(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.
Read more here
Wednesday, May 20, 2009
Tuesday, May 19, 2009
Boeing Sees ‘High Water Mark’ in Defense Spending
(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.
Read more here
“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.
Read more here
Sunday, May 17, 2009
Onyx sues Bayer over anti-cancer compound
(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.
Read more here
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.
Read more here
Biotech Jobs Germinate as San Francisco Diversifies Economy
(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.
Read more here
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.
Read more here
Thursday, May 14, 2009
Toyota Prius orders mount as shake-up looms
(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.
Read more here
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.
Read more here
Elliott Seeks Credit Swaps Payday in Failing Firms
(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.
Read more here
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.
Read more here
Wednesday, May 13, 2009
‘Hilton’ Chickens Are Essential to Stave Off Pandemic
(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.
Read more here
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.
Read more here
Tuesday, May 12, 2009
Greenspan sees "seeds of bottoming" for U.S. housing
(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.
Read more here
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.
Read more here
Monday, May 11, 2009
Microsoft sells its first U.S. corporate bond
(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.
Read more here
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.
Read more here
Thursday, May 7, 2009
DBS Profit Beats Estimates on Trading Increase
(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.
Read more here
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.
Read more here
Wednesday, May 6, 2009
Regulators put bank CEOs on notice
(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.
Read more here
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.
Read more here
Tuesday, May 5, 2009
Schwab Cuts Fund Fees Big-Time
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.
Read more here
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.
Read more here
Monday, May 4, 2009
Three more banks fail
(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.
Read more here
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.
Read more here
Sunday, May 3, 2009
China Shipping to Order Dry-Bulk Ships as Prices Fall
(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.
Read more here
“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.
Read more here
Tuesday, April 28, 2009
Say It Ain't So: Microsoft Launching Its Own Version Of Twitter
(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.
Read more here
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.
Read more here
Monday, April 27, 2009
Viterra May Buy ABB Grain for Up to A$1.6 Billion
(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
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
Thursday, April 23, 2009
S.Africa c.bank sees further GDP contraction in Q1
(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
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
Wednesday, April 22, 2009
Kirin Offers to Buy Australia’s Lion Nathan as Japan Sales Fall
(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
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
Monday, April 20, 2009
RBA says outlook for demand, output weaker than expected
(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
"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
Thursday, April 16, 2009
S.African stocks slide on miners, but rand rallies
(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
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
Wednesday, April 15, 2009
EBay to buy Korea's Gmarket
(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
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
(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
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
Tuesday, April 14, 2009
GE’s 72% Post-Sherin Bounce Shifts Focus to Industrial Profit
(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.
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.
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