Recovery may take longer than usual: Greenspan

(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.

 

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Getty Images to be sold to Hellman & Friedman

(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.

 

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Dresdner Bank says to support Ambac rescue

(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.

 

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Auction-Rate Bonds Force `Predatory' Yields on Cities

(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.

 

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Ambac Rises on $3 Billion Rescue to Avert Downgrade

 (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.

 

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Oil seen heading higher after topping $100

(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."

 

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

(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.

 

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Morgan Stanley Hires Kenneth deRegt to New Role Overseeing Risk

(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.

 

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Philadelphia Fed February Factory Index Falls to -24

(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.

 

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

 (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.

 

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Wal-Mart Profit Climbs on Grocery, Electronics Sales

(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.''

 

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

(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.

 

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Fed's Stern says rate cuts should protect economy

(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.

 

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Bayer stops late-stage Nexavar trial

(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.

 

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Qatar Buys Credit Suisse Shares, Prime Minister Says

(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.

 

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Banks at Risk From $203 Billion Writedowns, Says UBS

 (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.

 

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U.S. December Trade Gap Narrows More Than Forecast

(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

(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

(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

(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

(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.

 

Read more more at Reuters

Fed Interest-Rate Cuts Fail to Lower Borrowing Costs

(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

(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

(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

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

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

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

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

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

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

 

Read more at Fin24

Conservationists battle coal firm

(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.
 

 

Read more at Fin24

Miller Says Microsoft Needs to Enhance Yahoo Offer

(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

(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

(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

(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

(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

 (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

(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

(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.

 

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Retailers struggle through dismal January

(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."

 

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

(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.

 

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Sales at U.S. Retailers Languish on Recession Concern

(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.

 

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BHP Falls After Raising Rio Offer to $147 Billion

(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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