.

Japan and South Korea banned U.S. beef imports after the first U.S. case of mad-cow disease was found in 2003. Japan, once the largest U.S. beef export market, now only imports meat from animals aged 20 months or younger, which have a lower risk.

The 27-nation European Union only imports hormone-free beef from the U.S., which has to be produced separately from other livestock, Michael Mann, a spokesman for agriculture and rural development at the European Commission, said by telephone today. The EU exported 87 tons of beef to the U.S. in 2006.

Read more at Bloomberg

Rio Seeks Higher Prices Than Vale in Iron-Ore Talks

2008-02-18T08:28:00.001-08:00

(Bloomberg) -- Rio Tinto Group, the world's second- largest iron-ore producer, is seeking bigger price increases from Asia steelmakers than Brazilian rival Cia. Vale do Rio Doce.

Rio wants to receive a ``freight premium'' to reflect the lower cost for customers in China, Japan and South Korea of shipping ore from ports in Australia rather than Brazil, it said today in a statement distributed by the Regulatory News Service. Nippon Steel Corp., JFE Holdings Inc. and Posco today said they agreed to a 65 percent increase in Vale's prices from April 1.

This ``could mark the end of the `one price fits all' settlements of the last few decades,'' Michael Rawlinson, head of mining, resources and energy at Liberum Capital Ltd. in London, wrote today in a report. A full recovery by Rio of the freight premium to China would mean a ``massive'' 154 percent boost in ore prices, he said.

In comparison, JFE agreed to a 71 percent boost for higher- grade ore from Vale's Carajas mine in Brazil, while the biggest- ever annual gain was 71.5 percent in the year that started April 1, 2005.

Contract prices for the steelmaking ingredient have risen to a record for a sixth straight year as China boosts output of the metal to feed a construction boom. Soaring freight fees last year added to the price increases for Asian steelmakers and made iron ore from Australia more cost effective than Brazilian supplies.

Carajas Settlement

Rio Tinto ``will continue to negotiate to obtain a freight premium, to reflect its proximity to Asia and its major customers,'' Sam Walsh, chief executive officer of the London- based company's iron ore unit, said today in the statement.

Rio will also seek ``further customer clarification about the settlements, and in particular the settlement for Carajas ore, which is the relevant reference ore for Rio Tinto products,'' Walsh said.

BHP Billiton Ltd., the world's largest mining company, tried and failed to negotiate a freight premium in 2005, Macquarie analyst Jim Lennon said today by telephone from London. The company didn't get the support of Rio and other producers at the time, he added.

``This has never happened before, but it's certainly a possibility,'' Lennon said. ``The fact that spot prices are three times higher than contract prices means that 65 percent is almost being viewed as a disappointment by the market.''

BHP, based in Melbourne, has started seeking regulatory approvals for its increased $141 billion all-share hostile bid for Rio, which was rejected by Rio on Feb. 6 as too low. A combination of the companies would rival Vale in iron-ore output.

Read more at Bloomberg

U.S. January Import Prices Rise More Than Forecast

2008-02-15T06:23:00.001-08:00

(Bloomberg) -- Prices of goods imported into the U.S. rose more than forecast in January, pushing the increase for the last 12 months to a record, led by rising costs for energy products and food.

The 1.7 percent increase in the import price index followed a revised 0.2 percent decrease the prior month, the Labor Department reported today in Washington. Prices excluding petroleum rose 0.6 percent.

Higher import costs, sustained over several months, may increase the chances U.S. companies will try to follow their foreign competitors in increasing prices. Still, Federal Reserve policy makers remain focused on risks to growth and are prepared to lower interest rates further, Chairman Ben S. Bernanke told U.S. lawmakers yesterday.

``Growth is still the biggest worry, but inflation concerns are alive,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The Fed will be cutting interest rates.''

Import prices were forecast to rise 0.5 percent, according to the median estimate of 52 economists in a Bloomberg News survey, after being previously reported as unchanged in December. Forecasts ranged from a gain of 2 percent to a drop of 1 percent.

Treasury Yields

Treasury securities, which rose earlier today, stayed higher after the figures. Ten-year note yields were at 3.76 percent at 8:38 a.m. in New York, from 3.82 percent late yesterday.

Compared with a year earlier, prices of imported goods increased 13.7 percent, the biggest jump since record-keeping began in 1982. That followed a 10.4 percent year-over-year increase in the prior month. Excluding petroleum, prices rose 3.6 percent in the 12 months to January.

The import-price index is the first of three monthly price gauges from the Labor Department. The government is scheduled to release its measure of consumer prices on Feb. 20 and wholesale prices on Feb. 26. Both reports are forecast to show that excluding fuel costs, price pressures were contained.

Fed officials have trimmed forecasts for growth after the U.S. lost jobs in January and consumer spending slowed because of falling home and stock values and rising energy costs. The central bank will cut rates a further half-point by March 18 after 2.25 percentage points of reductions since September, futures trading shows.

Bernanke Message

``The outlook for the economy has worsened in recent months, and the downside risks to growth have increased,'' Bernanke told the Senate Banking Committee in Washington yesterday. ``To date, inflation expectations appear to have remained reasonably well anchored.''

The price of imported petroleum and petroleum products rose 5.5 percent after a decline of 1.9 percent the prior month. Prices were 67 percent higher than at the same time a year earlier.

Crude oil prices, which reached $100 a barrel on Jan. 2 on the New York Mercantile Exchange, the highest since trading began in 1983, have retreated in recent weeks.

Excluding all fuels, including natural gas, import prices rose 0.7 percent for the month and were up 3.3 percent for the 12-month period.

Food and beverage imports were 3.1 percent more expensive, the biggest gain since March 2005. Costs of imported industrial supplies rose 4 percent and were up 37 percent from a year earlier, the biggest year-over-year increase since March 2000.

Dollar Falls

The dollar, which weakened nearly 8 percent since the beginning of 2007 against a trade-weighted basket of currencies of major U.S. trading partners, also is making imports more expensive.

The cost of imported capital goods fell 0.2 percent, the first decrease in nine months, today's report showed. Prices of imported automobiles, parts and engines were unchanged and costs for imported consumer goods excluding autos rose 0.3 percent.

Some companies are getting hurt even after attempts to recover costs. Kraft Foods Inc., the world's second-largest foodmaker, last month said its fourth-quarter profit fell, in part because price increases on cheese didn't cover dairy expenses that surged 50 percent from the year-earlier quarter.

Others have gained some success. Tiremakers including Bridgestone Corp., the world's biggest, have boosted prices to counter higher costs of rubber and synthetic alternatives made from petroleum.

Read more at Bloomberg

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

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

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

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

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

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

Read more at Bloomberg

New York's Dinallo Considers Splitting Bond Insurers

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

(Bloomberg) -- Bond insurers may be split into two pieces to bolster credit ratings and protect municipalities and bondholders, New York's top insurance regulator plans to tell Congress.

One part would operate the profitable municipal bond insurance business, while the other would handle so-called structured finance products, according to testimony prepared for Eric Dinallo, the New York State insurance superintendent. Dinallo is scheduled to address a U.S. congressional committee today.

``Our first priority will be to protect the municipal bondholders and issuers,'' according to Dinallo's testimony. ``We cannot allow the millions of individual Americans who invested in what was a low-risk investment lose money because of subprime excesses. Nor should subprime problems cause taxpayers to unnecessarily pay more to borrow for essential capital projects.''

Read more at Bloomberg

Retail sales rebound

2008-02-13T10:07:00.001-08:00

(Reuters) - An unexpected rise in January retail sales, reported by the government on Wednesday, fired up hopes the U.S. economy might skirt recession despite the pressure on consumers from a weakening housing market.

The Commerce Department said sales at U.S. retailers rose 0.3 percent in January to a seasonally adjusted $382.91 billion on higher sales of new cars, gasoline and clothing.

That was sharply contrary to Wall Street analysts' forecasts for a 0.2 percent drop and helped drive stock prices higher in early trading while government bond prices fell.

"The report strengthens the case of those who think we'll skirt a recession," said Jim Awad, chairman of W.P. Stewart & Co. Ltd. in New York, but he cautioned the optimism might be short-lived.

"People will say this is subject to revision and it's inconsistent with other incoming data indicating softness and weakness in the economy," Awad said.

The dollar's value strengthened against other key currencies.

Read more at Reuters

U.S. Economy: January Retail Sales Unexpectedly Rise

2008-02-13T09:35:00.001-08:00

(Bloomberg) -- Retail sales in the U.S. unexpectedly rose in January, easing concern that the world's largest economy has already slipped into a recession.

The 0.3 percent increase was led by spending on autos, clothes and gasoline, the Commerce Department said today in Washington. The figure followed a 0.4 percent decrease the previous month. Purchases excluding automobiles and gasoline were unchanged.

``Today's report will diminish recession anxieties, but it doesn't dispel them altogether,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who accurately forecast the sales gain. Federal Reserve Bank of St. Louis President William Poole said yesterday ``the best bet'' is the U.S. will avoid a recession.

Demand from consumers, whose spending accounts for about 70 percent of the economy, will probably wane in coming months, forcing the Fed to lower interest rates further, economists said. Macy's Inc., Target Corp. and Limited Brands Inc. said last week that sales at stores open more than a year declined in January. Macy's cut 2,300 jobs.

Treasury securities dropped after the report, with 10-year note yields rising to 3.70 percent at 10:22 a.m. in New York, from 3.66 percent late yesterday. The Standard & Poor's 500 Index added 0.6 percent to 1,356.24. At the same time, the S&P Retailing Index, which includes Home Depot Inc. and Best Buy Co., retreated 0.4 percent.

Inventories Increase

A separate report showed declining sales at U.S. businesses in December led to the biggest increase in inventories of unsold goods in a year and a half.

The 0.6 percent gain in inventories, the highest since July 2006, followed a 0.4 percent rise in November, the Commerce Department said today in Washington. Sales declined 0.5 percent, the steepest since January 2007, after a 1.4 percent gain the prior month.

Retail sales were projected to fall 0.3 percent after an originally reported 0.4 percent drop the prior month, according to the median estimate in a Bloomberg News survey of economists.

Threats to Spending

The worst housing slump in a quarter century and shrinking access to credit threatens to hurt spending this quarter. The economy lost 17,000 jobs in January, the first drop in more than four years. The Standard & Poor's 500 Index has fallen three consecutive months, the longest losing streak since 2003, eroding households' investment portfolios.

Consumers are increasingly limiting expenses to those they can't avoid. The amount Americans must spend each month on debt service, housing, medical costs, and food and energy bills rose to 66.9 percent of their total spending in December, the highest since records began in 1980, according to Bloomberg figures.

``Food prices have been rising and gasoline prices have been rising and so we got a little boost to overall sales there,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who forecast retail sales would advance 0.2 percent. ``There's evidence here that the slump in the housing market is affecting spending.''

Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.

Car Dealers

Sales at automobile dealerships and parts stores rose 0.6 percent after a decline of 1.1 percent in December, the Commerce Department said.

That contrasts with industry figures that showed cars and light trucks sold last month at a 15.2 million annual pace, down 6.7 percent from December. Auto industry sales this year are forecast to drop to the lowest level since 1998.

``There is still a lot of concern about consumers,'' said David Wyss, chief economist at Standard & Poor's in New York, said in an interview with Bloomberg Radio. ``Car sales did really badly during the month. People are going to continue to worry about this and darn well ought to continue to worry.''

Filling station sales rose 2 percent in January after remaining unchanged the prior month, today's report showed. Regular gasoline reached as high as $3.11 a gallon in early January, about 11 cents more than the average for the prior month, according to AAA. Excluding gas, retail sales rose 0.1 percent.

Sales also rose at clothing retailers, which posted a 1.4 percent increase, and grocery and beverage stores, which gained 0.6 percent. Purchases at non-store retailers, which include online and catalog sales, rose 0.5 percent.

Read more at Bloomberg

JD Group: More cases pending

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

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

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

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

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

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

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

Read more at Fin24

Vodafone still after Vodacom?

2008-02-12T11:14:00.001-08:00

(Fin24) - Any notion that Vodafone will give in to Telkom's rejection of its offer for a controlling stake in Vodacom (the duo's joint cellular business) has been dismissed - at least given Vodafone CE Arun Sarin's declaration that Africa and Asia were firmly on Vodafone's growth radar screen.

In a carefully crafted speech steering clear of the company's intention to up its control of Vodacom, Sarin - addressing a large audience at the 3GSM Mobile Word Conference in Barcelona, Spain - said South Africa and India were two countries in emerging markets critical to Vodafone's growth strategy.

"Last year we recorded 15% growth in our South African-based business," said Sarin, adding that with most markets across Europe reaching saturation South Africa and India were critical to the company's growth plans.

In India - a market in which Vodafone made its foray after acquiring a controlling stake in Bharti Telecoms - the company had signed up nearly 1.5m subscribers.

"Our target in that particular market is to sign up close to 300m subscribers over the next three years," said Sarin.

Asked by Fin24 to state weather Vodafone would return for Vodacom with a revised offer, Sarin declined to answer before quickly making a dash to the exit door of a packed auditorium with a horde of Vodacom executives in tow.

Read more at Fin24

Platinum sets lifetime high

2008-02-12T11:11:00.001-08:00

(Fin24) - Platinum hit a record high for the ninth straight trading day on Tuesday as concerns deepened over output losses in top producer South Africa due to a power crisis, analysts said.

Gold fell as much as 1% as the dollar gained ground versus the euro after Warren Buffett told CNBC television that he had offered to take over the liabilities of monoline bond insurers. But the metal later pared losses.

Platinum rose to a high of $1 965 an ounce before falling to $1 943/1 950 by 17:50, against $1 933/1 941 in New York late on Monday.

"You know that platinum demand is increasing on the back of emission controls and you know that supplies are going to be squeezed. So it just makes sense to be long in this market," said Johannesburg-based Walter De Wet, analyst at Standard Bank.

"There might be slight over-reaction as everybody is on the bandwagon because of the recent price rise, but there is also some realisation that things are going to get tighter. We believe that the bias is on the upside."

Platinum's rally, which has sent prices up 30% in just three weeks, gained pace after Anglo Platinum, the world's biggest producer, said on Monday the power problem alone would cut output by as much as 120 000 ounces in 2008. It had already cost 30 000 ounces in lost output this year.

Northam Platinum said on Tuesday its production fell 16.5% to 150 755 ounces the July-December period of 2007 from a year earlier and saw its output at the same level in the next six months, provided mines got 90% power.

The market nervously awaits financial results of Impala Platinum, the world's second-biggest producer of the metal, on Thursday for more cues on total production losses.

"It's a chronic problem. It has been a deficit market for many years and it looks like it has returned to a significant deficit market again," said David Holmes, director of metals sales at Dresdner Kleinwort Investment Bank.

Mines across South Africa, which accounts for four-fifths of the world's supply of the metal, ground to a halt for five days at the height of the power crisis last month. Platinum is used in jewellery and auto catalysts to clean exhaust fumes.

Negotiations were under way for South African state-owned power utility Eskom to buy surplus electricity from local producers as part of its bid to solve the nation's energy crisis, Public Enterprises Minister Alec Erwin said on Monday.

A spokesperson at Eskom said the company was in discussions with the government to ensure sufficient funding to meet its expansion programme.

Read more at Fin24

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

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

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

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

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

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

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

Loan Types

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

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

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

Rate Freeze

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

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

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

Democratic Complaints

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

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

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

Read more at Bloomberg

GM Posts Loss on North America; Overseas Profit Rises

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

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

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

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

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

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

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

Shares Rise

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

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

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

2007 Loss

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

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

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

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

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

Read more at Bloomberg

R343.8m shot for local Mittal op

2008-02-11T06:42:00.001-08:00

(Fin24) - ArcelorMittal SA (ACL), the SA arm of the world's largest steel producer, announced on Monday that it would spend R343.8m in capital expenditure at its Newcastle works.

The company said in a statement that the capital would be used to improve the plant's production capacity as well as improve its safety, health and environmental impact by bringing the plant in line with worldwide environmental standards.

Expenditure will be split into three parts, with R103.2m spent on the Sinter Plant refurbishment, R74.6m on a Hot Metal
Desulphurisation project and R166m on the Blast Furnace mini- reline.

The projects form part of ArcelorMittal SA's capacity
expansion programme to increase its liquid steel production to 9.5m tonnes by 2011, the company said.

Construction and installation for the Hot Metal Desulphurisation project began in November 2007 with commissioning taking place in January 2008, while refurbishment work on the sinter plant and raw materials handling plant will begin in May 2008 to coincide with the mini-reline of Blast
Furnace No 5 at Newcastle.

Read more at Fin24

SocGen launches rights issue at deep discount

2008-02-11T06:37:00.001-08:00

(Reuters) - Societe Generale (SOGN.PA: Quote, Profile, Research) launched a 5.5 billion euros ($7.97 billion) capital increase on Monday to plug holes in its balance sheet following a rogue trading scandal.

The one-for-four rights issue at 47.50 euros per share offers a discount of 38.9 percent to Friday's closing price.

"The price is very low. The feedback from the market cannot have been very encouraging. As they can't miss this deal they decided to strike very low," said Landsbanki Kepler banking analyst Pierre Flabbee.

Fund managers contacted by Reuters last week had been looking for a discount of up to 30 percent.

The bank's shares fell 3 percent to 75.40 euros by 1156 GMT with France's benchmark CAC 40 index .FCHI down 0.5 percent.

SocGen revealed plans to tap investors on January 24 when it stunned the financial world with 4.9 billion euros of rogue trading losses blamed on a single trader.

Read more at Reuters

Auto Insurers Boost Premiums on Injury, Crash Costs

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

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

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

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

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

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

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

Warren Buffett

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

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

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

Read more at Bloomberg

Wall Street Shareholders Suffer Losses Partners Never Imagined

2008-02-11T06:20:00.001-08:00

(Bloomberg) -- Less than a decade after Wall Street's last major partnership went public, stockholders are paying the price for bankrolling the industry's expanding risk appetite.

Four of the five biggest U.S. securities firms lost about $83 billion of market value last year, almost 90 percent of their net income since 1999, data compiled by Bloomberg show. That cut the annual average return for Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. during those nine years to 9.7 percent from 16.8 percent.

The private partnerships that once dominated Wall Street guarded their capital, used less leverage and limited their risk to trading blocks of stock for clients and shares of companies in mergers, said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs Group Inc. Since raising money from the public, many of the biggest firms have abandoned that caution.

``If you're betting with other peoples' money, you're more willing to take risk than if it's your own,'' said Anson Beard, 71, who retired from Morgan Stanley in 1994 after 17 years at the New York-based company, where he ran the equities division and helped with the initial public offering in 1986. ``You think differently if you're paid in cash and not in ownership. It's heads you win, tails you don't lose.''

Shareholders, stung by the securities industry's losses last year on subprime mortgage-backed bonds and leveraged loans, may be in for more pain.

Shrinking Fees

Morgan Stanley, Merrill, Lehman and Bear Stearns have lost between 3 percent and 19 percent of their value this year in New York Stock Exchange trading on concern that they may be forced to take more writedowns if bond insurers like MBIA Inc. and Ambac Financial Group Inc. are stripped of their top credit ratings. Revenue from structured credit and leveraged finance has dropped and demand for takeover advice and underwriting may dwindle as the U.S. economy slows, analysts say.

Even Goldman has faltered. New York-based Goldman, which went public in May 1999, evaded last year's market losses and reaped record earnings. This year, the biggest and most profitable securities firm has lost 13 percent in NYSE trading, while analysts predict earnings will drop as equity stakes in companies such as Beijing-based Industrial & Commercial Bank of China Ltd. lose value and investment-banking fees decline.

Merrill, which went public in 1971, outperformed the Standard & Poor's 500 Index in just five of the past 10 years. The largest U.S. brokerage paid more to employees last year than it collected in revenue. Morgan Stanley, public since 1986, beat the index in four of the past 10 years. Both New York-based companies diluted investors' stock last year when they sold stakes to foreign governments to shore up capital.

Other People's Money

``Shareholders share in the downside and not necessarily in the upside, that's the whole story,'' said John Gutfreund, 78, who ran Salomon Brothers in the 1980s when it was renowned for the size of its trading bets. ``It's OPM: Other People's Money.''

To be sure, the firms have been good investments over a longer period. Merrill rose at an average annual rate of 14.7 percent, including dividends, from 1980 through the end of 2007, according to data compiled by Bloomberg. Bear Stearns returned an average 15.2 percent since the end of 1985 and Lehman's average annual gain was 25.5 percent since it became a separately listed company at the end of 1994.

While none of the companies are more than one-third owned by employees today, senior executives typically receive at least half their pay in shares. At Merrill, top managers get 60 percent of their compensation in stock; they're required to keep three quarters of it each year and are prohibited from hedging it, according to the brokerage's proxy statement.

Read more at Bloomberg

Cheap Gas Seen Returning 20% as Oil Meets Slowdown

2008-02-11T06:15:00.000-08:00

(Bloomberg) -- U.S. natural gas is the cheapest it's been relative to oil since the 1991 Gulf War, raising the prospect of a windfall for investors who sell crude and buy the other heating fuel.

Gas prices will probably rise because inventories are at a four-year low and below-normal temperatures are stoking demand, said Brian Hicks, who helps manage $1.5 billion at U.S. Global Investors in San Antonio. At the same time, he said, an increased supply of oil and a slowing U.S. economy will drag crude prices lower.

A barrel of crude has cost at least 11 times as much as 1 million British thermal units of gas for three months, compared with an average of 7.8 times in the past 10 years and 18 times in July 1991, when the Gulf War threatened oil supplies from Kuwait and Iraq. The spread, a function of oil's 54 percent surge in the past year, was as high as 13.6 times before oil peaked at $100.09 a barrel on Jan. 3. Gas has climbed just 5 percent in the year.

``In the world of hydrocarbons, natural gas is a bargain compared to crude,'' said Peter Beutel, the president of energy consulting firm Cameron Hanover Inc. in New Canaan, Connecticut. He correctly predicted oil would reach $98 a barrel last year.

Futures contracts on the New York Mercantile Exchange indicate traders are betting this year will be the first since 1993 that gas prices advance while oil declines. Consumers would pay higher household gas and electricity bills, and costs for companies such as Dow Chemical Co., the biggest U.S. chemicals maker, would climb. Profit at gas producers ConocoPhillips, biggest in the U.S., XTO Energy Inc. and EOG Resources Inc. will advance this year, according to analysts surveyed by Bloomberg.

Gas Seen Rising

Gas may increase to $9 or $10 per million British thermal units by May or June, up from $8.30 on Feb. 8, according to Neal McAtee, who was named to the All-Star Analysts Hall of Fame in 1998 by the Wall Street Journal. Oil, which ended last week at $91.77 a barrel, may go to $70 or $72, he said.

U.S. natural gas for March delivery rose as much as 15.3 cents, or 1.8 percent, to $8.454 per million Btu in electronic trading on the New York Mercantile exchange at 10:47 a.m. London time. Crude oil for March delivery traded at $91.66 a barrel, down 11 cents.

A trader who sells $10 million of Nymex oil and buys an equal amount of gas right now would come out about $4 million ahead, or 20 percent, should gas reach $10 and oil $70.

``Natural gas looks to be setting up for a bullish run going into the summer,'' said McAtee, who helps manage $18 million at Red Rock Asset Management in Memphis, Tennessee.

In the past decade, oil sold for more than 12 times natural gas in three stints prior to the latest one. Each time the gap narrowed to the average within four months.

XTO's Simpson

XTO Chief Executive Officer Bob Simpson is predicting something similar this time. Oil will sell for as little as 10 times gas next year and 8 times within five years, he said.

``There's a perceived oversupply of natural gas that's transitory and illusory,'' Simpson, 59, said in a telephone interview from the company's headquarters in Fort Worth, Texas. ``There's going to be a correcting event.''

The last such event was in August 2005, when Hurricane Katrina shut down every gas well and pipeline off the U.S. Gulf Coast. Gas prices peaked in December 2005 at $15.78.

XTO's profit will rise by 4 percent this year to $1.76 billion, according to analyst estimates compiled by Bloomberg. EOG, the Houston-based gas producer born out of Enron Corp., will post a 27 percent increase to $1.38 billion, the data show.

Hurricane Season Flopped

Natural gas represents 24 percent of U.S. energy supply, about as much as coal, according to statistics compiled by BP Plc. Oil contributes about 40 percent, and much of the rest comes from nuclear reactors and hydropower plants.

One reason not to buy gas is the unpredictable nature of weather. Amaranth Advisors LLC lost $6.6 billion on the expectation gas prices were poised to rebound in 2006, leading to the biggest hedge-fund collapse on record. When forecasts for a strong hurricane season proved incorrect, producers were able to keep output flowing from the Gulf of Mexico, the biggest domestic source of gas in the U.S.

Commercial traders such as power-plant owners had a record- large holding in natural gas at a net 81,263 contracts on Jan. 7, according to U.S. Commodity Futures Trading Commission data. As of Jan. 29, commercial traders held 24 percent more short positions than long positions on oil futures, meaning most were betting on declines in prices, and 15 percent more long positions than short positions on gas.

U.S. gas inventories fell 12 percent to 2.06 trillion cubic feet in the past 12 months, reaching the lowest for this time of year since 2004, according to Energy Department data.

Read more at Bloomberg

Ford May Cut 9,000 More U.S. Plant Jobs, Person Says

2008-02-11T06:13:00.001-08:00

(Bloomberg) -- Ford Motor Co., the world's third- largest automaker, may eliminate as many as 9,000 more U.S. factory jobs through its latest buyout offers, a person with direct knowledge of the situation said.

The cuts would be in addition to the 33,600 union workers who left through buyouts and early retirements in 2006 and 2007, when Ford lost a combined $15.3 billion. Further reductions may help Ford restore profit by speeding the hiring of new workers who would be paid about half as much as current employees.

``These are realistic numbers,'' said Harley Shaiken, a labor professor at the University of California at Berkeley. ``Workers are reassessing their options. It is a very tough choice.''

Ford doesn't have an estimate of how many workers will accept the buyouts, proposed to a first group of workers last month, the person said. The Dearborn, Michigan-based automaker won't limit the number who leave if more than the target range of 8,000 to 9,000 opt for the offers, the person said.

Marcey Evans, a Ford spokeswoman, declined to comment. Roger Kerson, a spokesman for the United Auto Workers union, didn't return telephone messages. The Detroit Free Press reported Feb. 9 that Ford had an internal target of 8,000, citing people familiar with the objective. That reduction would represent more than 12 percent of the carmaker's North American factory workers.

Ford's employment fell to 64,000 at the end of last year at North American plants from 99,500 two years earlier. That decline includes the 33,600 UAW-represented jobs shed through the buyout and retirement offers.

New Contract

Ford and the UAW in November agreed on a contract that permits the company to pay lower wages for new hires while keeping open five factories targeted for closure. Under the four-year agreement, Ford can pay up to 20 percent of its U.S. factory workers the reduced wage.

Under the accord, Ford's hourly costs for new workers will be $26 to $31, or about half the $60 expense for a current UAW member's wages and benefits.

Before any new, lower-paid workers can be hired, Ford must resolve the fate of workers at closed factories and at its Automotive Components Holdings unit. Automotive Components includes factories Ford took back from former parts subsidiary Visteon Corp. Most of those plants are being closed or sold, and some of the UAW-represented employees may go to Ford plants.

UAW workers at Automotive Components are eligible for buyouts. The outcome of the buyout program will determine how many of those employees are reassigned to Ford factories.

Ford has about 54,000 UAW-represented employees, with about 12,000 eligible to retire.

Savings

UAW President Ron Gettelfinger last month estimated that new contracts at Ford, General Motors Corp. and Chrysler LLC will save the automakers ``somewhere in the neighborhood'' of $1,000 per vehicle. Buyouts of higher paid workers will help Ford increase the number of new hires at lower wage levels.

Ford hopes to reach the 9,000 target through offers pending at four closed U.S. plants that will be broadened to other U.S. factories next week.

Workers at St. Louis; Edison, New Jersey; Norfolk, Virginia; and Atlanta began considering buyouts Jan. 22 and have a ``buyout window'' running through Feb. 28, Ford said Jan. 24 when it released 2007 year-end earnings. Workers from that group who accept buyouts are to leave the company by March 1.

Workers at those sites are being offered buyouts or relocation to other Ford plants. Workers who don't accept either choice will be placed on a ``no-pay, no-benefit leave,'' Ford's Evans said. That leave would last as long as their employment with Ford, she said.

Read more at Bloomberg

Children's Place ex-CEO says could bid for company

2008-02-07T07:23:00.001-08:00

(Reuters) - Children's Place Retail Stores Inc (PLCE.O: Quote, Profile, Research) former Chief Executive Ezra Dabah said on Thursday he was confident he could make a bid to buy the company for $24 a share, sending its shares up 18 percent in pre-market trading.

The $24 price would represent a 35 percent premium to the closing price of Children's Place shares on Wednesday. Dabah said he had received interest from private equity firm Golden Gate Capital to be a participant in the deal.

Dabah, who said in a filing to the Securities and Exchange Commission that he owns 17.2 percent of the children's clothing retailer's shares, resigned as CEO last September after an internal probe found he did not comply with the company's securities-trading policies.

The SEC filing comes the same day that Children's Place said its sales at stores open at least a year rose a better-than-expected 6 percent in January.

Wall Street on average had been expecting a same-store sales gain of 2.5 percent, according to Reuters Estimates.

Same-store sales rose 9 percent at the Children's Place brand and 2 percent at the company's Disney Store chain.

Children's Place also said it has been notified by Nasdaq that its stock was subject to delisting because of its failure to hold its fiscal 2006 annual meeting by February 3.

Last September, the company said its board was evaluating strategic options -- including a potential reorganization or an outright sale.

Read more at Reuters

Dec pending home sales fell 1.5 percent: Realtors

2008-02-07T07:19:00.001-08:00

(Reuters) - Pending sales of previously owned homes fell a steeper-than-expected 1.5 percent in December, pointing to more dreary conditions for the beleaguered housing market, a real estate trade group report on Thursday showed.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in December, dropped to 85.9 from 87.2. Economists were expecting pending home sales -- which are a key gauge of future home sales activity -- to fall 1.0 percent.

Read more at Reuters

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

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

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

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

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

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

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

Carry Trades

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

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

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

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

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

Citigroup Idea

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

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

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

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

Read more at Bloomberg

Trichet Sees `Unusually High Uncertainty' on Growth

2008-02-07T07:12:00.001-08:00

(Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled that risks to euro-region economic growth are increasing, prompting investors to raise bets on interest-rate cuts.

``As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. ``We will continue to monitor very closely all developments over the coming weeks.''

The ECB has kept borrowing costs at a six-year high, declining to follow counterparts in the U.S. and Great Britain by cutting borrowing costs as it seeks to contain inflation in the 15 euro nations. Investors predict that a slowing economy will prompt the ECB to reduce its key interest rate.

``There is a greater acknowledgment that risks to growth are on the downside,'' said David Owen, chief European economist at Dresdner Kleinwort in London. ``The ECB's not going to cut in next couple of months, but it is starting to prepare the markets for rate reductions.''

The euro weakened 0.8 percent to $1.4521 at 3:21 p.m. in Frankfurt and the yield on 10-year German bunds fell 5 basis points to 3.85 percent.

Growth Forecasts

The ECB on Dec. 6 projected the euro-region economy to expand about 2 percent this year after 2.6 percent in 2007. Trichet said today that latest data confirmed the bank's assessment that ``risks surrounding the economic outlook lie on the downside.''

The International Monetary Fund on Jan. 29 cut its 2008 euro-region growth estimate by half a point to 1.6 percent, saying that ``no one is going to be exempt from some slowdown.'' The Washington-based fund also trimmed its growth estimates for the U.S. and Japan, the world's two largest economies.

Stock markets have dropped this year on concern the U.S. economy is sliding into a recession, curbing earnings growth. Germany's benchmark DAX Index has lost 16 percent this year and the Dow Jones Stoxx 600 Index 12 percent.

The Bank of England today cut interest rates for the second time in three months, lowering the benchmark by a quarter point to 5.25 percent. The Fed last month lowered its rate by 1.25 percentage points in two reductions to 3 percent.

Read more at Bloomberg

Biogen Fourth-Quarter Net Rises 85 Percent on Tysabri

2008-02-06T06:51:00.001-08:00

(Bloomberg) -- Biogen Idec Inc., the world's largest maker of multiple sclerosis drugs, said fourth-quarter profit rose 85 percent on sales of its fastest-growing product, the MS medicine Tysabri.

Net income rose to $201.2 million, or 67 cents a share, from $108.6 million, or 32 cents, a year earlier, the Cambridge, Massachusetts-based company said today in a statement. Profit excluding certain costs beat analysts' estimates by 9 cents a share.

Revenue rose 26 percent from a year earlier to $893 million as worldwide sales of Tysabri quadrupled. Biogen said it expects 100,000 patients will be taking Tysabri by the end of 2010, which could mean $2.8 billion in annual sales at current prices, according to analysts. The MS drug was cleared in the U.S. last month for an expanded use, Crohn's disease, an inflammation of the intestines.

``It was a very good quarter, they deserve credit,'' said Michael King, an analyst with Rodman & Renshaw in New York, in a telephone interview today.

Biogen fell $2.77 cents, or 4.4 percent, to $60.52 yesterday in Nasdaq Stock Market composite trading. The stock has gained 23.7 percent in the 12 months before today.

Tysabri generated $129 million in worldwide sales in the quarter, up from $30 million a year earlier. Worldwide sales are split with Biogen's partner, Irish drugmaker Elan Corp. Biogen recorded $90 million of the Tysabri sales in the fourth quarter, the company said. About 21,000 patients worldwide were taking the drug at the end of December.

Reintroduced

Biogen and Elan pulled the drug from the market in February 2005 after two patients developed rare, fatal brain infections. A month later, the companies disclosed a third case of the disorder, progressive multifocal leukoencephalopathy. The drug was reintroduced in July 2006 after the U.S. Food and Drug Administration decided the benefits for slowing MS relapses outweighed the risk.

In December, Biogen lost more than $5 billion in market value when it abandoned a plan to sell the company, saying it didn't receive any offers. Billionaire investor Carl Icahn criticized the process last week as ``flawed,'' and nominated three people to the company's 12-member board.

Biogen reiterated its forecast annual revenue growth of 15 to 20 percent in 2008, driven by increasing prescriptions of Tysabri. Profit excluding certain costs will be $3.20 to $3.35 a share, said Chief Executive Officer James Mullen, at an investor conference in San Francisco Jan. 7.

Read more at Bloomberg

Recovery for SIVs unlikely given Basel II rules-panel

2008-02-06T06:44:00.001-08:00

(Reuters) - The troubled market for so-called structured investment vehicles (SIVs) is effectively dead and likely to stay that way given new international rules for matching banks' reserves to their risks, panelists at a bond industry conference said on Tuesday.

The new Basel II international accord, to be applied to U.S. banks with total assets of $250 billion or more, is likely to make investing through off-balance sheet SIVs less attractive for banks, which are the main sponsors of such vehicles, speakers at the American Securitization Forum conference in Las Vegas said.

SIVs are specialized funds that raise cash by issuing short-term debt and invest the proceeds in longer-dated and higher-yielding assets, including U.S. mortgages. The funds pocket the difference between what they make on their investments and the interest they pay out to investors.

The vehicles have been unable to fund themselves normally for many months amid the U.S. credit crisis and the market value of their investment portfolios has plummeted, prompting ratings downgrades and mass restructuring efforts.

But the market for SIVs may have eventually contracted anyway given the onset of Basel II, which has been seen as offering a way for banks to lower their capital reserves by linking reserve requirements to the credit quality of investments.

Read more at Reuters

Chrysler and Plastech reach interim deal

2008-02-06T06:40:00.001-08:00

(Reuters) - Chrysler LLC and bankrupt supplier Plastech Engineered Products Inc reached an interim deal that would allow the U.S. automaker to resume production at four idled plants and avoid closing all of its assembly operations, a lawyer for Plastech said on Tuesday.

Gregg Galardi, speaking at a hearing in U.S. Bankruptcy Court in Detroit, told the judge a deal has been reached that runs through February 15.

Chrysler closed four assembly plants on Monday and had said more shutdowns could quickly follow because it was no longer receiving parts from Plastech.

"We have made significant progress in a number of areas," said Galardi, who was flanked by Chrysler attorney Michael Hammer.

Galardi said the deal had been presented to Plastech creditors.

"Some are happy, some are not so happy," but all parties had agreed to it, he said.

He said Plastech would resume production of Chrysler parts during the second or third shift at the company's plants on Tuesday. Chrysler said it would resume production at its affected plants during the second shift on Tuesday.

Read more at Reuters

If recession hits, dollar and Wall St may fare best

2008-02-06T06:34:00.001-08:00

(Reuters) - Sticking with equities and buying dollars might be the best way to profit if a U.S. economic recession materializes, as investors may have already discounted the gloomiest scenario for the world's largest economy.

As the chances of a U.S. recession, typically defined as two quarters of economic contraction, increased late last year, investors executed classic investment strategies associated with recession risks -- selling stocks and buying government bonds.

World stocks, measured by MSCI, are down 15 percent from November's record highs. the S&P 500 main U.S. stock index .SPX shed more than 11 percent from all-time highs while benchmark U.S. yields have hit 4-1/2 year lows.

"The text book trade for recession is to sell equities and buy bonds. Sell cyclical and IT and buy pharmaceuticals and other sectors negatively correlated with the economic cycle. But this has been already done," said Luca Paolini, strategist at Credit Suisse in London.

"This time, in terms of equities versus bonds, the valuation story is compelling for equities. So overweighting equities will prove profitable."

Read more at Reuters

Apollo, Bain LBOs Lose Investors' Money, Bonds Show

2008-02-05T08:15:00.001-08:00

(Bloomberg) -- Less than a year after Apollo Management LP paid $6.6 billion for real estate broker Realogy Corp., bond prices show the deal may be worthless.

Debt used to finance the April purchase trades at 61 cents on the dollar, and derivatives tied to the securities indicate an 80 percent chance that Parsippany, New Jersey-based Realogy will default. Apollo, the private-equity firm run by Leon Black, put up about $2 billion of cash to buy the owner of Coldwell Banker and Century 21, borrowing the rest.

The bonds show Apollo's equity in Realogy ``has no value right now,'' said Sabur Moini, a money manager in Los Angeles at Payden & Ragel, which oversees $50 billion in fixed-income securities. ``If bonds are trading in the 50s or 60s, the market is saying that these guys are headed toward bankruptcy.''

Falling bond prices are jeopardizing private-equity returns after easy access to cheap debt fueled a record $1.4 trillion of leveraged buyouts in 2006 and 2007. New York-based Morgan Stanley estimates buyout funds raised in 2003 have returned an average of 42 percent, and now Apollo, Bain Capital LLC, Cerberus Capital Management LP and their competitors may face losses.

Twenty-seven percent of the approximately $74 billion in bonds used in LBOs the last two years classify as ``distressed'' because they yield at least 10 percentage points more than Treasuries, Bloomberg data show.

Distressed Defaults

About 19 percent trade at less than 80 cents on the dollar, below the 91-cent average for high-yield bonds, Bloomberg data show. Freescale Semiconductor Inc., an Austin, Texas-based maker of chips for mobile phones, and OSI Restaurant Partners Inc., the Tampa, Florida-based owner of Outback Steakhouse, are in both categories.

Debt is 20 times more likely to default within a year once it's crossed the distressed threshold, according to research by Martin Fridson, chief executive officer of high-yield research firm FridsonVision LLC in New York.

``There's going to be some blow-ups'' as the economy slows, said Eric Bushell, the chief investment officer at Toronto-based Signature Funds, which oversees $17 billion and invests in publicly traded buyout funds. LBO firms ``paid prices that maybe weren't necessary,'' he said.

LBO firms typically seek out investors such as pension funds or university endowments to fund 32 percent of the cost of any buyout on average, according to Standard & Poor's. They borrow the rest through high-yield, or junk, bonds and loans in the target company's name. Junk bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- by S&P.

Read more at Bloomberg

Pfizer, Schering HIV Drugs May Fail On Incorrect Test

2008-02-05T08:12:00.001-08:00

(Bloomberg) -- Pfizer Inc.'s new AIDS drug and a similar pill from Schering-Plough Corp. may stop working in some patients because a test identifying who should get the medicines is sometimes inaccurate.

The pills, made by Pfizer, of New York, and Schering, based in Kenilworth, New Jersey, block a chemical entryway known as CCR5 that the virus uses to infect cells. In about 10 percent of cases, a Monogram Biosciences Inc. test incorrectly identifies patients who will benefit from the drug, scientists said this week at an AIDS meeting.

New research on Pfizer's Selzentry and Schering's vicriviroc, as well as the test's reliability, will be presented today at the Conference on Retroviruses and Opportunistic Infections in Boston. While the pills promise to fight HIV in patients who can't take older medicines, the new drugs' effectiveness depends on accurate screening.

``The test is wrong in about 8 to 10 percent of patients initially screened to see if they are candidates for a CCR5 antagonist,'' David Hardy, director of the division of infectious disease at Cedars Sinai Medical Center in Los Angeles, said in a telephone interview. ``We're waiting to see if the next-generation test from Monogram will eliminate the errors.''

Selzentry was cleared in August for patients who stopped responding to older medicines. It's the only approved CCR5 inhibitor, the first new family of AIDS medicines in a decade.

Pfizer didn't report revenue for Selzentry last year. Analysts have projected the pill could have peak annual sales of about $300 million. Vicriviroc, a similar drug, is in the third and final stage of testing usually required for U.S. regulatory approval.

90 Percent

As many as 90 percent of previously untreated HIV patients will have a strain of the virus that enters healthy cells through the CCR5 doorway, Howard Mayer, executive director of clinical research and development for Pfizer, said in an interview at the meeting in Boston.

After five years of HIV infection, about half of patients still have that strain, Mayer said. By then, most patients have higher levels of another virus version known as X4 that infects cells through a different route unaffected by drugs such as Selzentry and vicriviroc.

A new test to better determine who can benefit from the Pfizer and Schering drugs is about six months from reaching the U.S. market, Chris Petropoulos, chief scientific officer for South San Francisco-based Monogram, said in a telephone interview.

Read more at Bloomberg

Fillon's SocGen Barricades Prompt Europe Officials to Cry Foul

2008-02-05T08:09:00.001-08:00

(Bloomberg) -- As French politicians go to the barricades to keep foreign banks from preying on a vulnerable Societe Generale SA, their European partners are left wondering just who the enemy is.

Days after France's second-largest bank announced that unauthorized bets left it with a trading loss of 4.9 billion euros ($7.2 billion), politicians led by Prime Minister Francois Fillon jumped in to preempt a non-French takeover bid.

Such economic nationalism in a country whose companies remain among the most acquisitive in the region has other Europeans crying foul. In the past year, French firms announced 317 deals in Western Europe, outside France, valued at $89.2 billion, according to Bloomberg data. In the same period, Western European businesses initiated 286 deals in France for $67.2 billion.

Whenever a potential acquisition is considered politically important, ``it is always seen in Paris as the French versus the non-French,'' says Daniel Gros, director of the Brussels-based Center for European Policy Studies. ``There is no European solidarity.''

Jean-Claude Juncker, the Luxembourg prime minister and finance minister who heads a group of his euro-area finance counterparts, said he can understand blocking a hostile bid.

``But if someone friendly comes forward with a strong economic project, why refuse it?'' he asked on Europe1 radio Jan. 31. ``Simply because it is not French?''

`Great French Bank'

Fillon, 53, provided an answer in remarks to Parliament Jan. 29. ``Societe Generale is a great French bank and will remain a great French bank,'' he said.

That sentiment is widely held.

``For the French, it is extremely important that one of our oldest banks, with a 140-year history, which was founded by its employees, not by a family, which has never been subsidized by the state, remain in French hands,'' says Patrice Leclerc, head of Societe Generale's employee-shareholders' association.

The protectionist instinct is deep-seated and draws from a political tradition that dates back to the 17th century mercantilist policies of Jean-Baptiste Colbert, Louis XIV's finance minister. Colbert established a protective system of tariffs, preventing foreigners from trading in French colonies.

All countries seek to protect strategic industries, as the U.S. did in 2005 when it blocked the sale of California-based oil company Unocal Corp. to Chinese oil producer Cnooc Ltd.

Special Protection

France's definition, though, is wider than most: In July 2005, rumors of a takeover of Groupe Danone SA, the world's largest yogurt maker, by Purchase, New York-based PepsiCo Inc. set off a national uproar. Then-President Jacques Chirac called for special measures ``to protect our key companies.'' PepsiCo, the world's second-largest maker of snacks and beverages, never made a formal bid.

``France is not unique,'' says Juan Delgado, a fellow at Breugel, a Brussels-based research institute. ``It is just that the French are noisier and more blatant.''

One explanation is the size of the French government's stake in the economy. It owns more than 80 percent each of Paris-based Gaz de France SA, owner of Europe's largest natural- gas network, and Electricite de France SA, the region's biggest power generator.

``There is often no clear division in France between the political and the economic, between a company's strategy and that of the state,'' Delgado says. While EDF frequently makes acquisitions outside France, no foreign company would be able to buy it because of the government's stake, he says.

Read more at Bloomberg

CDO Ratings to Fall as Losses Trigger Fitch Overhaul

2008-02-05T08:01:00.001-08:00

(Bloomberg) -- Fitch Ratings may downgrade $220 billion of collateralized debt obligations as mortgage-related losses increase.

The New York-based company may lower the securities by as much as five levels after failing to accurately assess the risk of debt that packages other assets. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions, according to guidelines proposed by Fitch today.

Ratings firms are responding to criticism that they failed to react quickly enough as rising defaults on subprime mortgages in the U.S. caused a plunge in the value of CDOs. Fitch, a unit of Fimalac SA in Paris, lowered $67 billion of mortgage-linked CDOs in November, slashing some AAA debt to speculative grade, or junk.

``Fitch is acknowledging that it was overly optimistic in its default rate and other assumptions in its original CDO methodology,'' said Christian Stracke, an analyst at bond research firm CreditSights Inc. in London.

Moody's Investors Service last year downgraded $76 billion of CDOs and began this year with $185 billion of deals under review. The New York-based company said yesterday that it may overhaul its system for evaluating structured-finance securities, proposing options including a numerical scale and a designation of ``.sf'' to differentiate a structured-finance ranking from a corporate credit grade.

Ratings Challenge

Standard & Poor's, the New York-based unit of McGraw-Hill Cos., downgraded or placed under review $98.3 billion of CDOs last month, citing ``stress in the residential mortgage market and credit deterioration.''

Fitch's review of 600 CDOs referencing company debt and derivatives doesn't cover structured-finance notes, which package asset- and mortgage-backed securities. It plans to introduce the new criteria by the end of March after seeking feedback.

Fitch wants to ``challenge existing CDO rating assumptions,'' John Olert, head of global structured credit at the ratings firm in New York, said in a statement. The company wants to ``produce ratings that perform similarly in terms of default risk and ratings migration with the market's expectation for other asset classes,'' he said.

CDOs are securities that repackage pools of bonds, loans and credit-default swaps and slice their cash flow into notes of varying risk and returns that are sold to investors. Junk bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- by S&P.

Read more at Bloomberg

Societe Generale Shares Rise on Takeover Report

2008-01-29T10:56:00.001-08:00

(Bloomberg) -- Societe Generale SA, France's second-biggest bank, rose the most in five years in Paris trading on speculation that BNP Paribas SA is considering a takeover.

BNP, the country's largest bank, is holding preliminary internal discussions about a possible bid after Societe Generale's announcement last week of 4.9 billion euros ($7.2 billion) of losses from unauthorized bets, the Wall Street Journal reported. BNP said it does not comment on market rumors.

Traders speculated that President Nicolas Sarkozy's government is seeking a French partner for the bank to ward off any potential foreign bids. Prime Minister Francois Fillon told Parliament today that the government will ensure that Societe Generale remains in French hands.

``There's rumor of a bid by BNP on Societe Generale for 92 euros,'' said Constantin Salagaras, a trader at Aurel Leven Securities in Paris. ``The market is speculating on the will of Sarkozy to create a national champion.''

Societe Generale rose 10 percent to 78.45 euros in Paris, marking its biggest gain since Dec. 16, 2002 and valuing the bank at 36.3 billion euros. Societe Generale shares, down 21 percent since the start of the year, yesterday had a lower market value than Credit Agricole SA before rebounding today.

``Societe Generale is a great French bank and Societe Generale will remain a great French bank,'' Fillon told lawmakers in Paris today.

Trading Losses

Societe Generale's employee Jerome Kerviel, 31, was charged yesterday with falsifying documents, computer hacking and breach of trust by French judges.

Kerviel's unauthorized bets led to the biggest trading losses in banking history. Societe Generale said Kerviel amassed 50 billion euros in positions in European stock index futures, an amount that exceeded the company's market value.

``A takeover of Societe Generale is not impossible,'' Guillaume Tiberghien, an analyst at Credit Suisse, said in a report to clients. ``Any potential bidder would have to assess Societe Generale's risk control, assess the risk that the equity derivatives business might be damaged for the long term, assess the political and regulatory consequences of recent events for the entire banking sector.''

Read more at Bloomberg

U.S. Stocks Rise After Earnings, Durable Goods Top Forecasts

2008-01-29T10:50:00.001-08:00

(Bloomberg) -- U.S. stocks rose for a second day, led by telephone companies and utilities, on better-than- forecast durable goods orders and earnings that topped estimates at two dozen members of the Standard & Poor's 500 Index.

Dow Chemical Co., American Electric Power Co. and Valero Energy Corp. led gains among the 30 companies in the S&P 500 that reported results since markets closed yesterday. Boeing Co. and Caterpillar Inc. climbed after the Commerce Department said orders for U.S. durable goods rose the most since July.

The S&P 500 added 1, or 0.1 percent, to 1,354.97 at 1:06 p.m. in New York. The benchmark for U.S. equities is still down 7.6 percent in 2008 on concern the collapse of the subprime mortgage market will drag the economy into recession. The Dow Jones Industrial Average rose 25.04, or 0.2 percent, to 12,408.93. The Nasdaq Composite Index decreased 6.52, or 0.3 percent, to 2,343.39, dragged down by a 2.1 percent drop in Google Inc.

``When you see a durable goods number like this and then earnings outside of the financial sector doing quite well, people are beginning to realize that perhaps the contagion effect may be somewhat limited,'' said Damon Barglow, who helps oversee $1.9 billion at Eastern Investment Advisors in Boston, in an interview with Bloomberg Radio.

Durable Goods

Index futures doubled their advances after the 5.2 percent gain in durable goods orders last month highlighted how growing overseas demand may spur manufacturing as the U.S. economy slows. The Federal Reserve is to expected to cut interest rates tomorrow in an effort to spur growth.

The S&P 500 has gained 3.5 percent from its 16-month low on January 22 after falling as much as 15 percent from its Oct. 31 record.

Fourth quarter earnings advanced 20 percent on average for the 155 non-financial companies in the S&P 500 that have reported results so far, according to data compiled by Bloomberg. Analysts expect the entire index to post an 18 percent average decline in profit.

Dow Chemical rose 43 cents to $38.02. The maker of 3,200 products ranging from synthetic latex to pesticides posted profit excluding some restructuring costs and other items of 84 cents, topping the 80-cent average estimate of 14 analysts surveyed by Bloomberg.

Valero, American Electric

Valero Energy Corp. climbed $5.22 to $60.12. The largest U.S. refiner posted fourth-quarter profit of $1.02 a share, topping the 59-cent average analysts' estimates compiled by Bloomberg. Earnings were buttressed by a cut in Valero's tax rate and increased use of low-grade crude oil.

Sunoco Inc., the largest oil refiner in the U.S. East, added $2.20 to $63.35. Tesoro Corp., the largest refiner in the U.S. West, gained $2.90 to $41.29. ConocoPhillips, the nation's second-biggest refiner, increased $1.18 to $77.59.

American Electric Power Co. gained 59 cents to $42.82. The biggest U.S. producer of electricity from coal said fourth- quarter profit rose 28 percent on higher power sales and a gain from the sale of a stake in a power plant. Sales rose 10 percent to $3.3 billion on higher utility rates and colder weather that increased use of electricity for heating.

Boeing, the world's second-biggest commercial airplane maker, climbed $2.34, or 3 percent, to $79.94. Caterpillar, the largest maker of bulldozers and excavators, added 72 cents to $68.93.

The dollar strengthened and yields on Treasury notes rose after the durable-goods report. Economists had forecast orders would increase 1.6 percent in December, according to the median of 64 estimates in a Bloomberg News survey.

Eli Lilly & Co. rallied 94 cents to $52.34. Excluding certain items, Lilly earned 90 cents a share, a penny higher than the average estimate of 17 analysts surveyed by Bloomberg.

Read more at Bloomberg