(Reuters) - The jailed former boss of HealthSouth (HLS.N), Richard Scrushy, told a court on Tuesday he knew nothing about a criminal fraud at the company that has resulted in a $2.6 billion stockholder suit against him.
Scrushy was testifying for the first time since a series of high profile trials and suits against him which started in 2003. The suits stem from a $2.7 billion accounting scandal at the rehabilitation medical company.
Plaintiffs say they want to recover as much money as possible through the suit brought by stockholder Wade Tucker, who alleges Scrushy squandered and fraudulently paid out money to himself and other executives.
Scrushy, who came to court in leg shackles and a suit that hung loose on his shoulders, said he had no knowledge of financial problems at HealthSouth, reiterating the argument used at his 2005 criminal trial.
At that trial, his attorneys portrayed him as a duped chief executive who fell victim to five chief financial officers who have all pleaded guilty to fraud and conspiracy.
"That never happened. I never had a discussion where I asked them to do anything illegal," said Scrushy, in response to testimony from two former CFO's who described telling him they would not meet the company's financial goals. They said Scrushy asked them to fudge the numbers.
When asked about building a failed and expensive "digital hospital," that was the former CEO's brainchild and featured heavily in previous trials, Scrushy said:
"You would have been a complete bumbling idiot to build a hospital knowing you did not have the cash to build it. It makes no sense."
Read more here
Wednesday, 20 May 2009
Tuesday, 19 May 2009
Asian Currencies Weaken as Japan Slump Reignites Recession Woes
(Bloomberg) -- Asian currencies weakened, led by Indonesia’s rupiah, after a government report showed Japan’s economy shrank by a record last quarter, reigniting concern that a slump in consumer spending will prolong the global recession.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active regional currencies, ended a two-day gain on speculation investors will cut holdings of emerging-market assets in favor of safety in the dollar and yen. A sentiment index issued today in Australia showed pessimists outnumbered optimists for a 16th month in May, while the U.S. Commerce Department reported yesterday that housing starts unexpectedly fell.
“The tone of recent data has turned more cautious,” said Patrick Bennett, Hong Kong-based Asia foreign-exchange strategist at Societe Generale SA, France’s third-largest bank. A “correction” in regional currencies is “appropriate” following recent gains, he said.
The rupiah depreciated 1.4 percent, the biggest drop since March 25, to 10,370 per dollar as of 9:45 a.m. in Jakarta. South Korea’s won fell 0.2 percent to 1,252.30 and the Philippine peso dropped 0.3 percent to 47.42. The Asia Dollar Index declined 0.2 percent to 107.71.
Gross domestic product in Japan contracted 15.2 percent in the three months ended March 31, following a 14.4 percent decline in the previous quarter, the Cabinet Office said. Westpac Banking Corp. and Melbourne Institute said their consumer sentiment index fell 4.3 percent from April to 88.8 points, while the U.S. Commerce Department reported housing starts slid 13 percent last month to an annual rate of 458,000.
Export Demand
The yen gained against the euro after Japan’s GDP damped optimism the worst of the recession is over, spurring safe-haven demand. The yen rose to 129.87 per euro in Tokyo from 130.81 yesterday in New York. The dollar was at 95.58 yen from 95.97 yen.
Malaysia’s ringgit snapped a three-day gain and dropped 0.4 percent to 3.5490 per dollar in Kuala Lumpur, according to data compiled by Bloomberg.
Singapore, the U.S. and Japan were Malaysia’s three-biggest export markets in 2008, accounting for a combined 38 percent of shipments. Singapore’s overseas sales fell for a 12th month in April, easing 19.2 percent, the government said on May 18.
“Some of the rally in Asian currencies looks overdone in the short term,” said Mitul Kotecha, head of global foreign- exchange strategy at Calyon in Hong Kong. “Yesterday’s U.S. housing start numbers dampened sentiment. There’s a risk of consolidation before we see stronger moves going into the second half of the year.”
Read more here
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-active regional currencies, ended a two-day gain on speculation investors will cut holdings of emerging-market assets in favor of safety in the dollar and yen. A sentiment index issued today in Australia showed pessimists outnumbered optimists for a 16th month in May, while the U.S. Commerce Department reported yesterday that housing starts unexpectedly fell.
“The tone of recent data has turned more cautious,” said Patrick Bennett, Hong Kong-based Asia foreign-exchange strategist at Societe Generale SA, France’s third-largest bank. A “correction” in regional currencies is “appropriate” following recent gains, he said.
The rupiah depreciated 1.4 percent, the biggest drop since March 25, to 10,370 per dollar as of 9:45 a.m. in Jakarta. South Korea’s won fell 0.2 percent to 1,252.30 and the Philippine peso dropped 0.3 percent to 47.42. The Asia Dollar Index declined 0.2 percent to 107.71.
Gross domestic product in Japan contracted 15.2 percent in the three months ended March 31, following a 14.4 percent decline in the previous quarter, the Cabinet Office said. Westpac Banking Corp. and Melbourne Institute said their consumer sentiment index fell 4.3 percent from April to 88.8 points, while the U.S. Commerce Department reported housing starts slid 13 percent last month to an annual rate of 458,000.
Export Demand
The yen gained against the euro after Japan’s GDP damped optimism the worst of the recession is over, spurring safe-haven demand. The yen rose to 129.87 per euro in Tokyo from 130.81 yesterday in New York. The dollar was at 95.58 yen from 95.97 yen.
Malaysia’s ringgit snapped a three-day gain and dropped 0.4 percent to 3.5490 per dollar in Kuala Lumpur, according to data compiled by Bloomberg.
Singapore, the U.S. and Japan were Malaysia’s three-biggest export markets in 2008, accounting for a combined 38 percent of shipments. Singapore’s overseas sales fell for a 12th month in April, easing 19.2 percent, the government said on May 18.
“Some of the rally in Asian currencies looks overdone in the short term,” said Mitul Kotecha, head of global foreign- exchange strategy at Calyon in Hong Kong. “Yesterday’s U.S. housing start numbers dampened sentiment. There’s a risk of consolidation before we see stronger moves going into the second half of the year.”
Read more here
Sunday, 17 May 2009
Wal-Mart targets electronics customers
(Reuters) - Wal-Mart Stores Inc is revamping the electronics departments in its stores to attract customers who previously shopped at the now defunct Circuit City Stores Inc, according to The Wall Street Journal.
The retailer's larger and more interactive electronics displays will begin arriving in stores on Monday, the newspaper said in its electronic edition.
"Circuit City's business is up for grabs right now and we expect to get our share," Gary Severson, Wal-Mart's senior vice president of home entertainment, said in an interview with the newspaper.
Read more here
The retailer's larger and more interactive electronics displays will begin arriving in stores on Monday, the newspaper said in its electronic edition.
"Circuit City's business is up for grabs right now and we expect to get our share," Gary Severson, Wal-Mart's senior vice president of home entertainment, said in an interview with the newspaper.
Read more here
Thursday, 14 May 2009
‘Superfood’ Promoted on Oprah’s Site Robs Amazon Poor of Staple
(Bloomberg) -- Rising U.S. sales of acai, a purple Amazon berry promoted as a “superfood” on Oprah Winfrey’s Web site, are depriving Brazilian jungle dwellers of a protein-rich nutrient they’ve relied on for generations.
U.S. consumers are turning a “a typical poor people’s food into something like a delicacy,” said Oscar Nogueira, who specializes in the fruit at Embrapa, Brazil’s agricultural research company.
Spending on acai-based products by Americans seeking to lose weight, gain energy or slow aging doubled to $104 million last year, according to SPINS, a Schaumburg, Illinois-based market research firm. Since U.S. demand took off early this decade, the fruit’s wholesale price in Brazil has jumped about 60-fold, Embrapa data show.
In 2008, exports from Para, the South American country’s main producing state, climbed 53 percent to account for about a quarter of output, according to the local government. Production, though, has increased little in the past five years.
Winfrey, 55, discussed the berry with Mehmet Oz on her TV talk show in February 2008, when the New York cardiologist presented his “anti-aging checklist.” It includes acai, blueberries and tomatoes.
“It has twice the antioxidant content of a blueberry,” said Oz, 48.
Winfrey’s site publishes dermatologist Nicholas Perricone’s “10 Superfoods List,” which includes the Brazilian fruit. Meriden, Connecticut-based Perricone, 60, sells skin-care items and food supplements, including a powder that contains the berry, according to his Web page.
Winfrey Disclaimer
Oz declined to be interviewed for this article. Perricone didn’t reply to e-mail and telephone requests for comment.
Perricone’s list on Winfrey’s site includes a link to a statement saying she isn’t associated with any acai product.
“We are pursuing unauthorized uses of Ms. Winfrey’s name associated to acai-based products, none of which she has endorsed,” said Don Halcombe, a spokesman for Harpo Inc., Winfrey’s production company. Chicago-based Harpo is turning over complaints about such items to the Illinois Attorney General’s office, Halcombe said in a telephone interview.
Halcombe declined to comment on the effect increased U.S. demand is having on traditional consumers in Brazil.
In Igarape-Miri, an Amazon village 1,800 kilometers (1,100 miles) north of Brasilia, Francisca Neves, who sells manioc flour to neighbors and restaurants, says the bitter pulp she used to eat twice a day is now a luxury.
“Our granddaughter is turning 3 and we’re going to have family coming to our house,” said Neves, 68, as she paid 20 reais ($9.40), or about 7 percent of her monthly household income, for 2 liters (2 quarts) of the thick mush at a local street market.
Palm Trees
Acai grows on palm trees and looks like a blueberry. In the Amazon, it is beaten, diluted in water and eaten with manioc, meat, fish or dried shrimp.
The pulp provides more protein in relation to its weight than eggs and milk, and has high levels of anthocyanin, an antioxidant, as well as vitamins E and B1, potassium, iron and calcium, according to Embrapa.
The Para government recommends its consumption. The berry is popularly associated with bone and muscular strength, longevity and a healthy immune system, said Lucival Cardoso, the state’s chief health inspector.
“We encourage families to give acai to children as young as 6 months,” Cardoso said. “It’s also very filling; that’s why it’s traditionally associated with low-income family diets.”
Read more here
U.S. consumers are turning a “a typical poor people’s food into something like a delicacy,” said Oscar Nogueira, who specializes in the fruit at Embrapa, Brazil’s agricultural research company.
Spending on acai-based products by Americans seeking to lose weight, gain energy or slow aging doubled to $104 million last year, according to SPINS, a Schaumburg, Illinois-based market research firm. Since U.S. demand took off early this decade, the fruit’s wholesale price in Brazil has jumped about 60-fold, Embrapa data show.
In 2008, exports from Para, the South American country’s main producing state, climbed 53 percent to account for about a quarter of output, according to the local government. Production, though, has increased little in the past five years.
Winfrey, 55, discussed the berry with Mehmet Oz on her TV talk show in February 2008, when the New York cardiologist presented his “anti-aging checklist.” It includes acai, blueberries and tomatoes.
“It has twice the antioxidant content of a blueberry,” said Oz, 48.
Winfrey’s site publishes dermatologist Nicholas Perricone’s “10 Superfoods List,” which includes the Brazilian fruit. Meriden, Connecticut-based Perricone, 60, sells skin-care items and food supplements, including a powder that contains the berry, according to his Web page.
Winfrey Disclaimer
Oz declined to be interviewed for this article. Perricone didn’t reply to e-mail and telephone requests for comment.
Perricone’s list on Winfrey’s site includes a link to a statement saying she isn’t associated with any acai product.
“We are pursuing unauthorized uses of Ms. Winfrey’s name associated to acai-based products, none of which she has endorsed,” said Don Halcombe, a spokesman for Harpo Inc., Winfrey’s production company. Chicago-based Harpo is turning over complaints about such items to the Illinois Attorney General’s office, Halcombe said in a telephone interview.
Halcombe declined to comment on the effect increased U.S. demand is having on traditional consumers in Brazil.
In Igarape-Miri, an Amazon village 1,800 kilometers (1,100 miles) north of Brasilia, Francisca Neves, who sells manioc flour to neighbors and restaurants, says the bitter pulp she used to eat twice a day is now a luxury.
“Our granddaughter is turning 3 and we’re going to have family coming to our house,” said Neves, 68, as she paid 20 reais ($9.40), or about 7 percent of her monthly household income, for 2 liters (2 quarts) of the thick mush at a local street market.
Palm Trees
Acai grows on palm trees and looks like a blueberry. In the Amazon, it is beaten, diluted in water and eaten with manioc, meat, fish or dried shrimp.
The pulp provides more protein in relation to its weight than eggs and milk, and has high levels of anthocyanin, an antioxidant, as well as vitamins E and B1, potassium, iron and calcium, according to Embrapa.
The Para government recommends its consumption. The berry is popularly associated with bone and muscular strength, longevity and a healthy immune system, said Lucival Cardoso, the state’s chief health inspector.
“We encourage families to give acai to children as young as 6 months,” Cardoso said. “It’s also very filling; that’s why it’s traditionally associated with low-income family diets.”
Read more here
Wednesday, 13 May 2009
India Stocks May Suffer Election ‘Blip,’ HDFC Says
(Bloomberg) -- Indian stocks may halt their second- quarter rally unless the next government attracts foreign investment to revive the economy, said HDFC Standard Life Insurance Co., the country’s sixth-largest private insurer.
The ruling Congress party-led coalition may have won the most seats without securing enough votes to form a government, based on exit polls after a five-week election that ended yesterday. SGX CNX Nifty Index futures slumped the most in two weeks in Singapore while Indian stocks traded in the U.S. sank.
“The election outcome will only be a blip,” Prasun Gajri, chief investment officer at HDFC Standard Life, which manages $1 billion in equities, said in an interview in Mumbai yesterday. “It isn’t the only determinant for the market. It may impact the markets for a month or two but nothing beyond that.”
The Bombay Stock Exchange Sensitive Index, or Sensex, was the worst performer in the first quarter among the so-called BRIC markets that also include Brazil, Russia and China. The gauge rebounded 24 percent in the second quarter, beating benchmark indexes in Brazil and China.
“The rally has been too fast, too soon,” Gajri, 37, said. While the economy has shown signs of an improvement, investors will need to watch for more data, he said.
Nifty Futures Fall
Nifty index futures, derived from the 50 stocks on the underlying S&P CNX Nifty Index on the National Stock Exchange of India Ltd., fell 2.2 percent to 3,560 as of 10:45 a.m. in Singapore, the most since April 28. The Bank of New York Mellon India ADR Index dropped 5.5 percent to 557.22, the most since March 5. The Sensex slid 1.1 percent in Mumbai yesterday.
American depository receipts or ADRs of Infosys Technologies Ltd., India’s second-largest computer-services provider, dropped 4.7 percent to $30.36, the most since April 15. Those of ICICI Bank Ltd., India’s second-largest lender, tumbled 6.7 percent to $20.99. That’s the largest drop since April 20.
The International Monetary Fund expects India’s economy to grow 4.5 percent in 2009, while Reserve Bank of India Governor Duvvuri Subbarao said April 21 that government stimulus and monetary easing could help the economy grow 6 percent in the year that started April 1. The $1.2 trillion economy expanded 5.3 percent in the three months to Dec. 31, the weakest pace of expansion since the last quarter of 2003.
Read more here
The ruling Congress party-led coalition may have won the most seats without securing enough votes to form a government, based on exit polls after a five-week election that ended yesterday. SGX CNX Nifty Index futures slumped the most in two weeks in Singapore while Indian stocks traded in the U.S. sank.
“The election outcome will only be a blip,” Prasun Gajri, chief investment officer at HDFC Standard Life, which manages $1 billion in equities, said in an interview in Mumbai yesterday. “It isn’t the only determinant for the market. It may impact the markets for a month or two but nothing beyond that.”
The Bombay Stock Exchange Sensitive Index, or Sensex, was the worst performer in the first quarter among the so-called BRIC markets that also include Brazil, Russia and China. The gauge rebounded 24 percent in the second quarter, beating benchmark indexes in Brazil and China.
“The rally has been too fast, too soon,” Gajri, 37, said. While the economy has shown signs of an improvement, investors will need to watch for more data, he said.
Nifty Futures Fall
Nifty index futures, derived from the 50 stocks on the underlying S&P CNX Nifty Index on the National Stock Exchange of India Ltd., fell 2.2 percent to 3,560 as of 10:45 a.m. in Singapore, the most since April 28. The Bank of New York Mellon India ADR Index dropped 5.5 percent to 557.22, the most since March 5. The Sensex slid 1.1 percent in Mumbai yesterday.
American depository receipts or ADRs of Infosys Technologies Ltd., India’s second-largest computer-services provider, dropped 4.7 percent to $30.36, the most since April 15. Those of ICICI Bank Ltd., India’s second-largest lender, tumbled 6.7 percent to $20.99. That’s the largest drop since April 20.
The International Monetary Fund expects India’s economy to grow 4.5 percent in 2009, while Reserve Bank of India Governor Duvvuri Subbarao said April 21 that government stimulus and monetary easing could help the economy grow 6 percent in the year that started April 1. The $1.2 trillion economy expanded 5.3 percent in the three months to Dec. 31, the weakest pace of expansion since the last quarter of 2003.
Read more here
Tuesday, 12 May 2009
Amazon’s Kindle DX Resurrects ‘Crazy Idea’ From Knight Ridder
(Bloomberg) -- Newspaper publishers say Amazon.com Inc.’s new Kindle electronic reader may help a business plagued by plunging ad revenue and shrinking circulation. Seventeen years ago, the news industry tried to help itself.
The Kindle DX, introduced last week, can display newspaper pages and hold 3,500 books. New York Times Co. and Washington Post Co. have agreed to distribute their newspapers on it, Amazon.com said. In 1992, Knight Ridder Inc. set employees to work at a lab in Boulder, Colorado, to create its own portable newspaper-reading device to boost readership and revenue.
“There were people talking even then about the death of newspapers and there would be some electronic medium that would replace ink on paper,” Roger Fidler, who headed the Knight Ridder laboratory, said in an interview last week.
Fidler and his colleagues spent about three years trying to create an electronic tablet that could download newspapers and magazines. With the death of James Batten, Knight Ridder’s chairman at the time, the project fizzled and the 10-person lab was shut down, according to Fidler.
McClatchy Co. bought Knight Ridder, the publisher of the Miami Herald, in 2006. Fidler, 66, is now the program director for digital publishing at the Donald Reynolds Journalism Institute at the University of Missouri in Columbia.
Peter Tira, a McClatchy spokesman in Sacramento, California, had no comment.
The new $489 Kindle DX has a 9.7-inch screen, displays PDF documents and can be used in landscape and portrait modes. Amazon.com didn’t take any inspiration from Knight Ridder in developing the product, Drew Herdener, a spokesman for the Seattle-based online retailer, said in an e-mail.
Sharing Revenue
Amazon.com will keep 70 percent of the revenue from Kindle- based subscriptions, with the rest going to the newspaper, James Moroney, publisher of the Dallas Morning News, told a U.S. Senate committee on May 6. Amazon.com doesn’t discuss the terms of its deals, said Cinthia Portugal, a spokeswoman. She confirmed that the Kindle DX won’t initially carry ads.
Newspaper publishers are cutting jobs, combining sections and halting print editions to cope with plummeting ad revenue and a 7.1 percent industry circulation decline for the six months through March. The Christian Science Monitor and Seattle Post-Intelligencer this year switched entirely to Web versions.
In a 1994 promotional video, Knight Ridder said the tablet readers would be “part of our daily lives by the turn of the century,” with screen clarity similar to the printed page, color displays and sound.
“It may be difficult to conceptualize the idea of digital paper, but in fact we believe that’s what’s going to happen,” Fidler said on the video. Unlike the Knight Ridder concept, the Kindle DX downloads articles wirelessly and doesn’t have color.
Read more here
The Kindle DX, introduced last week, can display newspaper pages and hold 3,500 books. New York Times Co. and Washington Post Co. have agreed to distribute their newspapers on it, Amazon.com said. In 1992, Knight Ridder Inc. set employees to work at a lab in Boulder, Colorado, to create its own portable newspaper-reading device to boost readership and revenue.
“There were people talking even then about the death of newspapers and there would be some electronic medium that would replace ink on paper,” Roger Fidler, who headed the Knight Ridder laboratory, said in an interview last week.
Fidler and his colleagues spent about three years trying to create an electronic tablet that could download newspapers and magazines. With the death of James Batten, Knight Ridder’s chairman at the time, the project fizzled and the 10-person lab was shut down, according to Fidler.
McClatchy Co. bought Knight Ridder, the publisher of the Miami Herald, in 2006. Fidler, 66, is now the program director for digital publishing at the Donald Reynolds Journalism Institute at the University of Missouri in Columbia.
Peter Tira, a McClatchy spokesman in Sacramento, California, had no comment.
The new $489 Kindle DX has a 9.7-inch screen, displays PDF documents and can be used in landscape and portrait modes. Amazon.com didn’t take any inspiration from Knight Ridder in developing the product, Drew Herdener, a spokesman for the Seattle-based online retailer, said in an e-mail.
Sharing Revenue
Amazon.com will keep 70 percent of the revenue from Kindle- based subscriptions, with the rest going to the newspaper, James Moroney, publisher of the Dallas Morning News, told a U.S. Senate committee on May 6. Amazon.com doesn’t discuss the terms of its deals, said Cinthia Portugal, a spokeswoman. She confirmed that the Kindle DX won’t initially carry ads.
Newspaper publishers are cutting jobs, combining sections and halting print editions to cope with plummeting ad revenue and a 7.1 percent industry circulation decline for the six months through March. The Christian Science Monitor and Seattle Post-Intelligencer this year switched entirely to Web versions.
In a 1994 promotional video, Knight Ridder said the tablet readers would be “part of our daily lives by the turn of the century,” with screen clarity similar to the printed page, color displays and sound.
“It may be difficult to conceptualize the idea of digital paper, but in fact we believe that’s what’s going to happen,” Fidler said on the video. Unlike the Knight Ridder concept, the Kindle DX downloads articles wirelessly and doesn’t have color.
Read more here
Monday, 11 May 2009
Bernanke Says U.S. Banks Must Test More to Identify Other Risks
(Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said efforts by U.S. banks to raise capital are “encouraging” and called on firms to identify other risks through internal stress tests.
The banks, especially those with “trading and investment banking businesses,” should keep monitoring “operational, liquidity and reputational risks,” which weren’t addressed by the exam concluded last week, Bernanke said in a speech yesterday at a Fed conference in Jekyll Island, Georgia.
The remarks signal that the Fed and other U.S. regulators will keep a closer eye on firms such as Goldman Sachs Group Inc. and Morgan Stanley after last year’s collapse of Lehman Brothers Holdings Inc. and near-failure of Bear Stearns Cos. The Fed-led tests of the 19 largest U.S. banks showed last week that 10 firms need to raise a total of $74.6 billion in capital.
“Ideally, the stress tests used in the assessment program should be part of a broader palette of internal stress tests conducted by firms,” Bernanke said at the event hosted by the Atlanta Fed district bank. “Indeed, we do not intend that the capital assessments should be taken as all that those firms need to do.”
Losses under more adverse economic conditions may total almost $600 billion over two years, the government said May 7.
Treasuries were little changed after Bernanke’s remarks. The yield on the 10-year note fell one basis point to 3.17 percent as of 12:12 p.m. in Tokyo, according to BGCantor Market Data.
“You wouldn’t expect Bernanke to say anything else,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “Any negative attached to the stress tests has been carefully managed by people like Bernanke.”
Bailout Funds
Capital One Financial Corp., U.S. Bancorp and BB&T Corp. said they will sell shares to repay government bailout funds after the tests showed the companies can weather a worsening recession without additional aid.
Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds.
“If it helps reduce uncertainty among investors regarding future losses and capital needs, and thereby improves the banking system’s access to private capital, one of the key objectives of the program will have been achieved,” Bernanke said. “Initial indications are encouraging.”
‘Well Ahead’
Banks are “well ahead” in finding ways to increase capital and several have already announced plans to raise equity or issue long-term debt not guaranteed by the Federal Deposit Insurance Corp., Bernanke said.
Bernanke didn’t discuss the economic outlook or monetary policy in his speech.
In response to an audience question about Lehman’s failure, Bernanke said the central bank had no option other than letting the investment bank file for bankruptcy in September because regulators lacked the authority to wind down a non-bank firm.
At the same time, he said that the financial system remains “fragile” and that he wouldn’t “advocate” letting systemically important firms collapse.
The Fed will help keep the U.S. dollar strong by containing inflation, and will withdraw credit from the financial system in a “timely” way, Bernanke said. He reiterated that he’s “certain” the dollar will be the main reserve currency for the “foreseeable future.”
Strong Dollar
He said the dollar will remain strong “because the U.S. economy is strong” and because the Fed is committed to ensuring price stability.
Central bankers are currently “being very aggressive” in expanding credit to avert the risk of deflation, “which I now believe is receding, but certainly needs not to be ignored,” Bernanke said. Balancing inflation and deflation risks is a “very difficult situation,” he said.
The Fed chief said May 7 the findings should reassure investors about the soundness of the financial system. Yesterday’s comments elaborate on statements Bernanke and regulators issued with the results. The U.S. government “stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn,” Bernanke said at the time.
The Treasury has injected more than $200 billion of taxpayer funds into financial institutions in an effort to boost confidence and capital. Congress has increased scrutiny over the investments and passed legislation limiting bonuses at institutions supported by public cash.
Read more here
The banks, especially those with “trading and investment banking businesses,” should keep monitoring “operational, liquidity and reputational risks,” which weren’t addressed by the exam concluded last week, Bernanke said in a speech yesterday at a Fed conference in Jekyll Island, Georgia.
The remarks signal that the Fed and other U.S. regulators will keep a closer eye on firms such as Goldman Sachs Group Inc. and Morgan Stanley after last year’s collapse of Lehman Brothers Holdings Inc. and near-failure of Bear Stearns Cos. The Fed-led tests of the 19 largest U.S. banks showed last week that 10 firms need to raise a total of $74.6 billion in capital.
“Ideally, the stress tests used in the assessment program should be part of a broader palette of internal stress tests conducted by firms,” Bernanke said at the event hosted by the Atlanta Fed district bank. “Indeed, we do not intend that the capital assessments should be taken as all that those firms need to do.”
Losses under more adverse economic conditions may total almost $600 billion over two years, the government said May 7.
Treasuries were little changed after Bernanke’s remarks. The yield on the 10-year note fell one basis point to 3.17 percent as of 12:12 p.m. in Tokyo, according to BGCantor Market Data.
“You wouldn’t expect Bernanke to say anything else,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “Any negative attached to the stress tests has been carefully managed by people like Bernanke.”
Bailout Funds
Capital One Financial Corp., U.S. Bancorp and BB&T Corp. said they will sell shares to repay government bailout funds after the tests showed the companies can weather a worsening recession without additional aid.
Wells Fargo & Co., which the government said needed $13.7 billion in additional capital, raised $8.6 billion selling shares last week, more than planned. Goldman Sachs in April, before stress test results were released, said it would raise $5 billion to repay federal rescue funds.
“If it helps reduce uncertainty among investors regarding future losses and capital needs, and thereby improves the banking system’s access to private capital, one of the key objectives of the program will have been achieved,” Bernanke said. “Initial indications are encouraging.”
‘Well Ahead’
Banks are “well ahead” in finding ways to increase capital and several have already announced plans to raise equity or issue long-term debt not guaranteed by the Federal Deposit Insurance Corp., Bernanke said.
Bernanke didn’t discuss the economic outlook or monetary policy in his speech.
In response to an audience question about Lehman’s failure, Bernanke said the central bank had no option other than letting the investment bank file for bankruptcy in September because regulators lacked the authority to wind down a non-bank firm.
At the same time, he said that the financial system remains “fragile” and that he wouldn’t “advocate” letting systemically important firms collapse.
The Fed will help keep the U.S. dollar strong by containing inflation, and will withdraw credit from the financial system in a “timely” way, Bernanke said. He reiterated that he’s “certain” the dollar will be the main reserve currency for the “foreseeable future.”
Strong Dollar
He said the dollar will remain strong “because the U.S. economy is strong” and because the Fed is committed to ensuring price stability.
Central bankers are currently “being very aggressive” in expanding credit to avert the risk of deflation, “which I now believe is receding, but certainly needs not to be ignored,” Bernanke said. Balancing inflation and deflation risks is a “very difficult situation,” he said.
The Fed chief said May 7 the findings should reassure investors about the soundness of the financial system. Yesterday’s comments elaborate on statements Bernanke and regulators issued with the results. The U.S. government “stands ready to provide whatever additional capital may be necessary to ensure that our banking system is able to navigate a challenging economic downturn,” Bernanke said at the time.
The Treasury has injected more than $200 billion of taxpayer funds into financial institutions in an effort to boost confidence and capital. Congress has increased scrutiny over the investments and passed legislation limiting bonuses at institutions supported by public cash.
Read more here
Thursday, 07 May 2009
NY Fed chair resigns amid stock purchase questions
(Reuters) - Stephen Friedman, chairman of the New York Federal Reserve Bank's board of directors, resigned on Thursday amid questions about his purchases of stock in his former firm, Goldman Sachs.
Friedman, a retired chairman of Goldman Sachs who has led the New York Fed's board since January 2008, said he quit to prevent criticism about his stock buying from becoming a distraction as the Fed battles a severe U.S. recession.
"Although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper," he said in a letter of resignation to New York Fed President William Dudley.
"The Federal Reserve System has important work to do and does not need this distraction," Friedman said.
The U.S. central bank is comprised of a seven-member Board of Governors in Washington, and 12 regional Fed banks.
Some of the regional directors are appointed by the Washington-based board. Those directors are not allowed to own shares of bank holding companies, a status that Goldman Sachs won in September to secure access to Fed lending facilities.
Friedman bought Goldman shares in December 2008 and in January of this year, which became public with a Wall Street Journal report on Monday.
Friedman obtained a waiver of the bank stock ownership rules, which the Journal said was granted just before he bought stock in January, that allowed him to hold them until the end of this year. Last week, he said he would resign by then.
DEFENDERS AND DETRACTORS
The top lawyer at the New York Fed said Friedman had done nothing wrong.
"It is my view that these purchases did not violate any Federal Reserve statute, rule or policy," the bank's general counsel, Thomas Baxter, said in a statement.
Denis Hughes, the deputy chair of the New York Fed's board and president of the New York State AFL-CIO, will now be the acting chair, the New York Fed said.
While the Fed was deciding whether or not to grant Friedman a waiver, he bought 37,300 Goldman shares on December 17, for an average price of $80.78, according to regulatory filings.
On January 22, he bought 15,300 more shares for average prices of $66.19 and $67.12, according to filings with the U.S. Securities and Exchange Commission. The January purchase brought his total holdings to 98,600 shares.
Goldman shares closed on Thursday at $133.73, meaning Friedman has profited handsomely, earning more than $3 million in total on the two purchases.
Read more here
Friedman, a retired chairman of Goldman Sachs who has led the New York Fed's board since January 2008, said he quit to prevent criticism about his stock buying from becoming a distraction as the Fed battles a severe U.S. recession.
"Although I have been in compliance with the rules, my public service motivated continuation on the Reserve Bank Board is being mischaracterized as improper," he said in a letter of resignation to New York Fed President William Dudley.
"The Federal Reserve System has important work to do and does not need this distraction," Friedman said.
The U.S. central bank is comprised of a seven-member Board of Governors in Washington, and 12 regional Fed banks.
Some of the regional directors are appointed by the Washington-based board. Those directors are not allowed to own shares of bank holding companies, a status that Goldman Sachs won in September to secure access to Fed lending facilities.
Friedman bought Goldman shares in December 2008 and in January of this year, which became public with a Wall Street Journal report on Monday.
Friedman obtained a waiver of the bank stock ownership rules, which the Journal said was granted just before he bought stock in January, that allowed him to hold them until the end of this year. Last week, he said he would resign by then.
DEFENDERS AND DETRACTORS
The top lawyer at the New York Fed said Friedman had done nothing wrong.
"It is my view that these purchases did not violate any Federal Reserve statute, rule or policy," the bank's general counsel, Thomas Baxter, said in a statement.
Denis Hughes, the deputy chair of the New York Fed's board and president of the New York State AFL-CIO, will now be the acting chair, the New York Fed said.
While the Fed was deciding whether or not to grant Friedman a waiver, he bought 37,300 Goldman shares on December 17, for an average price of $80.78, according to regulatory filings.
On January 22, he bought 15,300 more shares for average prices of $66.19 and $67.12, according to filings with the U.S. Securities and Exchange Commission. The January purchase brought his total holdings to 98,600 shares.
Goldman shares closed on Thursday at $133.73, meaning Friedman has profited handsomely, earning more than $3 million in total on the two purchases.
Read more here
Wednesday, 06 May 2009
Game Maker THQ Stakes Revival on UFC’s Choke Holds
(Bloomberg) -- Georges St-Pierre, Ultimate Fighting’s top welterweight, trapped his foe in a “ground-and-pound” in his last win, pummeling the opponent with blows to the head.
THQ Inc., the money-losing video-game publisher, is counting on St-Pierre and the Ultimate Fighting Championship to help it get off the mat when the company releases the $59.99 “UFC 2009 Undisputed” on May 19.
Sales at Agoura Hills, California-based THQ are in freefall after topping $1 billion two years ago. Fighting games including “WWE SmackDown” and children’s titles from Walt Disney Co.’s Pixar movies don’t provide the punch they once did. The shortfall has forced THQ to close studios and cut jobs. The company reported its fifth-straight quarterly loss today.
“THQ needs a hit title to break back into profitability,” said Colin Sebastian, a San Francisco-based analyst with Lazard Capital Markets LLC, who has a “hold” rating on the stock and doesn’t own it. The UFC game is “definitely being looked at by investors as an important milestone.”
“UFC 2009 Undisputed” with St-Pierre on the cover simulates the sport’s mix of jujitsu, karate, kickboxing and wrestling, with its choke holds and flying arm bars. Buxom ring girls and excited ringside announcers add color to lure men to stores.
UFC’s male fan base is a main reason Todd Mitchell, a technology analyst with Kaufman Bros. in New York, projects the game will sell more than 2 million copies in nine months.
Mixed martial arts has gone from being banned in many U.S. states to passing boxing and wrestling in pay-per-view events, said Dana White, president of Zuffa LLC, the league’s owner.
Male Audience
“We have the 18 to 35 male; that’s who we speak to everyday,” White said in an interview. “Anybody who gets in business with us, we have the machine.”
The UFC license runs through 2011 and may be extended, said Julie MacMedan, a THQ spokeswoman. The company is probably paying UFC about 17 percent of sales or a guaranteed minimum, said Mitchell, who recommends the stock and doesn’t own it.
THQ has fallen 81 percent in the past year as the company dropped less promising titles and pared its staff. The stock rose 3 cents to $3.91 today in Nasdaq Stock Market trading.
“It’s been a very tough period,” Chief Executive Officer Brian Farrell said in an interview.
THQ reported today that sales excluding changes in deferred revenue fell 29 percent to $154.3 million. The loss, excluding $44.7 million in restructuring costs, was $36.4 million, or 54 cents a share. That’s larger than the 32-cent shortfall projected by analysts.
Return to Roots
“UFC 2009 Undisputed” returns THQ to its expertise making fighting games. WWE titles have brought in $1.5 billion in sales over the past decade. The company spent more than $20 million developing the UFC game and will expense “not quite” as much on marketing, Farrell said.
The target is fans like Jay Vinette, 35, a sales representative for North Face Inc. in Montreal, who attended UFC matches on March 18 at the city’s Bell Centre.
Vinette spends more than $1,000 a year on per-view fights, a club membership, DVDs, T-shirts, hats and action figures. He’s already ordered “UFC 2009 Undisputed” and says, “I’ll be buying those games every year” if they’re good.
Video games have been a bright spot in the recession. Worldwide sales rose 15 percent to an estimated $71.7 billion last year, according to IDC, a Framingham, Massachusetts-based researcher. Sales are forecast to rise 14 percent this year.
Read more here
THQ Inc., the money-losing video-game publisher, is counting on St-Pierre and the Ultimate Fighting Championship to help it get off the mat when the company releases the $59.99 “UFC 2009 Undisputed” on May 19.
Sales at Agoura Hills, California-based THQ are in freefall after topping $1 billion two years ago. Fighting games including “WWE SmackDown” and children’s titles from Walt Disney Co.’s Pixar movies don’t provide the punch they once did. The shortfall has forced THQ to close studios and cut jobs. The company reported its fifth-straight quarterly loss today.
“THQ needs a hit title to break back into profitability,” said Colin Sebastian, a San Francisco-based analyst with Lazard Capital Markets LLC, who has a “hold” rating on the stock and doesn’t own it. The UFC game is “definitely being looked at by investors as an important milestone.”
“UFC 2009 Undisputed” with St-Pierre on the cover simulates the sport’s mix of jujitsu, karate, kickboxing and wrestling, with its choke holds and flying arm bars. Buxom ring girls and excited ringside announcers add color to lure men to stores.
UFC’s male fan base is a main reason Todd Mitchell, a technology analyst with Kaufman Bros. in New York, projects the game will sell more than 2 million copies in nine months.
Mixed martial arts has gone from being banned in many U.S. states to passing boxing and wrestling in pay-per-view events, said Dana White, president of Zuffa LLC, the league’s owner.
Male Audience
“We have the 18 to 35 male; that’s who we speak to everyday,” White said in an interview. “Anybody who gets in business with us, we have the machine.”
The UFC license runs through 2011 and may be extended, said Julie MacMedan, a THQ spokeswoman. The company is probably paying UFC about 17 percent of sales or a guaranteed minimum, said Mitchell, who recommends the stock and doesn’t own it.
THQ has fallen 81 percent in the past year as the company dropped less promising titles and pared its staff. The stock rose 3 cents to $3.91 today in Nasdaq Stock Market trading.
“It’s been a very tough period,” Chief Executive Officer Brian Farrell said in an interview.
THQ reported today that sales excluding changes in deferred revenue fell 29 percent to $154.3 million. The loss, excluding $44.7 million in restructuring costs, was $36.4 million, or 54 cents a share. That’s larger than the 32-cent shortfall projected by analysts.
Return to Roots
“UFC 2009 Undisputed” returns THQ to its expertise making fighting games. WWE titles have brought in $1.5 billion in sales over the past decade. The company spent more than $20 million developing the UFC game and will expense “not quite” as much on marketing, Farrell said.
The target is fans like Jay Vinette, 35, a sales representative for North Face Inc. in Montreal, who attended UFC matches on March 18 at the city’s Bell Centre.
Vinette spends more than $1,000 a year on per-view fights, a club membership, DVDs, T-shirts, hats and action figures. He’s already ordered “UFC 2009 Undisputed” and says, “I’ll be buying those games every year” if they’re good.
Video games have been a bright spot in the recession. Worldwide sales rose 15 percent to an estimated $71.7 billion last year, according to IDC, a Framingham, Massachusetts-based researcher. Sales are forecast to rise 14 percent this year.
Read more here
Tuesday, 05 May 2009
Chrysler won't repay bailout money
CNNMoney.com) -- Chrysler LLC will not repay U.S. taxpayers more than $7 billion in bailout money it received earlier this year and as part of its bankruptcy filing.
This revelation was buried within Chrysler's bankruptcy filings last week and confirmed by the Obama administration Tuesday. The filings included a list of business assumptions from one of the company's key financial advisors in the bankruptcy case.
Some of the main assumptions listed by Robert Manzo of Capstone Advisory Group were that the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler's operations during bankruptcy.
An Obama administration official confirmed Tuesday that Chrysler won't be repaying the loans, though a portion of the bridge loan may be recovered by Treasury from the assets of Chrysler Financial, the former credit arm of the automaker which is essentially going out of business as part of the reorganization.
Read more here
This revelation was buried within Chrysler's bankruptcy filings last week and confirmed by the Obama administration Tuesday. The filings included a list of business assumptions from one of the company's key financial advisors in the bankruptcy case.
Some of the main assumptions listed by Robert Manzo of Capstone Advisory Group were that the Treasury would forgive a $4 billion bridge loan given to Chrysler in the closing days of the Bush administration, a $300 million fee on that loan, and the $3.2 billion in financing approved last week by the Obama administration to fund Chrysler's operations during bankruptcy.
An Obama administration official confirmed Tuesday that Chrysler won't be repaying the loans, though a portion of the bridge loan may be recovered by Treasury from the assets of Chrysler Financial, the former credit arm of the automaker which is essentially going out of business as part of the reorganization.
Read more here
Monday, 04 May 2009
Taxpayers Lose $328 Million in Build America Profits
(Bloomberg) -- State and local public finance officials from New Jersey to California rewarded investors with $328 million of instant profit by selling debt through the federal government’s Build America Bonds program.
That’s how much prices of the five biggest bonds have risen in total since the first sales almost three weeks ago, according to Municipal Securities Rulemaking Board price data compiled by Bloomberg. About $7.6 billion of the debt, whose interest costs are partly subsidized by the U.S. government, has been issued.
Local officials say the federal subsidy has saved money compared with tax-exempt bonds. The rising prices of the securities and simultaneous decline in yields relative to benchmark rates shows municipalities would have saved another $1.39 billion in interest over the life of the bonds had they sold at current levels. The yields on $1.38 billion of debt sold by the New Jersey Turnpike Authority tumbled to 6.69 percent from 7.41 percent within a day of its April 20 offering.
“Some of these may have been good deals for the issuers, but could they have been even better?” said Ben Watkins, Florida’s director of bond sales. “They could have had much tighter pricing.”
New Jersey Turnpike spokesman Joseph Orlando declined to comment, referring questions to Dennis Enright, the authority’s financial adviser. Enright, president of NW Capital in Jersey City, New Jersey, called the sale “very successful.”
Buyers Rewarded
California’s $3 billion of Build America Bonds sold April 20 and due in 2039 rose 2.6 percent, rewarding buyers with $78 million of profits and pushing down yields to 7.22 percent from 7.43 percent, Bloomberg data show. The state’s $2 billion of 25- year debt climbed 2.1 percent, or $42 million.
The New York Metropolitan Transportation Authority’s $750 million of debt, issued the same day, surged 8.6 cents on the dollar, driving the yield down to 6.67 percent from 7.34 percent.
Build America Bonds are part of President Barack Obama’s American Recovery and Reinvestment Act passed earlier this year to create jobs building roads, schools and infrastructure. The government pays a 35 percent subsidy on the interest rates that can cut coupons below those in the tax-exempt market.
The bonds are exempt from local taxes in the state of issue, though not from federal taxes. Strategists at Barclays Capital in New York predict that the market may grow to as much as $150 billion over the next two years.
Relative Yields
Sacramento Municipal Utility District today began offering $200 million of Build America Bonds due in 2036 to finance improvements to its electric system, according to a person familiar with the offering who declined to be identified because terms aren’t set. The debt may yield 225 basis points to 250 basis points more than Treasuries of similar maturity.
Investors are snapping up Build America Bonds because they offer the same yields as companies with lower ratings.
The New York Metropolitan Transportation Authority, ranked AA by Standard & Poor’s, paid 7.336 percent interest for its 30- year Build America Bonds. At the same time, corporate bonds with the same maturity and rating yielded 6.1 percent to 6.19 percent, according to a Moody’s index. MTA bonds paid a yield higher than the 6.78 percent average for companies with A ratings from Moody’s, index data show.
The best opportunity for investors “is to get involved early” because “that’s where you’re going to get the cheap offerings,” said Scott Minerd, chief executive officer of New York-based Guggenheim Partners Asset Management Inc., which oversees about $30 billion. Minerd made the comments at the Milken Institute Global Conference in Beverly Hills, California, last week.
Read more here
That’s how much prices of the five biggest bonds have risen in total since the first sales almost three weeks ago, according to Municipal Securities Rulemaking Board price data compiled by Bloomberg. About $7.6 billion of the debt, whose interest costs are partly subsidized by the U.S. government, has been issued.
Local officials say the federal subsidy has saved money compared with tax-exempt bonds. The rising prices of the securities and simultaneous decline in yields relative to benchmark rates shows municipalities would have saved another $1.39 billion in interest over the life of the bonds had they sold at current levels. The yields on $1.38 billion of debt sold by the New Jersey Turnpike Authority tumbled to 6.69 percent from 7.41 percent within a day of its April 20 offering.
“Some of these may have been good deals for the issuers, but could they have been even better?” said Ben Watkins, Florida’s director of bond sales. “They could have had much tighter pricing.”
New Jersey Turnpike spokesman Joseph Orlando declined to comment, referring questions to Dennis Enright, the authority’s financial adviser. Enright, president of NW Capital in Jersey City, New Jersey, called the sale “very successful.”
Buyers Rewarded
California’s $3 billion of Build America Bonds sold April 20 and due in 2039 rose 2.6 percent, rewarding buyers with $78 million of profits and pushing down yields to 7.22 percent from 7.43 percent, Bloomberg data show. The state’s $2 billion of 25- year debt climbed 2.1 percent, or $42 million.
The New York Metropolitan Transportation Authority’s $750 million of debt, issued the same day, surged 8.6 cents on the dollar, driving the yield down to 6.67 percent from 7.34 percent.
Build America Bonds are part of President Barack Obama’s American Recovery and Reinvestment Act passed earlier this year to create jobs building roads, schools and infrastructure. The government pays a 35 percent subsidy on the interest rates that can cut coupons below those in the tax-exempt market.
The bonds are exempt from local taxes in the state of issue, though not from federal taxes. Strategists at Barclays Capital in New York predict that the market may grow to as much as $150 billion over the next two years.
Relative Yields
Sacramento Municipal Utility District today began offering $200 million of Build America Bonds due in 2036 to finance improvements to its electric system, according to a person familiar with the offering who declined to be identified because terms aren’t set. The debt may yield 225 basis points to 250 basis points more than Treasuries of similar maturity.
Investors are snapping up Build America Bonds because they offer the same yields as companies with lower ratings.
The New York Metropolitan Transportation Authority, ranked AA by Standard & Poor’s, paid 7.336 percent interest for its 30- year Build America Bonds. At the same time, corporate bonds with the same maturity and rating yielded 6.1 percent to 6.19 percent, according to a Moody’s index. MTA bonds paid a yield higher than the 6.78 percent average for companies with A ratings from Moody’s, index data show.
The best opportunity for investors “is to get involved early” because “that’s where you’re going to get the cheap offerings,” said Scott Minerd, chief executive officer of New York-based Guggenheim Partners Asset Management Inc., which oversees about $30 billion. Minerd made the comments at the Milken Institute Global Conference in Beverly Hills, California, last week.
Read more here
Sunday, 03 May 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
Tuesday, 28 April 2009
Bank of America CEO’s Support Erodes Ahead of Meeting
(Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis is losing shareholder support heading into today’s annual meeting amid speculation that government stress tests will show the bank needs more capital.
Lined up against Lewis’s re-election as chairman of the biggest U.S. bank by assets are the California Public Employees’ Retirement System -- the nation’s largest public pension fund -- as well as proxy advisers Glass Lewis & Co., RiskMetrics Group Inc. and Egan-Jones Proxy Services, among other investors. Shareholders have also targeted 70-year-old lead director Temple Sloan Jr.
Ballots will be cast at the bank headquarters in Charlotte, North Carolina on whether to re-elect directors and split the chairman and CEO jobs held by Lewis. Dislodging Lewis after eight years as chairman may depend on how mutual funds and brokerages vote, opponents including CtW Investment Group said.
“It’s largely up to the big mutual fund companies and they are usually very hesitant to cross with the management of financial services companies,” said William R. Atwood, executive director of the Illinois State Investment Board, which will vote its 1.5 million shares against Lewis’s re-election.
Lewis, 62, may face demands from regulators to raise capital after results of government stress tests are released May 4. The bank needs $60 billion to $70 billion of capital, according to Friedman, Billings, Ramsey Group Inc. analyst Paul Miller, who cited separate tests performed by his firm, which assumed a 12 percent jobless rate, compared with about 10 percent used by the government test.
Stress Tests
Bank of America is among 19 U.S. financial institutions assessing the results of the Treasury’s stress tests. Lewis has vowed the bank can recover without any more U.S. aid, while Treasury Secretary Timothy Geithner has said regulators may replace management and directors of banks that need “exceptional” assistance.
Lewis has presided over a 79 percent decline in Bank of America shares over the past year, and a $1.79 billion fourth- quarter loss, amid a worldwide credit crisis and recession. The bank slipped 77 cents, or 8.6 percent, to $8.15 yesterday in New York trading. Scott Silvestri, a Bank of America spokesman, declined to comment on Lewis yesterday.
The CEO has come under fire for failing to divulge spiraling losses at Merrill Lynch & Co. before shareholders voted in December to endorse Bank of America’s purchase of the largest securities brokerage. The Merrill Lynch acquisition was completed on Jan. 1, after the U.S. government provided loan guarantees to prop up the deal.
Lewis’s Future
Lewis’s future “is probably out of his hands at this point,” said Christopher Whalen, managing director of Institutional Risk Analytics, a California research firm that rates banks. “The time for Ken Lewis to hang tough was when he could have told the government, ‘No, I won’t buy Merrill Lynch,’” Whalen said in an interview yesterday.
The bank’s 18-member board solidly supports Lewis and shares his view that the acquisitions of Merrill Lynch and mortgage lender Countrywide Financial Corp. will be among its best long-term purchases, said Robert Stickler, a bank spokesman.
Both sides have said the vote may be close. Stuart Plesser, an analyst at Standard & Poor’s Corp., said a move against Lewis could deprive the bank of a 40-year company veteran skilled at handling acquisitions.
“Ken is the guy to integrate this thing, now that they own Merrill and Countrywide,” Plesser said in an interview. “He’s great at this kind of stuff.”
Chairman, CEO
Included in today’s vote is a resolution to divide the jobs of chairman and CEO. Such a split, whether by shareholders or at the behest of the board, has been a precursor to the ouster of other bank CEOs including Wachovia Corp.’s Kennedy Thompson and Washington Mutual Inc.’s Kerry Killinger.
Lewis is likely to win re-election to the board by a wide margin, the Wall Street Journal reported, citing unidentified people familiar with the preliminary results of the shareholder vote. With about 75 percent of the shares outstanding counted, slightly more than 50 percent favored splitting the chairman and CEO positions, the newspaper said.
Lewis may be aided by improvements at Merrill Lynch’s bond- trading business, plus a surge in home-loan refinancings that spurred a $4 billion profit in the first quarter. Because the profit included extraordinary gains from selling shares of a Chinese bank and accounting changes, the quarterly profit didn’t quiet critics or impress investors who drove shares down 24 percent on April 20, when the finances were disclosed.
Merrill Lynch Deal
“Now is the appropriate time to change management because Mr. Lewis has lost the confidence of the investing public and the confidence of his employees,” said John Moore, a Charlotte insurance-agency owner who urged Lewis to drop his chairman’s title at last year’s annual meeting.
Lewis may face pressure also from federal regulators, whom he accused of pushing Bank of America to keep Merrill Lynch’s losses secret and to complete the acquisition, according to New York Attorney General Andrew Cuomo. The Wall Street Journal reported yesterday that a leak of the stress-test results shows that Bank of America may need billions of dollars in capital.
“The timing of this leak a day before the annual meeting is not any coincidence,” said Tony Plath, a University of North Carolina finance professor. “This is a clear attempt to bring down a sitting CEO.”
Board Members
Lewis’s opponents include pension funds representing judges in Illinois, teachers in Ohio and state government employees in Virginia, and the TIAA-CREF investment fund for educators. Yesterday, Lewis lost the support of Calpers, the California pension fund, which said it will vote its 22.7 million shares against the entire board.
The largest group to announce public opposition to Lewis’s re-election, TIAA-CREF, controls less than six-tenths of 1 percent of the bank’s 6.4 billion shares. Phone calls to Hye-Won Choi, TIAA-CREF’s head of corporate governance, weren’t returned.
Proxy adviser RiskMetrics Group’s ISS Governance Services has said it will vote against Lewis; Sloan, the lead director; and board members Frank P. Bramble Sr., 59, a former vice chairman at MBNA Corp.; Monica C. Lozano, 52, publisher of Impremedia LLC’s La Opinion magazine; Robert L. Tillman, 65, former CEO of Lowe’s Cos.; and Jacquelyn M. Ward, 69, a former managing director at Intec Telecom Systems Plc.
In addition to Lewis and Sloan, proxy adviser Glass Lewis said it will vote against directors Virgis W. Colbert, a former executive vice president at Miller Brewing Co.; Joseph W. Prueher, a retired Navy admiral; and Charles O. Rossotti, a Carlyle Group Inc. adviser.
Read more here
Lined up against Lewis’s re-election as chairman of the biggest U.S. bank by assets are the California Public Employees’ Retirement System -- the nation’s largest public pension fund -- as well as proxy advisers Glass Lewis & Co., RiskMetrics Group Inc. and Egan-Jones Proxy Services, among other investors. Shareholders have also targeted 70-year-old lead director Temple Sloan Jr.
Ballots will be cast at the bank headquarters in Charlotte, North Carolina on whether to re-elect directors and split the chairman and CEO jobs held by Lewis. Dislodging Lewis after eight years as chairman may depend on how mutual funds and brokerages vote, opponents including CtW Investment Group said.
“It’s largely up to the big mutual fund companies and they are usually very hesitant to cross with the management of financial services companies,” said William R. Atwood, executive director of the Illinois State Investment Board, which will vote its 1.5 million shares against Lewis’s re-election.
Lewis, 62, may face demands from regulators to raise capital after results of government stress tests are released May 4. The bank needs $60 billion to $70 billion of capital, according to Friedman, Billings, Ramsey Group Inc. analyst Paul Miller, who cited separate tests performed by his firm, which assumed a 12 percent jobless rate, compared with about 10 percent used by the government test.
Stress Tests
Bank of America is among 19 U.S. financial institutions assessing the results of the Treasury’s stress tests. Lewis has vowed the bank can recover without any more U.S. aid, while Treasury Secretary Timothy Geithner has said regulators may replace management and directors of banks that need “exceptional” assistance.
Lewis has presided over a 79 percent decline in Bank of America shares over the past year, and a $1.79 billion fourth- quarter loss, amid a worldwide credit crisis and recession. The bank slipped 77 cents, or 8.6 percent, to $8.15 yesterday in New York trading. Scott Silvestri, a Bank of America spokesman, declined to comment on Lewis yesterday.
The CEO has come under fire for failing to divulge spiraling losses at Merrill Lynch & Co. before shareholders voted in December to endorse Bank of America’s purchase of the largest securities brokerage. The Merrill Lynch acquisition was completed on Jan. 1, after the U.S. government provided loan guarantees to prop up the deal.
Lewis’s Future
Lewis’s future “is probably out of his hands at this point,” said Christopher Whalen, managing director of Institutional Risk Analytics, a California research firm that rates banks. “The time for Ken Lewis to hang tough was when he could have told the government, ‘No, I won’t buy Merrill Lynch,’” Whalen said in an interview yesterday.
The bank’s 18-member board solidly supports Lewis and shares his view that the acquisitions of Merrill Lynch and mortgage lender Countrywide Financial Corp. will be among its best long-term purchases, said Robert Stickler, a bank spokesman.
Both sides have said the vote may be close. Stuart Plesser, an analyst at Standard & Poor’s Corp., said a move against Lewis could deprive the bank of a 40-year company veteran skilled at handling acquisitions.
“Ken is the guy to integrate this thing, now that they own Merrill and Countrywide,” Plesser said in an interview. “He’s great at this kind of stuff.”
Chairman, CEO
Included in today’s vote is a resolution to divide the jobs of chairman and CEO. Such a split, whether by shareholders or at the behest of the board, has been a precursor to the ouster of other bank CEOs including Wachovia Corp.’s Kennedy Thompson and Washington Mutual Inc.’s Kerry Killinger.
Lewis is likely to win re-election to the board by a wide margin, the Wall Street Journal reported, citing unidentified people familiar with the preliminary results of the shareholder vote. With about 75 percent of the shares outstanding counted, slightly more than 50 percent favored splitting the chairman and CEO positions, the newspaper said.
Lewis may be aided by improvements at Merrill Lynch’s bond- trading business, plus a surge in home-loan refinancings that spurred a $4 billion profit in the first quarter. Because the profit included extraordinary gains from selling shares of a Chinese bank and accounting changes, the quarterly profit didn’t quiet critics or impress investors who drove shares down 24 percent on April 20, when the finances were disclosed.
Merrill Lynch Deal
“Now is the appropriate time to change management because Mr. Lewis has lost the confidence of the investing public and the confidence of his employees,” said John Moore, a Charlotte insurance-agency owner who urged Lewis to drop his chairman’s title at last year’s annual meeting.
Lewis may face pressure also from federal regulators, whom he accused of pushing Bank of America to keep Merrill Lynch’s losses secret and to complete the acquisition, according to New York Attorney General Andrew Cuomo. The Wall Street Journal reported yesterday that a leak of the stress-test results shows that Bank of America may need billions of dollars in capital.
“The timing of this leak a day before the annual meeting is not any coincidence,” said Tony Plath, a University of North Carolina finance professor. “This is a clear attempt to bring down a sitting CEO.”
Board Members
Lewis’s opponents include pension funds representing judges in Illinois, teachers in Ohio and state government employees in Virginia, and the TIAA-CREF investment fund for educators. Yesterday, Lewis lost the support of Calpers, the California pension fund, which said it will vote its 22.7 million shares against the entire board.
The largest group to announce public opposition to Lewis’s re-election, TIAA-CREF, controls less than six-tenths of 1 percent of the bank’s 6.4 billion shares. Phone calls to Hye-Won Choi, TIAA-CREF’s head of corporate governance, weren’t returned.
Proxy adviser RiskMetrics Group’s ISS Governance Services has said it will vote against Lewis; Sloan, the lead director; and board members Frank P. Bramble Sr., 59, a former vice chairman at MBNA Corp.; Monica C. Lozano, 52, publisher of Impremedia LLC’s La Opinion magazine; Robert L. Tillman, 65, former CEO of Lowe’s Cos.; and Jacquelyn M. Ward, 69, a former managing director at Intec Telecom Systems Plc.
In addition to Lewis and Sloan, proxy adviser Glass Lewis said it will vote against directors Virgis W. Colbert, a former executive vice president at Miller Brewing Co.; Joseph W. Prueher, a retired Navy admiral; and Charles O. Rossotti, a Carlyle Group Inc. adviser.
Read more here
Monday, 27 April 2009
Is Bear's Alan Schwartz headed to Goldman Sachs?
(Fortune) -- One of the few remaining mysteries from the fall of Bear Stearns is where's Alan Schwartz? Schwartz, as you may remember, was the affable M&A banker who had the misfortune of becoming Bear Stearns CEO in January 2008, two months before the 85-year-old firm collapsed.
That mystery may soon be solved: Alan Schwartz appears to be headed to Goldman Sachs (GS, Fortune 500), the premier Wall Street investment bank turned bank holding company. According to a source familiar with the negotiations going on between Goldman and Schwartz, the chances are about "50-50" that Schwartz will soon be a partner-level Managing Director at Goldman (of which there are now about 400, out of 27,898 employees worldwide.)
His potential role at Goldman
In his new post, Schwartz's responsibilities will include cooking up deals in the media, telecom and healthcare sectors and being an all-around senior banker and executive. If Schwartz ends up at Goldman, he will join the firm's other senior M&A luminaries, Jack Levy and Gene Sykes, in covering the media and telecom industries. Schwartz, 58, would also help fill the banking holes left by the recent departures of Bryan Trott, Warren Buffett's favorite banker, and Jon Winkelried, who had been a co-president at the firm along with Gary Cohn.
Read more here
That mystery may soon be solved: Alan Schwartz appears to be headed to Goldman Sachs (GS, Fortune 500), the premier Wall Street investment bank turned bank holding company. According to a source familiar with the negotiations going on between Goldman and Schwartz, the chances are about "50-50" that Schwartz will soon be a partner-level Managing Director at Goldman (of which there are now about 400, out of 27,898 employees worldwide.)
His potential role at Goldman
In his new post, Schwartz's responsibilities will include cooking up deals in the media, telecom and healthcare sectors and being an all-around senior banker and executive. If Schwartz ends up at Goldman, he will join the firm's other senior M&A luminaries, Jack Levy and Gene Sykes, in covering the media and telecom industries. Schwartz, 58, would also help fill the banking holes left by the recent departures of Bryan Trott, Warren Buffett's favorite banker, and Jon Winkelried, who had been a co-president at the firm along with Gary Cohn.
Read more here
Thursday, 23 April 2009
Time running out on Chrysler
(CNNMoney.com) -- Chrysler LLC faces the most difficult, and important, week in its 84-year history as the automaker tries to close three difficult deals in order to avoid bankruptcy.
The automaker has until Thursday, April 30, to reach a deal on an alliance with Italian automaker Fiat, convince banks holding $7 billion of its secure debt to accept pennies on the dollar and win additional wage and pension concessions from its unions.
The challenge is that all three parties negotiating with Chrysler will want to see terms of the other deals before they agree to their own deal. That's because Fiat, banks and the unions will all likely end up owning a stake in the troubled automaker. The value of those stakes depend upon how much equity each party receives, and what Chrysler's chances of avoiding bankruptcy are.
Failure to reach a deal is likely to put the company on the path towards closure and the sale of its assets. The Treasury Department's auto industry task force has declared that Chrysler is no longer viable as a stand-alone company and gave it only a month to reach a final deal with Fiat that would give the government enough confidence to extend Chrysler $6 billion more in loans.
Read more here
The automaker has until Thursday, April 30, to reach a deal on an alliance with Italian automaker Fiat, convince banks holding $7 billion of its secure debt to accept pennies on the dollar and win additional wage and pension concessions from its unions.
The challenge is that all three parties negotiating with Chrysler will want to see terms of the other deals before they agree to their own deal. That's because Fiat, banks and the unions will all likely end up owning a stake in the troubled automaker. The value of those stakes depend upon how much equity each party receives, and what Chrysler's chances of avoiding bankruptcy are.
Failure to reach a deal is likely to put the company on the path towards closure and the sale of its assets. The Treasury Department's auto industry task force has declared that Chrysler is no longer viable as a stand-alone company and gave it only a month to reach a final deal with Fiat that would give the government enough confidence to extend Chrysler $6 billion more in loans.
Read more here
Wednesday, 22 April 2009
Freddie Mac CFO found dead
(CNN) -- The acting chief financial officer of mortgage finance giant Freddie Mac, David Kellermann, was found dead Wednesday morning, police said.
The death "may have been an apparent suicide," said Lucy Caldwell, a spokeswoman for police in Fairfax County, Va.
Authorities said there were no signs of foul play when officers were called to Kellermann's home in Vienna shortly before 5 a.m. ET, Caldwell said. A source familiar with the investigation said Kellerman apparently hanged himself.
"The Freddie Mac family is truly saddened by the news this morning of David Kellermann's death," Freddie interim CEO John Koskinen said in a statement. "His extraordinary work ethic and integrity inspired all who worked with him. But he will be most remembered for his affability, his personal warmth, his sense of humor and his quick wit."
Treasury Secretary Tim Geithner, whose office works closely with Fannie and Freddie, also offered condolences.
"On behalf of the Treasury family, we are deeply saddened by the news this morning of David Kellermann's death," Geithner said. "Our deepest sympathies are with his family and his colleagues at Freddie Mac during this difficult time."
Kellermann, 41, who also served as a senior vice president, had been with Freddie Mac (FRE, Fortune 500) for more than 16 years.
He was named to acting CFO and senior vice president positions in September 2008, and was responsible for the company's financial controls. This included overseeing financial reporting, compliance with tax requirements and regulations, and annual budgeting and financial planning.
Before assuming his current posts, Kellermann was corporate controller and principal accounting officer.
Kellermann held a master's degree in finance from George Washington University and a bachelor's in political science and accounting from the University of Michigan. He has served as a volunteer board member of the District of Columbia Coalition for the Homeless.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders.
The government took over Freddie Mac last year, as the nationwide subprime-loan crisis escalated. In September, Freddie Mac and Fannie Mae were placed under conservatorship by its regulator, the Federal Housing Finance Agency (FHFA).
"We at FHFA are very saddened by the death of David Kellermann," the government agency said in a statement. "As the acting chief financial officer of Freddie Mac during particularly challenging times, David was an inspiration to his staff and many others who were privileged to work with him."
Both companies back mortgages held by private homeowners, and have received massive cash infusions from the government to keep them afloat.
Read more here
The death "may have been an apparent suicide," said Lucy Caldwell, a spokeswoman for police in Fairfax County, Va.
Authorities said there were no signs of foul play when officers were called to Kellermann's home in Vienna shortly before 5 a.m. ET, Caldwell said. A source familiar with the investigation said Kellerman apparently hanged himself.
"The Freddie Mac family is truly saddened by the news this morning of David Kellermann's death," Freddie interim CEO John Koskinen said in a statement. "His extraordinary work ethic and integrity inspired all who worked with him. But he will be most remembered for his affability, his personal warmth, his sense of humor and his quick wit."
Treasury Secretary Tim Geithner, whose office works closely with Fannie and Freddie, also offered condolences.
"On behalf of the Treasury family, we are deeply saddened by the news this morning of David Kellermann's death," Geithner said. "Our deepest sympathies are with his family and his colleagues at Freddie Mac during this difficult time."
Kellermann, 41, who also served as a senior vice president, had been with Freddie Mac (FRE, Fortune 500) for more than 16 years.
He was named to acting CFO and senior vice president positions in September 2008, and was responsible for the company's financial controls. This included overseeing financial reporting, compliance with tax requirements and regulations, and annual budgeting and financial planning.
Before assuming his current posts, Kellermann was corporate controller and principal accounting officer.
Kellermann held a master's degree in finance from George Washington University and a bachelor's in political science and accounting from the University of Michigan. He has served as a volunteer board member of the District of Columbia Coalition for the Homeless.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders.
The government took over Freddie Mac last year, as the nationwide subprime-loan crisis escalated. In September, Freddie Mac and Fannie Mae were placed under conservatorship by its regulator, the Federal Housing Finance Agency (FHFA).
"We at FHFA are very saddened by the death of David Kellermann," the government agency said in a statement. "As the acting chief financial officer of Freddie Mac during particularly challenging times, David was an inspiration to his staff and many others who were privileged to work with him."
Both companies back mortgages held by private homeowners, and have received massive cash infusions from the government to keep them afloat.
Read more here
Monday, 20 April 2009
Asian Stocks Slump on Growth Concerns; China Mobile, Orix Fall
(Bloomberg) -- Asian stocks slumped, dragging the regional benchmark index from a three-month high, as lower-than- expected profit at China Mobile Ltd. curbed optimism the global economy is recovering.
China Mobile, the world’s biggest wireless carrier, sank 5.8 percent in Hong Kong trading. Orix Corp., Japan’s No. 1 non- bank financial company, slid 8 percent as Nomura Holdings Inc. downgraded the stock and Bank of America Corp. set aside more money to cover loan losses. BHP Billiton Ltd., the world’s largest mining company, lost 4.3 percent as oil and metals prices slumped.
The MSCI Asia Pacific Index lost 2.9 percent to 87.36 as of 12:22 p.m. in Tokyo, retreating from its highest close since Jan. 7. A 27 percent rally through yesterday from a five-year low reached on March 9 had lifted the valuation of companies on the gauge to the highest since November 2007.
“You’re seeing cold water being poured on the theme of a sharp rebound in growth,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “It’s encouraging that a bottom has been perceived, but given the likelihood of a protracted period of low growth, some of these share prices ran ahead of reality.”
Japan’s Nikkei 225 Stock Average tumbled 3.4 percent to 8,625.69. Mitsubishi Corp., Japan’s No. 1 trading company, led declines with a 6.5 percent drop after the Nikkei newspaper said falling coal prices will erode profits. Australia’s S&P/ASX 200 Index slumped 2.7 percent. All markets open for trading declined.
Futures on the Standard & Poor’s 500 Index were little changed at 832.90. The gauge slid 4.3 percent yesterday, the most since March 2, as Bank of America increased reserves for future loan losses by 57 percent since the end of December. The MSCI World Index slumped 3.7 percent yesterday.
Safe Haven
Prospects for more bank losses spurred demand for the yen and gold as havens. The Japanese currency touched 97.66, a level not seen since March 31, compared with 98.89 at the 3 p.m. close of stock trading in Tokyo yesterday. Bullion climbed 2.3 percent in New York yesterday. Treasuries advanced for a second day.
Speculation the worst of the global recession has passed drove valuations on the MSCI Asia Pacific Index to 19 times reported profit yesterday, the highest since Nov. 2, 2007. The 14-day relative strength index for the gauge rose to 67.7 yesterday, nearing the 70 threshold that some traders see as a sign to sell.
China Mobile slid 5.8 percent to HK$70.15. First-quarter net income rose 5.2 percent to 25.2 billion yuan ($3.3 billion), the company reported yesterday, the slowest growth rate in five years. The result missed the 26.5 billion yuan median estimate of five analysts in a Bloomberg survey as intensifying competition undermined earnings.
Financial Shares
Financial companies accounted for 31 percent of the MSCI Asia Pacific Index’s decline today. Orix, whose shares have more than doubled in the past month, retreated 8 percent to 4,370 yen. Wataru Ohtsuka, an analyst at Nomura, lowered Orix to “neutral” from “buy,” on the view that recent gains have reduced the attractiveness of the shares.
Westpac Banking Corp., Australia’s third largest, dropped 3.3 percent to A$19.60. Shinhan Financial Group Co., South Korea’s second-biggest financial company, dropped 4.4 percent to 28,550 won.
Toyota Motor Corp., the world’s largest automaker, fell 4.4 percent to 3,700 yen on concern demand will take longer than expected to recover. Sony Corp., the world’s second-biggest consumer electronics maker, lost 5.1 percent to 2,520 yen after Nikko Citigroup Ltd. cut the stock to “hold” from “buy.”
China Mobile, the world’s biggest wireless carrier, sank 5.8 percent in Hong Kong trading. Orix Corp., Japan’s No. 1 non- bank financial company, slid 8 percent as Nomura Holdings Inc. downgraded the stock and Bank of America Corp. set aside more money to cover loan losses. BHP Billiton Ltd., the world’s largest mining company, lost 4.3 percent as oil and metals prices slumped.
The MSCI Asia Pacific Index lost 2.9 percent to 87.36 as of 12:22 p.m. in Tokyo, retreating from its highest close since Jan. 7. A 27 percent rally through yesterday from a five-year low reached on March 9 had lifted the valuation of companies on the gauge to the highest since November 2007.
“You’re seeing cold water being poured on the theme of a sharp rebound in growth,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “It’s encouraging that a bottom has been perceived, but given the likelihood of a protracted period of low growth, some of these share prices ran ahead of reality.”
Japan’s Nikkei 225 Stock Average tumbled 3.4 percent to 8,625.69. Mitsubishi Corp., Japan’s No. 1 trading company, led declines with a 6.5 percent drop after the Nikkei newspaper said falling coal prices will erode profits. Australia’s S&P/ASX 200 Index slumped 2.7 percent. All markets open for trading declined.
Futures on the Standard & Poor’s 500 Index were little changed at 832.90. The gauge slid 4.3 percent yesterday, the most since March 2, as Bank of America increased reserves for future loan losses by 57 percent since the end of December. The MSCI World Index slumped 3.7 percent yesterday.
Safe Haven
Prospects for more bank losses spurred demand for the yen and gold as havens. The Japanese currency touched 97.66, a level not seen since March 31, compared with 98.89 at the 3 p.m. close of stock trading in Tokyo yesterday. Bullion climbed 2.3 percent in New York yesterday. Treasuries advanced for a second day.
Speculation the worst of the global recession has passed drove valuations on the MSCI Asia Pacific Index to 19 times reported profit yesterday, the highest since Nov. 2, 2007. The 14-day relative strength index for the gauge rose to 67.7 yesterday, nearing the 70 threshold that some traders see as a sign to sell.
China Mobile slid 5.8 percent to HK$70.15. First-quarter net income rose 5.2 percent to 25.2 billion yuan ($3.3 billion), the company reported yesterday, the slowest growth rate in five years. The result missed the 26.5 billion yuan median estimate of five analysts in a Bloomberg survey as intensifying competition undermined earnings.
Financial Shares
Financial companies accounted for 31 percent of the MSCI Asia Pacific Index’s decline today. Orix, whose shares have more than doubled in the past month, retreated 8 percent to 4,370 yen. Wataru Ohtsuka, an analyst at Nomura, lowered Orix to “neutral” from “buy,” on the view that recent gains have reduced the attractiveness of the shares.
Westpac Banking Corp., Australia’s third largest, dropped 3.3 percent to A$19.60. Shinhan Financial Group Co., South Korea’s second-biggest financial company, dropped 4.4 percent to 28,550 won.
Toyota Motor Corp., the world’s largest automaker, fell 4.4 percent to 3,700 yen on concern demand will take longer than expected to recover. Sony Corp., the world’s second-biggest consumer electronics maker, lost 5.1 percent to 2,520 yen after Nikko Citigroup Ltd. cut the stock to “hold” from “buy.”
Thursday, 16 April 2009
AIG sells auto insurer for $2 billion
(Fortune) -- AIG made the first big dent Thursday in its mountain of IOUs to taxpayers.
The New York-based insurer agreed to sell its U.S. car insurance business to a unit of Zurich Financial Services for $2 billion in cash, notes and debt assumption. The sale, which is subject to regulatory approval, is expected to close later this year, an AIG spokesman said.
The sale of 21st Century Insurance to Farmers Group comes just a month after AIG (AIG, Fortune 500) -- which has received federal assistance exceeding $182 billion since its derivatives-fueled implosion last fall -- had the terms of its federal lifeline restructured for the third time.
The company is trying to sell assets to raise cash to whittle down its gigantic obligations to the Treasury and the Federal Reserve Bank of New York. But progress has been slow. Financing for would-be buyers has been hard to come by, and Congress has been extremely critical of the ever-rising price tag of AIG's bailout.
"We are very pleased to reach agreement on a $2 billion transaction, especially in this market environment," said CEO Edward Liddy. "In addition, we are moving forward with discussions for several other transactions, and we continue to evaluate how best to assure the continued strength and success of all of AIG's businesses."
Liddy was installed last September after the government took a 79% stake in AIG in exchange for what started out as an $85 billion emergency loan. In return, AIG pledged to sell assets to raise cash that would be used to repay taxpayers.
Read more here
The New York-based insurer agreed to sell its U.S. car insurance business to a unit of Zurich Financial Services for $2 billion in cash, notes and debt assumption. The sale, which is subject to regulatory approval, is expected to close later this year, an AIG spokesman said.
The sale of 21st Century Insurance to Farmers Group comes just a month after AIG (AIG, Fortune 500) -- which has received federal assistance exceeding $182 billion since its derivatives-fueled implosion last fall -- had the terms of its federal lifeline restructured for the third time.
The company is trying to sell assets to raise cash to whittle down its gigantic obligations to the Treasury and the Federal Reserve Bank of New York. But progress has been slow. Financing for would-be buyers has been hard to come by, and Congress has been extremely critical of the ever-rising price tag of AIG's bailout.
"We are very pleased to reach agreement on a $2 billion transaction, especially in this market environment," said CEO Edward Liddy. "In addition, we are moving forward with discussions for several other transactions, and we continue to evaluate how best to assure the continued strength and success of all of AIG's businesses."
Liddy was installed last September after the government took a 79% stake in AIG in exchange for what started out as an $85 billion emergency loan. In return, AIG pledged to sell assets to raise cash that would be used to repay taxpayers.
Read more here
Google First-Quarter Profit Rises 8.9%; Sales Slow
(Bloomberg) -- Google Inc., owner of the world’s most popular search engine, reported an 8.9 percent increase in first-quarter profit after cutting jobs and jettisoning some businesses. Sales growth slowed as demand ebbed for online ads.
Net income climbed to $1.42 billion, or $4.49 a share, the company said today. Excluding revenue passed on to partner sites, sales were $4.07 billion last quarter, compared with the average analyst estimate of $4.1 billion in a Bloomberg survey.
Customers scaled back ad campaigns last quarter, leading to the first sequential drop in quarterly sales since the company went public in 2004. Google is now reining in research and marketing expenses to maintain profit growth. It has eliminated sales jobs and shut down its newspaper and radio ad units.
“We’re still basically in uncharted territory,” Chief Executive Officer Eric Schmidt said on a conference call. “The current economic environment, which everybody is all very, very familiar with, remains tough.”
Google, based in Mountain View, California, climbed as high as 6 percent in extended trading after the earnings report was released. The shares then drifted back down during the conference call. Google’s stock has climbed 26 percent this year in Nasdaq Stock Market trading.
Conference Call
The downbeat tone of the call may have changed investor sentiment, said Richard Fetyko, an analyst with Merriman Curhan Ford & Co. in New York. He recommends buying the shares. “They were talking things down,” he said.
Excluding costs such as stock-based compensation, earnings were $5.16 a share, compared with the $4.95 estimated by analysts. Net income was $1.31 billion, or $4.12 a share, a year earlier. While sales rose 6.2 percent, Google’s total expenses were little changed from last year, at $3.63 billion.
Revenue from outside the U.S. made up 52 percent of total sales, up from 50 percent in the fourth quarter.
The company also announced that its head of global sales, Omid Kordestani, will become a senior adviser to Chief Executive Officer Eric Schmidt and Google’s founders. Nikesh Arora will take over Kordestani’s old job.
U.S. online advertising spending growth will slow to 4.5 percent this year, according to New York-based research firm EMarketer Inc. That’s down from 10 percent in 2008.
Internet Searches
Still, the ad market might have stabilized in March, said Marianne Wolk, an analyst with Susquehanna International Group LLLP. The number of online searches surged 9 percent in March over February, according to ComScore Inc. of Reston, Virginia.
Google, which gets almost all its sales from online searches, handled 64 percent of U.S. queries in March, according to ComScore. Yahoo! Inc. was No. 2 with 21 percent, and Microsoft Corp. had 8.3 percent.
Google is seeking to expand beyond search-based text ads, which provide its biggest chunk of revenue. The company acquired DoubleClick last year to extend its reach into display advertising, including banner ads.
Google said last month that it was testing new kinds of ads on its YouTube video service and partner sites. The ads target users based on the types of sites they visit and their interests, rather than just what they’re searching for.
After hiring for years, Google slimmed down last quarter. The company said last month it would eliminate about 200 jobs in sales and marketing, about 1 percent of its workforce.
Read more here
Net income climbed to $1.42 billion, or $4.49 a share, the company said today. Excluding revenue passed on to partner sites, sales were $4.07 billion last quarter, compared with the average analyst estimate of $4.1 billion in a Bloomberg survey.
Customers scaled back ad campaigns last quarter, leading to the first sequential drop in quarterly sales since the company went public in 2004. Google is now reining in research and marketing expenses to maintain profit growth. It has eliminated sales jobs and shut down its newspaper and radio ad units.
“We’re still basically in uncharted territory,” Chief Executive Officer Eric Schmidt said on a conference call. “The current economic environment, which everybody is all very, very familiar with, remains tough.”
Google, based in Mountain View, California, climbed as high as 6 percent in extended trading after the earnings report was released. The shares then drifted back down during the conference call. Google’s stock has climbed 26 percent this year in Nasdaq Stock Market trading.
Conference Call
The downbeat tone of the call may have changed investor sentiment, said Richard Fetyko, an analyst with Merriman Curhan Ford & Co. in New York. He recommends buying the shares. “They were talking things down,” he said.
Excluding costs such as stock-based compensation, earnings were $5.16 a share, compared with the $4.95 estimated by analysts. Net income was $1.31 billion, or $4.12 a share, a year earlier. While sales rose 6.2 percent, Google’s total expenses were little changed from last year, at $3.63 billion.
Revenue from outside the U.S. made up 52 percent of total sales, up from 50 percent in the fourth quarter.
The company also announced that its head of global sales, Omid Kordestani, will become a senior adviser to Chief Executive Officer Eric Schmidt and Google’s founders. Nikesh Arora will take over Kordestani’s old job.
U.S. online advertising spending growth will slow to 4.5 percent this year, according to New York-based research firm EMarketer Inc. That’s down from 10 percent in 2008.
Internet Searches
Still, the ad market might have stabilized in March, said Marianne Wolk, an analyst with Susquehanna International Group LLLP. The number of online searches surged 9 percent in March over February, according to ComScore Inc. of Reston, Virginia.
Google, which gets almost all its sales from online searches, handled 64 percent of U.S. queries in March, according to ComScore. Yahoo! Inc. was No. 2 with 21 percent, and Microsoft Corp. had 8.3 percent.
Google is seeking to expand beyond search-based text ads, which provide its biggest chunk of revenue. The company acquired DoubleClick last year to extend its reach into display advertising, including banner ads.
Google said last month that it was testing new kinds of ads on its YouTube video service and partner sites. The ads target users based on the types of sites they visit and their interests, rather than just what they’re searching for.
After hiring for years, Google slimmed down last quarter. The company said last month it would eliminate about 200 jobs in sales and marketing, about 1 percent of its workforce.
Read more here
Wednesday, 15 April 2009
Crude Oil Rises as U.S. Equity Rally Spurs Demand Expectations
(Bloomberg) -- Crude oil rose for the first time in a week as equities in the U.S., the world’s biggest oil user, rallied and the Federal Reserve said some of the country’s biggest regional economies slowed the pace of their decline.
Oil gained as much as 1.2 percent after stocks climbed in the last hour of trading yesterday. Fed districts reporting a slower economic decline or signs of stabilization include San Francisco, the largest district, New York, Chicago, Kansas City and Dallas, the Fed said in its Beige Book business survey.
“The sentiment is becoming more bullish for all commodities, perhaps prematurely but that is the market,” said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. “With the speculation that things aren’t getting as bad as they were previously, it’s providing support to commodity prices.”
Crude oil for May delivery rose as much as $1.05, or 2.1 percent, to $50.30 a barrel on the New York Mercantile Exchange. It was at $50.08 a barrel at 9:52 a.m. Singapore time. Prices are up 12 percent so far this year.
Yesterday, oil fell 16 cents, or 0.3 percent, to $49.25 a barrel, the lowest settlement on the Nymex since April 7, after a government report showed that U.S. stockpiles climbed to the highest level in almost 19 years as demand dropped.
The Dow Jones Industrial Average jumped 109.44 points, or 1.4 percent, to 8,029.62 yesterday.
The trend of higher equity prices continued into Asian trading. The Nikkei 225 Stock Average climbed 1 percent, to 8,832.99 as of 9:05 a.m. in Tokyo, breaking a three-day slide. The broader Topix index rose 10.13, or 1.2 percent, to 845.38.
Read more at Bloomberg
Oil gained as much as 1.2 percent after stocks climbed in the last hour of trading yesterday. Fed districts reporting a slower economic decline or signs of stabilization include San Francisco, the largest district, New York, Chicago, Kansas City and Dallas, the Fed said in its Beige Book business survey.
“The sentiment is becoming more bullish for all commodities, perhaps prematurely but that is the market,” said David Moore, a commodity strategist with Commonwealth Bank of Australia Ltd. “With the speculation that things aren’t getting as bad as they were previously, it’s providing support to commodity prices.”
Crude oil for May delivery rose as much as $1.05, or 2.1 percent, to $50.30 a barrel on the New York Mercantile Exchange. It was at $50.08 a barrel at 9:52 a.m. Singapore time. Prices are up 12 percent so far this year.
Yesterday, oil fell 16 cents, or 0.3 percent, to $49.25 a barrel, the lowest settlement on the Nymex since April 7, after a government report showed that U.S. stockpiles climbed to the highest level in almost 19 years as demand dropped.
The Dow Jones Industrial Average jumped 109.44 points, or 1.4 percent, to 8,029.62 yesterday.
The trend of higher equity prices continued into Asian trading. The Nikkei 225 Stock Average climbed 1 percent, to 8,832.99 as of 9:05 a.m. in Tokyo, breaking a three-day slide. The broader Topix index rose 10.13, or 1.2 percent, to 845.38.
Read more at Bloomberg
Goldman reports $1.8 billion profit
(Fortune) -- Goldman Sachs reported a much stronger-than-expected first-quarter profit Monday, bouncing back from its worst quarter as a public company.
Goldman (GS, Fortune 500) also set plans to raise $5 billion through a sale of stock, saying it wants to become the first big bank to repay the federal loans extended during last fall's financial sector meltdown.
In reporting its results a day earlier than expected, New York-based Goldman said it earned $1.81 billion, or $3.39 a share, for the quarter ended March 31. Analysts surveyed by Thomson Financial were looking for a profit of $1.64 a share.
Goldman shares, which have surged more than 70% during the past month, continued rising late Monday, gaining about 4.7% for the day. Shares were down slightly in after-hours trading.
Read more at Fortune
Goldman (GS, Fortune 500) also set plans to raise $5 billion through a sale of stock, saying it wants to become the first big bank to repay the federal loans extended during last fall's financial sector meltdown.
In reporting its results a day earlier than expected, New York-based Goldman said it earned $1.81 billion, or $3.39 a share, for the quarter ended March 31. Analysts surveyed by Thomson Financial were looking for a profit of $1.64 a share.
Goldman shares, which have surged more than 70% during the past month, continued rising late Monday, gaining about 4.7% for the day. Shares were down slightly in after-hours trading.
Read more at Fortune
Tuesday, 14 April 2009
Infosys Shares Fall 7.8%, Biggest Drop in Five Years on Forecast
(Bloomberg) -- Infosys Technologies Ltd. shares fell as much as 7.8 percent, the biggest drop in almost five years, after India’s second-largest software-services provider forcecast its first sales decline in dollar terms for this year.
Read more at Bloomberg
Read more at Bloomberg
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