Diary of a JSE Stock Operator Edition 3

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

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Welch Criticizes Obama on Handling Chrysler Bankruptcy

2009-05-20T21:30:00.000-07:00

(Bloomberg) -- Jack Welch, former chief executive officer of General Electric Co., criticized the government- backed bankruptcy of Chrysler LLC for favoring unions at the expense of creditors and said President Barack Obama’s economic stimulus programs will cause budget deficits.

“I don’t particularly like where he’s taking us,” Welch said, referring to Obama, during an interview yesterday at the Boston Convention Center. Welch, 73, who led GE from 1981 to 2001, was a guest speaker at the New England Business Xpo.

“To get the money he needs, he has to have a fake budget,” Welch said. “He’s fooling people about how we’re going to have the top line support the programs in the middle without enormous taxes and some programs not going.”

White House spokesman Reid Cherlin had no immediate comment late yesterday.

Obama has defended the $17 billion in cuts he’s making in a $3.55 trillion budget against criticism from lawmakers by saying any savings, large or small, “add up.” The administration’s plan eliminates or reduces 12 federal programs, from a $1 million Christopher Columbus fellowship foundation to $91 million for a nuclear waste repository in Nevada. The reductions represent one-half of 1 percent of the entire budget.

Welch praised Obama’s communication skills, particularly his speech at the University of Notre Dame on Sunday. Still, he said he’s concerned about some of Obama’s programs.

Among them is the restructuring plan for Chrysler LLC. The automaker and the government plan to use bankruptcy to transfer Chrysler’s best assets, such as its Jeep brand, into a new company with streamlined costs. The Chrysler workers pension fund will get a 55 percent stake.

Chrysler filed for bankruptcy in April after a group of secured creditors refused to participate in a $2.25 billion buyout for a $6.9 billion Chrysler loan. The government said the loan buyout would have prevented the bankruptcy, and Obama criticized the lenders for speculating at taxpayers’ expense.

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Boeing Sees ‘High Water Mark’ in Defense Spending

2009-05-19T21:29:00.000-07:00

(Bloomberg) -- Boeing Co. is making acquisitions and refreshing older product lines to prepare for what may be a peak for military purchases next year as U.S. President Barack Obama shifts priorities, the company’s top defense executive said.

“It’s possible that 2010 could be the high-water mark as far as defense spending” on new weapons, Jim Albaugh, president of Boeing’s Integrated Defense Systems, said in an interview.

Boeing, the second-largest defense contractor and commercial-plane maker, had four of its main weapons programs pared or canceled in the Pentagon’s 2010 budget proposal last month. Obama and Defense Secretary Robert Gates want to focus on conflicts like those in Afghanistan and Iraq while curtailing programs such as Boeing’s Future Combat Systems for the Army and the F-22 jet, which was designed to fight a Cold War adversary. The military generated 52 percent of Boeing’s $61 billion in revenue last year.

Chicago-based Boeing anticipated a slowdown in traditional defense spending and bought six companies last year to boost offerings of unmanned vehicles, cyber-security systems and logistics, Albaugh said. Boeing also is shifting more work in- house, such as building some electronics instead of buying them, moving away from a model of integrating parts made by suppliers.

“We know that being vertically integrated today makes your programs somewhat less vulnerable in the future,” Albaugh said in yesterday’s interview in New York. The Defense Department became “a little disenchanted” with having private companies oversee integration of all the parts made for weapons systems.

Extending Older Programs

Boeing also is trying to extend older programs, such as by offering a stealth version of its 34-year-old F-15 fighter, and developing other uses for products like the experimental X-45 drone aircraft that was terminated in 2006, Albaugh said.

“It is simply not reasonable to expect a defense budget to continue increasing at the same rate,” Gates told the Senate Armed Services Committee on May 14. The Pentagon is seeking $664 billion for fiscal year 2010 including $130 billion for wars. The base budget of $533.8 billion represents a 2 percent increase when adjusted for inflation, half the average of the previous eight years.

Boeing bought six companies in 2008 including drone-maker Insitu Inc. of Bingen, Washington, and Digital Receiver Technology Inc. of Germantown, Maryland, a maker of wireless communication equipment for the U.S. intelligence services. The value of the deals wasn’t disclosed, and Albaugh declined to identify targets or say how much he might spend this year.

‘Driving Cash’

The planemaker’s cash depletion in the past year, due in part to a strike at the commercial side of the business and higher pension costs, shouldn’t hamper expansion, Albaugh said. Chief Executive Officer Jim McNerney and Chief Financial Officer James Bell are “driving cash pretty hard” and have been supportive of acquisitions, he said.

Boeing lost 49 percent of its market value in the past year, the most among the dozen members of the Standard & Poor’s 500 Aerospace & Defense Index. The company, which trails only Lockheed Martin Corp. in defense, gained 25 cents to $44.62 at 4 p.m. in New York Stock Exchange composite trading.

Boeing’s new vertical-integration approach will be limited because not all of the technologies needed to build a weapon can be brought in-house, said Howard Rubel, an analyst at Jefferies & Co. in New York.

Companies will have to continue to collaborate to deliver the weapons the Pentagon needs, Rubel said. Boeing doesn’t make enough of its own sensors to outfit its airplanes, and will depend on Northrop Grumman Corp. and Raytheon Co. for some of those products such as airborne radar, he said.

‘Gild the Lily’

“They know they’re not in the best shape and it’s hard to see how they can gild the lily when a number of their programs are challenged,” Rubel said.

Some of Boeing’s current military programs may get a boost from the new budget plan, including a “great helicopter portfolio” that will benefit from Secretary Gates’s focus on counterinsurgency missions, Rubel said.

“As we’ve gotten more visibility into the 2010 budget, we see some real positives,” Albaugh said. “Special Forces is going to be a real focus; that means more helicopters.”

Unmanned vehicles and tactical reconnaissance systems probably will also be in the Pentagon’s spending plan, he said.

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Onyx sues Bayer over anti-cancer compound

2009-05-17T21:38:00.000-07:00

(Reuters) - Onyx Pharmaceuticals Inc (ONXX.O) said on Sunday it sued Bayer AG (BAYG.DE) over its rights to an anti-cancer compound that it says it discovered during joint research with the German drugmaker.

Onyx's lawsuit, filed in the U.S. District Court for the Northern District of California, seeks a declaration that fluoro-sorafenib is a jointly owned collaboration compound under an agreement between the two companies.

Onyx said it learned that the compound is a variant of Nexavar tablets, which Onyx and Bayer co-develop and market.

The company said fluoro-sorafenib has the same chemical structure as Nexavar except that fluoro-sorafenib contains a fluorine atom instead of a hydrogen atom.

"The new molecule had been identified in 1998 during the research collaboration period by the companies' joint research teams," Onyx said in a statement. "Discussions with Bayer regarding Onyx's rights to fluoro-sorafenib under the companies' 1994 collaboration agreement were not productive."

Doctors use Nexavar to treat liver cancer and advanced kidney cancer. Onyx and Bayer co-developed Nexavar and have marketed the drug in the United States and other countries.

Bayer said it disagrees with Onyx.

"We plan to defend ourselves against the complaint as we believe that Onyx has no rights to the substance," Bayer said in an e-mailed statement.

A hearing has not been scheduled yet, an Onyx spokeswoman said.

Onyx's revenue from its agreement rose 10 percent to $53.7 million in the first quarter of this year, it said on May 6.

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Biotech Jobs Germinate as San Francisco Diversifies Economy

2009-05-17T21:21:00.000-07:00

(Bloomberg) -- A once-vacant rail yard 2 miles from downtown San Francisco is coming to life as a center of biotechnology and transforming San Francisco’s economy beyond tourism and financial services.

San Francisco is too dependent on those industries, says Mayor Gavin Newsom, who’s using a tax cut and other incentives to woo businesses with growth potential. He’s especially targeting biotechnology, which has a foothold in the city’s emerging biomedical district known as Mission Bay.

Pfizer Inc., the world’s largest drugmaker, will open a five-story biotechnology headquarters in Mission Bay next year. At a so-called biotech hotel, where start-ups rent space, a scientist studies tissue samples for Groningen, Netherlands- based Brains On-Line BV. Partners at Versant Ventures and other venture capital firms on the hotel’s top floor can look out at the industry they’re funding.

“This area is going to pop,” said Gail Maderis, chief executive officer of FivePrime Therapeutics, the first biotechnology company to move to Mission Bay. “We have pharma and biotech companies coming through all the time and they look and see Mission Bay growing. This will be the largest life sciences hub west of the Rockies.”

Newsom, 41, sweetened the appeal to biotech companies by waiving the 1.25 percent payroll tax through 2015, allowing extra parking spaces and expediting building permits.

“Five years ago, there were three biotech companies in the city; now there’s 47,” Newsom, a Democrat running for California governor, said in an interview. “I have great confidence that things will continue to advance.”

Growth by Diversifying

Biotech companies added 300 jobs in the city last year as it lost a total of 20,000. About one of every seven jobs in San Francisco is tied to tourism, out of a daily workforce of about 550,000, according to the state Employment Development Department.

“Diversifying the economy is absolutely a good thing to do,” said George Jouganatos, an economic consultant in Sacramento who teaches at California State University. “San Francisco has a large financial sector, which is in decline, and the tourism business is in somewhat of a decline.”

The city’s budget this fiscal year is $6.5 billion, said Ted Egan, chief economist. Hotel tax revenues fell 30 percent in February and 20 percent in March from a year earlier, he said. Hotel occupancy fell to 60 percent in February from 74 percent a year earlier.

The biotechnology cluster is growing on a former rail yard south of downtown. The site once crisscrossed with sidings and spurs was deserted in the 1960s when shipping shifted across the bay to Oakland.

University Leads Way

After a redevelopment plan was approved in 1998, the University of California at San Francisco built three biomedical research facilities, a community center and four apartment buildings for students and staff. The biotech industry eventually followed.

FivePrime, a closely held company that’s identifying protein-based therapies, moved in 2005 from South San Francisco, home of Roche’s Genentech Inc. Savings from the tax waiver are enough to pay one scientist, said Maderis, 51. That’s a big boost for a 100-employee startup that’s 10 years from being profitable, she said.

Having a Mission Bay address helps recruit employees, said Alan Sachs, vice president of Merck & Co.’s research division. Whitehouse Station, New Jersey-based Merck’s Sirna Therapeutics unit will fully occupy its quarters next year, he said.

New York-based Pfizer will bring 120 workers when its building is completed, said Elizabeth Power, a spokeswoman.

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Toyota Prius orders mount as shake-up looms

2009-05-14T22:08:00.001-07:00

(Reuters) - Toyota Motor Corp, under pressure ahead of a scheduled management shake-up, has won 75,000 orders for its new Prius hybrid, the Nikkei business daily said, promising a fierce battle for Honda Motor Co's rival Insight hybrid.

Toyota, facing a potential $8.6 billion operating loss in the year to next March, has previously announced plans to appoint the founder's grandson to head the company in June and make many other management changes including a new head for its loss making U.S. operations.

The Financial Times highlighted an upcoming change in Toyota's management, noting that the personnel line-up announced last month replaced 40 percent of top managers.

Toyota's shares gained 2 percent, outperforming Honda's 1.3 percent rise and just ahead of the benchmark Nikkei share average's 1.7 percent.

Honda's new Insight hybrid, launched in early February in Japan, has outpaced the company's sales forecast with sales of nearly 20,000 units in the first three months.

A Toyota spokeswoman could not confirm the Nikkei report, saying the automaker had not compiled dealers' orders ahead of a scheduled launch on Monday.

Toyota has said it would bring back a former senior executive, Yoshimi Inaba, to lead its U.S. operations after he had left the company in 2007 to run an airport in Nagoya, near Toyota's headquarters.

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Elliott Seeks Credit Swaps Payday in Failing Firms

2009-05-14T21:50:00.000-07:00

(Bloomberg) -- Elliott Management Corp., the hedge fund that almost pushed the government of Peru into default in 2000, is now seeking to profit from the failure of distressed companies.

About 11 percent of Elliott’s $13 billion of assets were in so-called basis trades at the end of the first quarter, meaning it bought bonds and credit-default swaps that protect against losses on the debt, according to a report dated April 29 sent to investors and obtained by Bloomberg News.

“These trades are among the most interesting arbitrage trades in our book, and they are especially attractive given their extra profitability in the event of default of the underlying referenced obligation,” Elliott said in the letter.

New York-based Elliott, founded by Paul Singer in 1977, joins Deutsche Bank AG and Citadel Investment Group LLC in seeking to make money from the trades, pitting them against traditional creditors as defaults reach the highest since 2002.

Elliott has a bet on Clear Channel Communications Inc., which Moody’s Investors Service said will likely need to restructure its debt this year, potentially making it harder for the largest U.S. radio broadcaster to skirt bankruptcy because some of its creditors stand to profit from its failure.

‘Easy Decision’

“Investors will hold out if they would benefit more if there’s a default than a successful distressed debt exchange,” said Kingman Penniman, president of high-yield research firm KDP Investment Advisors in Montpelier, Vermont. “It’s an easy decision to say ‘No’ and put the company into bankruptcy.”

Credit-default swaps were created by JPMorgan Chase & Co. more than a decade ago to hedge against losses from bank loans. They pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.

Hedge funds, insurance companies and asset managers are now using them to speculate on the creditworthiness of companies, sending the amount of contracts outstanding to $28.2 trillion as of May 8, according to the Depository Trust & Clearing Corp., which runs a central registry that captures most trading.

At least 32 companies including newspaper publisher Gannett Co. and department store owner Saks Inc. had more credit-default swaps outstanding than the bonds the contracts protected, according to a March study by Garman Research LLC.

“Investors are no longer quite as hostage to the companies to whom they lend,” said Christopher Garman, chief executive officer of the Orinda, California-based debt research firm.

Contracts Outstanding

A net $2 billion of protection was outstanding against a default by San Antonio, Texas-based Clear Channel as of May 1, according to the DTCC. The broadcaster has about $6.6 billion of bonds and more than $15 billion of senior secured debt.

Elliott holds Clear Channel loans, which it has hedged with credit-default swaps, and also has a basis trade on the broadcaster, according to the letter. The details on the firm’s holdings are dated March 31.

“Elliott, along with many other financial institutions, uses basis arbitrage as a trading and hedging tool to generate a current yield plus additional profits in the event of market normalization or default,” the firm said in a statement. “Elliott’s consistent performance is attributable, in part, to its history of success in hedging its portfolio.”

Jennifer Gery-Egan, a Clear Channel spokeswoman, declined to comment on the company’s financial health in an e-mail.

CreditSights Inc. and Barclays Capital analysts have cited the rise in basis trades for restructuring attempts that floundered. Residential Capital LLC faced bondholder resistance to its debt-exchange proposal in December partly because the investors also held derivatives, Bradley Rogoff, an analyst at Barclays in New York, said in a report that month. Minneapolis- based mortgage lender ResCap was later bailed out by taxpayers.

Gannett’s Attempt

Gannett, the publisher of USA Today, may have fallen short of its goals to reduce debt maturing in 2011 and 2012 in part because “a large percentage” of bondholders had bought credit- default swaps tied to the debt, CreditSights analysts said in a May 6 report. Citigroup Inc. analysts led by John Fenn in New York recommended investors buy McLean, Virginia-based Gannett’s bonds and credit-default swaps.

Frankfurt-based Deutsche Bank and hedge fund Citadel of Chicago were among the firms that piled into basis trades last year as the gap between the two markets began to widen. The difference expanded to a record after the collapse of Lehman Brothers Holdings Inc., leading to losses.

The basis has since converged, allowing investors to recoup some of their losses or earn profits for those that did the trades after the Lehman failure.

Deutsche Bank made money by owning debt and credit swaps of Lyondell Chemical Co., a Houston-based oil refiner and chemical producer that went bankrupt in January, according to a person with direct knowledge of the firm’s trading.

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‘Hilton’ Chickens Are Essential to Stave Off Pandemic

2009-05-13T21:19:00.000-07:00

(Bloomberg) -- Workers at Kinross Farm defended its hens against the worst wildfires in Australian history while their own homes burned. Now the birds may return the favor by protecting humans from swine flu.

The hens, housed in air-conditioned sheds and kept in shape with a vitamin-rich diet, blood tests and doctors’ visits, lay eggs critical to the creation of a new vaccine. It’s needed to foil the flu virus that may prompt the World Health Organization to declare the first pandemic since 1968.

Seasonal flu causes 250,000 to 500,000 deaths a year globally, and a pandemic strain might kill millions, according to WHO officials. The hens are essential because the most common way of making a protective vaccine involves growing viruses in the chickens’ eggs, said Philip Szepe, the owner of Kinross.

“These are very pampered birds, very important birds,” said Szepe, whose farm is in Kinglake, a town about 70 kilometers (44 miles) northeast of Melbourne. “It’s as close as you would get in the poultry world to a Hilton.”

CSL Ltd., a Kinross customer in Melbourne, is counting on eggs with the size, shape and shell thickness needed to grow the virus crucial to making vaccines. Egg suppliers around the world are standing by to send shipments to vaccine makers. All await word on whether world health officials will formally endorse the production of a shot against swine flu.

Black Saturday

Kinross’s birds, a mix of Hy-Line Brown and Hisex Brown breeds, almost went up in smoke in January during the Black Saturday fires, which killed 173 people in Victoria, the state that includes Kinglake. Two Kinross workers were fighting flames at the 620-acre (251-hectare) property, unaware that their own homes were among those burning, Szepe said.

The farm declines to disclose how many of its 600,000 hens make eggs for vaccines and thus get coddling not given others. Szepe, who also wouldn’t discuss egg prices, said the farm produces about 1 million eggs annually for vaccine, including 800,000 for CSL.

Under current global capacity, vaccine makers would be capable of producing 2.5 billion shots within 12 months of receiving a pandemic virus strain, requiring four years to meet global demand, according to a best-case scenario published in a February report by Oliver Wyman, a management consulting company based in New York.

Demand for vaccine will outstrip availability when a pandemic starts, and alternative technologies that don’t require ramping up supplies of chickens and eggs aren’t being embraced rapidly enough, said David Fedson, a former vaccine developer for Paris-based Sanofi Aventis SA.

‘In a Bind’

“We’re going to be in a bind,” said Fedson, now an independent specialist in pandemic preparedness. “People who have been talking about the potential for using inactivated vaccines for the world simply haven’t done their arithmetic.”

So-called inactivated vaccines contain viruses that have been killed, yet contain parts of the pathogen that prompt the body to mount an immune response.

Fedson urges the use of so-called live attenuated vaccines, such as MedImmune Inc.’s Flumist, which contain weakened forms of the live virus. These require less virus to achieve the same effect, so production is faster, he said.

There have been 5,728 laboratory-confirmed swine flu cases, in 33 countries, according to WHO data posted today. The death toll stood at 61, including 56 in Mexico.

1931 Breakthrough

In 1931, the scientists Ernest William Goodpasture and Alice Miles Woodruff invented methods for using eggs to cultivate viruses. Fertilized eggs are injected with a virus, which needs a living cell to grow. The virus is then extracted, purified and killed -- for jabbing into humans, where it can boost the immune system without causing disease.

One egg can produce roughly one shot, said Hiroshi Hashimoto, a spokesman for Kitasato Institute Research Center for Biologicals, in Saitama, Japan. Eggs are heated for two days at 37 degrees Celsius (97 degrees Fahrenheit) for culturing after a virus gets injected in 11-day-old eggs at a laboratory at Kitasato.

While production methods have since been developed that entail neither eggs nor live virus, CSL is relying on the old technology.

“It’s the cheapest, safest and most effective way to respond in an emergency,” said Rachel David, a CSL spokeswoman.

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Greenspan sees "seeds of bottoming" for U.S. housing

2009-05-12T21:35:00.000-07:00

(Reuters) - Former Federal Reserve Chairman Alan Greenspan said on Tuesday that "the seeds of a bottoming" in plunging U.S. home markets were becoming visible.

Speaking to a National Association of Realtors summit, Greenspan said there were reasons to believe that bulging inventories of unsold homes were dwindling and that should bring some stability to prices.

"It looks to me, judging from the balancing of household formation on one hand, conversions, mergers, demolitions...that we're at the edge of a major liquidation in that excess of inventories which I suspect and I hope will be of such a pace that it will stabilize prices," the former Fed chief said.

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Microsoft sells its first U.S. corporate bond

2009-05-11T21:59:00.001-07:00

(Reuters) - Microsoft Corp (MSFT.O) on Monday sold a $3.75 billion debt issue in its first foray into the U.S. corporate bond market, joining a spate of companies taking advantage of beneficial borrowing conditions.

The cash-rich, "triple-A" rated Microsoft announced its first debt authorization last September, allowing it to issue up to $6 billion in debt. Monday's bond sale attracted well over $10 billion in demand, market sources said.

The sale included $2 billion of five-year notes yielding about 95 basis points over comparable U.S. Treasuries, $1 billion of 10-year notes yielding about 105 basis points over Treasuries and $750 million of 30-year bonds yielding about 105 basis points over Treasuries, according to IFR, a Thomson Reuters service.

Microsoft, the world's largest software maker, has already issued about a third of its $6 billion debt authorization in the commercial paper market.

It says it does not need financing, but will use the proceeds for general corporate purposes, including working capital and buying back stock, according to a spokesman.

The company decided to take advantage of "good market conditions and Microsoft's great credit rating," a spokesman said. The software giant is one of only a handful of U.S. companies still rated 'AAA' by both Moody's Investor Service and Standard & Poor's.

Fitch rates it one notch lower at 'AA-plus'.

"I think people thought it might be the only shot in a lifetime to lend money to Microsoft," said Robert Bishop, portfolio manager at SCM Advisors in San Francisco. "When a company is borrowing and they don't really need the money, you don't know when you're going to get another shot at them."

As of the end of March, Microsoft reportedly had cash and short-term investments worth $25.3 billion.

The sale did well because "Microsoft is a great credit and everybody's got a place in their portfolio for a few high quality credits," Bishop added. Still, he declined to participate because yields being offered "didn't seem like great value."

The bond sale benefited from massive investor cash flowing into corporate bonds as tentative signs of economic recovery improve investors' appetite for risk.

"An awful lot of people want to pile into the credit markets now," Bishop said. "They think things are better but the problem is, I think they probably don't realize how much spreads have tightened over the course of the last two months."

Corporate bonds started attracting demand when their yield spreads hit a record 656 basis points over Treasuries last December. As the market rallied, spreads have narrowed to just 444 basis points, according to Merrill Lynch data.

But companies are taking advantage of the falling yield spreads, with more than $26 billion of U.S. corporate bonds sold in just the first six business days of the month, according to Thomson Reuters data.

"It seems to me that there's almost an urgent need for issuers to announce a deal as quickly as they can to catch the market before it does turn the other way," said Richard Lee, head of fixed income at New York broker-dealer Wall Street Access.

The corporate bond market appeared to already be softening on Monday, with spreads suffering their first widening in weeks under the spate of heavy supply.

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DBS Profit Beats Estimates on Trading Increase

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

(Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia’s biggest bank, became the third Singaporean lender to report first-quarter profit that beat analysts’ estimates as trading revenue surged and staff costs declined.

Net income fell 28 percent from a year earlier to S$433 million ($294 million), the bank said today in a statement. That exceeded the S$353 million mean estimate of seven analysts surveyed by Bloomberg.

DBS rose 10 percent in Singapore trading over the past two days after its two local rivals reported better-than-estimated first-quarter profits, spurring optimism that the credit freeze is easing. Goldman Sachs Group Inc. analyst David Ng on May 6 raised his rating on the stock to “buy,” saying DBS’s S$4 billion share sale in December gave it the resources to expand market share at home and in China.

“They’ve averted the worst case scenario,” David Lum, an analyst at Daiwa Institute of Research in Singapore, said in an interview. “But their non-performing loan ratio actually went up quite a bit, and this suggests Singapore’s banks may not be totally out of the woods yet.”

DBS fell 1 percent to S$11.88 at 9:28 a.m. in Singapore. The shares have risen 41 percent this year, while United Overseas Bank Ltd., the city’s second-largest bank, has jumped 17 percent. Oversea-Chinese Banking Corp., which owns Singapore’s biggest insurer, has advanced 41 percent.

First-quarter profit was curbed by rising impairment losses, which jumped to S$414 million from a year earlier. The non- performing loan ratio rose to 2 percent at the end of March from 1.5 percent at the end of 2008.

New CEO Sought

Non-interest income jumped 16 percent to S$586 million, bolstered by S$150 million in trading income. Net interest income rose 2 percent to S$1.08 billion and fee income slipped 10 percent to S$317 million, DBS said.

DBS is expanding in mainland China and in Southeast Asia. The bank will focus on “organic growth” in existing markets, Chairman Koh Boon Hwee said in February.

“Given continuing uncertainties over how protracted the downturn will be, we remain vigilant in managing our balance sheet and ensuring that the franchise is in a solid position to capture future growth opportunities,” Koh said in today’s statement.

The bank is seeking a replacement for former Chief Executive Officer Richard Stanley, who died last month after being diagnosed with leukemia in January. Koh is overseeing management until a replacement is found.

DBS, which posted its biggest profit drop in more than three years in the fourth quarter, and competitors are contending with a deepening recession. The city-state’s economy may shrink as much as 9 percent this year, the most since independence in 1965, the trade ministry predicted on April 14.

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Regulators put bank CEOs on notice

2009-05-06T21:39:00.000-07:00

(Fortune) -- Banks that need more capital under the stress tests will have a month to present regulators with a fundraising plan, federal officials said Wednesday.

The banks will have six months to raise the funds, according to a statement from the Treasury Department, the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

The banks will also have to review their management and board within a month, "to assure that the leadership of the firm has sufficient expertise and ability to manage the risks presented by the current economic environment," the bank regulators said in a statement Wednesday afternoon.

The announcement comes just a day before the results of regulators' Supervisory Capital Assessment Program, which covers the 19 biggest bank holding companies in the U.S., are due to be released to the public.

Wall Street has been eagerly awaiting the results since the government unveiled the stress test plan in February. The results of the tests were initially scheduled for release earlier this week, but the announcement was rescheduled for Thursday afternoon to allow banks a chance to review the findings.

But results of the tests have already started to leak out in the past few days. Bank of America (BAC, Fortune 500) is reportedly being told to raise $34 billion, while Wells Fargo (WFC, Fortune 500) is expected to be told to raise $15 billion.

Meanwhile other institutions, such as American Express (AXP, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), are not expected to have to raise additional capital, according to published reports.

Also Wednesday, President Obama's top spokesman indicated that the government might lean on companies whose boards and managers aren't seen as up to snuff.

"The government has...weighed in on changes at the CEO level and at the board of directors level to ensure that...the management was in place to...ensure long-term viability without continued government assistance," Robert Gibbs said at a White House press briefing Wednesday.

The Obama administration forced former General Motors CEO Rick Wagoner to step down in late March after finding that the company did not have a long-term plan for viability.

Gibbs' comment comes just a week after Bank of America shareholders denied CEO Ken Lewis' bid for another term as the bank's chairman. BofA has already received $45 billion in federal capital, in addition to $118 billion of asset guarantees.

Regulators are focusing the test on the size of a bank's common stockholdings, according to the paper released Wednesday by Treasury Secretary Tim Geithner, Fed chief Ben Bernanke, FDIC chairman Sheila Bair and Comptroller John Dugan.

The paper says bank holding companies are being expected to have at least a 6% Tier 1 risk ratio and a 4% Tier 1 common risk ratio as of the end of 2010.

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Schwab Cuts Fund Fees Big-Time

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

Well, Schwab can’t do anything about the stock market, but the the financial services company can make it cheaper for people to invest. This morning, the mutual fund operation of Charles Schwab made deep cuts in the expense ratios of its equity index funds and lowered costs throughout its fund family for individual investors.

The news comes only one month after Morningstar forecast that mutual fund expense ratios will rise in 2009.

Under its new pricing, Schwab is giving all investors in a given fund the same expense ratio, whether they’re making the minimum initial investment of $100 or investing a larger amount. For example, expenses for a small investment in Schwab’s popular Dividend Equity fund will drop from 1.04% to 0.89%, a ratio previously available only to people with a minimum investment of $50,000. Ratios on other funds will have higher drops: For small investments in the Schwab Fundamental U.S. Large Company Index fund will go from 0.59% to 0.35%.

Playing a game of expense-ratio limbo with other brand-name mutual fund giants–and with ETFs, such as the SPDR S&P 500, that are stealing dollars from index mutual funds–Schwab is claiming the industry’s lowest expenses in three categories of index mutual funds: the S&P 500, the total US stock market, and small-cap stocks. For example, Schwab’s S&P 500 Index fund, which used to have an expense ratio of 0.36% for small accounts, now has an expense ratio of 0.09%. The expense ratio for the Vanguard 500 Index fund, which has a minimum initial investment of $3,000, is 0.15% for most individuals, while the Fidelity Spartan 500 Index–a $10,000-minimum fund–has an expense ratio of 0.10%.

“This is not a promotional offer or anything like that,” said Schwab’s Peter Crawford, senior v.p. of investment management services, at a press conference Tuesday morning. “These are permanent reductions.”

Granted, Schwab’s index fund expenses may not have the absolutely lowest expense ratios out there. If you’re lucky enough to have at least $100,000 to invest, your Vanguard 500 Index Admiral Shares will have a ratio of 0.07%. The SPDR S&P 500, by the way, has an expense ratio of 0.0945%, but you’ll have to pay brokerage commissions on any transactions.

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Three more banks fail

2009-05-04T21:37:00.000-07:00

(CNNMoney.com) -- Three more banks shut their doors Friday, according to the federal government, bringing the total number of failures up to 32 in 2009.

The first failure was a wholesale banking operator that served 1,400 other lenders across the country and was the fifth biggest bank failure during the current recession in terms of assets.

Georgia "bankers' bank": The Federal Deposit Insurance Corp. said in a statement that it created a bridge bank to take over the operations of Silverton Bank, National Bank, headquartered in Atlanta.

Unlike the other 30 banks that have failed so far in 2009, Silverton Bank did not take deposits directly from the general public or make loans to consumers. Instead, it was a "bankers' bank," offering a wide variety of services, such as foreign wire transfers, as well as clearing and cash management, to other banks.

Silverton was cooperatively owned by community banks throughout the Southeast and was heavily invested in loans to real estate developments in Florida, Georgia, and other parts of the Southeast, according to Christopher Marinac, managing principal of financial firm FIG Partners LLC based out of Atlanta, Ga.

When real estate values sank in the current downturn, the assets backing those properties also lost their value. The Southeast has seen numerous regional banks topple as the housing bubble burst.

At the time of its closing, Silverton Bank had approximately $4.1 billion in assets and $3.3 billion in deposits, all of which are expected to be within the FDIC's insurance limits.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $1.3 billion, making it the fourth costliest bank failure since the start of the recession. "It is a bigger hit to the insurance fund than they have seen in the last couple weeks," Marinac said. "This is a bigger issue than we have seen in awhile."

Silverton served banks in 44 states and operated six regional offices. The FDIC created a bridge bank to take over the assets of the institution and has contracted The Independent Bankers Bank, out of Irving, Texas, to assist. The FDIC does not expect to see any significant impact to the bank's clients, at least in the near term.

However, the bridge bank only plans to be operational for 60 days, with a possible 30-day extension. When the bridge bank services terminate, the banks that were serviced by the cooperatively owned bank will have to go out and find another institution to take care of those services.

"There is no clear cut answer on a situation like this," said Marinac. "This is a little bit more complex and therefore there are more uncertainties about how this will unfold."

Thus far, the FDIC has not been able to find another wholesale bank to agree to take over Silverton's operations. The FDIC will attempt to sell off the assets, but it could pose a challenge to find a buyer for risky commercial loans. However, the FDIC could try to find a buyer by discounting the debt. "Everything has a price," said Marinac.

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China Shipping to Order Dry-Bulk Ships as Prices Fall

2009-05-03T21:22:00.000-07:00

(Bloomberg) -- China Shipping (Group) Co., the nation’s second-biggest sea-cargo company, plans to order dry- bulk ships this year as prices fall on overcapacity concerns and the global recession.

“We’ll never give up on new investments,” Vice Chairman Zhang Guofa said in an April 30 interview in Shanghai. He declined to say how many vessels the company would add.

China Shipping intends to order vessels as prices have fallen following an 81 percent drop in bulk-shipping rates in the last 12 months caused by China’s waning demand for imports of iron ore and other commodities. The company has avoided the worst of the collapse in rates because of its dominance on domestic routes.

“The plan shows that the company believes dry-bulk rates have already bottomed out,” said Jack Xu, a Sinopac Securities Asia Ltd. analyst. Its China Shipping Development Co. unit “is still profitable because of the limited competition in the domestic market.”

An order for vessels by state-owned China Shipping would also be in line with government efforts to help local shipbuilders. The nation’s shipyards, which build more than 70 percent of dry-bulk vessels worldwide, didn’t win a single order in the first quarter, according to Shanghai Waigaoqiao Shipbuilding Co.

“As a big enterprise, we always echo what the government calls for,” said Zhang. “Still, the government isn’t forcing companies to invest or buy ships.”

Laid-Up Ships

In a bid to revive rates that have dropped to unprofitable levels, bulk-shipping lines have laid up 15 percent of vessels worldwide, according to data compiled by Bloomberg. At the same time, yards have backlogs for ships with a combined capacity equal to 68 percent of the existing global fleet as they work through orders placed during a boom that ended last year.

“In the short term, we are facing a painful market correction,” Zhang said. “Still, there will be a new balance.”

The Baltic Dry Index, a measure of commodity-shipping costs, closed at 1,806 on May 1 compared with a record 11,793 in May last year.

The plunge in rates and capacity glut has caused vessel prices to fall. The cost of a 10-year capesize vessel, for instance, has dropped 20 percent, Zhang said. Prices for new vessels will likely hit a low in the third quarter, he added.

China Shipping Development operated 110 bulk ships and 57 oil tankers as of Dec. 31. Its shares rose 5.6 percent to HK$9.48 at 11:57 a.m. in Hong Kong trading, extending gains for the year to 23 percent.

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Say It Ain't So: Microsoft Launching Its Own Version Of Twitter

2009-04-28T21:37:00.001-07:00

(alleyinsider.com) -- This can't be true, can it? Can Microsoft really be running this far behind the train yet again? After 15 years of chasing Internet innovators, hasn't Microsoft learned that it can't do online what it did in the PC world (Crushing Netscape was the big exception, but that was 14 years ago now)?

Mary Jo Foley at ZDnet:

Microsoft is taking reservations starting April 28 for a limited beta of a new public-information service called Vine.

The service, slated to go to testers in May, uses alerts, reports and a personal dashboard to allow users to stay in touch, particularly during crisis situations.

The Vine service initially was developed by the Windows Live team, post Hurricane Katrina. I heard a bit about the service back in June 2008, after which the service — like a number of Windows Live properties — seemed to just disappear. It turns out the concept was passed over to Chief Research and Strategy Officer Craig Mundie’s division and incubated like other technologies in Microsoft’s Start Up Business Accelerator group. “Eventually, products and services started in the accelerator will transition into one of Microsoft’s existing business divisions,” a spokesperson said.

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Viterra May Buy ABB Grain for Up to A$1.6 Billion

2009-04-27T21:26:00.000-07:00

(Bloomberg) -- Viterra Inc., Canada’s largest grain handler, is in talks to buy Australia’s ABB Grain Ltd. for as much as A$1.6 billion ($1.1 billion) to add supply from the world’s second-largest barley exporter and No. 4 wheat shipper.

Viterra offered between A$9 and A$9.50 a share in a non- binding bid that includes cash, stock and dividends, Adelaide- based ABB Grain said today in a statement. The offer is as much as 36 percent more than its closing price yesterday. ABB Grain today jumped as much as 21 percent to a five-month high.

Viterra is considering acquisitions in Australia, Europe and the U.S., Mayo Schmidt, the chief executive officer of the Regina, Saskatchewan-based company said in January. Australia abandoned its monopoly wheat and barley export systems in the past two years, creating opportunities for international companies to ship grain from the nation.

The offer shows “the keenness by which international traders want to establish Southern Hemisphere” bases, Grant Saligari, research analyst at Credit Suisse Group AG, said by phone from Sydney. “It is a low point in the cycle and it’s a reasonably low point in equity markets.”

ABB Grain, Australia’s largest barley exporter, traded 19 percent higher at A$8.32 as of 1:20 p.m. Sydney time on the Australian stock exchange. Viterra closed down 1.8 percent on the Toronto stock exchange yesterday.

Boost for Rivals

Rival grain exporters rose on speculation of further consolidation in the industry, Saligari said. AWB Ltd. climbed 13 percent to A$1.49 and Graincorp Ltd. gained 7.9 percent.

Agricultural companies worldwide are seeking acquisitions on optimism the global recession won’t curtail rising food demand. Cargill Inc., the second-largest U.S. beef processor, said last November it’s looking for acquisitions after the collapse in raw material and share prices reduced valuations.

“There is no assurance that agreement will be reached or that a transaction will take place at all or within the reported range,” ABB said in the statement. “The proposal is subject to a number of conditions.”

ABB Grain appointed JPMorgan Chase & Co. as its adviser. Viterra named Macquarie Capital Advisers Ltd. and Genuity Capital Markets, Viterra spokeswoman Colleen Vancha said by e- mail.

ABB Grain’s annual profit may rise, the company said in February, after expanding its business in the Ukraine, New Zealand and locally to reduce its reliance on the Australian grain harvest. ABB has 111 inland storage terminals in Australia as well as seven export ports, according to its Web site.

Its Joe White Maltings division controls about 9 percent of the global market for the beer-making ingredient. ABB Grain’s range of rural services include fertilizer and agricultural chemical supply, wool and livestock activities.

Read more here

S.Africa c.bank sees further GDP contraction in Q1

2009-04-23T21:29:00.000-07:00

(Reuters) - South Africa's business cycle indicators have weakened sharply over the past few months, "almost guaranteeing" another contraction in the first quarter of 2009, central bank Chief Economist Monde Mnyande said on Thursday.

He said in a speech posted on the Reserve Bank's website, the trend pointed to a continued slowdown in aggregate economic activity this year.

Read more here

Kirin Offers to Buy Australia’s Lion Nathan as Japan Sales Fall

2009-04-22T21:17:00.000-07:00

(Bloomberg) -- Kirin Holdings Co., Japan’s largest beverage maker, offered to buy the 54 percent of Lion Nathan Ltd. it doesn’t already own, accelerating its push into Australia to counter falling beer sales at home.

The brewer of Kirin beer hasn’t decided how much to pay for the stake, valued at A$2.4 billion ($1.7 billion) at yesterday’s closing price, spokesman Makoto Ando said in Tokyo. Sydney-based Lion Nathan, Australia’s second-largest brewer, will consider the “non-binding” offer, it said in a statement.

The Japanese company, which already owns Australia’s largest milk processor and juicemaker, has boosted international expansion as a declining birthrate reduces potential customers at home and a stronger yen makes foreign acquisitions cheaper. The offer comes two months after Lion Nathan scrapped a A$7.3 billion bid, backed by Kirin, for Coca-Cola Amatil Ltd.

“Kirin has obviously taken a shine to Australian assets and decided to take advantage of the strength in the yen,” said Sean Fenton, who manages about $324 million at Tribeca Investment Partners in Sydney. The Japanese currency has climbed 42 percent against the Australian dollar during the past year.

Kirin shares rose 0.8 percent to 1,087 yen in Tokyo trading as of 10:08 a.m. in Tokyo, paring their decline this year to 7.7 percent. Lion Nathan, which was halted from trade on Australia’s stock exchange before the market opened, closed yesterday at A$8.31, giving the company a market value of A$4.4 billion.

Overseas Acquisitions

Gaining full ownership of Lion Nathan would help Kirin President Kazuyasu Kato meet his goal of doubling the proportion of overseas sales by 2015.

The Japanese brewer said in August it planned to spend 300 billion yen ($3.1 billion) on acquisitions to maintain growth. It aims to increase its percentage of overseas sales to 30 percent by 2015 from 18 percent in 2006.

Since then it’s acquired Australian milk processor Dairy Farmers for A$675 million and announced a plan to acquire 43 percent stake in San Miguel Corp.’s Philippine beer for 58.9 billion pesos ($1.21 billion).

In 2007, Kirin acquired Australian dairy and fruit juice maker National Foods from San Miguel in a deal valued at 294 billion yen.

Kirin first acquired a 45 percent stake in Lion Nathan, then based in New Zealand, in 1998 for NZ$1.33 billion ($736 million).

Lion Nathan expects net income between A$300 million and A$315 million in the 12 months ending Sept. 30, boosted by last year’s purchase of brewer J. Boag & Son. Ltd.

Read more here

RBA says outlook for demand, output weaker than expected

2009-04-20T21:34:00.000-07:00

(MarketWatch) -- The policy board for the Reserve Bank of Australia found earlier this month that the near-term outlook for demand and output in the nation was "weaker than earlier expected," according to minutes of the board's April 7 meeting released Tuesday.

"A period of low capacity utilization and a weaker labor market was seen as increasing the likelihood of a decline in inflation over the medium term," a summary of the board meeting said. "As such, members saw scope for a modest reduction in the cash rate."

At the meeting, Australia's central bank cut interest rates by a quarter-point and said mortgage rates were at historically low levels, marking its clearest signal yet that the interest-rate cycle has bottomed. It cut the cash rate to 3%, a 49-year low. See full story on RBA's April 7 rate cut.
Even so, the board's summary said that a "recovery in demand was likely towards the end of the year."

Read more here

S.African stocks slide on miners, but rand rallies

2009-04-16T21:33:00.000-07:00

(Reuters) - South African blue-chip stocks fell more than 2 percent on Thursday, as weaker commodity prices battered miners, but bonds rallied and the rand hit a new 6-month high against the dollar.

The JSE Top-40 index fell 2.09 percent to 18,920.50 points while the broader All-share index dropped 1.8 percent to 20,936.87 points, for a second day of losses.

"We are just having a bit of profit-taking coming in. It's a bit strange, because we are underperforming the rest of the world markets today," a Johannesburg-based trader said.

"It's a bit unusual. I think the strong rand also is weighing on currency-sensitive stocks a little bit."

Europe's FTSEurofirst 300 index rose above the 800-points mark for the first time in two months after better-than-expected quarterly results from JPMorgan Chase & Co.

But on the Johannesburg bourse, gold miners led the fall as the price of bullion slipped. Harmony Gold tumbled 7.39 percent to 79 rand and Gold Fields lost 3.45 percent to 95.10 rand.

The JSE platinum index dropped 4.5 percent, led by the world's third-biggest platinum producer Lonmin shedding 6.81 percent to 176 rand. Anglo Platinum, the world's biggest producer, lost 5.70 percent to 480 rand.

The rand surged, though, boosting government bonds, with the currency triggering stop losses at around 9 to the dollar.

The local currency was trading at 8.9350 to the greenback at 1555 GMT, 1.3 percent stronger than its previous close in New York, after earlier touching 8.8750, its firmest level since October 14.

Read more here

EBay to buy Korea's Gmarket

2009-04-15T21:36:00.000-07:00

(MarketWatch) -- EBay Inc. said Thursday it will pay up to $1.2 billion to buy South Korea's largest online marketplace in a move to expand its Asian operations.
Under the terms of the deal, San Jose, Calif.-based eBay will make a cash tender offer of $24 per share for all outstanding shares of Gmarket common shares and American Depository Shares.

The purchase price will be up to $1.2 billion if all outstanding shares are tendered. EBay said it has already clinched agreements to purchase at least 67% of the Gmarket's shares.
Ebay will combine the South Korean e-commerce Web site with its own existing Korean marketplace business, Internet Auction Company.

"This deal creates strong operational synergies between the two market leaders, offering more opportunities for sellers and enhances our ability to serve complementary consumer segments," said eBay Chief Executive Officer John Donahoe.
On Wednesday, ahead of the news, shares of eBay closed at $14.31, down 0.5%, and Gmarket shares closed at $19.96, up 3.2%, on the Nasdaq.
The transaction, though still dependent on final Korean antitrust clearance, is expected to close in the second quarter of this year, the companies said in a joint press release.

The resulting combination "establishes an exceptionally strong leadership position for eBay in one of the world's largest, most dynamic and innovative e-commerce markets," said Donahoe.

Read more at MarketWatch

Apple closes first quarter without Jobs at helm

2009-04-15T04:01:00.000-07:00

(MarketWatch) -- When Apple Inc. delivers its next earnings report later this month, it will mark a milestone of sorts: the company's first reporting period without Steve Jobs, its co-founder and chief executive.

Day-to-day management is in the hands of Chief Operating Officer Tim Cook, who has overseen several new product introductions but also has to cope with a severe economic downturn that has crimped demand for PCs and other high-tech products.
Apple is scheduled to deliver results for its second fiscal quarter on April 22. Although Jobs remains chief, he went on a medical leave of absence earlier this year that's scheduled to end in June. His health became a matter of concern last year when his appearance at a trade show set off rumors that the cancer he successfully battled in 2004 may have returned.

"They seem to still be focusing on strategy and execution," said Ashok Kumar, who covers Apple for Collins Stewart.
So far, investors seem to have kept their faith in Cook and company. Since Jan. 14, when Jobs announced he would be stepping aside to handle his health issues, Apple's stock has climbed more than 35% to $115 a share -- reaching its highest levels since last September.

Read more at MarketWatch

GE’s 72% Post-Sherin Bounce Shifts Focus to Industrial Profit

2009-04-14T22:23:00.001-07:00

(Bloomberg) -- General Electric Co.’s 72 percent stock surge since Chief Financial Officer Keith Sherin went on television to debunk fears of a GE Capital “time bomb” adds pressure on non-financial units to deliver profits this week.

GE now is being valued more in terms of its operations and earnings power “as opposed to Armageddon or worst-possible scenarios,” said Mark Demos, an analyst in Minneapolis for Fifth-Third Asset Management, whose parent Fifth Third Bancorp held 8 million shares as of Dec. 31. “People are still expecting Energy Infrastructure to grow in 2009.”

First-quarter earnings per share may have fallen by more than half as the recession and credit crunch hurt profit at the GE Capital, health-care and media divisions, according to analysts’ estimates ahead of the April 17 report. GE last month sank to $5.73 in intraday trading, the lowest since 1991, recovering only after Sherin took to the company-owned CNBC network on March 5.

Sherin, 50 and CFO since 1998, helped assuage investors’ concerns and followed up with a six-hour meeting on March 19 to provide the fullest look yet at GE Capital’s holdings and risks ranging from overdue consumer credit-card accounts to plunging vales for commercial real estate. He told them GE Capital will at least break even this year under the Federal Reserve’s worst- case scenario and isn’t likely to need more outside capital.

“The stock is, you could argue, being completely driven by the worries of GE Capital along with the financial sector,” said Deane Dray, a multiple-industry analyst at FBR Capital Markets in New York who doesn’t currently rate the stock. “This will be the first opportunity that investors will get to recalibrate where the industrial side of GE is, and how it has been operating in this very tough environment. It’s not hard to imagine the news is going to be fairly difficult for them.”

Profit Forecast

Profit from continuing operations at Fairfield, Connecticut- based GE declined to 21 cents a share from 44 cents in the year- earlier period, based on the average estimate from 13 analysts in a Bloomberg poll. The results will be the first since GE stopped giving per-share earnings guidance in December.

Multiple milestones fell during the quarter: Chief Executive Officer Jeffrey Immelt and GE’s board cut the century- old dividend for the first time since 1938 to preserve cash, and ratings companies knocked down the top-AAA rating for the first time in decades. The dividend cut is effective with the third- quarter payment.

Even with the jump since Sherin’s appearance, GE shares have lost two-thirds of their value in 12 months, more than drops of 37 percent in the Standard & Poor’s 500 stock index and 58 percent in the S&P 500 Financials index. GE declined 62 cents to $11.51 yesterday in New York Stock Exchange trading.

Executives declined to comment before the earnings statement, spokesman Russell Wilkerson said.

GE Capital

GE Capital accounted for 38 percent of the parent company’s $182.5 billion in revenue and 43 percent of its $18.1 billion profit from continuing operations in 2008. Sherin told investors March 19 the unit would post a profit in the first quarter and at least break even for the full year. Under two of three economic scenarios outlined for the unit last month, tax credits would provide at least $1.4 billion of the unit’s annual profit this year.

Nigel Coe of Deutsche Bank AG in New York is among analysts who are forecasting a pretax loss for GE Capital, which reports net income, along with “single-digit” profit increases at the Energy Infrastructure segment. He rates the stock a “hold.”

GE Energy Infrastructure, the world’s largest power-plant equipment and service provider, is having a “very strong” quarter, Sherin said March 19. GE Energy continued to post orders in the quarter, including a $1 billion order for gas turbines from companies in Saudi Arabia.

Most Asian currencies down on growth worries, weak stocks

2008-03-27T07:09:00.001-07:00

... Bank rate cut may not materialize. Asian stock markets tracked the overnight decline in US markets, ... basis points to fight inflationary pressures. The Chinese yuan, which touched a post-revaluation high of ...

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Forex - Dollar extends fall vs yen in afternoon trade on Japan exports, US woes

2008-03-27T07:05:00.001-07:00

... Forex - Dollar extends fall vs yen in afternoon trade on Japan exports, US woes HONG KONG (Thomson Financial) ... in afternoon Asian trade on Wednesday after Japanese exports grew at a faster pace last ...

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Euro Skyrockets As Trichet Intensifies Hawkish Tone

2008-03-27T07:02:00.001-07:00

... European exporters and weakness in the European equities markets. In his testimony before the European Parliament, ... secondary effects of wage increases, particularly in Germany. He warned of downside risks but said ...

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Getting Over International Investing

2008-03-27T06:58:00.001-07:00

... And yet some of last years biggest winners--Germany, India and especially China--are deep in bear ... gasoline approaches $4 a gallon. Either the equity markets are in complete denial, and U.S. markets ...

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Egypts Suez Cement 2007 net jumps 43 percent

2008-03-27T06:55:00.001-07:00

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

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Three big headaches

2008-03-26T11:46:00.001-07:00

... East, where the oil comes from, the Iraq war has been going on for five ... of life. Watch the Asian and European stock markets reel and rock as a result of ...

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The "Isms" That Bedevil Bush

2008-03-26T11:44:00.001-07:00

... is to remain always a child." With Iraq entering its sixth year, the dollar sinking ... a Nobel Prize for proving, when the stock market bubble, caused by the Feds easy money ...

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Currency: Dollar closes higher on equities

2008-03-26T11:41:00.001-07:00

... selling," said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities. "Those who ... dlr/stg 40.26p 40.47p NZ TWI 71.63 71.36 Australian dollar US91.08c US91.55c Euro/US dollar 1.5548 1.5599 ...

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PM: we want cooperation with Moscow

2008-03-26T11:37:00.001-07:00

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

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Research Now - AGM Statement

2008-03-26T11:33:00.001-07:00

... Spain, USA, Canada, Argentina, Brazil, Chile, Mexico, Switzerland, Republic of Ireland, Austria, Sweden, Poland, Denmark, ... on the AIM market of the London Stock Exchange (AIM: RNOW) This information is provided by ...

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Automaker Tatas presence already felt

2008-03-26T11:29:00.001-07:00

... platform from the ground up for a Chinese automaker. Incats engineers in Michigan work with ... company is listed on the New York Stock Exchange and traces its origins to the 1860s, ... automakers from Detroit, Europe, India, Japan and China. Employment at Incats Novi headquarters and Troy ...

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McVicar Product Chosen By National Torch Plan Of China - Quick Facts

2008-03-26T11:25:00.001-07:00

... Product Chosen By National Torch Plan Of China - Quick Facts MCV.V McVicar Resources Inc. ... one of the chemical products from its Chinese subsidiary Zhejiang Hongbo Chemical Co. Ltd. has ... of 2.54 million shares on the Toronto stock exchange. BBD-A.TO is currently trading at C$5.57, down ...

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Albanese sees the Chinese link as Rios

2008-03-26T11:19:00.001-07:00

... Chinalco could use the global fall in equity markets to increase its 9 per cent stake ... should be welcomed not blocked, just as Japanese investment was welcomed in the 1970 and ...

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BRICs catch the wind of prosperity

2008-03-26T11:16:00.001-07:00

... have become the hot investment story. Their stock markets have beaten the rest of the world ... credit squeezes, subprime housing collapses, assassinations in Pakistan or other factors preoccupying western investors, though ...

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Isolagen sells its Swiss facility

2008-03-25T09:36:00.001-07:00

... said today that it has sold its Switzerland facility for $6.4 million. About $5.85 million ... that it was notified by the American Stock Exchange that it no longer meets the exchanges ...

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Ithmaar Bank lists on the Kuwait Stock Exchange

2008-03-25T09:31:00.001-07:00

... of Bahrain and listed on the Bahrain Stock Exchange (ITHMR). It has a paid-up capital of ... company, headquartered in Bahrain), Faisal Private Bank (Switzerland), Faysal Bank Limited (Pakistan), First Leasing Bank ...

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Stocks May Open Modestly Lower Ahead Of Consumer Confidence Report - U.S. Commentary

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

... Report - U.S. Commentary (RTTNews) - The stock markets are looking to open modestly lower on ... which coincided with the start of the Iraqi war. Economist had been expecting a less ...

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Anadolu Cam to Start Building Glass Factory in Russia in April

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

... Cam to Start Building Glass Factory in Russia in April Anadolu Cam Sanayii AS, a ... said in a filing with the Istanbul Stock Exchange late yesterday. The new plant will have ...

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GOIC and Fincorp team up in GCC venture

2008-03-25T09:21:00.001-07:00

... Gulf Organisation for Industrial Consulting (GOIC) and Egypt-based Fincorp Investment Holding have agreed to set ... these companies for public subscription through the stock market at a later stage. The agreement follows ...

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Cancellation of the Trading Facility on the AIM market

2008-03-25T09:09:00.001-07:00

... in President Steyn Gold Mines (Free State) (Pty) Ltd to Pamodzi Gold Limited ("Pamodzi") (JSE: PZG) under the terms of a Sale of Shares and Claims Agreement dated 29 ...

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Company Upgrade: Introduces Victory Energy to our Small Cap Portfolio

2008-03-24T09:19:00.001-07:00

... world renowned independent research firm, based in Johannesburg, South Africa. Along with walking investors through ... of 1933 and Sections 21E of the Securities Exchange Act of 1934, and are subject to ...

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Investec banks on minor sub-prime risk

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

... executive Stephen Koseff that the groups sub-prime exposure was relatively insignificant resulted in both JSE-listed Investec and LSE-listed Investec plcs shares bucking the pre- Easter weekend slump. Investec gained ...

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Silver Market Update - Mar 23

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

Although it may retreat a little more over the next week or two, Silver is now at/close to buying territory after its violent correction last week. Much of what has been written in the Gold Market update applies equally to silver and so readers

Volatility continues in commodities

2008-03-24T00:38:00.001-07:00

By Jon NadlerSilver lost another $1.48 or 8.5%, falling to $16.94 per ounce. Platinum dropped $39 to $1865.00 per ounce and palladium lost $18 to $438.00 as the entire complex was battered by the freefall in gold

Saudi Arabia says working to ensure oil supply

2008-03-24T00:06:00.001-07:00

RIYADH (Reuters) - Saudi Arabia, the worlds largest oil exporter, said on Sunday it was working to expand its oil production and refinery capacity in order to maintain world economic growth.

China Feb FX reserves hit $1.65 trillion

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

BEIJING (Reuters) - Chinas foreign exchange reserves jumped $57.3 billion in February to $1.6471 trillion, almost matching Januarys surprising leap of $61.6 billion, two sources familiar with the data told Reuters on Friday.

Surprise! Dow scores a win after Bears fall

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

But markets experience big gyrations after Sundays fire sale of Bear Stearns to JPMorgan Chase. Gold closes above $1,000 for the first time. After offering aid to banks over the weekend, the Fed is expected to cut key rates on Tuesday.

Making sense of this bizarre market

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

Any hint of trouble these days sends Wall Street into a new round of panic selling and a rush to pile up the cash that might be needed to stave off lenders.

Humana, Following WellPoint, Cuts Earnings Forecast

2008-03-12T08:13:00.000-07:00

(Bloomberg) -- Humana Inc., the second-largest seller of Medicare drug plans, followed rival WellPoint Inc. in cutting its 2008 earnings forecast as prescription costs jumped. The insurer fell the most ever in New York trading.

Humana's revised forecast stems from ``updated projections'' for the company's Medicare prescription drug plans, a stand-alone drug benefit sold to Americans age 65 and older. Humana has been racing UnitedHealth Group Inc., the largest seller of Medicare drug plans, to gain more members and has lowered some prices as a result, analysts said.

Humana, of Louisville, Kentucky, fell 26 percent, or $12.14, to $35.24 at 9:37 a.m. in New York Stock Exchange composite trading. It dropped 24 percent yesterday. The industry selloff that began two days ago continued as WellPoint, UnitedHealth and Aetna Inc. also declined. Investors yesterday cut $24 billion in value from the four biggest U.S. insurers.

``Humana priced their drug plan too low in order to gain market share, and we're seeing the result of that today,'' said Sheryl Skolnick, a CRT Capital Group analyst in Stamford, Connecticut, in a telephone interview. ``They are offering a plan with zero co-pays for a 90-day supply of generics through RightSource, their mail-order. And when you tell seniors something is free, they keep coming back again and again.''

Earnings will range from $4 to $4.25 a share, rather than the $5.35 to $5.55 given on Feb. 4, Humana said in a statement. First-quarter earnings will be 44 cents to 46 cents a share, down from a forecast of 80 cents to 85 cents, the insurer said.

Read more at Bloomberg

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

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

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

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

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

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

Insurers' Investments

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

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

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

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

Read more at Bloomberg

Market slips on economic fears, McDonald's gains

2008-03-10T08:22:00.001-07:00

(Reuters) - U.S. stocks slipped on Monday as mounting concerns about the economy overshadowed stronger-than-expected same-store sales from McDonald's Corp

Read more at Reuters

TIPS' Yields Show Fed Has Lost Control of Inflation

2008-03-10T08:17:00.001-07:00

(Bloomberg) -- Bond investors have never been so sure that the Federal Reserve will lose control of inflation. They're so convinced that they're giving up yields just to buy debt securities that protect against rising consumer prices.

The yield on the five-year Treasury Inflation-Protected Security due in 2012 has been negative since Feb. 29, and traded today at minus 0.17 percent. The notes, which were first sold in 1997, have never before traded below zero. Even so, firms from Deutsche Asset Management to Vanguard Group Inc., the second- biggest U.S. mutual fund company, say TIPS are a bargain.

For the first time in a generation, money managers must come to grips with a central bank that's more intent on spurring the economy than restraining price increases. With oil above $100 a barrel, gold approaching $1,000 an ounce and the dollar at a record low against the euro, TIPS show investors aren't convinced Fed Chairman Ben S. Bernanke will be able to tame inflation once policy makers stop cutting interest rates.

``The way TIPS are trading now, investors believe headline inflation will stay lofty and are willing to give up the real yield for that,'' said Brian Brennan, a money manager who helps oversee $11 billion in fixed-income assets at T. Rowe Price Group Inc. based in Baltimore. Prices for the securities indicate ``a real concern of a recession and high headline inflation,'' he said.

Because TIPS pay a principal amount that rises in tandem with the consumer price index, buyers accept lower yields in a bet the inflation adjustment will make up the difference.

Volcker Fed

Investors typically determine what they are willing to receive in interest by deducting the rate of inflation expected over the life of the securities from the rate on a comparable Treasury. Investors can still earn money from TIPS with sub-zero rates because the principal rises with the CPI.

Five-year TIPS yielded 2.36 percentage points less than similar-maturity Treasuries as of 9:14 a.m. in New York. The so- called breakeven rate has risen from a four-and-a-half-month low of 1.89 percent on Jan. 23, the day after policy makers cut their target lending rate by three-quarters of a point to 3.50 percent in an emergency move.

The last time investors were so worried about faster inflation amid slowing growth, Paul A. Volcker presided over a Fed that would raise rates as high as 20 percent to end the stagflation crisis of the 1970s, according to Seth Plunkett, a bond fund manager at American Century Investment Management in Mountain View, California. The firm manages $20 billion.

Fed Forecast

Inflation ``is going to be higher than the Fed's targeted area,'' said Plunkett, whose fund owns a greater percentage of TIPS than contained in the index he uses to measure performance.

In forecasts released last month, the Fed said it expects inflation to accelerate 2.1 percent to 2.4 percent this year, and 1.7 percent to 2 percent in 2009.

TIPS have returned 6.2 percent this year, compared with 3.7 percent from regular Treasuries, according to indexes compiled by Merrill Lynch & Co. Mutual funds that specialize in inflation-linked debt attracted a net $2.87 billion in January, boosting their assets to $47.6 billion, according the latest data available from Financial Research Corp. in Boston. In all of 2007, the funds added a net $3.54 billion.

``TIPS are a really good buy,'' said Bill Chepolis, a money manager who helps oversee $9 billion at Deutsche Asset Management in New York. He bought five-year TIPS in the last six months. ``They're cheap with the Fed continuing to emphasize growth over inflation and inflation continuing to come in higher.''

Read more at Bloomberg

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

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

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

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

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

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

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

`Strong Dollar'

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

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

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

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

Read more at Bloomberg

ECB holds rates, seen forecasting lower growth

2008-03-06T06:09:00.001-08:00

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

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

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

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

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

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

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

Read more at Reuters

Wal-Mart's February Sales Rise; Gap, AnnTaylor Fall

2008-03-06T06:02:00.001-08:00

(Bloomberg) -- Wal-Mart Stores Inc.'s February sales gained more than it expected as cash-strapped consumers seeking food and basic clothing cut spending at Limited Brands Inc., AnnTaylor Stores Corp. and Gap Inc.

Wal-Mart, the world's largest retailer, said today in a statement that sales at stores open at least a year rose 2.6 percent last month, beating its estimate for a gain of 2 percent or less.

Shoppers headed to discounters and warehouse clubs to stock up on food and necessities, shunning lightweight jackets and sweaters at department stores and mall-based retailers. A decline in jobs, gasoline costing more than $3 a gallon and the continued erosion of the housing market have caused consumers to limit spending.

``We are seeing the consumer trading down,'' Fred Crawford, managing director at AlixPartners LLP, a Southfield, Michigan-based consulting firm, said in a Bloomberg Radio interview. ``You've got a large swing set in Middle America. In good times, they buy up into department store categories, and in tougher times, they buy down into mass categories.''

U.S. retailers' same-store sales may have risen 0.5 percent to 1 percent last month, according to the International Council of Shopping Centers. The New York-based trade organization reports monthly results later today.

Companies in the U.S. unexpectedly lost 23,000 jobs in February, the first decline in almost five years, according to a private report based on payroll data from ADP Employer Services released yesterday. The University of Michigan/Reuters index of consumer confidence fell last month to its lowest level since 1992.

Retail Shares

Wal-Mart climbed 55 cents, or 1.1 percent, to $50.10 at 8:19 a.m. in trading before the New York Stock Exchange opened. Gap fell 4.7 percent.

The 31-member Standard & Poor's 500 Retailing Index has dropped 5.2 percent this year before today, compared with a 9.2 percent decline for the S&P 500 Index.

Limited Brands, the owner of the Victoria's Secret lingerie chain, said February same-store sales dropped 9 percent, better than analyst estimates for a 10.9 percent drop.

Staples Inc., the world's largest office-supplies retailer, reduced its full-year profit and sales forecast March 4 as customers at its North American retail stores reduced purchases of copiers and desks.

``The core economy, the part that's really relevant to Staples and Staples' customers, is declining,'' Staples Chief Financial Officer John Mahoney said in a telephone interview. ``From the perspective of our customers and our business, this is a recession now.''

February Sales

February tends to be the least important sales month in the first quarter for many retailers, comprising about 30 percent of discounters' quarterly revenue, according to Christine Augustine, a retail analyst at Bear Stearns Cos.

With ``sluggish'' traffic, most retailers may be ``playing defense'' by managing inventory and cutting costs, she wrote in a Feb. 29 research note.

``Aside from Valentine's Day and President's Day, and the demand for consumables and other necessities, we think consumers had few reasons to shop in February, particularly given the tough economic backdrop,'' Augustine wrote.

AnnTaylor, the clothing retailer that caters to women ages 25 to 55, said February same-store sales dropped 1.7 percent, less than the average analyst forecast for a 3.1 percent decrease. Gap, the largest U.S. clothing retailer, said sales fell 6 percent, almost twice the 3.1 percent decline estimated by analysts.

Read more at Bloomberg

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

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

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

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

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

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

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

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

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

Read more at Bloomberg

Carlyle Fund Gets Default Notice After Margin Calls

2008-03-06T05:46:00.000-08:00

(Bloomberg) -- Carlyle Group's publicly traded mortgage bond fund failed to meet margin calls and said it received a notice of default.

Carlyle Capital Corp. missed four of seven margin calls yesterday totaling more than $37 million, the Guernsey, U.K.- based fund said today in a statement. The fund expects to get at least one more notice of default related to the margin calls.

The collapse of the subprime mortgage market has prompted investors to flee all but the safest forms of debt, leading to the failure of hedge funds including Peloton Partners LLP. The Carlyle fund raised $300 million in July and used loans to buy about $22 billion of AAA rated so-called agency mortgage securities issued by Fannie Mae and Freddie Mac.

``The credit crisis is spilling over to the next asset class, agency bonds,'' said Philip Gisdakis, senior credit strategist at UniCredit SpA in Munich. ``There's never just one cockroach. If you see one highly leveraged hedge fund going bust, then there's another on the way.''

Peloton, the London-based hedge-fund firm run by former Goldman Sachs Group Inc. partners, announced plans last week to liquidate its ABS Fund after ``severe'' losses on mortgage-backed debt and demands from banks to repay loans. Thornburg Mortgage Inc. in Santa Fe, New Mexico, plummeted 62 percent in New York trading this week after the home lender received a default notice on a $320 million loan.

Widening Spreads

Carlyle Capital, run by John Stomber, fell 1.7 percent in Amsterdam trading today to $11.80. The fund originally sold shares at $19 each. Emma Thorpe, a London-based spokeswoman for U.S. private-equity firm Carlyle Group, declined to comment.

The agency mortgage-bond market has about $4.5 trillion of securities, according to estimates from UniCredit. The spread between 30-year agency mortgage bonds and 10-year U.S. Treasuries widened to more than 200 basis points yesterday, the highest since 1986, according to Bloomberg data cited by UniCredit today.

At the same time, money-market rates for euros and pounds climbed to the highest since mid-January, signaling the global squeeze on short-term bank lending may be returning. The three- month London interbank offered rate, or Libor, for euros advanced 1 basis point to 4.4 percent yesterday, the highest since Jan. 18, according to the British Bankers' Association.

``Market conditions are the worst anyone in this industry can remember,'' said Alain Grisay, chief executive officer of London-based F&C Asset Management Plc, on a conference call with reporters today. ``I don't think anyone has a recollection of a total disappearance in liquidity. I just cannot remember a time when for six months there are billion of dollars worth of assets out there for which there is just no market.''

Read more at Bloomberg

Porsche Profit Rises on Cayenne SUV, Volkswagen Stake

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

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

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

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

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

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

Read more at Bloomberg

Recovery may take longer than usual: Greenspan

2008-02-25T06:13:00.000-08:00

(Reuters) - Economic growth has stalled and recovery may take longer than usual, former Federal Reserve chairman Alan Greenspan said on Monday.

"As of right now, U.S. economic growth is at zero," Greenspan said at an investment conference in Jeddah, Saudi Arabia's second-largest city. "We are at stall speed."

"Recovery might take longer to emerge than it usually does," he added.

The longer growth stays at zero, the more likely the world's largest economy would start to contract, he said, adding that globalization of trade could ease some shocks.

"Growing globalization of trade and the economy would facilitate the absorption of shocks in the U.S.," he said.

In updated economic forecasts released last week, the U.S. central bank lowered its outlook for 2008 growth by a half percentage point to between 1.3 percent and 2 percent, citing the prolonged housing slump and bottlenecks in credit markets.

Read more at Reuters

Getty Images to be sold to Hellman & Friedman

2008-02-25T06:10:00.001-08:00

(Reuters) - Getty Images Inc (GYI.N: Quote, Profile, Research) said on Monday it agreed to be bought by Hellman & Friedman affiliates for $34 per share in cash, in a deal it said was worth $2.4 billion, including the assumption of debt.

Read more at Reuters

Dresdner Bank says to support Ambac rescue

2008-02-25T06:09:00.001-08:00

(Reuters) - Dresdner Bank, part of the Allianz (ALVG.DE: Quote, Profile, Research) insurance group, intends to support a rescue package for U.S. bond insurer Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) with a sum in the low double-digit millions of euros, the head of Dresdner's investment banking operations said on Monday.

Various rescue options for Ambac were now under discussion, Stefan Jentzsch told reporters. "If what is now on the table comes to pass then we will take part in the package," he said.

Read more at Reuters

Auction-Rate Bonds Force `Predatory' Yields on Cities

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

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

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

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

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

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

Failure Rate

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

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

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

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

Closed-End Funds

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

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

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

Read more at Bloomberg

Ambac Rises on $3 Billion Rescue to Avert Downgrade

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

(Bloomberg) -- Ambac Financial Group Inc. rose to the highest in two weeks on investor expectations the bond insurer may be rescued from crippling credit-rating downgrades by getting $3 billion in new capital.

Ambac, the second-biggest bond insurer after MBIA Inc., may announce an agreement this week, according to a person with knowledge of the discussions who declined to be named because the details aren't complete. The New York-based company plans to raise $2.5 billion by selling stock at a discount to existing shareholders and $500 million from issuing debt, the Wall Street Journal reported today, citing people familiar with the matter.

``Maybe we'll see light at the end of the tunnel soon,'' said Geraud Charpin, head of European credit strategy at UBS in London. ``That would be good news for banks.''

Citigroup Inc. and seven other banks are working with Ambac to prevent rating cuts that would throw doubt on the credit quality of the $553 billion of municipal and asset-backed securities it guarantees. Banks stand to lose as much as $70 billion from any downgrades to Ambac, MBIA Inc. and FGIC Corp., Oppenheimer & Co. analysts estimated. Ambac rose as much as 6 percent before the official start of trading in New York.

The stock was 69 cents higher at $11.40 at 7:35 a.m., the highest since Feb. 11. Ambac jumped 16 percent in New York Stock Exchange trading on Feb. 22 after CNBC Television said banks and Ambac were preparing a deal.

Ambac spokeswoman Vandana Sharma didn't return a voicemail and e-mail seeking comment before office hours today.

Bank Talks

Rating companies are demanding bond insurers add more capital or face downgrades because of losses on subprime- mortgage securities they guaranteed. Moody's Investors Service indicated it will decide whether to cut Ambac and Armonk, New York-based MBIA by the end of the month. A downgrade of all the firms would cast doubt on $2.4 trillion of securities they back.

New York Insurance Superintendent Eric Dinallo last month arranged a meeting with banks to help avoid a downgrade of the bond insurers. Dinallo told a congressional hearing this month that the companies may be forced to separate their municipal insurance business from their asset-backed guarantees.

``Ambac was among the neediest cases, so if they can pull it off, there's hope for the others,'' said Jim Reid, credit strategist at Deutsche Bank AG in London.

CDO Losses

Banks face losses from any rating cuts because they bought bond insurance to hedge the risks of collateralized debt obligations and other asset-backed securities that are now tumbling in value. CDOs package pools of securities then split them into pieces with different ratings.

UBS AG, Royal Bank of Scotland Group Plc, Wachovia Corp., Barclays Plc, Societe Generale SA, BNP Paribas SA and Dresdner Bank AG were also involved in the group discussing a rescue, said the person.

Dresdner, the German banking arm of Allianz SE, will contribute a ``small'' investment of ``two-digit million euros,'' Stefan Jentzsch, head of the Dresdner Kleinwort investment-banking unit, said at a press conference in Frankfurt today.

``We have long been waiting for banks to pay up,'' Philip Gisdakis, a Munich-based credit analyst at UniCredit SpA, Italy's biggest bank, wrote in a note to investors today. A ``solution without their participation would lead to large losses for them.''

Spokespeople for Citigroup, UBS, Wachovia and BNP declined to comment on the rescue plans. Spokespeople for RBS, Barclays and Societe Generale didn't immediately return e-mails or calls seeking comment.

FGIC Split

FGIC, which lost its top rating at Moody's last week, asked to be split into two separate businesses, one that insures municipal bonds and another for asset-backed securities. That would help protect municipal bonds from losses on the asset- backed debt.

Channel Reinsurance Ltd., a reinsurer for MBIA, had its top Aaa credit rating cut by Moody's on Feb. 22 because of a slump in the value of residential mortgage securities.

The rating was cut three levels to Aa3 with a negative outlook, Moody's said in a statement. Channel Re provides more than half the reinsurance bought by MBIA, according to MBIA filings. MBIA said last week all bond insurers must eventually divide their businesses.

Read more at Bloomberg

Oil seen heading higher after topping $100

2008-02-21T08:38:00.001-08:00

(Reuters) - Rampant oil prices are likely to continue to rise for a while yet as supply worries and investor demand for commodities outweigh concerns of economic slowdown.

Crude hit a record high of $101.32 on Wednesday and was trading at $98.64 at 9:45 a.m. EST on Thursday.

The price has climbed from below $50 at the start of 2007 and below $20 in early 2002.

"From here, we think that the next stage may well be a period of consolidation in the high $90s, and that could include increasingly frequent moves above $100," said Paul Horsnell of Barclays Capital.

Prices have risen in part because of expectations that the Organization of the Petroleum Exporting Countries, rather than increase oil output, will maintain or even cut supply at a meeting on March 5.

OPEC argues that factors beyond its control, such as speculation, are boosting prices. One OPEC minister made clear on Thursday that oil's push into triple digits would not bounce the group into changing supplies.

"We will not just react to $100 oil," Qatar's oil minister, Abdullah al-Attiyah, told Reuters by telephone. "OPEC will move when it sees physical demand for its oil."

Read more at Reuters

UBS to Shorten Ospel Term to One Year at Re-election

2008-02-21T08:33:00.001-08:00

(Bloomberg) -- UBS AG said it would reduce Chairman Marcel Ospel's next term of office to one year from three after Europe's largest bank by assets reported a record loss.

Ospel, 58, was a force behind the merger of Swiss Bank Corp. and Union Bank of Switzerland that created UBS in 1998 and has been chairman for seven years. UBS posted a 12.5 billion-franc ($11.4 billion) fourth-quarter loss after an expansion into debt trading led to writedowns when the U.S. housing market slumped.

``Shareholders have a lack of confidence and that is linked to Ospel's name,'' said Vinzenz Mathys, an analyst at the Ethos Foundation, an investor in UBS calling for a special audit of the bank's risk controls. ``We are disappointed because UBS could have proposed new candidates.''

Shareholders will vote on re-electing Ospel and two other board members to shortened terms at the annual general meeting on April 23, Zurich-based UBS said in an e-mailed statement today. Sergio Marchionne, Fiat SpA's chief executive officer, was named a non-executive vice chairman.

UBS's losses already led to the departures of former CEO Peter Wuffli, 50, his finance chief Clive Standish, 54, and Huw Jenkins, 50, who ran the investment bank.

``It will take at least a year, if not longer, to clean up things at UBS and Ospel being around means there will be no clean cut with mistakes of the past,'' said Ralf Rybarczyk, who manages 1.5 billion francs at DWS Investment GmbH, including UBS shares.

`Current Challenges'

Peter Voser, finance director at Royal Dutch Shell Plc, and Larry Weinbach, the former chairman of Unisys Corp., will also stand for re-election to one-year board terms at the annual meeting, UBS said. Voser, 49, will take over from Weinbach, 68, as chairman of the audit committee. In subsequent elections, all board members will be elected for one year, the company said.

Marchionne, 55, was named non-executive vice chairman to replace Marco Suter, 49, who was an executive vice chairman before taking on the role of chief financial officer in October. Italian newspaper MF reported on Feb. 15 that Marchionne was a possible replacement for Ospel, which the Fiat executive denied. He said in a statement today his new role is ``absolutely compatible'' with running Fiat.

``With these moves we have strengthened the leadership structure in order to manage UBS's current challenges,'' Ospel said in the statement. ``I proposed the new tenure rule to the board, and am prepared, pursuant to their request, to stand for re-election for one year.''

UBS rose 48 centimes, or 1.3 percent, to 36.80 francs by 2:08 p.m. in Swiss trading. The stock has fallen 30 percent this year, the fourth-worst performance on the 60-member Bloomberg Europe Banks and Financial Services Index.

Read more at Bloomberg

Morgan Stanley Hires Kenneth deRegt to New Role Overseeing Risk

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

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

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

Read more at Bloomberg

Philadelphia Fed February Factory Index Falls to -24

2008-02-21T08:24:00.001-08:00

(Bloomberg) -- Manufacturing in the Philadelphia region unexpectedly contracted the most since February 2001, the eve of the last recession, as measures of new orders and shipments reflected weakening demand.

The Federal Reserve Bank of Philadelphia's general economic index declined to a minus 24 from minus 20.9 in January, the bank said today. Readings less than zero signal contraction. The Philadelphia Fed's general economic index averaged 5.1 in 2007.

A two-year housing slump, exacerbated by tighter credit conditions, is spilling over to other industries, pushing the economy to the brink of recession. The Fed, after cutting interest rates at the fastest pace since 1990 last month, has said it is ready to move in a ``timely'' manner to avert a downturn.

``The Philadelphia Fed survey is sending clear signals that the U.S. economy is heading for a recession,'' said Lena Komileva, chief economist at Tullett Prebon in London, who forecast a minus 25 reading. ``The speed and magnitude of the recent decline in the series signals a very sharp deterioration.''

Economists had forecast the Philadelphia manufacturing index would rise to minus 10.0, according to the median of 54 estimates in a Bloomberg News survey. Projections ranged from 0 to minus 25.0.

New Orders

The Philadelphia Fed's measure of new orders rose to minus 10.9 from minus 15.2 the prior month, and a measure of shipments fell to minus 12.2 from minus 2.3 the prior month.

A gauge of unfilled orders dropped to minus 10.9 from minus 6.2, while the index of inventories declined to minus 13 from minus 11.7 the prior month.

The employment index gained to 2.5 from minus 1.5 a month earlier, the Philadelphia Fed said. An index of prices paid dropped to 46.6 from 49.8, while a gauge of prices received weakened to 24.3 from 32.

The report provides one of the month's earliest clues to the state of manufacturing nationwide. Similar data from the New York Fed released last week showed manufacturing contracted in the New York region in February for the first time in almost three years.

The Philadelphia Fed region, which comprises eastern Pennsylvania, southern New Jersey and Delaware, is more vulnerable to the auto slump and less exposed to financial services and trade than the New York region, economists said.

Nationwide Measure

Nationwide, manufacturing grew in January after contracting in December by the most in almost five years, according to a Feb. 1 survey from the Institute for Supply Management. The ISM survey on manufacturing in February is due out March 3.

The index measuring the manufacturing outlook for six months from now fell to minus 16.9 from 5.2, today's report showed.

The Fed's January rate cuts came as rising subprime defaults led to a global tightening of credit standards and declines in equity prices. Investors are betting on a half-point rate reduction, to 2.5 percent, at the March 18 Fed meeting.

The U.S. economy will probably grow at a 0.5 percent pace in the first quarter and a 1 percent rate in the following three months, according to the median forecast in a Bloomberg survey of economists taken the first week of February. Economists surveyed said a recession this year was an even bet.

Read more at Bloomberg

U.S. Stocks Climb, Erasing Earlier Drop; Hewlett-Packard Gains

2008-02-20T10:19:00.000-08:00

(Bloomberg) -- U.S. stocks rose, led by technology and bank shares, after Hewlett-Packard Co.'s profit topped estimates and investor William Ackman proposed a restructuring of bond insurers in an effort to minimize credit losses.

Hewlett-Packard, the biggest maker of personal computers, climbed the most in two years and helped the Dow Jones Industrial Average erase a 109-point drop. Wells Fargo & Co. and Citigroup Inc. led financial shares to their steepest gain in a week on Ackman's plan. TJX Cos., owner of the T.J. Maxx and Marshalls discount chains, led a rally in retailers after posting profit that topped analysts' estimates.

The Standard & Poor's 500 Index gained 2.41 points, or 0.2 percent, to 1,351.19 at 12:57 p.m. in New York. The Dow Jones Industrial Average rose 12.45, or 0.1 percent, to 12,349.67. The Nasdaq Composite Index increased 6.9, or 0.3 percent, to 2,313.1. About four stocks rose for every three that fell on the New York Stock Exchange.

Stocks dropped earlier in the day on concern competition will reduce profits among wireless networks and faster inflation will keep the Federal Reserve from cutting interest rates.

Hewlett-Packard rose $3.33 to $47.28 First-quarter net income increased 38 percent to $2.13 billion, or 80 cents a share, from $1.55 billion, or 55 cents, a year ago. Excluding expenses for acquisitions, profit was 86 cents a share, five cents more than the average analyst estimate in a Bloomberg survey. The company also raised its annual sales forecast on increasing demand overseas.

Tech Rally

Technology companies in the S&P 500 added 1.3 percent as a group, the steepest advance among 10 industries.

Wells Fargo, the biggest bank on the West coast, climbed 67 cents to $30.53. Citigroup added 39 cents to $25.71.

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.

Read more at Bloomberg

Wal-Mart Profit Climbs on Grocery, Electronics Sales

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

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

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

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

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

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

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

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

Share Performance

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

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

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

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

Consumer Spending

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

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

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

Read more at Bloomberg

Banks "quietly" borrow $50 billion from Fed: report

2008-02-19T06:46:00.001-08:00

(Reuters) - Banks in the United States have been quietly borrowing "massive amounts" from the U.S. Federal Reserve in recent weeks, using a new measure the Fed introduced two months ago to help ease the credit crunch, according to a report on the web site of The Financial Times.

The newspaper said the use of the Fed's Term Auction Facility (TAF), which allows banks to borrow at relatively attractive rates against a wide range of their assets, saw borrowing of nearly $50 billion of one-month funds from the Fed by mid-February.

Read more at Reuters

Fed's Stern says rate cuts should protect economy

2008-02-19T06:39:00.001-08:00

(Reuters) - The Federal Reserve's interest rate cuts are appropriate to restore stability in financial markets and prevent damage to the broader economy, Minneapolis Fed President Gary Stern said on Tuesday.

"Against the backdrop of the financial shocks that have beset the economy and their implications for the outlook, the reduction in the funds rate target appears wholly appropriate," he said in remarks prepared for delivery to the Financial Planning Association of Minnesota.

The Fed is responsible for restoring financial stability and protecting the broad economy from damage, Stern said.

"Policy is now better positioned to attain these objectives than formerly," he added.

Stern said the current situation is reminiscent of the early 1990s, when the economy faced "headwinds" after the 1990-91 recession, particularly tighter credit and a real estate bust.

Read more at Reuters

Bayer stops late-stage Nexavar trial

2008-02-18T08:41:00.001-08:00

(Reuters) - Bayer HealthCare, a U.S.-based unit of Bayer AG (BAYG.DE: Quote, Profile, Research), stopped a late-stage trial of Nexavar in patients with non-small cell lung cancer, after an independent data monitoring committee concluded that the study would not meet the main goal of improved overall survival.

In the late-stage study, patients received Nexavar in combination with chemotherapeutic drugs carboplatin and paclitaxel.

Bayer said higher mortality was observed in a certain subset of patients treated with the combination of Nexavar and the chemotherapeutic drugs, versus those treated with carboplatin and paclitaxel alone.

Bayer and co-developer Onyx Pharmaceuticals Inc (ONXX.O: Quote, Profile, Research) will review the findings of the analysis to determine what, if any, impact they have on other ongoing Nexavar lung cancer trials.

Read more at Reuters

Qatar Buys Credit Suisse Shares, Prime Minister Says

2008-02-18T08:27:00.001-08:00

(Bloomberg) -- Qatar is buying shares in Credit Suisse Group and plans to spend as much as $15 billion on European and U.S. bank stocks over the next year, the Gulf state's prime minister said in an interview.

``We have a relation with Credit Suisse and we bought some of the stock from the market, actually, but I cannot say what percentage because still we are in the process,'' Sheikh Hamad bin Jasim bin Jaber al-Thani, who is also chief executive officer of the Qatar Investment Authority, said in an interview late yesterday in Doha.

Persian Gulf sovereign wealth funds, whose coffers are swelling from near-record oil prices, and counterparts in Asia have been snapping up stakes in banks battered by U.S. subprime mortgage losses. Citigroup Inc. received $14.5 billion from investors including Singapore and Kuwait since mid-December.

``Subprime losses are clearly not confined to U.S. banks and European banks are seeking funding,'' Giyas Gokkent, head of research at National Bank of Abu Dhabi PJSC, said in a phone interview today. ``Gulf funds have surpluses to spend and are looking for long-term appreciation. If investments help develop their domestic financial markets too, so much the better.''

Bruno Daher, Credit Suisse's Dubai-based co-CEO for the Middle East, declined to comment when contacted on his mobile phone today, as did Zurich-based spokesman Marc Dosch. Credit Suisse jumped 1.60 Swiss francs, or 2.9 percent, to 56.60 francs ($51.33) at 1:13 p.m. in Swiss trading.

Buying Stakes

Credit Suisse said on Feb. 12 that fourth-quarter profit fell 72 percent after 1.3 billion francs of writedowns on debt and leveraged loans. The stock has fallen 31 percent since Oct. 10. Brady Dougan, CEO of Switzerland's second-biggest bank, scaled back risky investments before the debt-market slump that forced UBS AG, Switzerland's biggest bank, to report $14 billion in writedowns.

In the past six months, sovereign wealth funds made investments in Citigroup, Merrill Lynch & Co., Morgan Stanley and UBS, which is seeking shareholder approval to raise 13 billion Swiss francs from Singapore and an unidentified Middle Eastern investor through a sale of bonds convertible into shares.

Qatar's decision to buy Credit Suisse stock in the open market ``makes all the difference'' to investor confidence in the bank, according to Christof Reichmuth, CEO of Luzern-based Private Bank Reichmuth & Co.

`Sign of Strength'

``They are not selling equity or mandatory convertible bonds to boost their capital like UBS did,'' he said. ``Even though 2008 won't be a great year for Credit Suisse either, this should be read as a sign of strength rather than weakness.''

Wall Street banks have raised at least $59 billion, mostly from investors in the Middle East and Asia. Citigroup was propped up in November by a $7.5 billion investment from the Abu Dhabi Investment Authority, the world's richest sovereign fund, after losing almost half its market value.

State-managed funds in countries including Kuwait, Abu Dhabi and South Korea have ballooned to $3.2 trillion in assets. Fueled by record oil prices and rising currency reserves, sovereign fund assets may gain fourfold to $12 trillion by 2015, equal to the capitalization of the Standard & Poor's 500 Index, according to Morgan Stanley estimates.

First European Bank

Credit Suisse in March 2006 became the first European bank to get a license for the Qatar Financial Centre, a self-regulated business park designed to attract lenders to the Gulf state as part of a plan to diversify the economy away from oil and gas. The Swiss bank ``has had a long-standing relationship with Qatar,'' Joachim Straehle, head of private banking for Asia, the Middle East and Russia, said at the time.

When the Qatar Investment Authority sought to buy U.K. supermarket chain J Sainsbury Plc last year, Credit Suisse was among three European banks that agreed to underwrite $19 billion of loans to help pay for the buyout. Qatar in November abandoned the bid, citing ``deterioration'' in credit markets and demands by J Sainsbury's pension fund.

The Qatar Investment Authority is the largest shareholder in J Sainsbury, with a 25 percent stake, data compiled by Bloomberg show. The authority is the second-biggest investor in French publisher Lagardere SCA, and owns shares in Middle Eastern banks including Beirut-based BLC Bank SAL and Jordan's Housing Bank for Trade & Finance. It also bought a $205 million stake in Industrial & Commercial Bank of China Ltd. before the Beijing- based lender's 2006 initial share sale, according to a prospectus published at the time. The authority doesn't disclose holdings beyond regulatory requirements.

The Kuwait Investment Authority, which manages an estimated $250 billion for the Gulf state, is keen to buy into European financial companies ``if we are invited,'' Managing Director Bader al-Saad said last month.

Read more at Bloomberg

Banks at Risk From $203 Billion Writedowns, Says UBS

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

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

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

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

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

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

Read more at Bloomberg

U.S. December Trade Gap Narrows More Than Forecast

2008-02-14T07:11:00.001-08:00

(Bloomberg) -- The U.S. trade deficit narrowed more than forecast in December as exports reached record levels and Americans spent less on imported autos and goods from China.

The gap between imports and exports shrank 6.9 percent, the biggest decrease in more than a year, to $58.8 billion from $63.1 billion in November, the Commerce Department said today in Washington. The deficit for all of 2007 decreased for the first time in six years.

A weaker dollar and expansion of emerging economies are feeding overseas sales for U.S.-made goods and may forestall a deeper slump at U.S. manufacturers. The narrowing deficit is one of the few remaining bright spots for the economy and will probably lead the government to increase its estimate of fourth- quarter gross domestic product later this month.

``The trade balance is going to continue to be a support for the economy,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. ``The drop in imports is probably consistent with the view the domestic economy is turning quite soft.''

Economists had forecast the gap would narrow to $61.5 billion, according to the median of 76 projections in a Bloomberg News survey. Estimates of the deficit ranged from $57 billion to $66.5 billion.

The dollar, which had fallen against the euro earlier today, stayed lower after the report. It traded at $1.4609 per euro at 8:37 a.m. in New York, from $1.4573 late yesterday. The U.S. currency was little changed versus the yen, at 108.30 yen per dollar.

2007 Deficit Shrinks

For all of last year, the deficit shrank 6.2 percent to $711.6 billion, the biggest decrease since 1991. Last year was the first time the trade gap narrowed since 2001.

Exports rose 1.5 percent to $144.3 billion in December, setting a record for a 10th straight month and reflecting more demand for U.S. made capital equipment and industrial supplies. For the year, exports rose 12 percent to a record $1.622 trillion.

Imports in December declined 1.1 percent to $203.1 billion, reflecting lower demand for foreign-made autos, consumer goods, food and capital equipment.

Also contributing to the drop in imports was a 14 percent decline in purchases from China, which helped shrink the month's trade gap with the Asian nation 22 percent to $18.8 billion. Petroleum imports rose 4.2 percent to a record $36 billion as the average price rose to $82.76 a barrel, also the highest monthly average ever. Prices increased in late December and early January and may push up the value of imports for the January report. They have since declined.

Fourth-Quarter Growth

Today's report may cause the Commerce Department to revise its estimate of fourth-quarter economic growth higher. The government projected last month that the trade gap narrowed to a $521 billion annual pace in the last three months of 2007. For all of last year, trade contributed 0.55 percentage point to growth, the most since 1991.

The government will release a revised estimate of the expansion for the last three months of 2007 on Feb. 28.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson are scheduled to testify to the Senate Banking Committee later today on the state of the U.S. expansion. Central bank policy makers have forecast the economy will avoid a recession.

``The Fed's policy actions should help to promote a pickup in growth over time,'' Fed Bank of San Francisco President Janet Yellen said in a speech on Feb. 12. ``I consider it most probable that the U.S. economy will experience slow growth, and not outright recession, in coming quarters.''

Fed's Rate Cuts

The Fed's Open Market Committee is scheduled to next vote on interest-rate policy on March 18. Policy makers lowered the benchmark rate by three-quarters of a percentage point in an emergency decision announced Jan. 22 and followed that with a half-point cut at the scheduled Jan. 29-30 meeting.

After eliminating the influence of prices, the trade deficit decreased to $49.3 billion from $53.6 billion. This is the figure the government uses in calculating GDP.

For the year, the trade deficit with China, the second- largest U.S. trading partner after Canada, increased 10 percent to a record $256.3 billion.

The gap with China is a political sticking point for the U.S. and other countries.

Group of Seven policy makers, meeting in Tokyo last weekend, said China should do more to defuse global trade tensions by allowing the yuan to climb against the dollar and other currencies. The G-7 also forecast the U.S. economy may slow further, eroding global growth.

Read more at Bloomberg

MBIA Says It Can Weather Slump, Doesn't Need Bailout

2008-02-14T07:10:00.001-08:00

(Bloomberg) -- MBIA Inc., the world's biggest bond insurer, said it is equipped to survive the slump in prices of mortgage securities and dismissed suggestions that the industry needs a rescue or stronger federal oversight.

``A bailout of highly credit-worthy companies who, at most, are at risk of losing the very highest ratings available, is misplaced,'' MBIA Chief Financial Officer Charles Chaplin said in prepared remarks to be delivered today at a hearing of the House Financial Services subcommittee on capital markets in Washington.

Chaplin and Ambac Financial Group Inc. Chief Executive Officer Michael Callen will make their presentations on Capitol Hill as they try to fend off credit rating downgrades and critics who say the companies may be headed for bankruptcy. One of the most vocal skeptics, hedge fund manager William Ackman, will also deliver remarks today alongside the MBIA and Ambac executives.

MBIA, based in Armonk, New York, and Ambac are among five companies struggling to maintain their top bond insurance credit ratings after a slump in the value of mortgage-linked securities the companies guaranteed. Standard & Poor's, Moody's Investors Service and Fitch Ratings are reviewing MBIA's top rating for a possible downgrade. Fitch already cut its AAA ratings on New York-based Ambac's insurance unit to AA. Ambac is also being scrutinized by Moody's and S&P.

``MBIA is more than adequately capitalized to meet obligations to policyholders,'' Chaplin, 51, said in his testimony.

Rescue Plans

Ambac said in a statement last night that Callen will tell the committee the company's main challenge is to achieve ``ratings stability.''

MBIA rose 61 cents to $12.25 at 9:38 a.m. in New York Stock Exchange composite trading. Ambac climbed 19 cents to $9.56.

MBIA and Ambac tumbled more than 80 percent in the past year in New York trading as they posted record losses of more than $5 billion and concern grew the companies may not get enough capital to sustain their ratings, casting doubt on $2.4 trillion of municipal and structured finance debt.

New York Insurance Department Superintendent Eric Dinallo last month organized banks to begin plans for a rescue of the insurers and said he may consider strengthening his oversight. Dinallo will also appear before the committee today, as will New York Governor Eliot Spitzer, U.S. Securities and Exchange Commission director Erik Sirri and Keith M. Buckley, a group managing director at Fitch.

Buffett's Offer

Dinallo will tell lawmakers he will consider splitting the bond insurers into two businesses, according to prepared testimony. ``One would have the municipal bond policies and any other healthy parts of the business,'' Dinallo said. ``The other would have the structured finance and problem parts of the business.''

Billionaire investor Warren Buffett yesterday offered to take over $800 billion of the municipal debt guaranteed by MBIA, Ambac and FGIC Corp., the fourth-largest bond insurer. Ambac yesterday said it rejected the offer. Two other insurers haven't responded, Buffett told CNBC television this week.

Spitzer told CNBC today that while Buffett's proposal would benefit municipalities, it wouldn't help the ``bad bank'' piece of the bond insurers' business. ``We don't want to create that schism yet if it can be avoided,'' Spitzer said.

Read more at Bloomberg

YRC to cut 1,100 jobs

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

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

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

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

Read more at Reuters

NY AG probes health insurers over reimbursement

2008-02-13T10:10:00.001-08:00

(Reuters) - New York Attorney General Andrew Cuomo said on Wednesday he is conducting an industry- wide probe of health insurers into an alleged scheme to defraud consumers by manipulating reimbursement rates.

At the center of the scheme is Ingenix, the nation's provider of health care billing information, which serves as a conduit for rate data to the largest insurers in the country, Cuomo said in a statement.

Cuomo intends to sue Ingenix, its parent, UnitedHealth Group Inc, and three additional subsidiaries.

Read more at Reuters

Paulson sees slower economy, to rush tax rebates

2008-02-13T10:09:00.001-08:00

(Reuters) - Treasury Secretary Henry Paulson on Wednesday stood by his view that the economy will avoid recession this year and grow at a slower pace, and that the Treasury will act quickly to distribute tax rebate payments.

"The U.S. economy is diverse and resilient, and our long-term fundamentals are healthy. I believe our economy will continue to grow, although at a slower pace than we have seen in recent years," Paulson said in prepared testimony to the U.S. House of Representatives Budget Committee.

President George W. Bush on Wednesday is expected to sign into law a $152 billion fiscal stimulus package that will provide tax rebates to some 130 million Americans, with most about $600 for an individual and $1,200 for a couple.

Paulson said the Internal Revenue Service would simultaneously manage the spring tax filing season and preparations for issuing the rebate payments starting in early May.

"Payments will be largely completed this summer, putting cash in the hands of millions of Americans at a time when our economy is experiencing slower growth," he said. "Together, the payments to individuals and the incentives for businesses will help create more than half a million jobs by the end of this year."

Paulson also called on Congress to aid the housing sector by passing legislation that will modernize the Federal Housing Administration and create a new, stronger regulator for Fannie Mae and Freddie Mac, the government-sponsored housing finance enterprises.

Under the stimulus plan, Fannie and Freddie will be temporarily allowed to invest in larger mortgages, providing more resources for refinancing troubled mortgages in costly coastal housing markets.

Fed Interest-Rate Cuts Fail to Lower Borrowing Costs

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

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

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

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

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

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

`Close to 50-50'

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

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

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

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

Bond Premiums

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

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

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

More Rate Cuts

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

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

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

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

Read more at Bloomberg

Economy near contraction in 1st quarter: Philly Fed

2008-02-12T11:25:00.001-08:00

(Reuters) - The U.S. economy will struggle to grow in the first quarter of this year and faces an almost 50 percent chance of contracting, a quarterly survey issued by the Philadelphia Federal Reserve Bank showed on Tuesday.

Unemployment will edge higher given feeble job creation in the first three months of the year as the world's largest economy teeters on the brink of shrinking for a second consecutive quarter.

Forecasters saw a 47 percent probability of contraction in gross domestic product this quarter and a 43 percent chance in the second quarter, levels not seen since the recession in 2001 in the wake of the dot-com bubble, the survey said.

"Although the forecasters' median estimate for real GDP this quarter and the next suggests slow but positive growth, they think the risk of a contraction is high," it said.

"These current-quarter and one-quarter-ahead risks have not been this high since the survey of 2001 Q4, when they were 82 percent and 49 percent, respectively," the survey added.

The 50 forecasters pegged current-quarter growth in real GDP at a rate of just 0.7 percent, a sharp drop from the previous forecast of 2.2 percent.

According to the government's initial estimates, U.S. GDP grew just 0.6 percent in the fourth quarter of 2007.

Read more at Reuters

AIG says potential derivatives loss not material

2008-02-12T11:24:00.001-08:00

(Reuters) - American International Group Inc (AIG.N: Quote, Profile, Research) on Tuesday moved to calm investors shaken by its earlier disclosure that derivatives losses could more than triple to about $5 billion, a development that earned it a rebuke from its auditor for a "material weakness" in internal controls.

AIG, the world's largest insurer, said in a statement on Tuesday that the size of any write-down was not expected to be material to the company.

AIG shares gained 4 percent to $46.60, after falling nearly 12 percent on Monday to the stock's lowest level in five years.

Investors pushed the shares down on Monday, after AIG disclosed in a regulatory filing that its mark-to-market unrealized losses on a credit default swap portfolio within its AIG Financial Products unit were expected to be about $4.88 billion through November, compared with an earlier indication of a loss of up to $1.5 billion.

The loss could wipe out AIG's fourth-quarter earnings, some analysts said.

AIG, which is expected to release quarterly results later this month, has not yet disclosed whether it saw further deterioration in December.

"The valuation adjustment as of December 31, 2007, is likely to be significant, and will likely cause AIG to report an accounting loss for the quarter," S&P credit analyst Rodney Clark said.

Read more at Reuters

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.

Conservationists battle coal firm

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

(Fin24) - A legal battle is brewing between conservationists and coal exploration company DMC Coal Mining over its plans to prospect for anthracite and torbanite in one of South Africa's most important regions for rare and endangered birds.

DMC Coal Mining has obtained prospecting rights to two properties in the Wakkerstroom region in south-eastern Mpumalanga and is also attempting to get prospecting rights over a further two properties.

This region had been previously examined by another coal exploration group - Keaton Energy - which decided not to apply for prospecting rights because of the sensitivity of the area.

DMC Coal Mining's plans are now being opposed by a number of environmental organisations including Birdlife South Africa, the Wildlife and Environment Society of South Africa, WWF-SA, the Endangered Wildlife Trust and the Ekangala Grassland Trust.

Reason is the region's importance as grassland and wetland habitat hosting a number of rare and endangered birds including Wattled Crane, Rudd's Lark, Botha's Lark and Blue Crane.

Miller Says Microsoft Needs to Enhance Yahoo Offer

2008-02-12T11:04:00.001-08:00

(Bloomberg) -- Legg Mason Inc. fund manager Bill Miller, the second-biggest shareholder of Yahoo! Inc., said Microsoft Corp. will need to raise its $44.6 billion offer to buy the Internet company.

``We think Microsoft will need to enhance its offer if it wants to complete a deal,'' Miller, 58, wrote in a Feb. 10 letter to shareholders released today by the Baltimore-based company.

Miller heads Legg Mason Capital Management, which owned about 80 million shares, or 6 percent, of Yahoo on Sept. 30, Bloomberg data show. Microsoft, the biggest software maker, on Jan. 31 bid $31-per-share to buy Yahoo, 62 percent more than the closing price the day before the offer. Yahoo yesterday rejected the bid, saying it ``substantially undervalues'' the company.

``We think this deal is a strategic imperative for Microsoft, and that Yahoo is in a tough spot if it wishes to remain independent,'' Miller wrote. ``It will be hard for Yahoo to come up with alternatives that deliver more value than Microsoft will ultimately be willing to pay.''

Microsoft, based in Redmond, Washington, responded yesterday to the Yahoo board's rejection with a statement calling its offer a ``full and fair proposal.'' The company didn't disclose its next steps and said it is ``moving forward'' with its $31-a-share bid for Sunnyvale, California-based Yahoo.

Miller said Legg Mason's own calculations put Yahoo's value in the range of $40 or more per share.

Countrywide Deal

Miller, whose subsidiary is the biggest holder of Countrywide Financial Corp., said in the letter released today that he hasn't decided to back the bid by Bank of America Corp. to buy the largest U.S. home lender.

The offer has ``truncated'' any gains in Countrywide's shares, Miller said. Bank of America, based in Charlotte, North Carolina, on Jan. 11 agreed to buy Countrywide after the stock lost 85 percent of its value in a year. The bank's takeover bid equates to less than $8 a share for Calabasas, California-based Countrywide.

Read more at Bloomberg

Buffett Bids for MBIA, Ambac Municipal Bond Contracts

2008-02-12T10:50:00.001-08:00

(Bloomberg) -- Billionaire investor Warren Buffett said he offered to shore up $800 billion of municipal bonds guaranteed by troubled MBIA Inc., Ambac Financial Group Inc. and FGIC Corp. in a bid to gain 33 percent of the debt insurance market.

Buffett's Omaha, Nebraska-based Berkshire Hathaway Inc. would assume the risk of the debt, he told CNBC television. The offer excludes the bond insurers' subprime-related obligations. One company has already rebuffed the proposal and the two others haven't responded, Buffett said.

The offer drove U.S. stocks higher on optimism the plan would help calm credit markets and prevent a slump in the value of municipal debt. MBIA and Ambac dropped on concern Buffett's proposal would leave them with mortgage securities that caused more than $5 billion of losses last quarter, while Berkshire would gain a municipal guaranty business that has generated profit for more than 14 years.

``He is offering to take the fattest, most profitable part of their business,'' said Jerry Bruni, president and portfolio manager, at J.V. Bruni and Co. in Colorado Springs, Colorado. Bruni has $650 million under management including Berkshire shares. The firm sold MBIA last month. ``I can't imagine why they would want to do that. If I were MBIA or Ambac, this does not sound like a good offer.''

$5 Billion

Berkshire would put up $5 billion as capital for the plan and is offering to insure the municipal debt for 1.5 times the premium charged by the bond insurers to take on the guarantee. The insurers could accept the offer and back out within 30 days for a fee, Buffett said.

Berkshire spokeswoman Jackie Wilson didn't return calls seeking more information on the plan, which Buffett announced during the CNBC interview. Spokespeople for MBIA, Ambac and FGIC didn't return calls seeking comment.

Armonk, New York-based MBIA, the largest bond insurer, Ambac and FGIC are on the verge of losing their AAA credit ratings, potentially crippling their sales to municipalities after losing $5 billion from insuring mortgage-related securities.

The bond insurers lend their AAA stamp to $2.4 trillion of debt, and face potential losses of as much as $41 billion if the value of debt they insure continues to decline, according to JPMorgan Chase & Co. analysts.

MBIA, which started as the Municipal Bond Insurance Association in 1974, Ambac and FGIC are reeling from their expansion beyond guaranteeing municipal debt to collateralized debt obligations, which repackage assets such as mortgage bonds and buyout loans into new securities with varying risk. As the value of some CDOs plummets, ratings companies are pressing the insurers to add more capital.

`Ceding the Book'

``If you gave up your entire municipal business, that's the book of business where the value in the companies is right now,'' said Robert Haines an analyst in New York for CreditSights Inc., an independent bond research firm. ``You'd essentially be ceding that whole book to Buffett and what you'd be left with would be the book of business where all the troubles are.''

MBIA's AAA insurance rating is being reviewed by Moody's Investors Service, Standard & Poor's and Fitch Ratings. Ambac's insurance unit had its AAA rating cut to AA by Fitch and is being scrutinized by Moody's and S&P. FGIC's guaranty business had its top rating cut to AA by Fitch and S&P and is being reviewed by Moody's.

MBIA fell $1.86, or 14 percent, to $11.72 at 12:45 p.m. in New York Stock Exchange composite trading. New York-based Ambac, the second-largest bond insurer, dropped $1.65 to $8.83. Berkshire declined $200 to $139,750.

U.S. Stocks Rise

Fourth-ranked FGIC, based in Stamford, Connecticut, is a closely held company owned in part by New York private-equity firm Blackstone Group LP and mortgage insurer PMI Group Inc. PMI, based in Walnut Creek, California, rose 20 cents, or 2.4 percent, to $8.47, and Blackstone rose 40 cents, or 2.3, to $18.18.

The Standard & Poor's 500 Index added 18.6 points, or 1.4 percent, to 1,357.73 on optimism Buffett's plan would protect municipal bonds, even if it comes at the expense of the insurers. Treasuries fell after the plan reduced demand for the safety of government debt.

``This news is encouraging,'' said Michael Ross, a municipal bond analyst at Morgan Keegan & Co. in Memphis, Tennessee. ``For weeks the focus has been on rating reviews and watching bonds tumble and stocks stumble. It tells us that behind the scenes discussions are occurring.''

Credit-Default Swaps

Credit-default swaps on MBIA were trading at 17.5 percent upfront and 5 percent a year, up from 16 percent initially and 5 percent a year yesterday, according to London-based CMA Datavision. That means it costs $1.75 million upfront and $500,000 a year to protect $10 million in MBIA bonds for five years.

Ambac's upfront price rose to 17.5 percent from 15.5 percent yesterday, CMA data show. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates worsening perceptions of credit quality; a decline, the opposite.

The threat of downgrades was great enough for New York Insurance Superintendent Eric Dinallo to attempt to organize a bank-led rescue of bond insurers.

Bank Rescue

Buffett's proposal ``provides one option to protect municipal issuers and investors,'' Dinallo said in a statement today in response to Buffett's plan.

``It would be a great deal for Berkshire Hathaway and a great deal for the municipal bondholders,'' though not the bond insurers, said David Havens, a credit analyst at UBS AG in Stamford, Connecticut. ``The regulators and the politicians would love to see this happen.''

Eight banks including New York-based Citigroup Inc. and UBS in Zurich are working on financing for Ambac, a person briefed on the plan said two weeks ago. Credit Agricole SA's Paris-based Calyon unit is leading talks to bail out FGIC, the Wall Street Journal reported last week, citing people familiar with the situation.

Buffett, 77, has built Berkshire into a company with a market capitalization of $216 billion by making contrarian bets, purchasing stocks he regards as undervalued and selling insurance on risks that others won't cover.

Read more at Bloomberg

Sovereign's update a shocker

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

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

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

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

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

Read more at Reuters

BNP Paribas not planning SocGen bid: source

2008-02-11T06:39:00.001-08:00

(Reuters) - French bank BNP Paribas (BNPP.PA: Quote, Profile, Research) is not preparing a hostile takeover bid for embattled rival Societe Generale (SOGN.PA: Quote, Profile, Research) but could be interested in a friendly deal, a source familiar with the bank's thinking said on Monday.

A French financial newsletter report on Monday that BNP was preparing a 93-euros-a-share offer for SocGen was "total rubbish", the source said.

Read more at Reuters

G7 discussed joint action to calm financial markets

2008-02-11T06:35:00.001-08:00

(Reuters) - Finance leaders from the Group of Seven industrialized nations discussed collective action to calm markets if price moves become irrational, Eurogroup Chairman Jean-Claude Juncker was quoted as saying on Monday.

Juncker, who chairs the Eurogroup -- the monthly meetings of euro zone finance ministers and the European Central Bank -- told the Luxemburger Wort newspaper in an interview that turbulence on financial markets could continue for months.

"We are not yet at the end of the market crisis," Juncker was quoted as saying.

"The corrections will drag on for a few weeks, months. We have agreed in Tokyo that if there are irrational price movements in the markets, we will collectively take suitable measures to calm the financial markets," he said.

Asked what form such collective action may take, he said:

"Whoever has a strategy, should not set it out. Otherwise it will lose its effect if it is explained."

Finance ministers and central bankers from the G7 -- the United States, Canada, Japan, Britain, France, Germany and Italy -- said on Saturday in Tokyo that financial market turmoil was serious and persisting.

Read more at Reuters

Turkey Finds Growth Boom Hazardous as Unlicensed Kill

2008-02-11T06:24:00.001-08:00

(Bloomberg) -- An explosion at an illegal fireworks factory in Istanbul on Jan. 31 sent bloodied survivors running for safety as bodies littered the street outside.

``One of them had his head smashed; I saw his brain,'' said Mustafa Guvenbag, 32, who works in a nearby sock factory and lives close to the area. ``These people have been making bombs and they are killing us. Someone has to stop them.''

The disaster, which killed 22 people and injured about 100, underscores the dangers of Turkey's unrestrained economic growth. Unlicensed businesses and those that employ unregistered workers account for almost half the country's economy, which expanded an average of 7 percent annually during the past five years, according to government estimates.

After the explosion, district Mayor Murat Aydin promised to do more to regulate businesses that have proliferated with little oversight. In the Davutpasa district, where the accident occurred, an estimated 20,000 factories have sprung up next door to homes and shops.

``We have been conducting very tight and serious inspections on such factories over the last few years, but this accident shows that we need to do more,'' Aydin said.

The destroyed factory was profiting from growing demand for sparklers and skyrockets. Increased incomes have spurred working- class families to set off fireworks at weddings and other celebrations, copying their rich neighbors.

Raining Metal

The disaster was caused by an explosion in a pressure boiler in a denim factory on the second floor of the building, Aydin said. The fire spread to the third and fourth floors, igniting materials used to make fireworks and causing a second, more powerful blast.

Metal and concrete debris rained down on an area 50 yards in diameter, blocking nearby roads and making it difficult for ambulances and aid workers to reach the scene. Most of the people killed were people on the streets outside, or workers in nearby buildings.

The fireworks plant was identified as unlicensed at the end of last year and ordered to submit a permit application, Aydin said. Inspectors who visited the site were told the factory produced plastic toys. The denim plant was also operating illegally and had been shut down by officials four times in the past, according to the mayor.

Municipalities have encouraged entrepreneurs to skirt licensing laws by repeatedly granting amnesties to businesses set up without planning permission and accepting bribes, said Tores Dincoz, a board member at the Chamber of Architects of Turkey.

800 Inspectors

``How did those explosives get there is one question, and how can the mayor claim his officials thought they were making plastic toys is another one,'' Dincoz said. ``If this is the way officials conduct inspections, I can't imagine the state of security in this country.''

Following the deaths, Labor Minister Faruk Celik ordered 800 inspectors to check all businesses in Istanbul to ensure they are being run legally.

Many factories in Davutpasa don't take basic safety precautions such as installing alarms or providing emergency exits and conducting regular machinery inspections, Aydin said. This is particularly dangerous in Davutpasa because a residential area sits about 100 yards away, separated from the plants by a gas station and a soccer field.

At least one-fifth of the area's factories are illegal, with many producing counterfeit money or bootleg raki, the national aniseed-flavored spirit, Referans newspaper reported today, citing municipal officials. More than 20 people died after being poisoned by fake raki in 2005.

Read more at Bloomberg

GM Proves Demise to No. 2 Premature on Topping Toyota Overseas

2008-02-11T06:14:00.001-08:00

(Bloomberg) -- Investors doubting General Motors Corp.'s comeback after a third straight annual loss should count the 2,500 crates of partially built Chevrolets leaving South Korea every day for plants in Poland and China.

With about six of every 10 new GM vehicles now sold overseas as U.S. production shrinks, the Detroit-based company fended off Toyota Motor Corp. last year and preserved its 77- year reign as the world's biggest automaker. Rising output abroad and a cost-saving labor contract may push profit to $12.75 a share by 2010, said Burnham Securities Inc. analyst David Healy.

Read more at Bloomberg

CDO Losses Driving Credit-Default Swaps to Record, Analysts Say

2008-02-11T06:12:00.001-08:00

(Bloomberg) -- Banks are driving the cost of protecting corporate bonds from default to the highest on record as they seek to hedge against losses on collateralized debt obligations, according to traders of credit-default swaps.

Contracts on the benchmark Markit iTraxx Crossover Index soared 17 basis points to 547 at 12:50 p.m. in London, according to JPMorgan Chase & Co. The Markit iTraxx Asia Ex-Japan Series 8 Index soared the most in one day, rising 15 basis points to an all-time high of 144.5, according to BNP Paribas SA. The Markit CDX North America Investment Grade Index rose 2.5 basis points to 132.25, Deutsche Bank AG prices show.

``Banks have taken losses, spreads are going wider and they are just cutting positions,'' said Andrea Cicione, a senior credit strategist at BNP Paribas in London. ``Lenders are probably reducing risk positions in a deteriorating credit environment by unwinding CDOs.''

Banks are facing mounting writedowns on CDOs, securities that package credit-default swaps, bonds or loans, as the fallout from the collapse of U.S. subprime mortgages spreads across financial markets. The Group of Seven estimates banks worldwide will suffer writedowns of $400 billion on home loans, German Finance Minister Peer Steinbrueck said at a weekend meeting of officials and central bankers in Tokyo.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates worsening perceptions of credit quality; a decline, the opposite.

CDO Downgrades

Fitch Ratings may downgrade the $220 billion of CDOs it assesses that are based on corporate securities because of rising losses, the New York-based company said last week. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions of as much as five steps, the company said.

Ratings firms are responding to criticism that they failed to react quickly enough as increasing defaults on subprime mortgages 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 top-rated debt to speculative grade, or junk.

LevX Index

Falling prices for leveraged loans may be forcing banks to unwind collateralized loan obligations. UBS AG and Wachovia Corp. are trying to sell $700 million in loans because of the unwinding of their so-called market value CLOs, which package the debt and are based on the net value of the underlying loans, the Wall Street Journal reported.

The Markit iTraxx LevX Senior Index of credit-default swaps on 26 European loans fell to a record of 90.625, according to Bear Stearns Cos. A level below 100 indicates loans are worth less than face value.

The value of the most-traded U.S. leveraged loans plunged to a record low amid reports of forced CLO sales, according to Standard & Poor's.

In the European credit-default swaps market, contracts on Carlsberg A/S in Copenhagen, the largest Nordic brewer, jumped 22 basis points to 157, according to CMA Datavision in London. The company is buying brewer Scottish & Newcastle Plc with Heineken NV.

Read more at Bloomberg

Retailers struggle through dismal January

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

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

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

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

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

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

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

Read more at Reuters

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

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

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

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

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

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

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

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

Forecast Lowered

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

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

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

New-Home Sales

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

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

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

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

Read more at Bloomberg

Sales at U.S. Retailers Languish on Recession Concern

2008-02-07T07:13:00.001-08:00

(Bloomberg) -- Sales at U.S. retailers languished in January as discounts failed to lure consumers concerned that a recession is coming. Macy's Inc. and Nordstrom Inc. reported declines, while sales at Wal-Mart Stores Inc. rose less than analysts estimated.

Sales at stores open at least a year gained 0.5 percent at Wal-Mart, the retailer said today, as winter storms hurt sales in the Midwest and fewer customers redeemed gift cards. Limited Brands Inc. and Target Corp. also reported declines larger than analysts predicted.

Department stores and mall-based shops slashed prices on clothing and bedding to attract customers following the slowest holiday season since 2002. Consumers refrained from spending as median home values probably fell for the first time since the Great Depression and employers cut back on hiring.

``You're seeing the continuing unfolding of the consumer spending slowdown,'' said Ken Perkins, president of Retail Metrics LLC, a Swampscott, Massachusetts-based research firm. ``Clearance sales were widespread, there were certainly enough incentives to draw the consumer in under normal economic circumstances, but consumers are hunkering down.''

Department stores have been hit hard by a decline in customer visits to malls and a lack of new products that excite consumers, Perkins said. Nordstrom's sales sank 6.6 percent. Analysts surveyed by Retail Metrics expected a 0.4 percent decline.

Macy's, the second-biggest U.S. department-store chain, said yesterday that January same-store sales dropped 7.1 percent, cut its fourth-quarter profit forecast and said it will eliminate 2,300 jobs. Kohl's, the fourth-largest U.S. department-store chain, said same-store sales fell 8.3 percent, worse than the estimate for a 7.9 percent drop.

Share Performance

Wal-Mart, the world's largest retailer, rose 7 cents to $48.90 at 9:41 a.m. in composite trading at the New York Stock Exchange. The Standard & Poor's 500 Retailing Index of 31 members rose 2.3 percent. It has slumped 5.1 percent this year before today compared with a 9.7 percent decline by the broader S&P 500.

January sales at U.S. retailers probably were unchanged, the International Council of Shopping Centers said on Feb. 5. That would be the first month without a gain since last April.

Last month will probably turn out to be the worst January performance on record, said Michael Niemira, the New York-based trade group's chief economist. The ICSC surveys almost 60 chains and will report figures later today.

Same-store sales are seen as a key gauge of a retailer's performance because they exclude locations that have recently opened or closed.

Limited Brands

Sales dropped 8 percent at Limited Brands, owner of the Victoria's Secret chain. The sales decrease exceeded the average analyst estimate for a decline of 7.1 percent. American Eagle Outfitters Inc. said yesterday that same-store sales fell 7 percent.

Wal-Mart had predicted a January same-store sales gain of 2 percent, the same as the average Retail Metrics estimate.

Target Corp., the second-largest U.S. discount chain, reported a 1.1 percent decline. It had said Jan. 21 it expected January sales to be ``near the low end'' of its forecast range of a 1 percent decrease to a 1 percent gain.

Other retailers performed better than analysts expected.

Children's Place Retail Stores Inc. reported a 6 percent same-store sales increase, ahead of the 3.6 percent estimated gain. AnnTaylor Stores Corp., a women's clothing retailer, said sales were unchanged from a year earlier, better than the estimated 3.7 percent decline. Chief Executive Officer Kay Krill said in the statement it was ``promotionally aggressive'' to clear inventory.

Read more at Bloomberg

BHP Falls After Raising Rio Offer to $147 Billion

2008-02-06T06:54:00.001-08:00

(Bloomberg) -- BHP Billiton Ltd., the world's largest mining company, tumbled in London trading after raising its hostile bid for Rio Tinto Group to $147 billion and reporting the first drop in profit in more than five years.

BHP declined as much as 6.4 percent in London and fell the most in 20 years in Sydney after increasing its offer 13 percent to 3.4 shares for every one of Rio Tinto's. The Melbourne-based company reported today its fiscal first-half net income unexpectedly slipped 2.4 percent to $6 billion, citing higher production costs and lower prices for some metals.

Chief Executive Officer Marius Kloppers sweetened the bid five days after Aluminum Corp. of China, China's biggest aluminum company, bought a stake in Rio to block the takeover. The combination of BHP and Rio, the world's largest mining industry takeover, would cut operating costs in Western Australia and vie with Brazil's Cia. Vale do Rio Doce as the world's largest supplier of iron ore.

``BHP would not have been surprised by the emergence of the Chinese, but it has forced them to indicate they're serious about pursuing this deal,'' said Richard Dennis, a fund manager at Bournemouth, U.K.-based Wessex Asset Management, which has $490 million invested in natural-resource stocks. ``There will be another bid to come from BHP if they are to get final acceptance.''

BHP dropped as much as 102 pence to 1,495 pence, the biggest slide in more than two weeks, and was 4.6 percent lower at 1,523 pence as of 11:28 a.m. on the London Stock Exchange. Earlier it slumped 7.5 percent on the Australian Stock Exchange, the biggest decline since December 1987, amid a plunge in Asian stocks.

`Ratio Makes Sense'

Rio fell 14 pence, or 0.3 percent, to 5,420 pence in London. The shares traded at a premium of 2.7 percent over the value of the bid, based on BHP's current share price. Aluminum Corp. of China Ltd., or Chalco, Chinalco's publicly traded unit, declined as much as 12 percent in Hong Kong trading.

State-owned Chinalco and Alcoa Inc. paid 6,000 pence ($117.85) a share for a 9 percent stake in Rio last week. That equated to 4.1 BHP shares for every one of Rio's London shares compared with BHP's initial three-for-one offer.

``Rio should be having a discussion,'' Don Williams, who helps manage $1.3 billion at Platypus Asset Management, said by phone from Sydney today. He sold half of Platypus's Rio holding on Feb. 4 after the Chinalco and Alcoa transaction. ``This ratio makes sense.''

BHP's bid values Rio at 13.6 times earnings before interest and tax, compared with the 13.7 times that Rio paid for Alcan Inc. last year.

Moody's Investors Service may cut BHP's fifth-highest investment-grade ranking of A1 following the offer, the credit assessor said in a statement. Standard & Poor's today affirmed BHP's rating and said the outlook was ``negative.''

Debt Risk

The risk of BHP and Rio defaulting on their debt, as measured using credit-default swaps, increased to records. Contracts on the BHP bonds, which rise as perceptions of credit quality deteriorate, gained 17.5 basis points to a record 110 basis points at 5:18 p.m. in Sydney.

BHP's debt will increase almost seven times to about $85 billion should the takeover proceed, said Anita Yadav, head of credit and hybrid research at UBS AG in Sydney.

Credit-default swaps on Rio Tinto's debt increased 10 basis points to 110 basis points. The price means it costs $110,000 to protect $10 million of debt from default for five years.

BHP, which made an initial approach in November, had until today to formalize its offer or walk away for six months after a U.K. Takeover Panel ruling.

Possible Counter Bid

Chinalco may be preparing a counter bid, the London-based Times newspaper said, citing unidentified people. Lu Youqing, vice president of Chinalco, wouldn't comment on the newspaper report when contacted by telephone. Chinalco and Alcoa said in a statement today they will ``closely monitor further developments.''

``What BHP faces is not just a state-owned company, but a country,'' Geoffrey Cheng, a Hong Kong-based mining analyst with Daiwa Institute of Research (HK) Ltd., said by telephone. ``I don't think Chinalco will make a general offer for Rio Tinto as it may face many regulatory hurdles.''

China needs raw materials to feed an economy that grew 11.4 percent in 2007, the fastest in 13 years. The nation's biggest commodity companies, including Chalco, have said they're concerned the combination would concentrate supplies and may wield too much pricing power.

``This is our first and only offer,'' Kloppers said in the media teleconference. ``We absolutely want full control of this company,'' Kloppers, 45, said. He wouldn't say whether it would be the final offer, a declaration that would prohibit him from raising the bid.

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