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Stanford unit withdraws from Colombia stock market. U.S. authorities have charged the financial group and its founder with perpetrating a "massive" fraud. Alvaro Camaro, the director of Stanford's brokerage operation in Bogota, said the company had sufficient solvency to provide guarantees to its local investors. "With what has happened to the group at a global level, we had to make a decision to protect investors and naturally to guarantee stability in the market," Camaro told Reuters. "It's not an intervention, it's a decision to withdraw from activities that's been made by the company and accepted by the Financial Superintendency because the firm has no liquidity problems," he said. Under the terms of its withdrawal from the market, Stanford's local operations will be limited to fulfilling outstanding commitments in the stock market and returning funds to its clients, the Superintendency said in a statement. Stanford's net assets in the Andean country are valued at about $10.9 million. "We have a $7.8 million in ready funds, which is very robust and enough for us to respond to those people who want to transfer their funds elsewhere," Camaro said. In a complaint filed in federal court in Dallas, the U.S. Securities and Exchange Commission accused billionaire Allen Stanford of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme that stretched from Texas to the Caribbean. Panamanian bank regulators said on Tuesday that they had taken over the local affiliate of the organization, while Stanford Bank Venezuela sought to calm its clients by saying its assets were not linked to Stanford International Bank. The group also operates affiliated banks, brokerages and other companies in Mexico and elsewhere in Latin America. (Writing by Helen Popper ; Editing by Lisa Von Ahn) |
INSTANT VIEW: HP's quarterly outlook misses forecasts. COMMENTS: BILL KREHER, ANALYST, EDWARD JONES "A laser focus on cost-control has benefited HP despite a dramatic falloff in revenues and I don't think the outlook is as bad as it could have been given currency headwinds and overall weak demand environment. "Weak market conditions will persist through 2009 but we believe HP will emerge stronger due to its market positioning and cost-cutting prowess." BRENT BRACELIN, ANALYST, PACIFIC CREST SECURITIES "The big disappointment, not surprisingly, is the shortfall in revenue. Their hardware businesses, both servers and storage, are under intense scrutiny. Budgets are being cut and that showed up in the shortfall today. "PC revenue declined 19 percent, server storage declined 18 percent, year over year. Their printer hardware business declined more than 30 percent, year over year. The pace of the erosion in hardware was more severe than we expected. "They did a good job of managing expenses in the quarter, but as you think about the fundamentals here going forward, they lowered their guidance from a revenue and profitability standpoint, and certainly we don't have a ton of confidence, given the pace of erosion in their business. There could be further erosion from here." ROGER KAY, ANALYST, ENDPOINT TECHNOLOGIES "It's clear that the hardware groups were hit pretty badly. The imaging and printing group managed to eke out a better profit margin to keep profits constant, which is good. "And services benefited from the acquisition of EDS. On the outlook side, it doesn't look particularly promising. The company is basically forecasting a decline." SHEBLY SEYRAFI, ANALYST, CALYON SECURITIES "My quick read is that the revenue was clearly very disappointing. The Street consensus was at $32 billion, they came in at $28.8 billion. Looking through the results, looks like they were light. "Revenue was down across most of their major buckets like PSG (Personal Systems Group), IPG (Imaging and Printing Group). "The fact is that they are lowering the annual outlook for the year. It was $3.88 to $4.03 per share before..., the low end of the range of the prior range is now the high end of the new range. "They are vulnerable to weakening PC sales. Shares are down on a combination of the actual results, the revenue mess and the lowering of the annual guidance. There are lots of reasons to be concerned about Hewlett-Packard." (Reporting by Anupreeta Das and David Lawsky ) |
Former Swiss president quits Stanford board. "When I heard of the allegations I informed the Stanford Group that I resigned with immediate effect from the advisory board," Ogi told Reuters. "I don't even want to wait for a judgment or discussions, I don't want to be associated with this sort of news." He said he had joined the board in April 2008, and had attended two meetings to date, in Washington and in New York. The U.S. Securities and Exchange Commission accuses Stanford, a high-profile cricket promoter, and two executives of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme stretching from Texas to the Caribbean. Ogi said he was invited to join the Stanford advisory board after making a speech in Geneva in his position as a U.N. adviser on sport at which staff of Stanford were present. He said he had sought information on other advisory board members before joining and that this had given him confidence in the work of the board, where he advised on sports projects aimed at fostering development and peace. Stanford also set up a European operation in Zurich. Employees at the Zurich office declined to comment on the investigation on Wednesday, referring queries to the United States. When Ogi was appointed to the Stanford advisory board in April last year, he said in a statement: "I am proud to be involved with a financial services group that also understands the importance of improving communities through philanthropy." Ogi, a member of the right-wing Swiss People's Party (SVP) and former director of the Swiss Ski Federation, was Swiss president in 1993 and 2000. He was appointed special U.N. Special Adviser on Sport for Development and Peace in 2001. Stanford, a 58-year-old Texan running the firm that his grandfather founded, has denied any wrongdoing. Stanford's property holdings and celebrity associations drew comparisons with Wall Street financier Bernard Madoff, who was charged in December in a suspected $50 billion fraud. (Editing by Sharon Lindores and David Cowell) |
Wells Fargo shares fall; fears of payout cut, losses. The combined Wells Fargo and Wachovia last month posted a $13.72 billion fourth-quarter loss as it set aside more money to cover sour mortgages and other bad loans. Wachovia legally joined Wells Fargo on Dec 31, 2008 and the two banks are formally integrating now. "The market is starting to grow edgy about what may surface as they consolidate the Wachovia book of business into Wells Fargo," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management. Wirtz added investors feared the bank could slash its dividend payout, even though Wells Fargo said last month it will maintain its payout. Wells Fargo was once considered conservative in its assessments of Wachovia's loans. But investors and analysts have grown more worried about the bank's assumptions as market conditions deteriorated rapidly, particularly for loans known as "option adjustable rate mortgages," which allow borrowers to choose whether to repay principal or just interest each month. Last week, the bank increased the size of its previously reported fourth-quarter loss because of new investment losses. Wells Fargo said the charge boosted its quarterly after-tax loss to $2.73 billion, or 84 cents per share, from a previously reported $2.55 billion, or 79 cents. "Options flow suggests concern that Wells Fargo shares have the potential to trade below $9 over the next five weeks," said Henry Schwartz, president of option analytics firm Trade Alert. Wells Fargo shares were down 3 percent at $13.28 at midday on the New York Stock Exchange after falling as much as 12 percent to their lowest level since April 1997. The shares have fallen 56 percent this year, since the Wachovia deal was closed. (Reporting by Juan Lagorio ; Additional reporting by Doris Frankel in Chicago; Editing by Brian Moss ) |
Fed's Evans: Economy shrinking at disturbing pace. "We likely are in for a protracted period of poor economic performance," Chicago Fed President Charles Evans said in a speech on the economic outlook to the Rockford Chamber of Commerce in Rockford, Illinois. "For the Fed, this means that the (Federal Open Market) Committee will have to focus on other ways to impart monetary stimulus to the economy." The central bank's various new liquidity programs can still be expanded, and the purchase of longer-term Treasuries is still being mulled, Evans noted. Evans, a voting member of the central bank's policy-setting Federal Open Market Committee in 2009, said that the pessimistic outlook "has reduced everyone's confidence," making investors, households and businesses reluctant to take on longer-term investments or new spending, only adding to the economy's woes. Real GDP, the broadest measure of economic growth, "will fall markedly" in the first half of 2009 before potentially expanding later in the year and moving back to "the neighborhood" of its potential in 2010. "However, I do not see growth as being strong enough to make much progress in closing resource gaps over this period. Indeed, the unemployment rate ... is likely to rise into 2010," he said. The impact the Obama administration's $787 billion economic stimulus would have on GDP was not yet clear, he added. "The new fiscal stimulus package will boost output ... Our forecast could need some recalibration as we gain knowledge of how the package is affecting the economy." Evans said inflation was likely to remain "a good deal below" the 2-percent level that is consistent with price stability in both 2009 and 2010, and reiterated support for a more explicit inflation target. Discussing the Fed's initiatives to pump liquidity into various corners of the credit market, Evans said the programs reflected the current dysfunction and risk aversion rampant in financial markets. "Markets have become highly segmented .... as stressed markets improve, more normal functioning of the financial system as a whole can be achieved," he said. For now, the Fed's traditional and nontraditional policy actions "are beginning to help the functioning of credit markets," as shown by falling spreads on interest rates charged for interbank lending since October, Evans said. Evans said some of the winding down of the Fed's nontraditional programs "will occur naturally as market conditions improve," allowing the central bank to return to its traditional focus on short-term lending rates. Financial markets currently do not fully price an increase in the federal funds rate to 0.50 percent from the current range of zero to 0.25 percent until December. |
Obama housing plan commits up to $275 billion: official. The plan will include $200 billion in additional funding support for government-controlled housing finance firms Fannie Mae and Freddie Mac, along with $50 billion from the $700 billion financial rescue fund to help reduce payments on "at-risk" mortgages in danger of foreclosure. Fannie and Freddie will kick in another $20-25 billion to help modify these loans, the official said. (Reporting by David Lawder ) |
Four bidders in fray for AIG's Philippine assets: sources. The likely bidders for Philippine American Life and General Insurance Co (Philamlife) are the Bank of the Philippine Islands ( BPI.PS ), Banco de Oro Unibank ( BDO.PS ), Toronto-based Manulife Financial Corp ( MFC.TO ) and an unidentified foreign investor, the sources, who did not want to be identified because they were not authorized to talk to media, told Reuters. A top official at Banco de Oro confirmed the bank was preparing to submit a bid on Monday for Philamlife. Philippines' second-largest bank by assets will partner Assicurazioni Generali SpA ( GASI.MI ) -- Italy's biggest insurer -- and Malaysian general insurer Jerneh Asia Berhad JNEH.KL of the Kuok Group, the official, who did not want to be identified, told Reuters. Bank of the Philippine Islands ( BPI.PS ) has teamed up with Britain's Prudential Plc ( PRU.L ), the sources said. Officials at Manulife Philippines and Prudential Corporation Asia in Hong Kong declined comment. Calls to a Bank of Philippine Islands spokeswoman were not answered. The bidders have until February 23 to submit their bids, one of the sources said. The earliest the sale can be finalized is the first week of March, the second source said. It is not known how much Philamlife will fetch for AIG. The group, with a book value of 49.5 billion pesos ($1.04 billion) at the end of 2007, sold its consumer finance and banking units to mid-sized local lender East West Bank of the Filinvest group ( FDC.PS ) last month for about 2 billion pesos. The sale of Philamlife, the country's biggest insurance firm, is part of AIG's fund-raising to pay off a total $150 billion lifeline from the U.S. government. But the sale would not include Philamlife's non-life insurance business, in line with AIG's plan to retain its foreign general insurance businesses. Philamlife president Jose Cuisia said on Wednesday AIG's board, in consultation with the Federal Reserve Bank of New York, would decide the winning bidder. "AIG wants to raise the funds as early as possible," Cuisia told reporters. "But they also will not do it at firesale prices. They will make sure that the price is what they consider as fair and reasonable so they are not going to rush," Cuisia said. Cuisia confirmed there was a shortlist but did not identify any of the bidders, saying he was barred from giving out details under a non-disclosure agreement. ($1 = 47.72 pesos) (Reporting by Manolo Serapio Jr., Editing by Muralikumar Anantharaman) |
INSTANT VIEW: Housing starts and permits hit record low. U.S. import prices fell the smallest amount in six months in January as a string of double-digit declines in petroleum import prices ended, a U.S. Labor Department report said on Wednesday. KEY POINTS: HOUSING * Housing starts tumbled 16.8 percent to a seasonally adjusted annual rate of 466,000 units, the lowest since the Commerce Department started keeping records in 1959, from December's upwardly revised 560,000 units. That was the biggest percentage drop since January 1994, the Commerce Department said. * Analysts polled by Reuters had expected an annual rate of 530,000 units for January. * New building permits, which give a sense of future home construction, dropped 4.8 percent to 521,000 units, also an all-time low, from 547,000 units in December. That was below analysts' estimates of 530,000. IMPORT/EXPORT PRICES * Petroleum import prices fell just 2.4 percent in January after four consecutive months of double-digit declines. That helped hold the 1.1 percent overall import price drop close to the 1.3 percent mark expected by analysts before the report. COMMENTS: CARL LANTZ, U.S. INTEREST RATE STRATEGIST, CREDIT SUISSE, NEW YORK: "Housing amazingly keeps surprising to the downside even this far into it. The one silver lining is that precondition of getting house prices to stabilize is to stop building homes basically that the market doesn't need. "Although this is bad for GDP arithmetic it is something of a good thing in the medium term the fact that they are building fewer homes. Therefore the inventory will take not quite as long to work off. Unfortunately the inventory is pretty massive." KEVIN KRUSZENSKI, HEAD OF LISTED TRADING, KEYBANC CAPITAL MARKETS, CLEVELAND "I think expectations were fairly low going into this number. The starts, in particular, were much worse than expected. Expectations are so low for housing that I think even if you had a better-than-expected number, the market would have seen it as an anomaly." IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY ECONOMICS, VALHALLA, NEW YORK: "The huge drop in starts reflects a 28 percent plunge in the very volatile multi-family home sector, while single-family starts fell by 12 percent -- grim but not quite as bad as the headline. Moreover, it is possible that severe weather in parts of the country accounted for some of the drop in starts. We note that single-family permits, which are much less susceptible to the weather than starts, fell 8.0 percent, rather less than the drop in starts. The numbers are still terrible, though, and with the inventory of new homes still rising relative to sales, we can't be confident this is the bottom. Starts can't fall below zero, though..." TIM GHRISKEY, CHIEF INVESTMENT OFFICER, SOLARIS ASSET MANAGEMENT, BEDFORD HILLS, NEW YORK: "They certainly were weak. January housing starts were well below expectations and the permits were basically in-line, slightly below expectations and that does show the inventory of housing continues to moderate which should eventually lead to a stabilization in pricing. "We expect stable prices in the next year, possibly in a shorter time frame given that population growth is outstripping the supply in housing. The market looks like we have a slightly positive start for the day and we might see a little bit of a positive here from that data. Of course, it's not good news for the housing manufacturers but for the overall market. The real focus today is on Geithner and what he says specifically about housing and mortgages." MATT ESTEVE, FOREIGN EXCHANGE TRADER, TEMPUS CONSULTING, WASHINGTON: "It's a pretty awful (housing) number but in a certain way the bad reading was to be expected. There's no bottom yet in sight for the U.S. economy. But the truth is that the outlook for the rest of the world is even worse and that should sustain the dollar bid. We've seen a re-emergence of risk aversion in the past couple of days and any dip in the dollar may be a good buying opportunity." SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO: "I don't think they're particularly strong (housing data), but the weakness is expected. I do think the stock market is testing the low of its range, so I don't think there will be downward movement on the number. This is just a continuation of the data we've been seeing. "I think the market is looking for two things: a little more clarity on the refinancing of financials, and economic data both in and outside the U.S. "I don't think the market is looking too much to Obama's speech. With his signing the stimulus yesterday, I think it's more of a question of how much the market has discounted." MARKET REACTION: STOCKS: U.S. equity index futures hold gains. BONDS: U.S. Treasury debt prices hold gains. DOLLAR: U.S. dollar holds gains versus yen. |
S&P, Nasdaq dip as housing plan fails to cut fear. Indexes see-sawed in a narrow range throughout the day, but the S&P and Nasdaq ultimately failed to hold gains despite bargain-hunting that sent investors to the perceived safety of defensive stocks, such as technology and consumer staples. The Dow eked out a gain, driven by defensive shares such as Wal-Mart Stores ( WMT.N ), keeping the index from breaking through the November 20 bear market low. Adding to the somber mood, the Federal Reserve slashed its economic forecast for 2009 and several companies, including Deere & Co ( DE.N ), posted dismal results. Deere fell almost 4 percent. Record low housing starts and applications for building permits for January set the tone early, overshadowing Obama's plan pledging up to $275 billion to help families refinance their mortgages to stem foreclosures. "There aren't a lot of specifics, running into the same problem as you did with Geithner and his speech a week ago," said Al Goldman, chief market strategist at Wachovia Securities in St. Louis, speaking of the keenly awaited housing plan. "The biggest problem in the market, in my opinion, is a major lack of confidence and disappointment that the current administration really hasn't done anything yet about the toxic assets held by banks." The Dow Jones industrial average .DJI added 3.03 points, or 0.04 percent, to 7,555.63. The Standard & Poor's 500 Index .SPX was off 0.75 points, or 0.10 percent, to 788.42. The Nasdaq Composite Index .IXIC edged down 2.69 points, or 0.18 percent, at 1,467.97. Since the beginning of the year, the broad S&P 500 is down close to 13 percent; after having risen 20 percent from the late November lows, it is now up almost 5 percent from that mark. Tuesday's sharp drop took indexes closer to the bear market lows and prompted some bargain-hunting on Wednesday. Caterpillar Inc ( CAT.N ) ,the world's biggest maker of construction equipment, was the top drag on the Dow, down 1.9 percent to $28.44. Shares of Deere & Co ( DE.N ) dropped 3.8 percent to $32.23 after the farm equipment maker posted a quarterly profit that missed forecasts and cut its outlook. The dismal housing data pulled shares of home builders down, with the Dow Jones home construction index .DJUSHB shedding 5 percent. Luxury home builder Toll Brothers ( TOL.N ) fell 4.1 percent to $17.16, while D.R. Horton ( DHI.N ) declined 5.4 percent to $8.44. On the upside, Wal-Mart Stores saw a second day of gains after Tuesday's better-than-expected earnings, sending the discount retailer up 3.7 percent at $50.00. Losses on the Nasdaq were cushioned as investors snapped up shares of big cap technology companies, which are seen as having more wherewithal to withstand the economic downturn. Google ( GOOG.O ) was among the top boosts, up 3.1 percent at $353.11. (Editing by Leslie Adler) |
Bernanke: Fed taking step toward inflation target. In a speech to National Press Club, Bernanke said the central bank would publish projections that would offer a view on how the Fed expects the economy to perform beyond the central bank's normal three-year forecast horizon. The first set of forecasts will be included in minutes from the most recent meeting of the policy-setting Federal Open Market Committee, set for release later on Wednesday. "The longer-term projections of inflation may be interpreted ... as the rate of inflation that FOMC participants see as most consistent with the dual mandate given to it by Congress -- that is the rate of inflation that promotes maximum sustainable employment while also delivering reasonable price stability," Bernanke said. Take on-the-record questions from the media for the first time since becoming Fed chairman, Bernanke said the long-run projections should help anchor the public's expectations about the future path of inflation in a way that could help prevent a self-feeding inflationary, or deflationary, psychology. When he took the helm at the Fed in 2006, Bernanke was a vocal proponent of setting a numerical target for inflation. However, that has been a subject of much debate among other Fed officials, some of whom worry that setting an explicit target would limit the central bank's flexibility. But with the central bank increasingly concerned that falling prices will trigger a dangerous round of deflation and prolong the recession, some economists had speculated that the Fed would extend its forecast horizon to provide a signal on where it thinks longer-term inflation should be. MEDICINE WORKING The Fed chairman disclosed no new programs to aid the economy. He also made no mention of buying longer-dated Treasury debt, which he discussed in January as a way to ease borrowing costs but made no public mention of since. That has led some observers to conclude that the Fed was backing away from the idea. Bernanke said aggressive steps the Fed had taken to combat the financial crisis were paying off as evidenced by lower borrowing costs in markets for commercial paper and mortgages. "These policies appear to give the Federal Reserve some scope to affect credit conditions and economic performance, notwithstanding that the conventional tool of monetary policy, the federal funds rate, is nearly as low as it can go," Bernanke said. He acknowledged concerns that the Fed's lending programs, which have more than doubled its balance sheet to about $2 trillion, exposed taxpayer money to greater risk, but said the central bank had acted appropriately to limit potential losses. "For the great bulk of Fed lending, the credit risks are extremely low," he said. He also dismissed concerns that expanding the Fed's balance sheet would stoke inflation, pointing out that with global economic activity so weak and commodity prices low, there was little risk of unacceptably high inflation in the near term. "However, at some point, when credit markets and the economy have begun to recover, the Federal Reserve will have to moderate growth in the money supply and begin to raise the federal funds rate," he said. (Reporting by Mark Felsenthal , Emily Kaiser and Alister Bull , Editing by Chizu Nomiyama) |
INSTANT VIEW: Fed slashes 2009 forecast. KEY POINTS: * Fed officials lowered their core projections for 2009 to a decline in output of between 1.3 percent and 0.5 percent. Fed officials in October anticipated output for the year ranging from a shrinkage of 0.2 percent to an expansion of 1.1 percent. COMMENTS: ASHA BANGALORE, ECONOMIST, NORTHERN TRUST, CHICAGO: "It's interesting to see they lowered their projections for output in 2009. They are also quite pessimistic about the situation. It's just telling you that things are not as good. "But if you look at 2010, it's quite bullish." BRET BARKER, PORTFOLIO MANAGER, METROPOLITAN WEST ASSET MANAGEMENT, LOS ANGELES: "This was a bit of a non-event. I think it would have been nice to see some comments on buying Treasuries, but I think they were focused on the outlook -- definitely weaker but no surprise there. I think we know they want to go to some form of inflation-targeting. Not a specific one but something. Overall, no big market mover here." WILLIAM O'DONNELL, HEAD OF U.S. INTEREST RATE STRATEGY AND RESEARCH, UBS, STAMFORD, CONNECTICUT: "We were looking most closely at any discussion or hints about Treasury purchases. "They discussed Treasury purchases. The consensus appeared to be that for now purchases of agency debt and mortgage debt and support through TALF for the ABS markets would be more effective. "At some point if those programs lose effectiveness that certainly is an arrow they can yank out of the quiver, but it doesn't appear to be immediate." TOM SOWANICK, CHIEF INVESTMENT OFFICER, CLEARBROOK FINANCIAL LLC, PRINCETON, NEW JERSEY: "There are two takeaways from the Federal Reserve minutes. First, the Fed is moving closer to adopting a 2 percent long-term inflation target. Secondly, their weaker GDP forecast is still not as dire as the market is pricing." JAMES CARON, CO-HEAD OF GLOBAL RATES RESEARCH, MORGAN STANLEY, NEW YORK: "It was nothing too out of the ordinary. Lacker still differentiates himself from everybody else. The citing inflation and citing deflation risks had to be the topic du jour. Clearly most central banks are all about inflation fighting and they are always going to have to talk about what the end game is to all of this stuff, and after all there is a lot of monetary and fiscal stimulus floating around out there and money supply has grown quite a bit." MARKET REACTION: STOCKS: U.S. equity indexes pare losses. BONDS: U.S. Treasury debt prices slightly pare losses. DOLLAR: U.S. dollar holds gains. |
FACTBOX: Key terms of UBS deal with U.S. over tax charges. Here are the key terms of the deal: - UBS, under orders by Swiss market regulators, is to give the United States identities and account information of "certain" U.S. customers. Details are to be filed under seal with U.S. federal court and turned over as soon as the court accepts the agreement. - UBS agrees to pay $780 million in fines, interest and penalties. This includes $200 million to be paid to the U.S. Securities and Exchange Commission. The remainder is to be paid to the Justice Department over 18 months, with options to pay early or extend the terms up to four years. - UBS acknowledges that it helped U.S. taxpayers open accounts that concealed their identities from the U.S. Internal Revenue Service. About 17,000 of 20,000 U.S. cross-border clients concealed their identities and the existence of their accounts, with $20 billion in assets, from the IRS, the Justice Department said. Some of these clients are unindicted co-conspirators. The business generated about $200 million a year in revenue for UBS from 2002 to 2007, it said. - UBS agrees to quit providing cross-border banking services to U.S. clients with undeclared accounts. - After 18 months, the U.S. government will recommend dismissal of charges against UBS providing it honors the terms of the agreement. (Reporting by Randall Mikkelsen ; Editing by Tim Dobbyn ) |
Ecuador probes Stanford units, unsure of damages. The two regulators, who oversee the country's markets, said the total exposure of local investors was not yet known. The stock exchanges in Guayaquil and Quito were expected to suspend Stanford's local brokerage house later on Wednesday, officials said. "We have launched an investigation into the portfolios managed by Stanford," said Santiago Noboa, the head regulator for markets in Quito. Noboa said the Stanford units managed a fund and investor portfolios that totaled about $15 million, but authorities were yet unaware of other instruments the firm might have sold to local investors. Noboa said the government was waiting for the results of the investigation before taking action. Dozens of well-dressed, prosperous looking clients flooded into Stanford's brokerage office in Quito's ritzy business district, demanding information about their deposits. "I don't know what is going on. I read it in the newspaper and immediately came over," said Anita Cazar, a real estate agent who invested in certificates of deposit. Sitting on a leather couch in the luxurious office, she added, "I want to get that money out." (Reporting by Alonso Soto ; Editing by Gary Hill ) |
FACTBOX: Highlights of Chrysler's restructuring plan. Chrysler said its plan was based on industrywide car sales in the U.S. market totaling 10.1 million units in 2009, then rising to 11.6 million in 2012. That forecast was lower than Chrysler's December projection, and represents a sales decline of about 720,000 units, based on the company's 10 percent market share. Availability of credit to consumers and dealers is the "single most important element of Chrysler's viability," the automaker told the U.S. government. It is "critical" that Chrysler Financial find a permanent funding solution, the company said. The 177-page plan would help the company achieve a positive net present value of $17.3 billion after taking into account all existing and projected costs, including repayment of 100 percent of the Treasury Department loan, Chrysler said. The plan also included: DEALER CONCESSIONS Chrysler will cut dealer margins, eliminating fuel fill reimbursement, and cutting service contract margins. UNION CONCESSIONS The term sheets for labor and VEBA modifications will make Chrysler's cost structure competitive with foreign automakers' U.S. plants. However, the VEBA modifications are conditioned on further due diligence and satisfactory debt restructuring. SUPPLIER CONCESSIONS Chrysler is talking with suppliers and believes it can "obtain substantial cost reductions." Chrysler also supports supplier associations' proposals which would provide a government guarantee of automakers' accounts payable. CREDITORS Chrysler's plan includes cutting $5 billion of outstanding obligations from certain creditor groups, which would also provide immediate cash flow from interest savings of between $350 million and $400 million annually. ALLIANCES Chrysler said its proposed Fiat alliance would help stabilize the U.S. auto market and help Chrysler repay its Treasury loan faster. "Chrysler's intent is to build on its product alliances or form global alliances to enhance its viability. The company has proposed that a percentage of its new equity be retained in a trust controlled by the president's designee to facilitate these alliances in the future." MANAGEMENT CONCESSIONS Chrysler suspended its 401(k) match, performance bonuses, merit increases, and eliminated retiree life insurance benefits. DOE TECHNOLOGY FUNDING Chrysler said it expects to receive U.S. Energy Department advanced technology funding of $2.5 billion in 2010, $2 billion in 2011, and $1.5 billion in 2012. The Chrysler plan was posted on the Treasury Department's web site at: here (Reporting by Julie Vorman ; Editing by Matthew Lewis ) |
SEC's Walter backs "say on pay" for corporate CEOs. The comments by SEC Commissioner Elisse Walter, a Democrat, come as banks and other companies receiving federal bailout money have been ordered to give shareholders such voting power. These votes are nonbinding on companies but seen as sending a strong signal about shareholders' attitudes about companies' pay decisions. Some other companies, including Intel Corp ( INTC.O ) and Hewlett-Packard Co ( HPQ.N ), have said they would voluntarily adopt say-on-pay voting as Corporate America faces pressure from angry investors about the size of executive pay packages at a time when the economy is in turmoil. Say-on-pay measures "can help restore investor trust" and lead to "increased shareholder participation," Walter said in a speech at a corporate governance forum in New York sponsored by the Practising Law Institute. Walter is one of five SEC commissioners who make decisions on federal securities rules. The new SEC chairman, Mary Schapiro, has also said it is appropriate to allow shareholders to cast an advisory vote on executives' compensation. Like Schapiro, Walter also said on Wednesday the commission should revisit the thorny issue of proxy access, or giving stockholders an easier way to put forward their own nominees for corporate board seats. "I believe the commission should move forward with proxy access," she said, adding that she believed the commission needed to "carefully consider" a range of possibilities on the matter. Shareholders already have the right to put forth board nominees by waging a proxy fight. However, that route is considered onerous and expensive, and shareholder advocates say the SEC should allow investors to place their nominees for board elections on the company's annual proxy document instead. Business groups counter that such an idea only serves activists who may not have a company's best interests at heart. Walter also said she wanted to see more disclosure from companies in board election materials distributed to shareholders about a nominee's qualifications to serve on the board. Currently, companies typically only list a nominee's biography. It would be better, Walter said, if companies were required to explain why they believe that director nominee would "add value" the company. (Reporting by Martha Graybow, editing by Matthew Lewis) |
Stanford whereabouts unknown after charges: SEC. "We are unaware of his whereabouts," Securities and Exchange Commission spokeswoman Kimberly Garber said from Texas. Asked if Stanford may be outside the United States, she said: "Certainly that's a possibility, but we don't know." U.S. marshals assisting the SEC have been unable to serve Stanford with court orders freezing assets and appointing a receiver to run his Stanford Financial Group companies since a raid on his Houston headquarters Tuesday, Garber said. Garber said she was unaware of any warrants for Stanford's arrest and said the SEC was still hoping for his voluntary cooperation on the civil fraud charges. "Certainly he is still subject to the court orders. To that extent, we certainly want to ensure that he is served," Garber said. She said two executive who were charged with Stanford, Laura Pendergest-Holt and Jim Davis, had been served. The FBI is in communication with the SEC regarding the Stanford case, FBI spokeswoman Shauna Dunlap said. She gave no more details. "The FBI is certainly aware of the SEC investigation, and we have been in contact with the SEC," Dunlap said. The SEC said in court papers disclosed Tuesday that Stanford had failed to appear in recent weeks for testimony ordered by subpoena. CNBC reported that he had tried to hire a private jet to fly one-way to Antigua from Houston, but the jet lessor refused to take his credit card. (Reporting by Randall Mikkelsen; editing by Jeffrey Benkoe) |
NRG calls on shareholders to reject Exelon offer. "We would support a deal with Exelon at a fair price but, at this point, we have no reason to believe they are willing to offer a fair price," said NRG, in an open letter to its shareholders. In October, Exelon, the largest U.S. nuclear power company, made an unsolicited offer to buy NRG for $6.2 billion. NRG said the offer was too low, prompting Exelon to bypass NRG's management and make a tender offer directly to shareholders. Under the offer, NRG shareholders have tendered 106.3 million shares, or about 45.6 percent, of NRG common stock outstanding, Exelon said last month. Exelon extended the exchange offer to February 25. It was previously scheduled to close on January 6. Exelon has offered to acquire NRG at a fixed price of 0.485 shares of Exelon common stock for each share of NRG common stock. Exelon has also nominated a slate of directors for NRG's board, as it raises the pressure in its hostile bid for the independent power producer. NRG said it has held discussions with Exelon Chief Executive John Rowe, but these discussions have proven to be "fruitless." "Rowe made it clear that Exelon would not make any meaningful increase in the price being offered to NRG stockholders, even if allowed to conduct due diligence," said NRG. NRG, in its letter, urged shareholders that have already tendered shares toward the offer to retract their tender, so as to prompt Exelon to raise its offer. (Reporting by Euan Rocha , editing by Dave Zimmerman) |
Ford, UAW reach deal to trim labor costs. Ford, which posted a record $14.6 billion loss in 2008, said the UAW deal includes changes to labor costs, benefits and operating practices. It is contingent on Ford resolving the funding of a union-aligned trust for retiree health care. Ford has sought to distance itself from U.S. rivals General Motors Corp and Chrysler, which have received $17.4 billion of government loans and on Tuesday requested nearly $22 billion more to support turnarounds. However, it has been the needs of Ford's rivals that helped propel further cost cuts for the automaker. The UAW also reached "tentative understandings" with GM and Chrysler. As part of their government bailouts, GM and Chrysler are required to make labor costs competitive with the U.S. operations of Japanese automakers Toyota Motor Corp, Honda Motor Co Ltd and Nissan Motor Co Ltd. GM and Chrysler also are required to make half of planned contributions to Voluntary Employees Beneficiary Association trusts for retiree health care in company stock. Ford executives had said they expected the union to provide labor cost parity with their U.S.-based rivals. Ford and the UAW said they would not disclose terms of the agreement until VEBA discussions are completed. The agreement, reached on Sunday covers 42,000 Ford workers and must be ratified by members. (Reporting by David Bailey ; Editing by Phil Berlowitz) |
HP cuts full year outlook. While HP's diversified business lines -- which also include computer services and software -- have kept it relatively resilient to the economic downturn, it is still vulnerable to sharp cutbacks in corporate spending on technology. "The big disappointment, not surprisingly, is the shortfall in revenue," said Pacific Crest Securities analyst Brent Bracelin. "Their hardware businesses, both servers and storage, are under intense scrutiny. Budgets are being cut and that showed up in the shortfall today." For fiscal 2009, HP on Wednesday forecast profit excluding items of $3.76 to $3.88 a share, on a revenue decline of 2 to 5 percent from $118.4 billion in fiscal 2008. That compared with its previous forecast for earnings per share of $3.88 to $4.03 on revenue of $127.5 billion to $130 billion. Wall Street analysts, on average, had expected earnings of $3.78 a share on revenue of $126.6 billion. "They are vulnerable to weakening PC sales," said Shebly Seyrafi, analyst at Calyon Securities. "Shares are down on a combination of the actual results, the revenue mess and the lowering of the annual guidance. There are lots of reasons to be concerned about Hewlett-Packard." The technology bellwether said net profit for its fiscal first quarter ended January 31 fell to $1.85 billion, or 75 cents a share, from $2.13 billion, or 80 cents a share, in the year-ago period. Excluding items, HP earned 93 cents a share, matching average analyst estimates, according to Reuters Estimates. Analysts pointed to tight cost controls. "A laser focus on cost-control has benefited HP despite a dramatic falloff in revenues and I don't think the outlook is as bad as it could have been given currency headwinds and overall weak demand environment," said Bill Kreher, analyst at Edward Jones. HP said fiscal first-quarter revenue rose 1 percent to $28.8 billion, below the $31.9 billion Wall Street estimate. For the current quarter, HP expects a profit of 84 cents to 86 cents a share from continuing operations, on a revenue decline of 2 to 3 percent from a year ago. That compares with the average Wall Street forecast for earnings of 90 cents a share on revenue of $31 billion. The company is the world's No. 1 PC maker, with a market share of nearly 20 percent in the 2008 fourth quarter, according to IDC. Last year, HP acquired Electronic Data Systems Corp in a $13.2 billion deal, making HP the second largest technology services company behind International Business Machines Corp. Shares of HP, a Dow component, are down around 20 percent from a year ago. The stock fell to $32.93 in extended trading from its New York Stock Exchange close of $34.08. (Reporting by Gabriel Madway ; editing by Richard Chang ) |
MBIA shifts bond insurance business to new company. The plan met with a mixed reaction on Wednesday. Because the unit could win new business for MBIA, shareholders cheered the move and sent the company's shares up 33 percent in mid-day trading. But rating agency Standard & Poor's downgraded the company's main insurance unit to three steps above junk and rated the new unit "AA minus," citing "uncertain business prospects." The new unit, National Public Finance Guarantee Corp, launches in an increasingly difficult period in the world of municipal finance. Cities and states are struggling with lower tax receipts as property markets, and the overall economy, crater, and are issuing fewer muni bonds. Concern about issuers would typically boost demand for bond insurance, but investors are also concerned about the stability of the insurers. Still, MBIA Chief Executive Jay Brown told Reuters he is confident that National Public Finance will win business and improve its ratings over time. "We think the U.S. muni market is here forever, and we will do this at our own pace," Brown said. The unit will look to raise capital, but will not rush, he added. MBIA lost its top credit ratings last year after a disastrous foray into guaranteeing repackaged debt instruments triggered massive paper losses and large payouts for the insurer. But moving its municipal business into a separate operation could also help the repackaged debt business, known as structured finance, by clarifying exactly how much capital is available for it, Brown said. Brown said in a letter to shareholders that the company has stopped using credit derivatives, which MBIA employed to guarantee many structured finance instruments, because their price fluctuations had a dire impact on the company's financial statements. Eric Dinallo, superintendent of the New York Insurance Department, said MBIA's strategy of splitting the public and structured finance businesses may be applicable to other bond insurers "It may be a template," Dinallo said. He also hopes MBIA's return to public bond markets will help bond issuers by increasing price competition. The insurers' straits last year reduced demand for insured municipal debt as investors grew wary of the bond insurers, analysts said. The amount of municipal debt backed by insurance in 2008 tumbled 64 percent from 2007 to just $72.1 billion, according to Thomson Reuters data. RATINGS DOWNGRADE The new public finance company will have an initial portfolio of $537 billion in U.S. public finance business, taken from their existing business. That will include the public bond business of Financial Guaranty Insurance Co, a separate bond insurer, that MBIA reinsured in August. MBIA said it paid the new unit $2.89 billion to reinsure the public bond policies and capitalized the company with $2.09 billion. But partly because MBIA's main existing insurance unit, MBIA Insurance Corp, will receive fewer premiums under the deal, Standard & Poor's downgraded it five notches to "BBB-plus" from "AA." The rating agency also warned of further losses to come from the packages of debt in the structured finance book, although Brown said in his letter that MBIA can pay all expected claims in the future, "even under severe global economic conditions like we are currently experiencing." Ambac Financial Group Inc ABK.N, another major bond insurer that has been downgraded, is also seeking to revive its business by reactivating a unit called Connie Lee as a new municipal bond insurer. MBIA shares were up $1.16 at $4.64 on the New York Stock Exchange after rising as high as $4.92 earlier in the session. (Reporting by Elinor Comlay, Dan Wilchins , Lisa Lambert and Karen Pierog ; Editing by John Wallace and Jeffrey Benkoe) |
Obama speech on home mortgage crisis. "Right now, Fannie Mae and Freddie Mac -- the institutions that guarantee home loans for millions of middle-class families -- are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home's worth. So families who are underwater -- or close to being underwater -- cannot turn to these lending institutions for help. "My plan changes that by removing this restriction on Fannie and Freddie so that they can refinance mortgages they already own or guarantee. This will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures. "I also want to point out that millions of other households could benefit from historically low interest rates if they refinance, though many don't know that this opportunity is available to them -- an opportunity that could save families hundreds of dollars each month. And the efforts we are taking to stabilize mortgage markets will help these borrowers to secure more affordable terms, too. "Second, we will create new incentives so that lenders work with borrowers to modify the terms of sub-prime loans at risk of default and foreclosure. Sub-prime loans -- loans with high rates and complex terms that often conceal their costs -- make up only 12 percent of all mortgages, but account for roughly half of all foreclosures. Right now, when families with these mortgages seek to modify a loan to avoid this fate, they often find themselves navigating a maze of rules and regulations but rarely finding answers. Some sub-prime lenders are willing to renegotiate; many aren't. Your ability to restructure your loan depends on where you live, the company that owns or manages your loan, or even the agent who happens to answer the phone on the day you call. "My plan establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines -- which will be in place two weeks from today. "If lenders and homebuyers work together, and the lender agrees to offer rates that the borrower can afford, we'll make up part of the gap between what the old payments were and what the new payments will be. And under this plan, lenders who participate will be required to reduce those payments to no more than 31 percent of a borrower's income. This will enable as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure. "So this part of the plan will require both buyers and lenders to step up and do their part. Lenders will need to lower interest rates and share in the costs of reduced monthly payments in order to prevent another wave of foreclosures. Borrowers will be required to make payments on time in return for this opportunity to reduce those payments. "I also want to be clear that there will be a cost associated with this plan. But by making these investments in foreclosure-prevention today, we will save ourselves the costs of foreclosure tomorrow -- costs borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole. Given the magnitude of these costs, it is a price well worth paying. "Third, we will take major steps to keep mortgage rates low for millions of middle-class families looking to secure new mortgages. "Today, most new home loans are backed by Fannie Mae and Freddie Mac, which guarantee loans and set standards to keep mortgage rates low and to keep mortgage financing available and predictable for middle-class families. This function is profoundly important, especially now as we grapple with a crisis that would only worsen if we were to allow further disruptions in our mortgage markets. "Therefore, using the funds already approved by Congress for this purpose, the Treasury Department and the Federal Reserve will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities so that there is stability and liquidity in the marketplace. Through its existing authority Treasury will provide up to $200 billion in capital to ensure that Fannie Mae and Freddie Mac can continue to stabilize markets and hold mortgage rates down. "We're also going to work with Fannie and Freddie on other strategies to bolster the mortgage markets, like working with state housing finance agencies to increase their liquidity. And as we seek to ensure that these institutions continue to perform what is a vital function on behalf of middle-class families, we also need to maintain transparency and strong oversight so that they do so in responsible and effective ways. "Fourth, we will pursue a wide range of reforms designed to help families stay in their homes and avoid foreclosure. "My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value -- as long as borrowers pay their debts under a court-ordered plan. That's the rule for investors who own two, three, and four homes. It should be the rule for ordinary homeowners too, as an alternative to foreclosure. "In addition, as part of the recovery plan I signed into law yesterday, we are going to award $2 billion in competitive grants to communities that are bringing together stakeholders and testing new and innovative ways to prevent foreclosures. Communities have shown a lot of initiative, taking responsibility for this crisis when many others have not. Supporting these neighborhood efforts is exactly what we should be doing. "Taken together, the provisions of this plan will help us end this crisis and preserve for millions of families their stake in the American Dream. But we must also acknowledge the limits of this plan. "Our housing crisis was born of eroding home values, but also of the erosion of our common values. It was brought about by big banks that traded in risky mortgages in return for profits that were literally too good to be true; by lenders who knowingly took advantage of homebuyers; by homebuyers who knowingly borrowed too much from lenders; by speculators who gambled on rising prices; and by leaders in our nation's capital who failed to act amidst a deepening crisis. "So solving this crisis will require more than resources -- it will require all of us to take responsibility. Government must take responsibility for setting rules of the road that are fair and fairly enforced. Banks and lenders must be held accountable for ending the practices that got us into this crisis in the first place. Individuals must take responsibility for their own actions. And all of us must learn to live within our means again. "These are the values that have defined this nation. These are values that have given substance to our faith in the American Dream. And these are the values that we must restore now at this defining moment. "It will not be easy. But if we move forward with purpose and resolve -- with a deepened appreciation for how fundamental the American Dream is and how fragile it can be when we fail in our collective responsibilities -- then I am confident we will overcome this crisis and once again secure that dream for ourselves and for generations to come. "Thank you, God bless you, and God bless America. |
Latin Americans fret as Stanford crisis spreads. Crowds flocked to Stanford offices in Caracas and Mexico City and telephone lines buzzed as harried Stanford staff fielded calls round-the-clock about frozen accounts. Regulatory authorities moved on the bank's assets in Ecuador and Panama and its Colombian brokerage unit halted stock trading. "I heard the news and came straight down," said Caracas resident Josefina Moreno, who said her son had about $10,000 invested. "We've had money here for 2 years, and I want it back." The U.S. Securities and Exchange Commission (SEC) has accused billionaire Allen Stanford, a high profile cricket promoter, and two Stanford executives of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme that stretched around the world from Texas and Antigua. Venezuelan investors alone could have more than $2 billion invested in the scheme. One Venezuelan official familiar with some Stanford Group operations said that Venezuelan investors were mainly middle-class or rich individuals with deposits ranging from $10,000 to tens of millions of dollars. The SEC civil complaint, filed on Tuesday in federal court in Dallas, Texas, named Stanford International Bank (SIB), based in Antigua with 30,000 clients in 131 countries and $8.5 billion in assets, and the group's Houston-based broker-dealer and investment adviser units. In all, the company claims to oversee $50 billion in assets. Venezuelan investments account for an estimated third of money in SIB, authorities said. Stanford Bank Venezuela sought to calm clients on Tuesday by saying its assets were not linked to SIB, and requested a national banking authority representative to sit on its board. SHATTERED SHELTERS In a region all too familiar with financial turmoil, market meltdowns and frozen bank accounts, the Stanford scandal has panicked investors who were already worried about the effects of the global financial crisis on their jobs and savings. Many wealthy Venezuelans look to overseas accounts as a way of dealing with tough currency controls, soaring inflation and their concerns that socialist President Hugo Chavez is driving the oil rich nation toward Cuba-style communism. At Stanford's Mexico City office, middle-aged women carrying Louis Vuitton and Carolina Herrera designer purses fiddled with flashy necklaces as they waited alongside Jewish men in skull caps, switching between Spanish and Yiddish as they spoke on their cellphones. Stanford staff handed out statements that said Stanford accounts had been frozen and provided wire transfer instructions for clients who wanted to liquidate accounts. Some of those waiting in line wept into their cellphones. Some said they did not know if their money was in Mexico or Houston or Antigua. "All my capital is in this bank, and I don't know what I am going to do. They won't attend to us. They are locked inside. They don't want to talk to us," said Karyna Kleinckwort, a widow in her mid-thirties. BAD NEWS AFTER MIDNIGHT, CONFUSION REIGNS Stanford Fondos has been licensed to operate in Mexico since 2005. The country's bank regulator said that as of November 2008, Stanford had sold investment stocks worth roughly $45 million to some 3,400 clients in Mexico. "Yesterday, our advisor called us at 1 a.m. and told us he could not believe it," said Maria Esther Azuela, a housewife in her mid-sixties. "This is a big blow." In Quito, Ecuador, confusion ruled. After the government announced that it was investigating the operations of two local units of Stanford, Anita Cazar rushed to claim her cash. "I don't know what is happening," said Cazar, 50, who joined other investors looking for answers. "I saw it in the newspaper, but I want to get my money out just in case." The Quito stock exchange suspended Stanford's local brokerage house on Wednesday from operating on that exchange for 30 days. Santiago Noboa, head regulator for markets in Quito, said the Stanford units managed a fund and investor portfolios totaling about $15 million, but authorities were yet unaware of other instruments the firm might have sold locally. In Colombia, a local unit of Stanford halted activities on the Colombian stock exchange. Operations there would be limited to fulfilling commitments and returning funds, officials said. Peruvian securities regulator Conasev sent an inspection team to Stanford's broker-dealer office in Lima. Conasev said the unit has net assets in Peru of 6.8 million soles ($2.1 million). In Panama, bank regulators seized Stanford's local affiliate, Stanford Bank. Nobody lined up outside the branch in Panama City, but a four-page note pinned to the door told of the banking superintendent's decision to take over the bank because of a threat of a run on its assets. "Because of the aforementioned," it read, "the interests of the depositors are at risk and it is necessary to carry out an immediate administration control of Stanford Bank, Panama." (Reporting by Caracas, Mexico City, Quito, Panama, Bogota bureaus; Writing by Patrick Markey; Editing by Toni Reinhold ) |
FACTBOX: Jobs gloom for 2009. Following are details of announced job cuts of 2,000 or more, by region and sector, since the beginning of January: REGION - EUROPE: COMPANY SECTOR NUMBERS DATE ----------------------------------------------------------- Elcoteq Electronics 5,000 Jan 15 Metro AG Retail 15,000 Jan 20 Philips Electronics Electronics 6,000 Jan 26 Corus Steel 3,500 Jan 26 STMicroelectronics Chip maker 4,500 Jan 27 SAP Software 3,300 Jan 28 AstraZeneca Plc Drugmaker 6,000 Jan 29 Atlas Copco Machinery 3,000 Feb 02 SAS Airlines 8,600 Feb 03 Salcomp Telecom 3,300 Feb 10 REGION - NORTH AMERICA: COMPANY SECTOR NUMBERS DATE ----------------------------------------------------------- Motorola Mobile phones 4,000 Jan 14 Alcoa Inc Aluminum prod 15,000 Jan 6 EMC Corp IT 2,400 Jan 7 Dell IT 1,900-3000 Jan 8 Boeing Co Airlines 4,500 Jan 9 Cessna Aircraft Airlines 2,000 Jan 12 MeadWestvaco Corp Packaging 2,000 Jan 15 Hertz Global Hldgs Inc Car rental 4,000 Jan 16 Eaton Corp Manufacturer 5,200 Jan 20 Intel Corp IT 6,000 Jan 21 Microsoft Corp IT 5,000 Jan 22 Texas Instruments IT 3,400 Jan 26 Sprint Nextel CorpTelecom 8,000 Jan 26 Home Depot Inc Home Improvement 7,000 Jan 26 General Motors Corp Auto 2,000 Jan 26 Caterpillar Inc Earth-Moving Equipment 23,610 Jan/Feb Pfizer Inc Pharma 19,500 Jan 26 Molex Inc Electronics 2,500 Jan 27 Corning Inc Manufacturer 4,900 Jan 27 Jabil Circuit Inc Electronics 3,000 Jan 28 Eastman Kodak Co Camera, printing 4,500 Jan 29 Macy's Inc Retail 7,000 Feb 02 Cisco Systems Inc IT 1,500-2000 Feb 04 Estee Lauder Cos Inc Cosmetics 2,000 Feb 05 BorgWarner Inc Auto 4,400 Feb 12 Chrysler LLC Auto 3,000 Feb 17 General Motors Corp Auto 67,000 Feb 17 REGION - ASIA-PACIFIC: COMPANY SECTOR NUMBERS DATE ----------------------------------------------------------- TDK Corp Electronics 8,000 Jan 8 Lenovo Group IT 2,500 Jan 8 BHP Billiton Ltd/Plc Mining 6,000 Jan 21 Panasonic Corp Electronics 15,000 Feb 4 Nissan Motor CoAuto 20,000 Feb 9 Pioneer Corp Electronics 10,000 Feb 12 REGION - AFRICA COMPANY SECTOR NUMBERS DATE ----------------------------------------------------------- Anglo Platinum Platinum 10,000 Feb 10 ----------------------------------------------------------- TOTAL 346,610 ----------------------------------------------------------- (Writing by Jijo Jacob and Carl Bagh, Bangalore Editorial Reference Unit, and David Cutler , London Editorial Reference Unit; editing by Karen Foster) |
Stanford depositors swarm banks. The whereabouts of the brash, 58-year-old financier were unknown. CNBC television said he tried to hire a private jet to fly from Houston, the site of his U.S. headquarters, to Antigua, but the jet lessor refused to accept his credit card. The U.S. Securities and Exchange Commission has accused Stanford of operating a fraud centered on the sale of certificates of deposit from his Antiguan affiliate, Stanford International Bank Ltd (SIB). The scheme has drawn comparisons with the alleged $50 billion fraud by Wall Street veteran Bernard Madoff. In the twin-island state of Antigua and Barbuda, where Stanford is the biggest private employer, Prime Minister Baldwin Spencer said the charges against him could have "catastrophic" consequences but urged the public not to panic. Two police officers stood watch at the Bank of Antigua as at least 600 people stood in a line stretching around a street corner, despite assurances from regional monetary authorities that the bank had sufficient reserves. "I'm worried and I'd like to get my money out," said Andrea Lamar, 28, who joined the line with a friend on a street popular with tourists in the state capital, St. John's. Bank of Antigua, with three branches in Antigua and Barbuda, is part of Stanford's sprawling global business interests but is separate from SIB, the offshore affiliate at the heart of fraud charges lodged by U.S. regulators. The Eastern Caribbean Central Bank posted a statement at Bank of Antigua saying the bank had sufficient reserves. "If individuals persist in rushing to the bank in a panic, they will precipitate the very situation that we are all trying to avoid," the statement said. A similar scene played out in Caracas, where hundreds lined up to pull their money out of a Stanford bank. "Stanford Bank Venezuela is a healthy bank without any type of problem," said Edgar Hernandez Behrens, who heads Venezuela's banking regulator. A Venezuelan official estimated that people in that country have invested about $2.5 billion in Stanford. In a civil complaint, the SEC said SIB sold $8 billion in certificates of deposit "by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks." Stanford Group claims to oversee $50 billion in assets. The SEC said Stanford failed to respond to subpoenas seeking testimony and did not produce "a single document. Last week, a Stanford Group spokesman denied initial reports that regulators were probing its business. Since Tuesday, company officials have been referring requests for comment to the SEC. There were no signs of imminent criminal charges against Stanford, whose personal fortune was estimated by Forbes Magazine last year at $2.2 billion. A federal judge on Tuesday appointed a receiver "to take possession and control of defendants' assets for the protection of defendants' victims." 'NOT DOING ANYTHING' All was quiet on Wednesday outside Stanford's Houston office, a day after a raid by federal agents. A man who answered the phone at Stanford's Boston offices but declined to give his name said, "The office is open but we are not doing anything." A Colombian affiliate of Stanford halted its activities on that country's stock exchange. "We had to take a decision to protect investors and, naturally, to guarantee stability in the market," Alvaro Camaro, the bank's local director, told Reuters. Stanford, who holds dual U.S.-Antiguan citizenship, has donated millions of dollars to U.S. politicians and secured endorsements from sports stars, including golfer Vijay Singh and soccer player Michael Owen. Public figures on Wednesday scrambled to pull back from any relationship with Stanford, whose assets have been frozen. British brokerage and investment house Blue Oak Capital said it had canceled a deal to distribute research from Stanford Washington Research Group. "The whole thing was a complete waste of our time, I don't think we ever got any orders as a result of it," said Blue Oak Chief Operating Officer Jonathan Evans. Former Swiss President Adolf Ogi said he would resign from the board of Stanford Financial Group. "I don't want to be associated with this sort of news," he said. A leading figure in British cricket described the England and Wales Cricket Board's association with Stanford as a "fiasco." [ID:nLI150905] Stanford had become famous in the cricket world for a $20 million game in November between England and his own team of West Indian players. Stanford lived for more than 20 years in the reef-girded island of Antigua, only 9 miles wide and 12 miles long with a population of just 70,000. He owns the country's largest newspaper, heads a local commercial bank, and is the first American to receive a knighthood from its government. He has homes sprinkled across the region, from Antigua to St. Croix in the U.S. Virgin Islands to Miami. Some in the line at Bank of Antigua expressed hope that Stanford would evade arrest and keep his Antiguan investments. "The charges come from America. They shouldn't apply here," said Sylvan Roberts, 43. "He's innocent until proven guilty." (Reporting by Jason Szep in St. John's; additional reporting by Frank Jack Daniel, Ana Isabel Martinez and Saul Hudson in Caracas, Svea Herbst-Bayliss in Boston, Anna Driver in Houston, Helen Popper and Nelson Bocanegra in Bogota, Martin de Sa'Pinto and Emma Thomasson in Zurich and Mitch Phillips and Joel Dimmock in London; Writing by Scott Malone ; editing by John Wallace) |
CBS cuts dividend but profit beats estimates. Shares of CBS rose 8 percent after the owner of the most-watched U.S. television network posted fourth-quarter profit of 34 cents per share, excluding impairment and restructuring charges. That surpassed the 25 cents average analyst expectation, according to Reuters Estimates. Still, revenue fell to $3.53 billion from $3.76 billion a year ago, CBS said on Wednesday, short of the analysts' target of $3.58 billion, reflecting the damage caused by the severe advertising downturn. Advertising accounts for about two-thirds of CBS revenue. Television revenue fell 8 percent, radio revenue fell 18 percent, and revenue from outdoor advertising fell 15 percent. The rest of its revenues comes from areas like cable fees and publishing. Net profit tumbled to $136.1 million, or 20 cents per share, from $286.2 million, or 43 cents a share, in the period a year ago. Amid investor concerns about falling profits, tight credit markets and $1.6 billion of debt due in July 2010, CBS cut its longstanding dividend to 5 cents per share from 27 cents. Although other U.S. companies have reduced shareholder payouts as they struggled with the recession, CBS has steadfastly maintained the dividend was central to its strategy. As recently as last fall, Chief Executive Les Moonves promised investors a health and attractive dividend. Since then, the media business has worsened, and many on Wall Street saw little option for CBS, other than cutting the payout. "We have always been vigilant in maintaining our balance sheet in order to provide the strong financial flexibility that is more important than ever in these uncertain economic times," Moonves said in a statement on Wednesday. "That's why we believe this is a prudent action to take while we await improvement in the economy and the credit markets," he added. CBS shares rose to $5.56 in after-hours trading from their close on the New York Stock Exchange of $5.13, down 12 cents. (Reporting by Paul Thomasch ; editing by Jeffrey Benkoe) |
GM, Chrysler seek nearly $22 billion more U.S. loans. The two automakers, which have so far received $17.4 billion in loans from the U.S. Treasury, also detailed plans to cut jobs and idle plants as part of sweeping restructuring plans submitted under the terms of their federal bailout. GM said it was making progress on complex deals to reduce some $48 billion in debt owed to bondholders and the United Auto Workers union but had fallen short of an initial requirement to complete those agreements by Tuesday's deadline for submitting the plans to U.S. officials. "The president's team will be reviewing these reports closely in the days ahead," White House spokesman Robert Gibbs said in a statement. "It is clear that going forward, more will be required from everyone involved." GM is seeking an additional $16.6 billion from the U.S. Treasury -- for a total of up to $30 billion in loans -- and said it would run out of cash as soon as March without new federal funding. In addition, GM said it expected to be able to borrow up to $6 billion from foreign governments and nearly $8 billion from the U.S. Department of Energy. It warned that without $1.5 billion from asset sales in 2009 it would need even more cash. The deepening financial problems for GM and Chrysler present the Obama administration with a tough call. Pushing the companies into bankruptcy would cost tens of thousands of jobs just as the White House is aiming to head off a deeper recession. But the price tag for saving GM and Chrysler has now ballooned to $39 billion at a time when Republicans are challenging plans for stepped-up spending and increased debt. Rep. John Dingell, a Michigan Democrat and staunch industry ally, said government "must do whatever is possible" to preserve the U.S. auto industry. "The cost of action will be high, but the cost of inaction will be higher," Dingell said in a statement. Others questioned the soundness of further government support for GM and Chrysler. "I think this is a perilous road," said Alan Lancz, president of investment firm Alan B Lancz & Associates Inc. "This is a situation where we really have to decide whether we are throwing good money after bad." At the request of the Obama administration, GM and Chrysler prepared projections claiming the cost to the government of financing a bankruptcy of both could near $125 billion. Chrysler CEO Bob Nardelli said the automaker's request for $9 billion in loans amounted to about $70 per taxpayer. If Chrysler were forced to liquidate, the government would have to cover pension and other costs and the bailout tab could hit $1,200 per taxpayer, he said. No. 3 U.S. automaker Chrysler sought an additional $5 billion, on top of the $4 billion in U.S. loans it has already been granted, saying it expected the brutal downturn in the U.S. market to run another three years. Each company separately reached a tentative deal with the UAW expected to bring labor costs in line with Japanese automakers operating in the United States. That deal is subject to ratification by some 91,000 hourly workers. Details were not disclosed. GM shares dropped 13 percent on Tuesday to $2.18. Analysts said the recent showdown between GM, its bondholders and the UAW underscored the risk of bankruptcy for a company once seen as an icon of American economic strength. GM and advisers to bondholders representing over $27 billion in debt have exchanged proposals to reduce that debt in an equity swap, documents submitted to the government show. Bondholders face U.S. government pressure to swap their debt for compensation equal to roughly one-third of the amount they are owed. Advisers to the creditors have given GM a proposal designed to maximize participation in the equity swap, both sides said. The UAW is under pressure to take almost $15 billion in equity in GM and Chrysler rather than cash under a commitment to fund retiree health care. GM said both deals must be completed by the end of March, the next deadline for the companies to prove they can be viable. AGGRESSIVE COST-CUTTING In response to signs of a prolonged slump in demand, GM said it would step up cost-cutting, eliminating 47,000 jobs this year and a total of 14 U.S. plants by 2012. Chrysler, meanwhile, will reduce capacity by 100,000 units and cut 3,000 jobs this year. GM said its money-losing Swedish subsidiary Saab could be forced into bankruptcy as soon as this month even as GM continues to negotiate support with the Swedish government. GM also froze expansion plans in Thailand and said it would seek new concessions from its unions in Canada and Europe. Earlier, Chrysler's former owner, Germany's Daimler, posted a fourth-quarter loss as it wrote down the value of a $1.5 billion loan to the automaker. Daimler previously wrote off the full value of its 19.9 percent stake in Chrysler. Under the Chrysler restructuring plan, that $1.5 billion loan from Daimler and another $500 million loan from Cerberus would be converted into equity in a recapitalized company. Efforts by GM to unload assets to raise cash have gone slowly since the automaker announced plans to raise between $2 billion and $3 billion from such steps last summer. GM said it expected to raise $1.5 billion by selling its AC Delco parts business and a transmission plant in Strasbourg, France. It said it would phase out its Saturn brand by 2011 with the current run of just-redesigned cars and crossovers. GM also said it could drop its Hummer SUV line in weeks if talks with interested parties fizzle out. China's Sichuan Auto Industry Group Co, a tiny automaker in southwest China, denied on Tuesday a report that it was interested in buying Hummer. ($1=.7908 euro) (Additional reporting by Soyoung Kim , David Bailey , Walden Siew , Nick Carey , Victoria Klesty, Angelika Gruber, Love Liman, Gilles Castonguay ; Editing by Patrick Fitzgibbons , Matthew Lewis , John Wallace, Andre Grenon , Phil Berlowitz) |
FACTBOX: Allen Stanford's financial empire. Following are details from Stanford company websites about his financial empire, including from a 2008 copy of the group's Stanford Eagle Magazine. In the final section, the information comes from the civil complaint filed by the U.S. Securities and Exchange Commission (SEC). Allen Stanford Is a fifth-generation Texan and chairman of the Stanford Financial Group of companies that claims clients from 140 countries and assets under management and advisement of $50 billion. His grandfather, Lodis, founded the first Stanford Company during the Great Depression in 1932 in the small central-Texas town of Mexia. Allen Stanford, 58, made his first fortune in real estate in the early 1980s and expanded the family firm into a global wealth management company. He lives in St. Croix in the US Virgin Islands, and holds dual U.S. and Antigua and Barbuda citizenship. He was the first American to be knighted by Antigua and Barbuda in 2006 to become Sir Allen Stanford. Quote from Allen Stanford in magazine "Our world is far different than the world my grandfather lived in when the first Stanford company was founded ... As a company founded in the midst of the Great Depression -- an environment of despair and negativity -- we have a long-proven understanding of how even the most severe downcycles can bring opportunities that yield significant benefits in the long run." Major Stanford companies and divisions include: * Stanford Financial Group Global Management and Stanford Global Advisory LLC, based in St.Croix. * Stanford International Bank, headquartered in St. John's, Antigua. * Stanford Group Company, based in Houston, Texas, is the companies' North American head office. * Stanford Policy Research Group, a Washington-based research team and a Government Affairs Office. Among the financial services Stanford offers: * Wealth management, including planning, asset management, brokerage, trust services, insurance and coins and bullion. * Institutional services, including research, investment banking, and institutional sales and trading. Support for sports includes: * Stanford's own private Twenty20 cricket competition in the Caribbean, including a $20 million game in November between England and his own team made up of West Indian players. * Endorsement relationships with Fijian golfer Vijay Singh and England soccer player Michael Owen. * Host sponsor of the 2009 Sony Ericsson Open tennis event in Biscayne, Florida on March 23-April 5. * Sponsors venues at the Houston Polo Club and International Polo Club in Palm Beach, and sponsors the Stanford Charity Polo Day at the Royal Military Academy Sandhurst in the UK. * In golf, it sponsors the PGA Tour's Stanford St. Jude Championship in Memphis, Tennessee. * Sponsors the Stanford Antigua Sailing Week SEC Complaint says: * Since 1994, Stanford International Bank claims it has never failed to hit investment returns in excess of 10 percent a year. * In 2008, the bank said its "diversified portfolio of investments" lost only 1.3 percent, while the S&P 500 U.S. stocks benchmark declined 39 percent. * SEC says the bank's historical returns are "improbable, if not impossible." * The bank quoted certificate of deposit rates of more than 7 percent during 2005 and 2006, and quoted a 3-year CD at 5.375 percent annual rate in November 2008, against comparable U.S. bank CDs of 3.2 percent. * Did not disclose that its investment portfolio includes a significant portion in illiquid private equity and real estate investments. (Reporting by Martin Howell ; Editing by Ian Geoghegan ) |
IMF paper backs U.S. government aid to fix housing problem. The paper lays out a $115 billion plan to resolve the problem in the U.S. housing market and comes as President Barack Obama unveiled a $275 billion rescue plan to slow home foreclosures and falling house prices. "Market failures and spillovers provide a rationale for government intervention," IMF economists John Kiff and Vladimir Klyuev wrote in the paper, which has not been endorsed by the IMF board. "We are of the opinion that a major breakthrough cannot be achieved without fiscal support or some forced modifications, and favor the former," they added. The paper argues that private sector efforts to address the foreclosure problem had been unhelpful and too slow. Government actions had also fallen short of the mark, they said. The previous Bush Administration focused too much on ensuring only those who "deserved" help could get it to avoid appearing it was bailing out reckless lenders or borrowers. It said government intervention should have three aims: to prevent home prices from falling too far below their fair value; avoid "the deadweight loss" of preventable foreclosures; and ease the impact of foreclosures that do occur. Under their plan Kiff and Klyuev recommend adjustments to the existing government housing rescue plan, Hope for Homeowners, approved by Congress last year. At a cost of $40 billion, the plan could be made more attractive to lenders and investors by subsidizing write-downs and lowering insurance premia, they said. This could reach about 1.5 million homeowners, a substantial part of borrowers about to lose their homes, the economists added. The plan also proposes another $20 billion in aid to states to take foreclosed properties off the market and rent them. It also proposes another $50 billion to temporarily subsidize home purchases, which would help stabilize home prices by providing a temporary stimulus to housing demand. Given the size of the U.S. mortgage market and the extent of the problem, Kiff and Klyuev said the intervention could cost several percent of gross domestic product. They also warned of the moral hazard effect -- when borrowers who can afford loan payments default on purpose to qualify for government aid. The U.S. housing crisis has been at the heart of financial and credit turmoil that has spread across the globe, pushing advanced economies into recession and significantly slowing growth in emerging market economies. (Reporting by Lesley Wroughton ; Editing by James Dalgleish ) |
GE's Immelt waives $12 million bonus: report. The decision was approved by GE's board this month. Immelt will continue to earn performance-share units, which may be converted into GE stock in five years if the group achieves certain goals on its cash and stock return, the paper quoted its sources as saying. The Fairfield, Connecticut-based company reported a 44 percent drop in fourth-quarter profit, hurt mainly by weakness at its finance arm GE Capital. Based on how GE fared in the last three years, Immelt was entitled to a long-term performance cash award of almost $12 million, the paper said. He also stood to get an annual bonus, which was worth $5.8 million in 2007. The GE board agreed to keep Immelt's annual salary at $3.3 million, the paper said, citing its sources. GE could not be immediately reached for comment by Reuters. (Reporting by Bhaswati Mukhopadhyay in Bangalore; editing by John Stonestreet) |
Hundreds swarm Stanford's Antigua bank. Two police officers stood watch at the Bank of Antigua at midmorning as at least 600 people stood in a line stretching around a street corner, despite assurances from regional monetary authorities that the bank had sufficient reserves. "I'm worried and I'd like to get my money out," said Andrea Lamar, 28, who joined the line with a friend on a street popular with tourists in the state capital, St. John's. A woman in the queue who declined to give her name said, "I wasn't panicked until I saw this crowd. Now I'm concerned." The six-nation Eastern Caribbean Central Bank posted a statement at Bank of Antigua saying many depositors had started to withdraw funds, "causing some anxiety," but that the bank had sufficient reserves. "However, if individuals persist in rushing to the bank in a panic, they will precipitate the very situation that we are all trying to avoid," the statement said. Bank of Antigua, with three branches in the tiny twin-island state of Antigua and Barbuda, is part of Stanford's sprawling global business interests but is separate from an offshore affiliate at the heart of fraud charges lodged by U.S. regulators. On Tuesday, the U.S. Securities and Exchange Commission accused Stanford, a brash, 58-year-old financier and sports entrepreneur, of operating an $8 billion fraud centered on the sale of certificates of deposit offered by Stanford International Bank Ltd (SIB), his Antiguan affiliate. Stanford's whereabouts were unknown. Antigua's prime minister, Baldwin Spencer, said in a televised address to the nation late Tuesday that the charges against Stanford could have "catastrophic" consequences for the nation, but he urged the public not to panic. Holding dual U.S.-Antiguan citizenship, Stanford lived for more than 20 years in the reef-girded island, only 9 miles wide and 12 miles long with a population of just 70,000. He owns the country's largest newspaper, heads a local commercial bank, is the biggest private employer and its top investor, and is the first American to receive a knighthood from its government. He has homes sprinkled across the region, from Antigua to St. Croix in the U.S. Virgin Islands to Miami. Some in the line at Bank of Antigua expressed hope that Stanford would evade arrest and preserve his investments in Antigua. "The charges come from America. They shouldn't apply here. And he's innocent until proven guilty," said Sylvan Roberts, 43. On Tuesday, about 15 federal agents, some wearing U.S. marshals jackets, entered the headquarters of Stanford's company, the Stanford Group, in Houston, Texas. Stanford's assets have been frozen and a federal judge has appointed a receiver "to take possession and control of defendants' assets for the protection of defendants' victims." (Editing by John Wallace) |
Oil prices fall further on economic gloom. U.S. crude for March delivery slipped 31 cents to settle at $34.62 a barrel, while U.S. crude for April delivery fell $1.13 to $37.41 and London Brent for April delivery fell $1.48 to $39.55. The losses came as dealers anticipated a government report on Thursday would show crude stockpiles in the United States rose last week by 3 million barrels to the highest since May 1998. Oil stocks in the world's largest energy consumer have already risen by 20 percent since September as the economic downturn has crushed business and consumer demand, helping pull oil prices more than $110 off their peaks last summer. The American Petroleum Institute said on Wednesday crude stocks rose last week by 1.6 million barrels. The EIA report is widely seen as more accurate than the API's because U.S. energy firms are required to participate. Oil's losses tracked a decline in the U.S. stock market after data showed U.S. housing starts and building permits dropped to record lows in January, signaling a potential deepening of the recession. The White House on Wednesday unveiled a $275 billion plan aimed at stemming foreclosures in the slumping housing sector. Weakness in the global economy and sliding demand for energy have rung alarm bells for the Organization of the Petroleum Exporting Countries, which has been seeking to cut 4.2 million bpd of output since September to prop up oil prices. Several OPEC members have signaled the cartel could deepen its cuts when it next meets March 15 in Vienna. U.S. Energy Secretary Stephen Chu said he would not weigh in on whether OPEC should cut production, saying such consultation was "not in my domain." The comment marked a shift from previous U.S. energy secretaries who met regularly with the energy ministers of OPEC's member nations, discussed the oil market and expressed both privately and publicly the U.S. position on OPEC production levels. (Additional reporting by Christopher Baldwin in London, Dharmasari Haroun and Chua Baizhen in Singapore; Editing by David Gregorio ) |
Goodyear posts loss, plans 5,000 job cuts. Goodyear GT.N, the largest U.S. tire maker, said it would freeze salaries worldwide and cut production capacity as part of efforts to reduce costs by $700 million this year. The target adds to $1.8 billion of cost savings completed over the past three years. "These are truly extraordinarily times that require extraordinarily actions," Goodyear Chief Executive Robert Keegan said on Wednesday on a conference call following the company's quarterly results. "The global economic slowdown has increased both in severity and geographic scope throughout the year. We are aggressively adjusting our plans to the new market realities," Keegan said. Goodyear, like other auto parts suppliers, has come under intense pressure from U.S. auto sales at 27-year lows and a steep downturn in consumer demand that has prompted major automakers to slash output. The Akron, Ohio-based tire maker cut nearly 4,000 jobs in the second half of 2008 and had 75,000 employees worldwide at the end of last year. Goodyear posted a net loss of $330 million, or $1.37 per share, in the fourth quarter, compared with a profit of $52 million, or a 23 cents per share profit, a year earlier. Excluding one-time items, Goodyear posted a loss of $1.18 per share, while analysts on average expected a loss of $1.13 per share, according to Reuters Estimates. Revenue fell to $4.1 billion in the quarter from $5.2 billion a year earlier as tire production fell 19 percent worldwide. At the end of 2008, Goodyear had $3.7 billion in total liquidity, including $1.9 billion in cash and cash equivalents. In its key North American unit, tire volume declined 17 percent due to weak demand from automobile manufacturers and the replacement tire market. Goodyear said the planned 5,000 job cuts will come from the salaried and hourly ranks worldwide, but did not specify how the cuts would be divided or what regions they would come from. The company also plans to cut manufacturing capacity by 15 million to 25 million tires over the next two years. Those capacity cuts come on top of a prior reduction of 25 million tires in recent years that included plant closings. JPMorgan analyst Himanshu Patel said the target for production cuts would require the closure of two or three plants. Tire sales to vehicle manufacturers account for about 20 percent of Goodyear revenue and about 30 percent of its tire production. The rest goes to the replacement market. Goodyear also said it would continue to pursue sale of noncore assets. Shares of Goodyear were down 8 cents at $5.96 in morning trade on the New York Stock Exchange, after falling as much as 11 percent in premarket trading. (Editing by Dave Zimmerman) |
Wal-Mart slashing price on its prepaid MoneyCard. The discount retailer is also lowering the card's monthly fee to $3 from almost $5, and cutting the fee customers pay to reload the card to $3 from $4.64. "While we'll make a little less money than we would with that other pricing, we feel like this is one of those game-changer type moves," said Jane Thompson, president of Wal-Mart's financial services division, in an interview. Wal-Mart introduced the MoneyCard in June 2007 in a push to sell more financial services to its lower-income shoppers. It also announced plans at the time to open 1,000 financial services centers in its U.S. stores to reach the 73 million Americans it said do not have bank accounts or credit card access. MoneyCard users control how much money they want on their cards, which can be used wherever debit cards are accepted. Wal-Mart has since sold more than 2 million MoneyCards and customers have loaded more than $2 billion on to the cards, but some critics said the MoneyCard's original fees were too high. Thompson said more customers are gravitating to the MoneyCard as they try to pay down credit cards or avoid costly late payment fees in the recession. The prepaid cards are also helping Wal-Mart develop loyalty among shoppers and entice them to its stores more often. "It helps us become more of a destination place to shop," she said. "Because if you're doing your financial services every payday at Wal-Mart, you're not going to stop by other stores on the way that you might have been." FINANCIAL SERVICES ASPIRATIONS Wal-Mart rolled out the MoneyCard three months after it withdrew an application with U.S. bank regulators to operate a specialty bank. While Wal-Mart had insisted it wanted to use the bank to save money by processing credit-card and check transactions internally, consumer groups and banks feared the retailer would eventually provide other retail banking services, leading to the demise of community banks. Thompson said Wal-Mart is not looking to pursue another specialty bank application now that there is a new administration in Washington, D.C. While Wal-Mart has studied ways to expand its financial services, such as tying a savings account to the prepaid card, Thompson said now it is focused on offering basic services, like money transfers and bill payment. "Savings accounts aren't very profitable for banks or anyone anymore so the question is, can we do it as a service instead?" she said. She said the retailer has opened more than 750 financial services centers in its U.S. stores, and is on track to have 1,000 centers this year. It had originally intended to open 1,000 centers by the end of 2008. (Reporting by Nicole Maestri; editing by Richard Chang ) |
Geithner: Housing plan to show quick results. The plan commits up to $275 billion in funds to help refinance mortgages for up to nine million families and arrest the devastating fall in U.S. home prices. "You'll start to see the effects quite quickly," Geithner told reporters before a speech by President Barack Obama to formally roll out the plan. Geithner said the housing effort would help stem the turmoil in the financial system because cutting down on mortgage defaults would make the banks stronger. (Reporting by Caren Bohan ) |
PC companies make risky smartphone call. Dell and Acer, the world's No. 2 and 3 personal computer brands, have recently announced or been linked to smartphone launches, joining leader Hewlett-Packard and No. 4 PC maker Lenovo in the high-growth space. But these companies are unlikely to make any headway. "We've got Nokia, who's the 500-pound gorilla in the room, then there's Apple, which is super cool, and there's Blackberry, which all executives must have," said IDC analyst Aloysius Choong "What are these PC brands going to offer?" PC makers, less known for their creativity than their ability to mass produce, may find that selling smartphones depends more on looks and less on mass marketing. "It's a lot more about style, form and brand, rather than substance," said IDC's Choong. "The mobile phone universe is very different from the PC world, and smartphone buyers are more likely to go with something they feel they like." The PC industry has been grappling with rapidly weakening demand in recent months, leaving vendors on the lookout for new products to revive growth. Acer and Asustek, pioneer of the low-cost netbook PC, both unveiled new models this week at the Mobile World Congress trade show in Barcelona. HP and Lenovo already sell such phones, while Dell is rumored to be weighing a move into the space. "I don't see PC vendors going anywhere," said Roberta Cozza, a Gartner analyst. "It's very tough and risky for PC vendors, especially if they want to enter the sector right now, because it's a different business altogether." PC makers however remain upbeat. In an interview, Acer's head of smartphone business, Aymar de Lencquesaing, said: "We are extremely serious entering this space" adding that Acer aims to become one of the top five smartphone makers within five years. For a graphic on smartphone growth and major players, click: here FAT MARGINS Smartphones were one of the few bright spots in the technology sector in 2008, growing by more than 22 percent worldwide and, in some regions, by more than 70 percent from the previous year, according to data tracking firm IDC. These feature-jammed phones with computer-like functions also offer fat margins, with Nokia, Apple as well as HTC and BlackBerry maker Research in Motion enjoying profit margins many times those of PC makers whose margins are in the low single digits. But as often happens with a hot product, there is a risk of oversupply as others rush in, leaving newer arrivals the most vulnerable as most lack a special niche. That could lead to rapid price cuts and lower margins, a scene that has already played itself out once after Asustek launched its low-cost netbooks in 2007. "The kind of margins we're seeing in the smartphone sector is just not feasible in the long run," said Pranab Sarmah, an analyst at the Daiwa Institute of Research. PC makers might also be saddled with perceptions of being stodgy and less than cool. Shoppers at a Taiwan service center run by mobile operator Chunghwa Telecom balked at the idea of buying dull, grey cell phones in a part of the world where they are often seen as a fashion accessory. "Didn't Asustek sell phones before," asked Leon Lin, a 22-year-old university student. "Those looked really bad!" (Additional reporting by Tarmo Virki in Barcelona; Editing by Doug Young and Anshuman Daga ) |
Fed's Pianalto: Bold Fed action will restore growth. "We are addressing large and complex problems, and we are extending and expanding our programs as necessary. I am convinced that more progress must be made, and that more progress will be made," Pianalto told a business audience. She is not a voting member of the Fed's monetary policy-setting committee this year. The United States entered a recession in December 2007 and the Fed has already cut interest rates virtually to zero and pumped hundreds of billions of dollars into financial markets to prevent a Japan-style widespread deflation taking hold. That had accompanied a decade of stagnation in Japan and some fear the United States is at risk of the same fate. "My baseline projection is for real gross domestic product to decline sharply in the first half of 2009, followed by a modest upturn in the second half of the year. In this scenario, unemployment rates would likely continue to rise through the end of the year," she said. But Pianalto insisted that the U.S. central bank's actions were gaining traction and noted they had already helped lower mortgage borrowing costs that should aid the housing market, which she said was a precondition to ending the recession. "Our actions are a vital part of the national economic recovery program. We are taking bold steps to put the credit markets back into good working order, and to support an increase in bank lending," she said. U.S. President Barack Obama on Tuesday signed a $787 billion economic stimulus law to boost growth through spending and tax cuts. It also reinforces a $700 billion bank rescue plan drawn up by his Republican predecessor, George W Bush. This has been severely criticized for pumping capital into banks without generating any promised increase in lending. But Pianalto said it was essential that the government not push banks into making bad loan decisions. "Pressuring banks to make imprudent loans ... is why we find ourselves in some of the circumstances we find ourselves in today," she told the audience in response to a question. "We want banks to lend in a safe and sound manner." (Writing by Alister Bull ; Editing by James Dalgleish ) |
Bankruptcy remains an option for GM, analysts say. GM and Chrysler asked for billions of dollars more in federal aid on Tuesday and announced sweeping changes including capacity reductions and job cuts. Some Wall Street analysts were disappointed that the restructuring plans submitted to the U.S. Treasury did not include key concessions from the United Auto Workers union and the automakers' bondholders. One analyst said that taking the bankruptcy option off the table would reduce the bargaining power of the companies. Both GM and Chrysler analyzed a possible bankruptcy filing in their restructuring plans but stressed that it was not their preferred method for reorganizing and that they hoped to avoid this scenario. GM, which has requested $16.4 billion in additional loans from the U.S. government for a total of up to $30 billion, has said it would run out of cash as soon as March without new federal funding. The request came shortly after smaller rival Chrysler asked for another $5 billion in aid. GM's request that a sizable chunk of total aid come in the form of preferred equity rather than debt is a "tacit acknowledgment of the fact that GM may emerge from an out-of-court process as a still highly levered firm," JP Morgan analyst Himanshu Patel said. David Leiker, analyst with Robert W. Baird, still sees bankruptcy as the best option for a reorganization. "Though likely to be painful near-term, we continue to believe that the challenges to restructuring GM and Chrysler are too complicated to be met outside of a bankruptcy," Leiker said. In its restructuring blueprint, GM estimated that if it were forced to reorganize in a traditional bankruptcy, the tab for the government could touch $100 billion in bankruptcy financing. Chrysler estimated that the bill for its bankruptcy could hit $1,200 per taxpayer. GM also outlined cost-reduction actions but still has to reach an agreement with its bondholders and the UAW on how to reduce the roughly $48 billion it owes both groups. An equity-for-debt swap, which is being considered, could significantly hit stockholders. "A substantial majority of the pro-forma equity in General Motors would be distributed to exchanging bondholders and the UAW VEBA," Credit Suisse analyst Chris Ceraso said. "The existing equity holders would largely be wiped out by the bond and VEBA exchanges." The UAW VEBA is trust fund set up to cover employee healthcare costs. Another issue that could crop up for auto investors is the potential for "going concern opinions" from auditors due to the liquidity crunch, operational losses and solvency issues in the auto industry, according to Grant Thornton, a corporate advisory and restructuring services firm. A going concern opinion is a statement that there is substantial doubt about the entity's ability to continue as a going concern, something that would be typically mentioned in U.S. Securities and Exchange Commission filings by companies. "It's important for the public, the supply base and all of the parties involved in restructuring the auto industry not to overreact if they start seeing 'going concern' opinions," said Kimberly Rodriguez, co-leader of Grant Thornton's global automotive team, adding that the radical restructurings GM and Chrysler are undertaking would ultimately help salvage the industry. GM shares were down 9 cents or 4.13 percent at $2.09 in afternoon trading on the New York Stock Exchange. (Reporting by Poornima Gupta and David Bailey, editing by Matthew Lewis and Gerald E. McCormick) |
U.S. charges Allen Stanford with "massive" fraud. In a civil complaint filed in federal court in Dallas, the U.S. Securities and Exchange Commission accused Stanford, a high-profile cricket promoter, and two executives of fraudulently selling $8 billion in high-yield certificates of deposit in a scheme that stretched from Texas to the Caribbean. "We are alleging a fraud of shocking magnitude that has spread its tentacles throughout the world," said Rose Romero, regional director of the SEC's office in Fort Worth, Texas. The SEC complaint named Stanford International Bank (SIB), based in Antigua with 30,000 clients in 131 countries and $8.5 billion in assets, and the group's Houston-based broker-dealer and investment adviser units. In all, the company claims to oversee $50 billion in assets. The news sent shockwaves across the twin-island Caribbean nation of Antigua and Barbuda, where the prime minister warned it could be "catastrophic." Stanford's assets have been frozen and a federal judge has appointed a receiver "to take possession and control of defendants' assets for the protection of defendants' victims." Early Tuesday, about 15 federal agents, some wearing U.S. marshals jackets, entered the lobby of company headquarters in the Houston Galleria area, a Reuters eyewitness said. The company remained open for business but was "under the management of a receiver," a sign taped to the door read. Spokesman Brian Bertsch referred press inquiries to the SEC. Stanford, a 58-year-old Texan running the firm that his grandfather founded, has denied any wrongdoing, but his location remained a mystery. The SEC said he failed to respond to subpoenas seeking testimony and did not produce "a single document. James Davis, a Stanford aide, and O.Y. Goswick, a board member of the Antiguan affiliate, had also been subpoenaed but failed to appear, the SEC said. SOUGHT EMBRACE OF WASHINGTON, SPORTS Stanford's property holdings and celebrity associations drew comparisons with Wall Street financier Bernard Madoff, who was charged in December in a suspected $50 billion fraud. Stanford was also expanding his political reach, opening a Washington lobbying office about two years ago after buying the Washington Research Group, a policy study unit of Charles Schwab & Co, in 2005. Stanford spent $2.8 million on lobbying in 2008, according to records accessed through the Center for Responsive Politics, which tracks campaign contributions. His political action committee and employees donated about $2.4 million to parties and candidates for federal office since 1989. Stanford has also played an increasing role in sports, including endorsement relationships with golfer Vijay Singh and soccer star Michael Owen, along with involvement in polo and expensive effort to rehabilitate West Indian cricket. He was a sponsor of a world-class tennis tournament, the 2009 Sony Ericsson Open in Key Biscayne, Florida, in March. The England and West Indies cricket boards suspended sponsorship talks with the Stanford group after the charges. Stanford shot to prominence in international cricket after his private Twenty20 competition in the Caribbean, and the $20 million (14 million pound) game in November between England and his own team of West Indian players. England Cricket Board Chairman Giles Clarke said his organization may utilize get-out clauses in its deal with Stanford, and he suggested the proposed quadrangular Twenty20 series in England in May was now unlikely to happen. 'WONDERED WHERE HE GOT HIS MONEY' The SEC said Stanford's Antigua-based bank sold $8 billion in certificates of deposit "by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks." Holding dual U.S.-Antiguan citizenship, Stanford lived for more than 20 years in the reef-girded island, where he owns the country's largest newspaper, heads a local commercial bank, is the biggest private employer, its top investor and is the first American to receive a knighthood from its government. He has homes sprinkled across the region -- from Antigua to St. Croix in the U.S. Virgin Islands to Miami. "Everybody always wondered where he got his money from," said Odessa Haley, 28, a manager of a cafe in the island's capital St. John's. Many feared the U.S. charges would revive Antigua's image as one of the Caribbean's most corrupt nations, which local policy makers took pains to shake off in the 1990s. Others feared the economic fallout. "A lot of people work for him," said Francis Cortwright, a taxi driver. There were no signs of imminent criminal charges against Stanford, whose personal fortune was estimated by Forbes Magazine last year at $2.2 billion. A Justice Department spokesman would not confirm or deny the existence of a criminal investigation. But Peter Henning, a professor at Wayne State University Law School in Michigan and a former federal prosecutor, said U.S. prosecutors have likely filed a sealed criminal indictment against Stanford to be unveiled at a later time. "The amount of money involved indicates there will be criminal interest in this, as well as the number of potential victims involved," Henning said. 'BETRAYED' Investors such as Kelly Dehay, a realtor, showed up at the office in Houston on Tuesday to ask about their funds, only to be turned away at the door. Dehay said his Stanford broker sold him a CD held by SIB, promising returns above 8 percent. "I started planning for my retirement a long time ago," Dehay said. "I feel very betrayed." The developments come as investors, politicians and regulators focus on the returns promised and provided by investment firms after the suspected Madoff scheme. Stanford's investment companies were exposed to losses from the alleged Madoff scheme, but falsely reassured investors otherwise, the SEC charged. The SEC added that Stanford's firm had sought to remove nearly $200 million from its accounts in recent weeks. It also accused Stanford of falsely telling at least one customer this month that he could not withdraw a multimillion-dollar CD because the SEC had frozen the account. SERIES OF ALLEGATIONS The SEC also alleged that: -- Stanford's Antigua-based bank reported identical returns of 15.71 percent in 1995 and 1996, which the SEC called "improbable" and suspicious. -- Ninety percent of the offshore bank's claimed investment portfolio was in a "black box" shielded from any independent oversight, and only Stanford and aide James Davis, also charged, knew details of the bulk of the portfolio. -- Stanford failed to cooperate with the SEC probe and continued to mislead investors by falsely saying the SEC had frozen accounts or the company had ordered a moratorium on CD redemptions. -- A major, unidentified clearing firm stopped processing wires to SIB for purchase of SIB-issued CDs after the clearing firm was unable to obtain information about the company's financial condition. -- Stanford used false information to promote a mutual fund program separate from the CDs. The program grew to more than $1.2 billion from less than $10 million in 2004. James Dunlap, an Atlanta lawyer representing about a dozen investors who bought CDs from Stanford Financial Group, said he planned to sue the firm and would likely accuse the company of breaching its contract. Several investors have told lawyers they assumed the CDs they bought were safe short-term instruments that were insured, two lawyers said. But when an investor working with Dunlap tried to get $250,000 out of a CD that came due last week, she was told she would have to wait. (Writing by Martin Howell and Toni Reinhold in NEW YORK and Chris Baltimore in HOUSTON; Reporting by Anna Driver and Erwin Seba in HOUSTON; Simon Evans in ST. JOHN'S, Svea Herbst in BOSTON, Randall Mikkelsen in WASHINGTON, Jane Sutton in MIAMI and Karen Jacobs in ATLANTA; Editing by Gary Hill & Ian Geoghegan.) |
Goldman says partners hit by margin calls. "Partners can, and many do, have margin accounts at the firm," Goldman spokesman Lucas van Praag told Reuters on Wednesday. "To the extent that a margin call is triggered, they, just like anyone else, will receive a margin call. If the call isn't met, the firm will sell stock to cover the shortfall." Van Praag denied that Goldman was extending loans to executives. "Sarbanes-Oxley specifically precludes firms from lending or facilitating lending to an executive officer," he said. "We do not provide partners with loans to cover margin calls." Goldman shares fell $3.16, or 3.6 percent, to $82.55 in early-afternoon trade on the New York Stock Exchange. CNBC reported that "several" Goldman partners were being forced to borrow money to cover margin calls, citing unnamed sources inside the firm. The executives borrowed against their holdings in Goldman stock, held in Goldman accounts, to buy shares in hedge funds and private equity funds launched by Goldman's asset management arm, the report said. This strategy, which boosted the wealth of partners in good times, backfired last year after many hedge funds plunged in value and Goldman stock sank 60 percent, CNBC said. News of the margin calls emerged a day after Goldman announced the retirement of co-President Jon Winkelried at the age of 49. In recent weeks there has been unconfirmed market talk that London-based Winkelried had suffered big losses on his investments in Goldman stock and hedge funds. The speculation gained currency after Winkelried last fall privately listed a six-acre waterfront estate in Nantucket, Massachusetts, for sale at $55 million. The property was purchased in 1999 for about $7 million. Goldman declined to comment on Winkelried. (Editing by John Wallace) |
Treasury says bank lending still resilient. "Loan activity was resilient in the face of the worst economic crisis in decades," Treasury said in its first monthly status report on the Capital Purchase Program introduced by then Treasury Secretary Henry Paulson. "Lending levels largely held steady and would have likely been lower absent capital provided to banks through CPP," Treasury said. Loan originating activities were "weak" in October and November of last year but picked up during December as mortgage rates fell and a new facility to guarantee loans from the Federal Deposit Insurance Corporation was implemented. The median change in mortgage and corporate loan balances each fell 1 percent in October through December. Credit card balances rose 2 percent, reflecting greater reliance on existing credit lines by consumers, the department said. So far, some 400 banks in 47 states have taken federal funds as the government seeks to stabilize the fragile financial system, which is in the midst of the worst crisis since the Great Depression. Treasury Secretary Timothy Geithner last week rattled financial markets as he unveiled his new bank rescue plan without providing details to investors who were looking for more clarity on how the new Obama administration would relieve banks of money losing assets. Tuesday's Treasury report covered only the top 20 banks and activity through the end of the year. For more details on the capital purchase program, which includes information Bank of America ( BAC.N ), Citigroup ( C.N ), JPMorgan Chase ( JPM.N ), Goldman Sachs GS.N and other major banks, see: here (Reporting by Corbett B. Daly, Editing by Diane Craft) |
UBS to identify customers, pay $780 million. It said that Switzerland's largest bank has entered into what is known as a deferred prosecution agreement on charges of conspiring to defraud the United States by impeding the U.S. tax collection agency, the Internal Revenue Service. Department officials said the agreement was unprecedented in pulling aside Switzerland's much-vaunted tradition of bank secrecy and described it as one of the biggest settlements ever. They said UBS admitted to helping U.S. taxpayers hide accounts from the IRS. The UBS charges and agreement represented the latest court developments in a long-running, high-profile investigation. In January, the former head of UBS AG's wealth management business, Raoul Weil, was formally declared a fugitive after failing to surrender to U.S. authorities on charges of conspiring to help wealthy Americans hide assets from U.S. tax authorities. The deal further cracks Switzerland's trademark account secrecy, which helped cement its role as a global banking center but also tainted it with accusations of being a haven for "dirty" money. In exchange, it frees UBS from prosecution over its actions. The deal also comes a week before a U.S. Senate hearing aimed at pressuring UBS to give more information about Americans who use Swiss bank accounts to avoid paying taxes. "It's a modest positive. It's a good thing to have this behind them, said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management in Portland, Oregon, who helps invest $2.2 billion. "They built a pretty strong business in the U.S., so obviously they want to continue to do business here. But I think for most people, the concern with UBS was not these regulatory issues, it was more balance sheet items," Cole said. UBS acknowledged that it helped U.S. taxpayers open accounts that concealed their identities from the IRS, the department said. It said about 17,000 of 20,000 U.S. cross-border clients concealed their identities and the existence of their accounts, with $20 billion in assets, from the IRS. Some of these clients are unindicted co-conspirators. In an unprecedented move, UBS, under orders from Swiss market regulators, agreed to immediately provide the U.S. government with the identities of, and account information for, certain United States customers, the department said. UBS has also agreed to expeditiously exit the business of providing banking services to United States clients with undeclared accounts, it said. The agreement called for UBS to pay a total of $780 million in fines, penalties, interest and restitution, the department said. The agreement was accepted by a federal judge in Ft. Lauderdale, Florida. "It will be interesting to see what this means for them longer term with high net worth people. What does it mean to have a Swiss bank account now if your name can be turned over to the Feds? It was seen as a haven, but now it may not be that way," Cole said. VEIL OF SECRECY PULLED ASIDE John DiCicco, acting assistant attorney general of the Justice Department's Tax Division, said in a statement, "The veil of secrecy has been pulled aside and we will continue to aggressively pursue those who shirk their federal tax obligations or assist others in doing so." The U.S. government will after 18 months recommend dismissal of the charges against UBS as long as it honors the terms of the agreement. Department officials cited the bank's willingness to acknowledge responsibility for its actions, its cooperation and remedial action so far and promised future cooperation and remedial action. The U.S. Securities and Exchange Commission said that UBS will settle U.S. regulators' claims that it acted as an unregistered broker-dealer and investment adviser. UBS' actions helped certain U.S. clients maintain undisclosed accounts in Switzerland and other foreign countries, which in turn enabled the clients to avoid paying tax obligations, the SEC alleged. From 1999 through 2008, UBS acted as an unregistered broker-dealer and investment adviser to thousands of U.S. clients and offshore entities with U.S. citizens as beneficial owners, the SEC said. The SEC also alleges that UBS conducted business through client advisers located primarily in Switzerland, who were not associated with a registered broker-dealer or investment adviser. The charges and agreement was the latest development in the high-profile investigation, which intensified after Weil was formally declared a fugitive. An indictment unsealed in November alleged that Weil and other unidentified bankers conspired to help 17,000 Americans hide $20 billion of assets in Swiss bank accounts in order to avoid paying U.S. taxes. And in June, a former UBS banker, Bradley Birkenfeld, pleaded guilty to helping a billionaire hide $200 million in assets from U.S. tax authorities and agreed to cooperate in the investigation. (additional reporting by Randall Mikkelsen and Rachelle Younglai) (Editing by Bernard Orr ) |
Caribbean's Millennium Bank is like Stanford: report. The U.S. Securities and Exchange Commission filed a complaint Tuesday accusing Stanford and two other top executives at Antigua-based Stanford International Bank, of fraudulently selling $8 billion in high-yield certificates of deposit "by promising high return rates that exceed those available" at other banks." Millennium, based in St. Vincent and the Grenadines, offers five-year CDs with interest rates of 6.5 percent to 7.75 percent on deposits of $100,000 or more. Millennium boasts on its website that it is "not affected by the global financial crisis caused by the subprime mortgage practices of large domestic banks." Millennium also says on its website it is wholly-owned by United Trust of Switzerland S.A., although Business Week said regulators in Switzerland have not heard of United Trust. Millennium did not return calls requesting comment and the U.S. SEC declined to comment. On its site, Millennium explains it can offer high rates of return because "deposits in most countries are protected by a form of deposit insurance. Deposits in international private banks are not." (Reporting by Phil Wahba ; Editing by Andre Grenon ) |
GM needs up to $30 billion in aid to avoid failure. The request for additional aid from the top U.S. automaker came in a restructuring plan GM submitted to U.S. officials on Tuesday. The GM restructuring plan of more than 100 pages was posted on the U.S. Treasury Web site. The request came on the same afternoon that No. 3 U.S. automaker Chrysler requested an additional $5 billion from the current $4 billion in U.S. government aid, saying it expected the brutal downturn in the U.S. market to run another three years. GM also said it had not reached deals with bondholders and its major union to reduce some $47 billion in debt but would work to reach those agreements by the end of March. In response to signs of a prolonged slump in demand for new cars and trucks, the automaker also said it would step up cost-cutting, reducing its global workforce by 47,000 jobs this year and cutting five additional U.S. plants by 2012. In addition, GM said it would cut its U.S. workforce by another 20,000 jobs by 2012 with most of those reductions coming earlier. GM has been kept afloat since the start of the year with $13.4 billion in loans from the U.S. Treasury. Its expanded aid request for up to $30 billion includes a $7.5 billion credit line in the event that the autos market remains depressed. Critics of the bailout of GM and its smaller rival Chrysler LLC have urged the government to consider financing a court-supervised restructuring for the two ailing automakers in bankruptcy. GM said its own analysis of the costs and risks of a bankruptcy filing would require more than $100 billion in financing that could have to be provided by the U.S. government. GM requested an unprecedented U.S. government bailout in December and had pegged its funding need then at up to $18 billion. But the automaker has faced a deep slide in sales outside its long-slumping home market in the weeks since and GM said its revised restructuring plan would take aim at loss-making overseas units as well. GM also said it would plan to phase out its Saturn brand by the end of 2011 and make a decision on whether to sell or just wind down its Hummer SUV brand by the end of the current quarter. (Editing by Matthew Lewis ) |
Stanford had been on SEC's radar for some time. A complaint filed last year against Stanford's firm by two former employees contended they were aware of a U.S. Securities and Exchange Commission inquiry into the firm's sales practices while they worked there. The employees, Mark Tidwell and Charles Rawl, said in their Texas state court lawsuit that they left rather than participate in unlawful business practices. They departed in late 2007. They said the SEC was looking at the marketing of certificates of deposits and that the Stanford firm had purged files and destroyed documents "with knowledge of an ongoing SEC inquiry." These high-yielding CDs were at the heart of the SEC's fraud case on Tuesday, when regulators accused Allen Stanford and three companies he runs of operating a worldwide fraud of "shocking magnitude" involving $8 billion in securities that were allegedly falsely marketed to customers. The SEC is already under scrutiny for its handling of the Bernard Madoff fraud case -- facing criticism that it failed to follow up tips and complaints about the accused swindler for years -- and will also likely face questions about how aggressive it was in examining Stanford, legal experts said. "The question is going to be raised, 'Has the SEC been asleep at the switch?'" said Peter Henning, a professor at Wayne State University Law School in Michigan who focuses on white-collar crime and securities law. But, he said, it may be too easy to blame the commission for possible inaction when many investors were only too happy to accept the higher-than-average returns that Stanford Financial Group was offering and did not lodge any complaints with authorities. "If nobody was complaining, there may have been no indications of a fraud," Henning said. The SEC's civil lawsuit, filed in federal court in Texas, was brought against Antiguan-based Stanford International Bank, the Stanford Group Company broker-dealer in Houston and investment adviser Stanford Capital Management, as well as several individual executives. The SEC has not commented on the case beyond its court papers. Investor lawyers say they want more answers about Stanford and how aggressively authorities had probed the firm. Jacob Zamansky, an investor lawyer in New York, said he is conducting his own investigation on behalf of customers. He said the SEC "may be coming once again too late to prevent harm to investors" who are panicking and want their money back. "They are going to have to answer why they didn't do something sooner," he said of the commission. "It looks like this was another situation where the returns were too good to be true, and if that's the case, it usually is." (Reporting by Martha Graybow; Editing by Gary Hill ) |
Panama bank regulators seize local Stanford affiliate. The regulators said they stepped in after news of the charges against Texas billionaire Allen Stanford and three of his companies prompted a run on deposits at Stanford Bank (Panama). The U.S. Securities and Exchange Commission (SEC) accused Stanford and two other group executives of fraudulently selling $8 billion in high-yield certificates of deposits (CDs) in a scheme that stretched around the world. The SEC complaint named Stanford International Bank, based in Antigua, as well as broker-dealer and investment adviser units based in Houston. Separately, Stanford Bank Venezuela sought to calm clients by saying its assets were not linked to Stanford International Bank and requested a national banking authority representative to sit on its board. "To offer greater tranquility to its clients, Stanford Bank has requested a permanent representative of the banking Superintendent on its board, with the aim of offering greater transparency to its users," the Venezuelan bank's board said in a statement. Stanford Bank Venezuela is a small retail bank that lends to clients within the South American nation. Stanford International Bank has grown rapidly in recent years, in part with funds from Latin American countries. In addition to the Panamanian and Venezuelan banks, Stanford Financial Group operates affiliated banks, brokerages and other companies in Colombia, Mexico and other Latin American countries, according to its website. (Reporting by Ana Isabel Martinez; Editing by Muralikumar Anantharaman) |
Excerpt on policy from January FOMC minutes. "Several participants indicated that they thought the FOMC should explore establishing quantitative guidelines or targets for a monetary aggregate, perhaps the growth rate of the monetary base or M2; in their view such guidelines would provide useful information to the public and help anchor inflation expectations. Others were skeptical that a single quantitative measure could adequately convey the Federal Reserve's current approach to monetary policy because the stimulative effect of the Federal Reserve's liquidity-providing and asset-purchase programs depends not only on the scale but also on the mix of lending programs and securities purchases. In addition, a few participants noted that the sizes of some Federal Reserve liquidity programs are determined by banks' and market participants' need to use those programs and thus will tend to increase when financial conditions worsen and shrink when financial conditions improve; the size and composition of the Federal Reserve's balance sheet needs to be able to adjust in response. In their discussion of monetary policy for the intermeeting period, Committee members agreed that keeping the target range for the federal funds rate at 0 to 1/4 percent would be appropriate. They also agreed to continue using liquidity and asset-purchase programs to support the functioning of financial markets and stimulate the economy. Members further agreed that these programs were likely to maintain the size of the Federal Reserve's balance sheet at a high level. Members noted that it may be necessary to expand these programs, but had somewhat different views about the best way of doing so. One member expressed the view that it would be best to expand holdings of U.S. Treasury securities rather than to expand targeted liquidity programs. All other members indicated that they thought it appropriate to continue the program of purchasing agency debt and mortgage-backed securities. Several expressed a willingness to expand the size and duration of those purchases in the near future; others stood ready to expand the program if conditions warrant but noted that the program had only recently been implemented and preferred to wait for more information about economic and financial developments and the program's effects before considering an expansion." |
U.S. task force to convene on GM, Chrysler this week. "The president's team will be reviewing these reports closely in the days ahead," White House spokesman Robert Gibbs said on Tuesday. His statement came shortly after GM and Chrysler submitted restructuring plans to the Treasury Department outlining new cost cuts, business plans, and seeking a combined $22 billion in new federal assistance. "It is clear that going forward, more will be required from everyone involved -- creditors, suppliers, dealers, labor and auto executives themselves -- to ensure the viability of these companies going forward," Gibbs said from Phoenix where President Barack Obama was traveling. The White House did not rule out a government-managed bankruptcy for the automakers. Geithner said in a separate statement that the task force, to comprise senior White House, Treasury and other government officials, would "analyze the companies' plans and solicit the full range of input from across the administration" on steps necessary to restructure GM and Chrysler. He said the group which Geithner co-chairs with White House economic adviser Laurence Summers would convene for the first time later this week. Geithner was not more specific. House Speaker Nancy Pelosi of California said she hoped the plans would "transform the industry" and did not rule out any future action by Congress "that may be needed." House Democratic leader Steny Hoyer of Maryland said Congress would hold the industry accountable for achieving "real reform." The White House and Treasury did not address the additional request for government loans by GM that would raise its total bailout from the $13.4 billion approved in December by the Bush administration to nearly $30 billion. Chrysler, considered the weakest of the Detroit manufacturers, received $4 billion in the December rescue and sought another $3 billion. The company asked for an additional $2 billion on Tuesday. Tuesday's deadline for filing restructuring plans was the first step by the companies in their attempts to show the government by March 31 that they can be commercially viable and worthy of federal support. Michigan Rep. John Dingell, a Democrat and longtime industry ally, said government "must do whatever is possible" to preserve the U.S. auto industry, which is reeling from recession, consumer credit woes, and a product mix that for many cannot measure up to more efficient foreign brands. Dingell said GM and Chrysler each demonstrated "a clear path to viability," with their restructuring blueprints that included planned debt reduction, labor cost cuts and plant closures. "The cost of action will be high, but the cost of inaction will be higher," Dingell said in a statement. Mark Zandi, chief economist at Moody's Economy.com, told Congress in December that restructuring the U.S. auto industry to keep GM, Chrysler and Ford Motor Co from near-term bankruptcy would cost between $75 billion and $125 billion, depending on how sales hold up. Ford did not seek a bailout but is struggling, as are suppliers for the entire industry. Ford favors a line of credit from the government if its finances worsen more than expected in 2009. Rep. Thaddeus McCotter, a Michigan Republican, told Reuters that GM and Chrysler have taken "painful first steps" to restructure and have taken seriously the cost and other targets set in the December bailout terms. "They are trying to comply with the requirements. The question will be how the new task force views it," McCotter said. He believes the administration will be deliberate in its approach to GM and Chrysler but all have to assume that March 31 is a hard deadline. Some lawmakers have suggested the timetable set by the Bush administration could be extended if GM and Chrysler make meaningful progress but need more time to prove viability. Others, however, say that keeping the deadline firm will keep pressure on the companies, labor and bondholders to reach the necessary concessions and take other steps to prevent bankruptcies. "I do think it would be very helpful for the Obama administration to say, 'Look, this is a line in the sand. These things have to occur," Sen. Bob Corker of Tennessee, a Republican, told CNBC. (Reporting by Caren Bohan , Jeff Mason , Glenn Somerville , and John Crawley , Susan Cornwell ; editing by Richard Chang ) ([email protected] + 1 202 898 8340) |
Financier and sports fan Allen Stanford loses Midas touch. In a self-congratulatory posting on the Stanford Group's website, its founder and chairman credits his grandfather with giving him "the inspiration to dream" and "an unwavering desire to build a business that is second to none." He speaks of "a passion for service and the values that hold us together". On Tuesday, as U.S. marshals swooped down on Stanford's U.S. headquarters in Houston, federal authorities charged the flamboyant 58-year-old mustachioed financier and three of his companies with a "massive ongoing fraud." Accusing him of far less altruistic aspirations than those trumpeted on his website, the U.S. Securities and Exchange Commission alleged Stanford and two fellow executives fraudulently sold $8 billion in high-yield certificates of deposit. The SEC said they and the bank reported "improbable" high returns and gave "false" assurances to investors. The SEC's revelation that Stanford's business empire -- stretching from the Caribbean island of Antigua to Houston, Miami and Caracas -- was exposed to losses from the alleged Ponzi scheme run by financier Bernard Madoff completes the picture of a finance king who somehow lost his Midas touch along the way. Before the SEC civil charges were announced, Stanford dismissed the U.S. federal probe as "routine" and triggered by complaints from disgruntled former employees. He said his company was fully compliant with all U.S. regulations and that he would "fight with every breath to continue to uphold our good name." Only months ago, Stanford, known as "Sir Allen" in Antigua whose authorities knighted him in 2006, was providing fodder for the British tabloids by flying in by helicopter to bankroll international cricket matches in a blaze of publicity. Now he is out of sight, as his harassed staff in plush company offices from Memphis to Atlanta fend off queries from panicked investors and posses of probing journalists. CARIBBEAN POTENTATE Once described as "haughty, arrogant and obnoxious" by Antiguan Prime Minister Baldwin Spencer, Stanford, America's 205th richest man according to Forbes magazine, has often walked a fine line between critics and admirers in a business and sporting empire that reaches well beyond Texas to Europe and across the Caribbean. Spencer said at the weekend he feared the Stanford scandal would hurt the image of the tiny Caribbean state of Antigua and Barbuda, which has undergone scrutiny in the past for alleged money laundering by Ukrainian and Russian Mafia bankers. But many local islanders expressed support for the country's biggest investor. "He is the best investor to come into the Caribbean, not only Antigua, but the region," said islander Julian Exeter. "He puts food in the mouth of everyone in Antigua and money in their pocket," he said. Friends say the financier is as genial as he is thick-skinned. "Allen enjoys life and is the kind of person that doesn't worry about what other people think," said David LeBoeuf, a Texan who went to school with Stanford. "Larger than life is one way to describe him, but he's also an extremely talented, unique and hard-working individual," he said. A fifth-generation Texan, Stanford made his first fortune in Houston, snapping up distressed real estate in the early 1980s before inheriting the insurance and real-estate company his grandfather founded in 1932. Forbes put his personal wealth at $2.2 billion last year and said his list of wealth-management clients includes pro golfer Vijay Singh. He credits his recent success in part to avoiding investments in subprime mortgages that snowballed into a global financial crisis. Asked by CNBC television in September if it's fun being a billionaire, he smiled and replied, "Yes, yes, yes. I have to say it is fun being a billionaire. But it's hard work." With dual U.S. and Antiguan-Barbudan citizenship, Stanford has homes sprinkled across the region -- from Antigua to St. Croix in the U.S. Virgin Islands to Miami. A generous patron of several sports, Stanford financed a $1 million-per-player Twenty20 tournament in November in which his "Stanford Superstars" side of West Indian cricketers became instant millionaires when they beat England's team at his Stanford Cricket Ground in Antigua. But now, after the SEC charges, the England and West Indies cricket boards have suspended negotiations on future projects with him. In recent months, he has let staff go in Antigua, closing a cricket office there. There has been a variety of reasons for the cutbacks -- from bad press to the global financial crisis. Back in the United States, he stirred controversy by claiming family ties to Leland Stanford, who founded Stanford University in the 1890s. The university says there is no genealogical connection between the two and sued Stanford Group in October for infringing on its trademark. (Additional reporting by Jason Szep and Simon Evans in St. John's; editing by Jeffrey Benkoe) |
McDonald's eye 500 stores in China in 3 years: exec. McDonald's China operations have not been affected by the fallout from the global financial crisis which has hit consumer spending as it has taken steps to retain customers, Brian Durkin, vice president of development in China, said. "McDonald's customers, when they go out shopping, they may not buy furniture or clothes, but they get hungry in the process," Durkin told Reuters on the sidelines of an industry forum. "Many of our new initiatives, 24-hour delivery, special value meals, breakfast, all are driving and overcoming our sales relative to this decline," he said. In what the company calls "the best-ever value meal combination" in China, McDonald's launched an aggressive promotion two weeks ago with half of its items priced at the same level as 10 years ago or even lower. Popular items with a downsized price included Filet-O-Fish, Double Cheeseburger, McNuggets, McPuff and the new Mala Pork Burger. Last week, the fast food giant posted a better-than-expected 7.1 percent rise in global January sales at restaurants open at least 13 months, supported by strength in nearly all its markets. Fast-food restaurants benefited as the global downturn sent diners to lower-priced fare. "We are not recession proof, but we are certainly recession resistant," said Durkin. In 2008, McDonald's opened 146 restaurants in China, one of its fastest growing markets, increasing the number of outlets to 2,012 by the year's end, out of more than 30,000 worldwide. Durkin said it planned to open about 500 new restaurants in the country in three years, adding between 50 to 60 employees at each new restaurant. McDonald's will open 175 new stores in 2009 and add 10,000 staff to its payroll, up from 60,000 presently, the company said earlier this month. (Reporting by Fang Yan and Hongwei Li) |
GM: TALF no help due to AAA-rating requirement. The Fed's Term Asset-Backed Loan Facility, or TALF, was created with seed money from the Treasury Department's $700 billion bailout for the U.S. financial services industry. Under the recently-expanded program, the Fed plans to pump up to $1 trillion into credit markets with loans that are collateralized by automobile, student, credit card and small business loans. GM said the program cannot help GMAC make more automobile loans to consumers because credit rating companies are unwilling to provide AAA-ratings, given the automaker's uncertain outlook. "Should the rating agencies continue to take this view, even after GM submits its viability plan, and potentially receives federal government support, the continued lack of funding will have a substantial negative impact on GMAC's ability to provide both retail and wholesale funding in the U.S. and Canada, and consequently on GM's ability to sell cars and trucks in these markets," the company said. The Fed lending facility was mentioned in GM's restructuring plan submitted to the U.S. government on Tuesday as a condition of the company's December bailout. In December, the Fed approved GMAC's application to become a bank holding company and GMAC then received $5 billion from the Treasury Department's bailout fund. That funding helped GMAC launch special financing programs to help consumers buy select 2008 and 2009 models. (Reporting by Julie Vorman ; Editing by Andre Grenon ) |
Porsche, VW might merge before 2011: report. In a "very optimistic scenario" and if the economy and financial markets offer particularly favorable conditions, both companies might be able to accelerate the merger, VW Finance Chief Hans Dieter Poetsch told the paper's Monday edition. Porsche will deliver "very impressive" results for its operating business for the 2009 financial year and the combined group might beat its target and become world market leader before 2018, Poetsch said. The finance chief said the merged entity will seek cost synergies through joint purchase and logistics, closer cooperation in financial services, joint development projects and the use of similar modules in both groups, die Welt reported. While these cost synergies will be achieved "swiftly", revenue synergies will take some three years to achieve, Poetsch said, according to Die Welt. Volkswagen considers itself and Porsche as "partners", Poetsch reiterated. (Reporting by Peter Dinkloh ; Editing by Jon Loades-Carter) |
Volkswagen threat "tantamount to blackmail": Opel union leader. Magna is in a close race with Belgian finance group RHJ ( RHJI.BR ) to gain majority control of the German carmaker and has had to play catch-up recently as management at former Opel parent General Motors GM.UL had already agreed with RHJ in principle over the sale of a 50.1 percent stake. With the board of GM set to make a decision as early as next week over the two bids that could finally end months of uncertainty over Opel's fate, European rival Volkswagen ( VOWG.DE ) renewed on Friday its criticism of a Magna deal that is backed heavily by the German government. Late on Friday, Opel's senior labor leader Klaus Franz fired back at VW Chief Executive Martin Winterkorn, hoping to quash a harmful debate in its infancy regarding whether a supplier like Magna should compete directly with its customers by acquiring a carmaker. "The threat not to award Magna with contracts is tantamount to blackmail," Franz said. The VW CEO told reporters earlier that day that his company viewed the deal with suspicion, and would reconsider doing business when it came to complex components were it to pose a disadvantage, despite Magna's repeated assurances to cleanly separate its supplier operations with any automotive operations. "Whoever says a rescue of Opel through Magna poses a competitive disadvantage, is hoping for the downfall of Opel in order to gain an edge for himself and reduce his own overcapacities at the cost of Opel," Franz said. The Opel labor leader added that Volkswagen has enjoyed state support since decades thanks to Lower Saxony controlling 20 percent. A German federal law passed solely to protect jobs at Volkswagen allows Lower Saxony a blocking minority that stopped dead Porsche's ( PSHG_p.DE ) takeover plans earlier this year. Analysts have been skeptical whether VW really would pull business away from Magna, since VW is the biggest customer of Faurecia ( EPED.PA ), a major European supplier that is majority owned by French carmaker Peugeot Citroen ( PEUP.PA ). Moreover, Magna's Steyr unit already manufactures the BMW X3, Mercedes-Benz G-Class, the Chrysler 300C and both the Jeep Commander and Grand Cherokee for three different customers. It will even expand production in the future to include making the Rapide four-door coupe for Aston Martin and the Boxster/Cayman line for Porsche ( PSHG_p.DE ), indicating that it has successfully managed to convince carmakers that technology developed in tandem does not leak to other carmakers. (Reporting by Christiaan Hetzner ; Editing by Victoria Main) |
Suzuki to sell hybrid in N. America in '11: Nikkei. The Japanese small car maker has lagged behind Toyota Motor Corp and Honda Motor Co in developing environmentally friendly vehicles, and its entry to the hybrid business is likely to fuel a price competition, the Nikkei said. The hybrid system will be installed in Suzuki's "Kizashi" midsize sedan, a gasoline version of which is slated to hit the North American market in late 2009, the paper said. Suzuki has said it was considering a hybrid version of "Kizashi" for the North American market, using technology co-developed with GM, which owned as much as 20 percent of Suzuki until 2006. (Reporting by Aiko Hayashi ; Editing by Jeremy Laurence ) |
UBS to name 5,000 accounts under U.S. deal: paper. Another Swiss weekly, Sonntag, said around 4,500 names would be handed over. The landmark deal, ending a dispute in which the U.S. tax authorities had sued UBS to disclose 52,000 U.S. clients suspected of tax evasion, dispels a big cloud hanging over the world's second biggest wealth manager. It also formally leaves Switzerland's cherished banking secrecy intact, although many Swiss private bankers say it has been badly damaged. NZZ am Sonntag, citing its own researches and reports in the U.S. press, said the deal would be based on the existing U.S.-Swiss double taxation agreement of 1996, and therefore not require any changes to Swiss law. As a result, the Swiss cabinet will be able to implement the deal directly, without going through parliament, it said. UBS will also escape having to pay a fine, it said. The deal will probably be signed this week, a source familiar with the situation told Reuters on Friday. A spokesman for the Swiss justice department declined to comment, noting that the two sides had agreed not to release details of the deal until it is signed. A spokesman for UBS also declined to comment. HIDDEN LIMITS NZZ am Sonntag said the names of those to be disclosed would be those suspected of committing tax fraud under the terms of the double taxation agreement, which obliges Switzerland to provide help if Washington seeks it in a criminal investigation. Accounts below a certain size would not be reported, but this limit would be kept confidential so that account-holders could never be sure whether they were vulnerable, it said. However, account-holders threatened with disclosure would be able to challenge the move in the Swiss courts, it said. NZZ am Sonntag said the U.S. government had backed off from the original demands of the Internal Revenue Service (IRS) because the U.S. Treasury Secretary did not want to provoke another financial crisis by pushing UBS over the edge. Under a previous agreement, UBS settled criminal charges that it had facilitated tax fraud by paying $780 million and handing over data on about 250 U.S. clients. U.S. prosecutors said on Friday that a California client of UBS would plead guilty to criminal charges arising from an investigation into tax evasion at UBS, the fourth prosecution arising from that deal. Criminal charges arising from that case, and the disclosure of further names from the latest deal are keeping pressure on suspected offenders to report themselves voluntarily under an amnesty program running to September 23. Sonntag said that the total amount of fines likely to be paid by account-holders disclosed in last week's deal would be around 4 billion Swiss francs ($3.74 billion). But it said a British lawyer was already trying to drum up support for a class action by UBS customers who feel they have been betrayed by the bank. It quoted Konrad Hummler, partner in Swiss private bank Wegelin, as saying that Swiss banks would suffer from any further disclosure of customer data by UBS, even if in purely formal terms that did not breach Swiss law or banking secrecy. "Everyone is talking about success -- the IRS, the Swiss government, UBS. But that can't possibly be the case," he said. "Although we still don't know any of the details, we can guess some things: the customer has been made a fool of -- he was promised something which retroactively no longer applies," he said. ($1=1.070 Swiss Franc) (Editing by Jon Loades-Carter) |
Doha deal could boost world GDP $300-700 billion: study. The figures that the Washington-based institute calculates are similar in size to stimulus packages deployed by the biggest countries to tackle the economic crisis, and underline how much is at stake in the long-running talks. Delays in completing the round, now in its eighth year, prompted two leading trade economists at the institute -- Gary Clyde Hufbauer and Jeff Schott -- to examine the potential benefits. The economists estimated the boost to global exports from concluding the Doha Round could range between $180 billion and $520 billion annually, depending on how far-reaching an eventual deal turns out to be. "The potential GDP gains are significant, between $300 billion and $700 billion annually, and well balanced between developed and developing countries," they said. World leaders have called for the round, launched in the Qatari capital in 2001 to help poor countries prosper through trade, to conclude next year. INDIA MEETING Key trade ministers will meet in Delhi early next month to relaunch the talks, which collapsed in July last year at the World Trade Organization (WTO), largely through differences between the United States and big emerging countries such as China and India over measures to protect subsistence farmers from floods of imports and eliminate duties in some industries. It is notoriously difficult to quantify the possible gains from a new trade deal because there are so many variables. Estimates vary widely, with some more skeptical economists seeing few benefits, especially for developing countries. World Trade Organization Director-General Pascal Lamy has put the gains to the global economy at $130 billion but that conservative estimate largely reflects the savings on existing trade flows from cutting tariffs as proposed in the talks. The Peterson economists looked at the impact on exports and imports of cutting tariffs and subsidies in agriculture and industrial goods, examine the broader impact on the economy, and then look at the possible impact of some proposed deals -- some of which are still far from agreement. Proposed agreements in agriculture and industrial goods would increase exports by $65 billion a year, pushing up world gross domestic product by $100 billion annually, they said. "The reason GDP gains are so large is that both imports and exports contribute to economic efficiency and income growth, and world two-way trade gains are more than double export gains alone," they said. Proposals to create duty-free zones in the chemicals, electronics and environmental goods industries -- sought by the United States but resisted by China and some other countries -- would increase exports by a further $57 billion and the world economy by a further $104 billion a year, they said. Liberalizing services such as banking and telecoms could add another $56 billion to exports and $100 billion to world GDP. Helping developing countries trade more effectively by developing ports and customs, easing red tape and improving the service sector could increase world exports by $340 billion and world GDP by $385 billion, they said. |
Stocks could pull back as earnings end. Fewer than 50 Standard & Poor's 500 companies remain to report quarterly financial results, including the two major home improvement retailers, Lowe's Companies ( LOW.N ) and Home Depot Inc ( HD.N ). Clothing retailer Gap Inc ( GPS.N ) and discount chain store Target ( TGT.N ) are also on tap. The recent evidence suggests consumers have not been a source of strength for improved growth. Reports last week showed weak consumer sentiment in August and an unexpected decline in July retail sales. "The markets are going to be looking at what kind of signal we're getting on the consumer sector. Because of high unemployment and the high savings rate, there are (worries) that consumer spending is going to be weak," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. Economic data this week will include reports on housing, manufacturing and inflation. Major stock indexes fell last week, but before then, stronger-than-expected earnings had helped underpin a four-week stretch of gains for the market. "I think it's too late to ride the 'we came back from the brink of disaster' rally," said Joseph Battipaglia, a market strategist at Stifel Nicolaus in Yardley, Pennsylvania. "Investors would be wise to take profits here." Last week's light trading volumes could continue and may exaggerate market moves, analysts said. For last week, the Dow Jones industrial average .DJI ended down 0.5 percent, the S&P .SPX ended down 0.6 percent and the Nasdaq .IXIC finished off 0.7 percent. The S&P is still up about 48 percent from its 12-year lows in early March. BERNANKE TO SPEAK, EARNINGS IMPROVE Another factor that could influence the market's direction is a speech by Federal Reserve Chairman Ben Bernanke on Friday in Jackson Hole, Wyoming. He is expected to talk about the financial crisis at the Kansas City Fed Bank's economic symposium. Stocks rallied after the Fed said last week that the economy was leveling out. But investors will need a new catalyst for stocks to resume their gains, analysts said. While some economists say they expect to see rapid growth, "none of the data is pointing to that," said Fred Dickson, market strategist at D.A. Davidson & Co. Lake Oswego, Oregon. "There's going to have to be a pause to let the fundamentals catch up." The National Association of Homebuilders index for August is scheduled for release on Monday, while housing starts and existing home sales reports for July are scheduled later in the week. "The housing market could have an impact on consumers, and if we see a pickup in the housing market, that could be very supportive," said Len Blum, managing partner at Westwood Capital in New York. Among other data, the New York Federal Reserve's survey of manufacturing activity will be released on Monday and the Labor Department's Producer Price Index is set for Tuesday. Estimates for second-quarter S&P 500 earnings were raised modestly, with earnings now expected to decline 28 percent from a year ago compared with 29.5 percent estimated last week, according to data from Thomson Reuters. That fits with the season's trend, which started with earnings forecast to decline 36 percent. Thomson Reuters data showed that of the 456 S&P 500 companies that have reported earnings so far, 72 percent have beaten analysts' expectations. Revenues showed less improvement, and analysts have said companies' stronger bottom-line results have come largely from deep cost-cutting. (Additional reporting by Leah Schnurr ; Editing by Kenneth Barry) |
TIMELINE: UBS to name 5,000 accounts under U.S. deal. Following is a timeline of recent events at UBS: April 1, 2008 -- Doubles its writedowns as a result of the credit crisis, dumps its chairman, Marcel Ospel, and seeks more emergency capital. It proposes its lawyer, Peter Kurer, as Ospel's successor. May 6 -- Says it will axe 5,500 jobs and sell billions of dollars of ailing assets to weather the subprime crisis. June 19 -- A former UBS banker who once smuggled a client's diamonds into the U.S. in a toothpaste tube pleads guilty to helping a billionaire hide $200 million from U.S. tax authorities, part of a broader tax evasion probe of UBS. October 16 -- Announces it is to get 6 billion Swiss francs ($5.55 billion) from the Swiss government for a 9.3 percent stake and is to unload $60 billion of toxic assets into a new central bank fund. November 12 -- Raoul Weil, head of UBS AG's wealth management business, is charged with conspiring to help thousands of wealthy Americans hide $20 billion of assets from U.S. tax authorities in Swiss bank accounts. February 10, 2009 -- Posts a 2008 loss of 19.7 billion francs, the biggest ever loss for a Swiss company. Cuts 2,000 more jobs. February 18 - Agrees to pay $780 million and identify certain U.S. clients to settle criminal fraud charges that it assisted rich Americans to evade taxes. February 19 - U.S. tax authorities say they are still pursuing a civil lawsuit seeking to access details on 52,000 UBS clients. February 20 -- Warns that it could go out of business if it complies with an order to reveal the names of suspected U.S. tax dodgers and would require it to violate Swiss law in a manner that would expose it to penalties. February 26 -- Appoints Oswald Gruebel, former head of rival Credit Suisse, as chief executive, replacing Michael Rohner. March 4 -- Chairman Peter Kurer steps down, replaced by Kaspar Villiger, a former Swiss finance minister. March 13 -- Switzerland agrees to make concessions on bank secrecy amid a global crackdown on tax evasion. April 2 -- U.S. authorities arrest and charge an accountant in Florida in the first of what they say could be a series of tax evasion prosecutions of American clients of UBS. April 5 -- UBS announces worldwide travel ban for wealth management client advisers after coming under scrutiny in the U.S. tax fraud investigation. May 5 -- Confirms a first-quarter net loss of 2 billion francs on yet more writedowns and client withdrawals, and announces staff cuts of 10,000. July 9 -- A judge orders the U.S. government to say whether it was prepared to shut Swiss bank UBS AG in the United States. July 10 -- Gruebel sends a memorandum to the bank's top executives saying the bank could not comply with the U.S. request to disclose the identity of the 52,000 account holders. July 14 -- Christoph Bandli, President of the Swiss Federal Administrative Court, which has the power to rule on data transfers, says U.S. tax officials can legitimately ask for unnamed client data if they set out a specific category. July 26 -- The United States is targeting client visits by Swiss-based bankers from UBS to identify U.S. citizens with accounts at the bank who may have evaded tax, a Swiss newspaper reports. July 28 -- A U.S. client of UBS pleads guilty to using Swiss bank accounts to hide money from the U.S. taxman and says a Swiss government official received $45,000 to help cover up the fraud. Swiss prosecutors launch an investigation the next day. July 31 -- A U.S. Justice Department attorney says the U.S. and UBS AG have reached an agreement in principle to settle their dispute. Negotiations have focused on the legal details of how to allow the transfer of substantial UBS client data to Washington while respecting Swiss bank secrecy laws. August 2 -- UBS will not have to pay a fine as part of the settlement of a tax dispute, two Swiss newspapers report. They also report that data on 5,000 UBS clients would be released to U.S. authorities. August 4 -- UBS posts a Q2 net loss of 1.4 billion francs as wealthy clients are scared off by the tax row. August 12 -- A U.S. government attorney says agreements have been initialed to settle the tax evasion dispute, but says they will take time to sign in a final form and charges will then be dropped against UBS. Aug 14 -- U.S. prosecutors in Los Angeles say a California client of UBS will plead guilty to a federal criminal charge stemming from investigation into tax evasion at UBS. August 16 -- The deal between the U.S. and Switzerland will involve the disclosure of around 5,000 holders of secret Swiss accounts, weekly newspaper NZZ am Sonntag says. Another Swiss weekly, Sonntag, says around 4,500 names would be handed over. (Reporting by Sam Cage and Lisa Jucca ; Additional writing by David Cutler, Jijo Jacob, Carl Bagh and Emma Thomasson) |
Wall Street tumbles as Friday jobs data turns buyers off. The Nasdaq fared the worst as investors unloaded positions in the most liquid large-cap technology shares. Research in Motion Ltd RIM.TORIMM.O fell 5.2 percent to $56.56 on worries about the BlackBerry's sales and after the introduction of Apple's latest iPhone. Apple Inc ( AAPL.O ) lost 1.9 percent. The S&P 500 is down 13.7 percent from its April 23 closing high for the year, firmly in correction territory. The benchmark index breached a key technical support level around 1,060 late in the afternoon. "You have to break this downside momentum before you can feel comfortable wading into this market," said Bruce Bittles, chief investment strategist of Robert W. Baird & Co in Nashville. On Friday, the major U.S. stock indexes slid more than 3 percent after the weaker-than-expected May non-farm payrolls report and as worries increased over the sovereign debt crisis in some European countries, the latest being Hungary. The Dow Jones industrial average .DJI fell 115.48 points, or 1.16 percent, to 9,816.49. The Standard & Poor's 500 Index .SPX slid 14.41 points, or 1.35 percent, to 1,050.47. The Nasdaq Composite Index .IXIC tumbled 45.27 points, or 2.04 percent, to 2,173.90. The stock market has been sensitive to recent news flow, particularly out of Europe, and that has prompted some abrupt intraday swings in the S&P 500. The CBOE Volatility Index .VIX, also known as the VIX, remains at an elevated level, though it has eased back since May. The VIX shot up 3.1 percent to close at 36.57, while the S&P 500 fell to its lowest closing level since early November. "I don't think we can underestimate the disappointment from that payroll report on Friday," said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St. Louis. "It was a kick in the stomach. It took the wind out of things." CAT TUMBLES, GOOGLE DROPS Large manufacturers' shares ranked as the biggest drags on the Dow, with United Technologies Corp ( UTX.N ) down 2.9 percent at $63.22, and Caterpillar Inc ( CAT.N ) fell 3.3 percent to $55.83. Apple finished down at $251.03 after the company unveiled the newest iPhone model. Analysts said the expected announcement was already priced into the stock. Google Inc ( GOOG.O ) lost 2.7 percent to $485.52 after Connecticut's attorney general sent a letter to the dominant U.S. search engine company asking if it had collected data from personal and business wireless networks without the owners' permission. Bank of America Corp ( BAC.N ) fell 3.4 percent to $14.83 after the company's Countrywide Financial Corp unit agreed to pay $108 million to settle U.S. government charges of misleading and overcharging consumers. GOLDMAN SLIDES Shares of Goldman Sachs Group Inc ( GS.N ) tumbled 2.6 percent to $138.68 following news that a government commission investigating the 2008 financial crisis has issued a subpoena to the company after the bank flooded the panel with billions of pages of digitized records. Decliners outnumbered advancers on the New York Stock Exchange by a ratio of 11 to 4, while on the Nasdaq, about five stocks fell for every one that rose. About 9.70 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq -- just above last year's estimated daily average of 9.65 billion. (Reporting by Leah Schnurr; Editing by Jan Paschal ) |
South Korea says private sector growth to gather pace. Yoon Jong-won, the ministry's head of economic policy bureau, also said during a radio programme Asia's fourth-largest economy would probably grow faster than the ministry's 5 percent target this year, but did not provide a new figure. "It all depends on how much the domestic and external situations will impact," he said. "Nevertheless, I think the private sector's recovery will gradually strengthen." Both South Korea's government and the central have said that private sector upturn was essential for recovery to become self-sustained and allow the authorities to start unwinding stimulus deployed during the global financial crisis. Yoon also told private YTN radio channel that concerns about the euro zone's debt crisis and a possible rise in commodity prices posed the main risks to economic growth for the rest of the year. Yoon said the ministry was working on revised economic forecasts for announcement later this month, but refused to say if the 5 percent growth target would definitely be raised. South Korea's central bank and international institutions such as the Organization for Economic Cooperation and Development have recently upgraded their 2010 growth forecasts to more than 5 percent. Yoon declined to comment on interest rate policy by repeating the official stance that it was the central bank's prerogative. The Bank of Korea holds its regular review on Thursday. Its governor started priming markets for a start of a rate tightening cycle sometime in the next quarter, but bond investors have pared their bets on rate rises after Europe's debt problems revived doubts about the strength of the global economic recovery. (Reporting by Yoo Choonsik ; Editing by Tomasz Janowski ) |
Banks asked about GM lending lines pre-IPO: report. When asked in an interview with CNBC if lending lines would be an underwriting prerequisite, Mack said, "That's certainly part of the discussion." Deutsche Bank in April lost its underwriting spot on Kohlberg Kravis Roberts & Co KKR.UL IPO of Dutch semiconductor company NXP Semiconductors because it refused to renew a line of credit for the company. GM is moving toward an IPO after the U.S. government acquired 61 percent of its shares in a $50 billion bailout of the carmaker, which emerged from a government-sponsored bankruptcy last July. Canada and the province of Ontario own nearly 12 percent. (Reporting by Clare Baldwin ) |
BofA's Countrywide settles with FTC for $108 million. The Federal Trade Commission said two Countrywide mortgage servicing units deceived cash-strapped homeowners by overcharging them by hundreds or thousands of dollars, sometimes when they were already in bankruptcy. The alleged activity took place before Bank of America acquired the distressed lender in 2008. The settlement is a small win for regulators trying to hold to account those who contributed to the deep financial crisis. The agency called the $108 million settlement one of the largest in an FTC case and the largest in a mortgage servicing case. The FTC has no jurisdiction over banks but does have jurisdiction over deceptive practices by non-bank financial services and products firms. Countrywide, which was once the nation's top mortgage lender, "profited from making risky loans to homeowners during the boom years, and then profited again when the loans failed," said FTC Chairman Jon Leibowitz, noting that some fees during the foreclosure process were marked up more than 400 percent. Bank of America said in a statement that it agreed to the settlement to void the expense and distraction of litigating the case. There was no admission of wrongdoing. The FTC said the $108 million, which represents the amount consumers were overcharged, would be used to repay borrowers but could take months to sort out. "The record-keeping of Countrywide was abysmal," said Leibowitz. "Most frat houses have better record-keeping than Countrywide." In May, Countrywide agreed to a $624 million settlement of a class action lawsuit accusing it of misleading investors about its lending practices. The case was led by several pension funds, including the New York State Common Retirement Fund, that state's $129.4 billion public pension fund, and five New York City pension funds. Once the largest U.S. mortgage lender, Countrywide and its long-time chief executive, Angelo Mozilo, became known for risky lending practices that helped fuel the U.S. housing boom and subsequent bust. Countrywide nearly collapsed as credit markets tightened, before Bank of America agreed to buy it in January 2008 in a stock deal valued at about $4 billion. Mozilo and two other former Countrywide executives remain defendants in a U.S. Securities and Exchange Commission civil fraud lawsuit. The SEC alleges that Mozilo hid from investors the deteriorating prospects of Countrywide, and conducted insider trading by entering a systematic stock selling plan in late 2006, knowing that the mortgage lender's prospects would worsen. The SEC claimed Mozilo violated insider trading rules in generating a $139 million profit by exercising stock options in 2006 and 2007. It said the exercises came after he admitted in an email to colleagues that Countrywide was "flying blind" as to the quality of its loans. Sen. Charles Schumer, a New York Democrat and a member of the panel working out final wording on a comprehensive overhaul of Wall Street, called the FTC settlement "a major breakthrough that closes one of the ugliest chapters of the entire subprime mortgage crisis." "Anyone who believes the blame for the housing crisis rests with borrowers should read this settlement and learn just how shameless these lenders were during these years," Schumer said. (Additional reporting by Diane Bartz in Washington and by Joe Rauch in Charlotte; editing by John Wallace and Gerald E. McCormick) |
Goldman subpoenaed by financial crisis commission. The Financial Crisis Inquiry Commission had asked Goldman to provide documents and grant interviews in connection with the panel's probe. In response, the Wall Street firm produced 5 terabytes of records, with each terabyte containing 500 million pages of digitized records, FCIC Chairman Phil Angelides told reporters on a conference call. FCIC Vice Chairman Bill Thomas said Goldman, knowing the panel's limited resources, had sent commission staff hunting for a needle in a haystack. "We expect them to provide us with the needle," Thomas said. The FCIC called Goldman's response "abysmal." Angelides and Thomas said other banks had received and complied with similar FCIC requests. Goldman spokesman Samuel Robinson said in a statement that "we have been and continue to be committed to providing the FCIC with the information they have requested." Goldman shares fell $3.72, or 2.6 percent, to close at $138.68 on the New York Stock Exchange on Monday. Goldman Chief Executive Lloyd Blankfein was on a panel with three other bank chiefs that testified before the FCIC in January. Disclosure concerns have followed Goldman in recent months. It has been criticized for not immediately telling investors that it received a so-called Wells Notice from the SEC last September, signaling the possibility of civil charges. The U.S. Securities and Exchange Commission sued Goldman in April for civil fraud in connection with the structuring and sale of a $1 billion collateralized debt obligation. The FCIC has shown a willingness to use its subpoena power. In April it issued a subpoena to Moody's Corp, saying it had failed to comply with a request for documents and interviews in a timely manner. The FCIC also used a subpoena to compel Warren Buffett to testify after the Berkshire Hathaway Inc chief rebuffed earlier requests to submit to voluntary questioning. (Reporting by Steve Eder; editing by John Wallace and Matthew Lewis ) |
Airlines body IATA demands unions quit picketing. "Pilots and crew must come down to earth. Strikes at this time are short-sighted nonsense," International Air Transport Association (IATA) Chief Executive Giovanni Bisignani said in his opening address at the body's annual meeting on Monday. IATA said earlier on Monday it now expects the world's airlines to post a $2.5 billion profit this year, an improvement of more than $5 billion from its March forecast. But airlines in Europe will report a combined $2.8 billion loss this year, hit by fallout from a volcanic ash cloud that swept across Europe in April and shut airspace across large parts of the continent as well as labor strikes, it said. "Labor needs to stop picketing and cooperate," IATA's Bisignani said. Thousands of travelers have been stranded around the world this year as cabin crew and pilots walked off the job to push for higher wages or more job security. British Airways BAY.L cabin crew on Saturday started a five-day strike -- their latest in a series of walkouts since March -- in a long-running dispute that has so far cost the London-based airline about 120 million pounds ($173.2 million). German flagship carrier Lufthansa ( LHAG.DE ) lost almost 50 million euros ($59.7 million) when its pilots went on strike in February and took its union to court to stop the walkout. Lufthansa Chief Executive Wolfgang Mayrhuber told Reuters on Sunday talks with the pilots were progressing but gave no indication of how close the parties were to an agreement. BA CEO Willie Walsh, taunted by union leaders for going to Berlin for the meeting and not staying in London to negotiate, roundly criticized the Unite union that represents cabin staff. "They failed in their efforts to ground BA and they will fail in any future efforts to do so," Walsh told Reuters on the sidelines of a Oneworld airline alliance presentation, of which BA is a member. Walsh said there was no point at which there would be an unacceptable trade-off between the savings from the cuts and the cost of the strikes, the cuts had to be implemented to preserve the airline's future. U.S. airlines have also been struggling to cut labor costs. American Airlines owner AMR Corp AMR.N has long maintained that its labor costs are above industry average partly because it restructured outside of bankruptcy, while some rivals have used Chapter 11 protection to slash costs in recent years. U.S. airlines have also been struggling to cut labor costs. American Airlines owner AMR Corp AMR.N has long maintained that its labor costs were above industry average partly because it restructured without declaring bankruptcy, while some rivals were able to slash costs under Chapter 11 protection. American Airlines Chief Executive Gerard Arpey told reporters on the sidelines of the IATA meeting his company had a staff cost disadvantage of $600 million a year compared to other major airlines. ($1=.6929 Pound) ($1=.8375 Euro) (Reporting by Maria Sheahan, Ben Berkowitz and Adrian Murdoch; editing by Karen Foster) |
Analysis: Spain, Portugal debt vulnerable to slow growth. The two countries, faced with the risk of a Greek-style debt crisis in which they could lose their ability to fund themselves in the market, announced fresh austerity measures in mid-May, front-loading steps which they had originally hoped to spread more gradually over the four years through 2013. The existence of the new plans, combined with unprecedented purchases of the two countries' bonds by the European Central Bank, has partially eased market jitters and helped the countries keep access to the market. But simple spreadsheet models of their economies and debt structures, prepared by Reuters, show the new plans are very vulnerable to slow economic growth. SPAIN Spain's extra measures, worth 15 billion euros, would reduce the rise in the ratio of its public debt to gross domestic product by roughly two percentage points in 2011 and each of the two subsequent years versus the government's original targets. That would leave it with a public debt ratio of 72.1 percent in 2013 instead of the 74.1 percent initially expected. But the growth assumptions in that plan are already looking too optimistic; at the end of May, the government lowered its forecasts for real GDP expansion to 1.3 percent in 2011 instead of 1.8 percent, 2.5 percent in 2012 rather than 2.9 percent, and 2.7 percent in 2013 instead of 3.1 percent. Plugging those GDP figures into the calculator for Spain reduces the improvement in the debt trajectory due to the new austerity measures by roughly one quarter; instead of beginning to fall in 2013, the debt/GDP ratio stays flat at 72.7 percent that year. The simple spreadsheet model probably understates the extent to which tax revenues could be hit by slower economic growth. And many analysts think the government may be forced to cut its growth forecasts once again. Spanish consumer sentiment fell at its fastest rate on record in May, partly because of concern over government policies, according to Spain's National Credit Institute. "A fall in consumer spending could drag Spain back into recession by the end of the year," said Raj Badiani, economist at IHS Global Insight, a consultancy. The model also shows how vulnerable Spain is to increases in debt servicing costs as nervous markets demand higher yields. After hitting a peak of 4.50 percent in early May, its 10-year government bond yield fell back to 3.95 percent in response to the ECB's bond-buying and Madrid's new austerity drive -- but since then, the yield has rebounded even higher, to 4.60 percent. Adding just 0.5 percentage point to Spain's assumptions for its affective debt service interest rate in 2010-2013 brings its debt/GDP ratio at the end of that period to 73.7 percent, barely different from the 74.1 percent envisaged before the latest austerity measures. The model does not, however, capture the potential political instability created by austerity measures. Spain's new austerity steps passed by just one vote in parliament, raising the possibility of early elections. Opinion polls have given the opposition center-right Popular Party a lead of 9-10.5 percentage points over Socialist Prime Minister Jose Luis Rodrigues Zapatero's government. PORTUGAL Portugal announced in mid-May that it would pursue extra spending cuts and tax rises to secure additional deficit reduction of one percentage point in 2010 and two percentage points in 2011. Such cuts appear to produce a debt/GDP ratio of 86.7 percent in 2013, compared to the 89.8 percent which Portugal previously envisaged for that year. Political risks look smaller in Portugal; Socialist Prime Minister Jose Socrates has secured opposition party promises of support for the extra cutbacks and the overall outline of the plan, which starts with two billion euros of cutbacks this year, has won approval in parliament. But Portugal's growth prospects may not be nearly as good as its assumptions. The European Commission said earlier this year that it believed Lisbon might be overly optimistic, and Standard & Poor's said the growth outlook was the main reason that it lowered Portugal's credit rating in late April. S&P predicted stagnation for the Portuguese economy this year and next, predicting GDP growth would return to 1 percent only in 2012. It also said inflation would likely average 0.6 percent in 2010-2013, well below the government's forecasts. Plugging S&P's growth and inflation assumptions into the Portuguese model, the hoped-for fall in the debt/GDP ratio during 2013 evaporates. Instead, the ratio keeps rising through that year, to 91.1 percent. Applying domestic inflation rates to Portugal's debt stock is inexact because the debt is in euros, which are subject to the overall euro zone inflation rate. But the model does show the dangers of deflation or ultra-low inflation as countries try to work themselves out from under their debt mountains. (Editing by Andrew Torchia ) |
Bank of China expects delay in rate hikes: report. Bank of China had forecast that the People's Bank of China would raise benchmark interest rates once or twice in the second half of this year, by 27 or 54 basis points, but the official newspaper cited President Li Lihui as saying that any such move could be delayed amid projections that inflation will ease. However, the central bank may still ask lenders to set aside more cash as reserves instead of using it for new loans, by raising the required reserve ratio "one to three times," Li said, although he noted such moves would depend upon economic conditions. He did not offer a timeframe for the expected hikes. So far this year, the central bank has raised the required reserve level three times in an effort to temper robust economic growth by pulling back on the amounts banks can extend as loans. Li also said he expects that banks' net interest margins would remain stable this year and that credit risks would be basically manageable, according to the newspaper. Separately, Bank of China said on Monday that its 40 billion yuan ($5.9 billion) convertible bond offer was 43.5 times over-subscribed. (Reporting by Samuel Shen and Jacqueline Wong; Editing by Ken Wills ) |
Fed's Yellen says headwinds to global recovery remain. "Those headwinds come from structural imbalances from financial sector weaknesses and uncertainties from unanticipated environmental and political events," Yellen said in brief introductory comments at the opening of the bank's two-day Asian Banking and Finance Conference. She did not elaborate. (Reporting by Ann Saphir ) |
Chrysler recalls nearly 600,000 vehicles. Chrysler informed the U.S. National Highway Traffic Safety Administration of the potential safety issues last week, the NHTSA reports show. As many as 284,831 Chrysler Town and Country minivans and Dodge Grand Caravan minivans for model years 2008 and 2009 could develop a problem in the electrical system that could cause a short circuit in the latch for the sliding door, which could cause a fire, Chrysler told regulators. As many as 288,968 Chrysler Jeep Wranglers from model year 2007 to 2010 could experience leaking brake fluid which could cause brake failure. These two recalls are in addition to one first reported last Friday for as many as 25,336 Dodge Caliber and Jeep Compass vehicles for the 2007 model year involving possible sticky accelerator pedals. Owners of the models involved in each of the recalls are to be notified by Chrysler this month and Chrysler said it will fix the vehicles without charge. Chrysler, based in Auburn Hills, Michigan, is managed by Fiat SpA ( FIA.MI ). (Reporting by Bernie Woodall , editing by Gerald E. McCormick) |
Hon Hai shares tumble on new China wage rise. Taiwan's Hon Hai, the world's biggest contract electronics manufacturer with a list of clients including Apple Inc ( AAPL.O ), Dell Inc DELL.O and Hewlett-Packard Co ( HPQ.N ), has been wrestling with the fallout from a series of suicides at its Foxconn International Holdings ( 2038.HK ) unit. Hon Hai said late on Sunday that production line workers at Foxconn's Shenzhen hub would be able to earn 2,000 yuan ($293) a month from October if they passed a three-month performance review. This pushed Hon Hai shares down by as much as 6.8 percent, the maximum amount permitted, before ending down 5.6 percent at a near 10-month closing low. The broader market .TWII fell 2.5 percent. "The valuation here is not expensive, but the problem is people may feel uncertainty about earnings, and if people feel uncertainty then it's hard to make it a buying case," said Steven Tseng, an analyst at RBS in Taipei. Tseng added that while he was still seeking details on the planned wage rise, it could cut 2011 net profit by 10-20 percent. UNCERTAIN IMPACT Some workers' wages could double from the 900 yuan Foxconn was paying just a month ago before the spate of suicides drew attention on the labor practices at the company, which churns out millions of iPhones, computers and other gadgets 24 hours a day. The company had hiked salaries across the board by 30 percent last month. One problem in assessing the impact of the rise on Hon Hai was the lack of detail in the Foxconn statement over how the appraisal process would work and how many of the roughly 400,000 workers at Shenzhen would actually earn the 2,000 yuan. Its statement said only that details of the performance evaluation would be announced internally later. A company official said workers will still continue to receive free accommodation, food and other benefits that used to make up their compensation package. He declined to be named because he was not authorized to speak to the media and could not offer further details on the number of workers who would receive the increase. He said that when the workers were paid 900 yuan per month, the company was actually spending about 2,100 yuan per month on them. It is still working out what the actual cost to it would be if workers earned 2,000 per month. Hon Hai and Foxconn are due to hold their annual shareholder meetings in Taipei and Hong Kong on Tuesday. LOW MARGINS Although the company has responded to a series of suicides -- 10 in the last five months -- it is not clear that salaries were the main concern of the workers who took their own lives. Salaries made up about 3.5 percent of the company's overall costs, according to Arthur Hsieh, an analyst at UBS. "It's not a huge part of the company's overall costs, but margins in the sector are extremely thin and any increase in costs can have some effect. However, this is only going to take effect from October, so I don't think it'll have much impact on this year's earnings." Citi noted in a research report that if Hon Hai did not increase staff, did not raise salaries in 2011 and average salaries for all workers in China doubled, then 2011 EPS could fall 36 percent from the T$12 consensus figure as a result of the latest wage plan. In Hong Kong, Foxconn shares were suspended from trading, Hong Kong Exchanges and Clearing said in a statement, without giving a reason. They had opened down 5 percent. Other analysts noted however that the company might be able to offset some of the additional costs by charging Apple more. "Foxconn can pass the ball over to Apple and demand a increase in product prices when Apple is still maintaining a relatively high margin," said William Lo, an analyst at Ample Capital in Hong Kong. Apple, which recently became the world's largest technology company by market value on booming sales of its iPhone and iPad products, has voiced concern at the suicides at Foxconn and is investigating, but has said the plants are not "sweatshops." All the suicide victims were young migrant workers, among the millions of people who leave the poor hinterlands of China for the boom towns of the southern and eastern coastal areas. Another worker died late in May from what his family said was overwork, a claim the company denied. (Additional reporting by Donny Kwok in Hong Kong; Editing by Chris Lewis and Lincoln Feast ) |
Netflix to launch Apple iPhone app this summer. Netflix shares rose 2.5 pct before paring gains to trade at $110.14, up 0.33 percent, after announcing the application at an Apple conference where the technology company was widely expected to introduce its latest iPhone. "With the success of the iPhone, everyone wants to be a part of it. Netflix had to do it," said Edward Woo, analyst with Wedbush Morgan Securities, who attributed the stock's rally to the "hype" surrounding the announcement. Nevertheless, Woo believes the majority of Netflix subscribers will still prefer to watch movies and TV programs on computer screens or television sets. "The iPhone screens are too small. I don't think there will be a mass adoption," he said. Apple Chief Executive Steve Jobs is slated to take the stage later on Monday at Apple's annual developers' conference in San Francisco, where he is expected to offer the first glimpse of a fourth-generation handset. Few are expecting major technological advancements from the current model, known as the 3GS. The new iPhone is expected to be faster, sport a front-facing camera for videoconferencing, boast longer battery life and a better screen. The iPhone has been a huge success since it debuted in 2007, boosting Apple's margins, transforming the company into one of the world's leading mobile device makers and setting the competitive landscape in a smartphone battle that will play out for years. (Reporting by Sue Zeidler ; Editing by Richard Chang ) |
Exxon execs warn on curbing on deepwater drilling. Senior executives of oil major Exxon Mobil Corp also underscored the importance of production from deepwater drilling in meeting global energy demand. "We need to guard against premature reactive changes to legislation that may not in the longer term be helpful but detrimental to the industry," ExxonMobil senior vice president Andrew Swiger said. "It is too early to speculate on any changes to legislation until the investigation is complete," he told reporters at an industry conference in the Malaysian capital. The Obama administration recently put on hold new deepwater exploratory drilling in the U.S. for six months pending the findings and recommendations of a presidential commission investigating the causes of the explosion in April that sank Transocean's Deepwater Horizon rig leased by BP Plc. The review may lead to new laws on drilling. Mark Albers, ExxonMobil's senior vice president told Reuters the impact of the moratorium on deepwater drilling in the Gulf would be much longer than the six-month ban Washington slapped, as it takes time to understand the effect of possible new regulations and bring the rigs back to work. "It's important that in the next five years, deepwater will contribute 10 million barrels per day of oil (equivalent). That's equivalent to what Saudi Arabia is producing," Albers said in an interview in Beijing. "It's a very important element of meeting the world's energy demand." HIGHEST SAFETY STANDARDS CRUCIAL Following the order to idle 33 deepwater rigs, Royal Dutch Shell, ExxonMobil, Chevron, Marathon and other firms have begun curbing Gulf operations, which some argue exacerbates the harm to a Gulf Coast economy already losing fishing and tourism business to the spill. A lengthy deepwater drilling moratorium could also hit future U.S. oil and natural gas output. U.S. Gulf offshore oil operations produced 1.6 million barrels of oil per day in 2009, accounting for 8 percent of U.S. liquid fuel consumption, said the U.S. Energy Information Administration. The Interior Department has also outlined a series of potentially costly new safety rules and standards that oil companies will have to contend with. "There will be significant impact to the thousands and thousands of people who work not only in the industry but those who support the industry, from catering, to diving to inspections," Albers said. The Louisiana Mid-Continent Oil and Gas Association estimates the moratorium could sideline up to 7,000 highly paid rig workers and cost four to five times as many support jobs at catering, service boat and drilling supply firms. Swiger added that the U.S. oil giant has been providing assistance in response to the oil spill in the Gulf, which highlighted the importance of upholding the highest standards of safety. "We stand ready to support efforts to determine how such an incident can be prevented from happening again," he said. BP is facing another difficult week of tough questions from investors and U.S. lawmakers despite making progress in capturing an increasing amount of oil spewing from the ruptured well. The major said on Sunday its containment cap had captured 10,500 barrels of oil (439,950 gallons/1.67 million liters) in 24 hours and a second system should be in place soon, enabling it to siphon the vast majority of oil spewing from the leak about a mile below the water's surface. But the U.S. admiral leading the government relief effort said the coast will be under siege from the spill for many more months. (Writing by Ramthan Hussain; Editing by Ed Lane) |
Apple says over 35 million iPad apps downloaded. Chief Executive Steve Jobs said on Monday the iPad holds a 22 percent share of the burgeoning digital books market, with more than 5 million electronic books downloaded so far for the iPad. But Wall Street is focused on the possibility of a new iPhone, details of which are expected later on Monday. Apple is likely moments away from unveiling the newest version of its blockbuster device, hoping to stave off a growing cast of rivals like Google Inc in a red-hot smartphone market. Shares of Cupertino, California-based Apple held steady in afternoon trade. (Reporting by Gabriel Madway and Alexei Oreskovic ; Editing by Derek Caney ) |
Instant view: Apple takes wraps off sleek new iPhone. Apple's iPhone 4 lands as competition in the smartphone market is boiling over, with rivals like Motorola Inc and HTC designing high-powered handsets based on Google Inc's Android software. This fourth-generation iPhone is 24 percent slimmer, packed with more than 100 new features, has a new camera system and longer battery life. The phone will be available June 24, with a price starting at $199 in the United States. COMMENTARY: JOHN JACKSON, ANALYST, CCS INSIGHT "It's becoming unreasonable for the world to expect iPhone to continually outdo itself. There was nothing earth-shattering about what we saw or heard today. All of that said, you can't think it will be anything other than a phenomenal success." In particular, Jackson noted that new service pricing plans announced by AT&T last week will mean that the new iPhone is more affordable to more consumers. "Price for a super sexy device is going to trump everything. That (service price) adjustment will translate to a lot of volume." ASHOK KUMAR, ANALYST, RODMAN & RENSHAW "Most of the improvements were incremental. What it does is place Apple at hardware parity to rivals. It doesn't break new ground in terms of hardware capability. "Unlike past events, there were no surprises here," he said, noting that investors are likely waiting for Apple to expand its distribution to other carriers before getting excited. AT&T Inc is currently the exclusive provider but Verizon Wireless, a venture of Verizon Communications Inc and Vodafone Group Plc, has long been rumored as the next US iPhone operator. "The next big event is going to be Verizon. It's a guessing game whether it will be late 2010 or early 2011. "The bottleneck continues to be the carrier negotiations and not the hardware. AT&T is still holding out, offering last minute carrots to Apple," Kumar said, referring to AT&T's offer to current iPhone users for an early upgrade to the latest phone. TOAN TRAN, ANALYST, MORNINGSTAR "I think pricing was expected... They followed the same model as last year. It has been two years since the last big upgrade. They have added a lot of new features that kind of keep them ahead of the game as other smartphones catch up. I think Apple will sell a lot of these. "It's a very nice product, they have a lot of new innovative features. Apple did very well. "I think if you are an Apple investor, you have to be happy with the kind of product Apple resealed today. The new iPhone 4 gives Apple a little more separation again. "Everyone was expecting Apple to pack a lot of innovation into this iPhone and we weren't disappointed." CHARLES GOLVIN, ANALYST, FORRESTER "While the iPhone 4 isn't the leap forward that Apple paints it as, it is an exceptionally beautiful device and is a substantial upgrade that will succeed in maintaining Apple's mind and market share growth." PETER KENNY, MANAGING DIRECTOR, KNIGHT EQUITY MARKETS "Steve Jobs is the equivalent of Midas. He has the golden touch; his genius for marketing... is unrivaled. He anticipates the next need better than anyone... That's his success. "He looks a little thin, but he's been through an awful lot, and who am I to say anything... I wouldn't mind if he knocked down a few beers or something. "There are over 40 brokerage firms that have a rating on Apple. There is not one that has a sell." KENNETH DULANEY, ANALYST, GARTNER "The dimension they're probably best in is the screen. The storage is probably a bit light for all the apps they're showing." Dulaney had hoped for two times more storage than the 32 gigabytes Apple announced. He said that this could be particularity disappointing for consumers looking to use the new phone's high-definition video recorder, but noted that consumers would still be drawn to Apple's products because of its services. "But what you're buying from Apple is not just the hardware. It's the whole package, including the apps and the store. That is very impressive." DANIEL ERNST, ANALYST, HUDSON SQUARE RESEARCH "We had some sense of what was in the new phone already. It appears to have matched that expectation in our view and then some. This is more evolutionary than revolutionary -- it doesn't completely change the paradigm for the iPhone. "It looks great, I expect that we will see a line when the phone comes out. "Expectations get so high for these product launches and announcements that a lot of times by the time it comes out it's already in the stock. They always have to walk on water in order to impress the market." (Reporting by Edward Krudy , Caroline Valetkevitch , Jennifer Saba , Sinead Carew in New York; editing by Paul Thomasch ) |
OECD, Canada urge clear plans for cutting deficits. The warnings came after finance ministers and central bankers meeting in South Korea reached an uneasy compromise on Saturday on the speed at which budget cuts should be made to calm global financial markets rattled by the spreading debt crisis in Europe. "Make sure that you give signals to the markets about fiscal consolidation," Angel Gurria, head of the Organization for Economic Cooperation and Development (OECD), told a conference in Montreal on Monday. Gurria said it was imperative that countries announce their fiscal plans to avoid what happened with Greece's debt crisis, when uncertainty spurred investors to sell the country's bonds and drive its borrowing costs higher. "Do we have to start now? No. Do we have to announce now? Yes," said Gurria, secretary-general of the OECD, a group of 31 countries that promotes democratic government and market-based economies. Financial markets fear that other countries could suffer the same fate as Greece, which has already taken drastic measures to bring its fiscal house in order. Greece has pledged to cut its public deficit by almost a third to 8.7 percent of gross domestic product this year. Germany has also announced plans to pursue savings in an effort to shore up confidence in the finances of the 16 nations that use the euro. Policymakers from Canada, whose banks weathered the 2008 financial crisis without any government support, expressed concern about the continuing economic uncertainty in Europe. "We've pushed hard for those countries that need to fiscally consolidate in Europe to get on with it and to demonstrate their resolve," Canadian Finance Minister Jim Flaherty told reporters in Toronto. "This is important because there is a risk to economic growth generally if the fiscal consolidation issue is not dealt with expeditiously and effectively," Flaherty said. ECB'S NOYER SAYS RECOVERY FRAGILE Hungary rattled investors last week with comments suggesting the country was close to a Greek-style economic meltdown. It tried to back off those comments over the weekend. European Central Bank board member Christian Noyer said that the recent developments in Greece show the recovery is fragile even though the short-term economic outlook for the European Union is favorable. The Greek debt crisis illustrates the risks of postponing deficit control measures, Noyer told the Montreal conference. Euro zone finance ministers are trying to set up a vehicle for emergency borrowing that would act as a safety net for countries that are not able to obtain financing from markets. Although economic recovery has been fragile in Europe, structural reforms could allow it to "leave behind the crisis once and for all," said Noyer, who is also governor of the Bank of France. At the conference in Montreal, Bank of Canada Governor Mark Carney said he has confidence in the ECB's actions to contain the European crisis. Carney said "regulatory certainty" is needed to get the global financial sector back on track. The United States and the European Union are trying to overhaul their financial regulation systems to safeguard against future financial crises. The United States and other countries had proposed imposing a tax on financial services firms in an effort to make the firms pay for their own bailouts. But finance ministers from the world's top economies on the weekend scrapped plans for such a tax. Noyer said that it was more important for banks to have sufficient capital than to impose a tax on financial institutions. The danger would be to weaken the strength of banks' balance sheets, Noyer said. Noyer noted that his comments on Monday should not be taken as indication of policy decisions that will be taken at the European Central Bank governors' meeting later this month. (Additional reporting by Jen Kwan: Editing by Jeffrey Hodgson and Peter Galloway) |
Global air industry sees profit, warns on Europe. The fragility of the recovery was underscored by a broad fall in global markets and a slide in the euro to multi-year lows on Monday on a renewed crisis of confidence in government debt and the health of the U.S. economy. The International Air Transport Association said it now expects global airlines to report a $2.5 billion profit this year, an improvement of more than $5 billion from its forecast of a loss just three months ago. IATA Chief Executive Giovanni Bisignani said the global economy was improving more quickly than anyone expected, boosting traffic and yields sharply -- something unthinkable even two months ago during Europe's volcanic ash crisis. But Europe, mired in debt and bad feelings over flight cancellations during the ash crisis, is expected to lag -- particularly if a summer of strikes paralyses air travel. "We have a currency problem, we have the volcano that struck in April ... and we have some tension with labor unions, so those three aspects are making the difference," Bisignani told Reuters Insider TV on the sidelines of the AGM. IATA said European airlines are still expected to lose $2.8 billion this year, almost 30 percent more than its forecast in March. The overall outlook became the highlight of the opening of IATA's meeting, supported by comments from the industry. "We are seeing a recovery around the world. I would like to call it a fragile recovery. There is still a lot to be worried about. But companies are sending their people back on the road," American Airlines AMR.N CEO Gerard Arpey told reporters. German flagship carrier Lufthansa ( LHAG.DE ) said passenger numbers were improving, but yields were still below the year-earlier level. LAN LAN.SN CEO Enrique Cueto told Reuters his airline was optimistic, based on June traffic so far. Scandinavian airline SAS ( SAS.ST ) also reported an increase in traffic, particularly in some global routes. Nothing could beat the buzz around Asia-Pacific, though, which was celebrated as the industry's growth market. "In Asia-Pacific, life's a lot easier. It's still a growing market. My counterparts have to deal with very mature markets. In Asia-Pacific, growth figures are much more robust," Cathay Pacific ( 0293.HK ) CEO Tony Tyler said at a press conference. PLANES FLY OFF SHELVES The general note of optimism could spread to planemakers represented at the Berlin Air Show. A regional event usually dwarfed by others, the June 8-13 show could come into its own. John Leahy, sales chief at Airbus, a unit of the aerospace and defense group EADS EADS.PA, told Reuters late on Sunday he would be unveiling deals at the show. There has been speculation that industry heavyweight Emirates EMIRA.UL, the top Airbus customer, could be bulking up its fleet soon. Meanwhile, the chief executive of Boeing Commercial Airplanes ( BA.N ) said the planemaker was working on a number of deals to sell 777 and 787 long-haul aircraft. Labor UNREST But, as is so often the case with the airline industry, the good news is tempered with more bad news. British Airways BAY.L is in the midst of a series of cabin crew walkouts, and labor unrest looms at Lufthansa. BA Chief Executive Willie Walsh, in Berlin despite being taunted by union leaders for not staying to negotiate an end to the bitter dispute over conditions, roundly criticized the Unite union that represents the cabin staff. "They have failed in their efforts and they will continue to fail" to shut down the airline, Walsh told Reuters on the sidelines of a Oneworld airline alliance presentation. Walsh also said there was no trade-off point for the airline between the cost savings it has made from cuts and the ongoing costs of the strike itself. (Additional reporting by Ben Berkowitz , Angelika Gruber and Tim Hepher ; Editing by David Cowell and Erica Billingham) |
Stocks, euro drop as global recovery uncertain. The euro slid to a new four year low below $1.19, while safe-haven investments such as U.S. Treasuries gained, and gold prices rose to just $10 below their all-time high as on concern that the U.S. economic recovery may be slowing, Europe's economies are being hit by fiscal austerity measures and even China's boom may be topping out. Data Friday showed the U.S. economy generated fewer jobs than expected in May and comments from Hungarian officials suggested the country could face a Greek-style debt crisis. The Hungarian government on Monday though stressed that the country was not in the same situation as Greece and would meet budget deficit targets set in an aid deal with the International Monetary Fund and European Union. Germany Monday reported industrial orders jumped far more than expected in April, adding to signs that Europe's largest economy was on the path to durable growth, but the data did little to raise hopes of a healthy recovery in Europe as a whole. "There is a lot of nervousness in the market. On the one hand we have the positive (German manufacturing) data, but there is also anxiety about Hungary keeping pressure on the market," said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank. U.S. stocks dropped on low volume, led by industrial and technology shares, as investors stayed on the sidelines after last week's jobs data discouraged buyers. The Dow Jones industrial average .DJI ended down 115.48 points, or 1.16 percent, at 9,816.49. The Standard & Poor's 500 Index .SPX fell 14.41 points, or 1.35 percent, at 1,050.47. The Nasdaq Composite Index .IXIC dropped 45.27 points, or 2.04 percent, at 2,173.90. MSCI's all-country world stock index fell almost 2.0 percent, and its emerging market index dropped 2.7 percent. In the currency markets, European corporate demand helped lift the euro after it fell to $1.1876, its weakest level since March 2006. But the euro remained below $1.20, a level broken on Friday after Hungary's warning about its deficit reminded investors of the severe debt problems plaguing some European countries. The euro last traded down 0.48 percent at $1.1916 from a previous session close of $1.1973. Against the Japanese yen, the U.S. dollar was down 0.46 percent at 91.49 from a previous session close of 91.910. "After Hungary's warning and weaker-than-expected U.S. jobs data Friday, selling got a bit overdone," said Amelia Bourdeau, senior strategist at UBS in Stamford, Connecticut. Hungary -- a member of the European Union but not the euro zone -- is of minimal importance on the global level, but there are concerns about exposure among leading banks if Hungary defaults or if the fall in the forint currency fuels a rise in loan delinquency among Hungarians who have borrowed heavily in euros and Swiss francs. It also comes hard on the heels of worries about defaults in Greece and other southern euro zone members. "Greece can't devalue or easily default on its debt, but presumably Hungary can, so it's a double-edged blade," said Michael Woolfolk, senior strategist at BNY Mellon in New York. Euro zone governments will issue about 27.5 billion euros worth of new bonds this week, with Spain, Portugal and Italy all due to hold auctions. The pan-European FTSEurofirst 300 stock index closed 1.0 percent lower, pressured by a fall in BP's stock ( BP.L ). The U.S. Coast Guard said the United States will be dealing with the oil spill from the April 20 rig explosion for another four to six weeks. BP plans to double the amount of oil it is capturing from its ruptured Gulf of Mexico well to 20,000 barrels per day. Adding to the pressure, Goldman Sachs downgraded the oil major to "neutral" from "buy." U.S. Treasuries climbed as increasingly risk-averse investors continued to look for safe-haven government bonds and ahead of this week's $70 billion supply. The benchmark 10-year U.S. Treasury note was up 1/32, with the yield at 3.2022 percent. The 2-year U.S. Treasury note was down 1/32, with the yield at 0.746 percent. The 30-year U.S. Treasury bond was down 2/32, with the yield at 4.1361 percent. Spot gold prices rallied $21.40, or 1.76 percent, to $1240.40 an ounce just $10 below its all-time high as investors took advantage of the dip in prices to buy the metal as a haven from risk in other markets. "We are seeing gold as the ultimate currency because of all of these growing uncertainties surrounding sovereign debt in the euro zone, and the fact that there are very few attractive currencies out there, said Bill O'Neill, partner at New Jersey-based commodity firm LOGIC Advisors. "It's a perfect storm for gold." (Additional reporting by Frank Tang , Steven C. Johnson in New York, Harpreet Bhal in London; ) |
Prudential defends Asia bid amid shareholder anger. But Prudential defended having made the $35.5 billion agreed offer for American International Assurance (AIA), which would have made it Asia's top-ranked foreign insurer, and swept aside calls for directors to resign over what one shareholder said was a "strategic foul-up of momentous proportions." "We remain convinced we were right to pursue this business opportunity. We feel it was a risk in proportion to the advantage we would have gained," Chairman Harvey McGrath told several hundred shareholders at the annual general meeting in London. Prudential, Britain's largest insurer, was facing many of its investors for the first time since the Asian takeover bid was pulled last week after a tortuous process that cost it around 450 million pounds ($650 million). "Please believe ... how sorry we are that we incurred costs, only to see the deal fall at the final hurdle," McGrath said, though he dismissed calls for a change of top management. "We do not believe that the failure to consummate the AIA deal should lead to a shake-up of strategy or leadership." Chief Executive Tidjane Thiam, a high flyer whose reputation has been dealt a body blow by investor negotiations around the Asian bid, vowed during almost three hours of vocal questioning from shareholders to restore "strained" ties. "I know that some of our, my, actions put a considerable strain on relations with shareholders. I very much regret that," he said. "I have two tasks now -- to take advantage of the opportunities ahead of us and (to) start the process of restoring your confidence. I will to do this as long as you wish for me to be your chief executive." Prudential's share price was down 1.9 percent at 545.50 pence by 1330 GMT, when the STOXX 600 European insurance sector index was down 0.12 percent. REBUILDING BRIDGES At Monday's rescheduled annual meeting -- originally intended as the meeting for shareholders to approve the Asian takeover -- many expressed their discontent to loud applause. "I don't think the seriousness of what you've done wrong is sinking in. You've got things so fundamentally wrong, you need a radical shake-up here," investor John Farmaton told the board. Investor Colin Sains said: "It's absolutely appalling -- giving away half a million pounds doesn't seem to me like good business sense. I can't see how their jobs are tenable." But both small and large investors were divided on whether Thiam, who has been in the top job less than a year, should step down over the failed deal. Thiam has faced demands for his head from top shareholders including British asset manager Schroders. But he found support for the Asian move among some small investors on Monday and Euan Stirling, investment director at Standard Life Investments, the 17th largest shareholder in Prudential, told BBC radio Thiam should stay. "We look to the future and would it serve our interest best if there were removals of senior executives from the top of the company? I don't think that is the case." SALES UP Earlier, the insurer published a 28 percent jump in sales during April and May, ahead of 26 percent growth reported in the first quarter -- numbers it said demonstrated the business remained on track despite the Asian distraction. The insurer said its strategy of pursuing capital-efficient growth with a focus on Asia was intact despite the failed bid. A takeover of AIA would have given Britain's largest insurer a commanding position in one of the world's fastest growing financial services markets but it was forced to ditch the bid last week after shareholders complained about the price. At the weekend the company denied a press report that it planned to resurrect the deal before the end of the year. McGrath told shareholders there was no decision yet on whether Pru could take a smaller stake in AIA in the event of AIG resurrecting a previous plan to sell it via an IPO. ($1 = 0.6831 pounds) (Additional reporting by Raji Menon ; Writing by Clara Ferreira-Marques and Myles Neligan; Editing by Andrew Callus , Greg Mahlich) |
Analysis view: Hungary pledges to meet budget deficit target. ZSOLT KONDRAT, MKB BANK "Keeping to the budget deficit path is very positive news, in itself this can support the exchange rate, if markets believe this. However, actual market moves are also influenced by international developments which can in the short term offset the impact of Hungarian news. "For the markets' confidence to return in earnest we need to see the deficit cutting measures as well, and we need to know whether there will be tax cuts and if yes, how will those be offset (in the budget). It would (also) be important for the IMF and EU to approve the plans. "The news of a potential nationalization of private pension funds can upset markets so there should be a clear situation on this as soon as possible." UBS LONDON "While the retraction of last week's comments may alleviate concerns of default, investors are likely to scrutinize the new government's plans for their efficiency (mixture of tax and spending measures) and plausibility. In addition, we expect investors to remain highly sensitive to any kind of additional communication errors, something that we cannot exclude in the near future as the government is taking its first steps in formulating its strategy. "Hungary has a much lower public debt stock than Greece and has been consolidating its fiscal position under an IMF program for over a year already. Nevertheless, Hungary's medium term debt dynamics don't look all that healthy. Hungary's growth potential has likely fallen. In the near-term the country's main growth engine is net exports, hence any slowdown in the global economy could compromise its ability to reduce the government debt." "We don't see value in being short HUF here but think CDS can stay wide: After the rise in EURHUF and, even more so, in CHFHUF we think the risk reward putting on shorts in the forint is not great given that NBH could intervene before long." LARS CHRISTENSEN, DANSKE BANK "One can not helped being puzzled when Hungarian officials talk about a much larger than planned budget deficit and at the same time rules out austerity measures and instead promises tax cuts. Tax cuts surely could be positive structurally, but it will hardly calm down markets that have just been told that Hungary looks like Greece....They need to get the budget numbers correct. "If the budget deficit is larger than agreed with the IMF/EU then they need to implement measures to get the deficit down - that is austerity measures. Tax cuts should be fully funded. Furthermore, they need to restabilize credibility by having somebody with an understanding of financial markets to communicate. No more talk of defaults and Greece." MORGAN STANLEY "Overall, the IMF program has been a success and Hungary's compliance has been widely praised. The risks around the budget exist, but we think that the likelihood of a suspension is very low. Any indication that the Fund is thinking of suspending or withdrawing assistance would trigger speculation that weaker programs (Romania) may suffer the same fate. Therefore, there is a limit to how tough the IMF can be on Hungary." "Unless borrowing needs increase sharply, Hungary should be funded for the year on the external front. In terms of local debt, the (debt agency) AKK has so far issued HUF 570 billion of bonds compared to a full-year plan of HUF 1,356 billion, leaving HUF 786 billion of issuance over the remaining seven months, or HUF 112 billion per month. So far, this is broadly in line with what it has issued so seems doable to us. (Reporting by Marton Dunai and Krisztina Than; editing by Patrick Graham ) |
Coke to pay Dr Pepper $715 million to sell drinks. As part of the eagerly awaited deal, announced on Monday, Coke will also include Dr Pepper and Diet Dr Pepper in local fountain accounts currently served by the bottler, Coca-Cola Enterprises Inc ( CCE.N ), and in its new Freestyle soda fountains, which let consumers choose drinks from more than 100 flavor combinations. After completing the buyout of the U.S. operations of Coca-Cola Enterprises, Coke will take over CCE's distribution of Dr Pepper in the United States and Canada Dry in the Northeastern part of the country. Coke will also distribute Canada Dry, C'Plus and Schweppes in Canada. In some areas where Dr Pepper has manufacturing and distribution capabilities, it will take back from Coca-Cola Enterprises responsibility for Squirt, Canada Dry, Schweppes and Cactus Cooler. Dr Pepper expects that to contribute $15 million a year to its annual segment operating profit, a spokesman said. In addition to the $715 million payment, Dr Pepper beverages will be included in Coke's new Freestyle touch-screen drink machines -- an arrangement Dr Pepper values at $115 million to $135 million. The agreement follows a similar deal between Dr Pepper and PepsiCo Inc ( PEP.N ). Pepsi's deal to buy its own top North American bottlers led it to pay Dr Pepper Snapple $900 million to continue selling Dr Pepper, Crush and Schweppes. Coke said its bottler acquisition remains on track to close in the fourth quarter. Pepsi closed its purchase of Pepsi Bottling Group and PepsiAmericas in February. Shares of Dr Pepper were down 1.5 percent in afternoon trading at $35.95 as some investors were disappointed with the payout, while Coca-Cola shares were off 0.3 percent at $51.14. "We believe some investors expected a higher payment to come from Coke," said Credit Suisse analyst Carlos Laboy in a research note. "We have heard from investors who were expecting the number to be north of what PepsiCo paid." GOOD AND FAIR DEAL Coke Chief Financial Officer Gary Fayard told reporters that the deal was fair to both companies, and that the Pepsi and Coke deals differed in some important respects, such as Dr Pepper's gamble on Coke's new fountain machines. "We got a good deal and a fair deal," Fayard said. "I'm most excited ... that (Dr Pepper Snapple) would view our new Freestyle technology as disruptive enough to the industry that they were willing to put $125 million against it just to have access to it." Coke has 69 of the machines in fast-food chains and restaurants in test markets. By the end of the summer, it expects to have 500 machines, with choices ranging from caffeine-free Diet Coke with Orange to Powerade Zero Raspberry. The company expects to ramp them up significantly across the country early next year, Fayard said. Deutsche Bank analyst Marc Greenberg said he had expected Coke's payment to range from $900 million to $1 billion, but that the deal reached offered Dr Pepper more long term growth. "DPS has traded some cash up front for long-term opportunity to expand its flagship brand nationally," Greenberg said in a client note. Yet he said it was hard to put a dollar estimate on the ultimate profit opportunity. Meanwhile, Morningstar analyst Philip Gorham said he thinks Pepsi is getting a better deal than Coke, even though Coke is paying less than Pepsi. "CCE does not distribute Dr Pepper products in Mexico, as Pepsi Bottling Group did, and we expect volume to continue to increase in the medium term in this important growth market, giving Pepsi's deal the edge, in our opinion," Gorham said. Long-standing archrivals Coke and Pepsi are consolidating their North American bottling systems to cut costs and have more control of distribution. Coke CEO Muhtar Kent has not ruled out selling or spinning off the bottling business again sometime in the future. With the initial terms of the Dr Pepper licensing deal set at 20 years, with 20-year renewal periods based on Coke meeting performance targets, there is a possibility that ownership of the bottler could change before the deal expires. "We were all very aware of what the potential U.S. bottling system could evolve into," Fayard said. "We anticipated all of that as we negotiated the transaction." (Editing by Gerald E. McCormick and Matthew Lewis ) |
Providence to acquire MMC's Kroll in $1.13 billion deal. MMC said on Monday it plans to sell Kroll -- a corporate sleuth and intelligence expert that has expanded into risk management and other areas -- to Altegrity, a Virginia-based security solutions firm backed by private equity firm Providence Equity Partners, in an all-cash deal. The Kroll acquisition is expected to close by late September. Private equity firms are eager to do new deals after spending 18 months fixing companies and are encouraged by improving economic conditions and better availability of debt. The deal value is made up of $760 million debt, a source close to the deal said, with the remainder equity. Cherkasky, chief executive of Altegrity, will be reunited with Kroll, which he led from 2001 to 2004. Cherkasky was ousted as MMC CEO in late 2007 after producing disappointing results. Cherkasky told Reuters he had been trying to pair Kroll with Altegrity or its predecessor firms for years. "It is really the fruition of something I thought made a lot of sense," Cherkasky said. MMC shares closed down 2 percent at $20.57 on Monday on the New York Stock Exchange. Cherkasky took over MMC in 2004 in the middle of a bid-rigging scandal in which the company faced charges from then-New York Attorney General Eliot Spitzer. Cherkasky, a friend of Spitzer, worked with him in the Manhattan district attorney's office. Cherkasky joined Altegrity in 2008. In 2009 he hired former Los Angeles Police Chief William Bratton to lead Altegrity's security consulting unit. A DIFFERENT BUSINESS After Altegrity acquires Kroll, the companies will have a combined 11,000 employees. MMC bought Kroll in 2004 for $1.9 billion, but agreed six years later to sell it for nearly $800 million less after the investigations unit sold off some of its units. "The components of the company at the time Marsh bought it was quite a bit different," Kroll CEO Ben Allen said. Since MMC bought Kroll, the company has sold off several businesses including its drug-screening division, restructuring business and government services unit. MMC has also written off about $855 million of goodwill, according to a research note from Citi, which estimates MMC is carrying Kroll at $1.05 billion. That means it will record a small gain, the note said. The Financial Times had reported in March that MMC was seeking $1.3 billion for Kroll. Kroll attracted interest from several private equity firms such as Carlyle CYL.UL, BC Partners Ltd BCPRT.UL and Apax Partners APAX.UL, sources previously told Reuters. MMC said Goldman Sachs Group Inc ( GS.N ) and Apollo Investment Corp ( AINV.O ) are providing debt financing for the transaction. Jules Kroll, who founded the firm in 1972, is in the process of starting a credit rating agency aimed at competing with Moody's Corp ( MCO.N ) and McGraw-Hill Cos Inc's MHP.N Standard & Poor's. (Reporting by Steve Eder, additional reporting by Megan Davies; Editing by Dave Zimmerman, John Wallace, Leslie Gevirtz and Phil Berlowitz) |
Hungary keeps investors on edge, stocks fall. Hungarian bond yields were mixed with the yield on the three-year bond at a five-month high and long-end yields just off nine-month peaks. The forint edged up 0.3 percent from Friday's local close to 287.01 per euro. "The scare has dissipated, the panic is over. If the forint pares its losses some more and CDS prices normalize, investors will reconsider around the world how little basis this scare really had, the market will return to normalcy once again," one fixed income trader said. "(But) it will take much longer than the weakening took." Stocks .BUX were down 2.5 percent by 0937 GMT, paring earlier 5 percent losses but near a four-month low. The bourse suspended trade in shares of OTP Bank OTPB.BU for a second session in a row after its shares dropped more than 10 percent. Hungary's new, center-right Fidesz government rattled investors last week with comments suggesting the country was close to a Greek-style economic meltdown before trying to back off those comments over the weekend. Most economists believe Hungary is far from becoming another Greece, noting its debt ratios are much lower. Moody's, however, said on Monday that comments by Hungarian officials last week were negative for Hungarian credit as they brought renewed attention to the country's high debt. [ID:nLDE6560S6]. And Analysts said a fast market recovery was unlikely. Economy Minister Gyorgy Matolcsy said on Monday that 1.0-1.5 percent of GDP in spending cuts were still needed but reiterated a government plan to cut taxes. Hungary's government said on Saturday it aimed to meet a deficit target of 3.8 percent of GDP agreed with international lenders, including the International Monetary Fund and EU. State secretary Mihaly Varga said Hungary's previous socialist governments had hidden the true fiscal shortfall and additional measures would be needed to reach the goal. "The damage has already been done, but in case Fidesz sticks to the 3.8 percent figure and comes up with a sensible fiscal correction plan it will be able to ease some of the pressure on markets," 4Cast analyst Gabor Ambrus said in a note. WATCHING THE BANKS Online news portal Index reported that one fundraising option being considered is the introduction of a special tax on banks, hitting Budapest shares. Other shares in the region followed suit with Erste Group Bank ( ERST.VI ), one of the largest lenders in central Europe, dropping 1.5 percent. Prague stocks .PX lost 1.7 percent and Bucharest .BETI was down 2.3 percent. Concerns about Hungary's fiscal situation kept up pressure on central Europe's reference currency the euro which hit its lowest level in more than four years. The Polish zloty, however, edged up 0.4 percent and the Romanian leu was flat while the Czech crown added 0.5 percent after Fitch raised its outlook on its Czech rating on Friday. Analysts were split on whether the forint could bounce back any time soon. Hungary was forced to seek a $25 billion international aid package at the start of the financial crisis in October 2008. Commerzbank said it would be difficult to get financing without this aid after CDS prices jumped to above 400 bps. "The risk of a renewed debt crisis has risen and as a result a recovery of the forint is unlikely," its analysts said. (Reporting by Reuters bureaus, writing by Jason Hovet; Editing by Toby Chopra) |
BP shares jump on first major oil spill progress. BP said on Sunday its lower marine riser package (LMRP) containment cap had captured 10,500 barrels on June 5 -- compared with an estimated daily flow of 12,000 to 19,000 barrels. BP shares opened up 3 percent before falling back to trade up 2.24 percent at 1029 GMT against a 0.06 percent drop in the STOXX Europe 600 Oil and Gas index. "At last we have seen some positive news from BP," Peter Hitchens, oil analyst at Panmure Gordon said. An additional system to capture more of the leaking oil via equipment previously developed for the failed "top kill" attempt to shut the well, could allow BP to siphon the vast majority of the leaking oil, BP said. A spokeswoman for the London-based company said on Monday that BP expected the system to be operating in mid-June. "With the right LMRP efficiency and surface skimming response, we may have turned the corner on shoreline oil spill volumes," analysts at Credit Suisse say in a research note. Another analyst, who asked not to be named, said capturing most of the oil in the coming month and a half would make it easier for BP avoid cutting its first quarter dividend -- something some politicians in the U.S. have called for. BP, Europe's second-largest oil company by market capitalization, added it had so far spent around $1.25 billion on the response effort, excluding $360 million committed for construction of the Louisiana barrier islands project. (Reporting by Tom Bergin; Editing by David Holmes and Sharon Lindores) |
Comments from euro zone finance ministers. EUROGROUP CHAIRMAN JEAN-CLAUDE JUNCKER On Spanish and Portuguese fiscal consolidation measures: "The measures announced are significant and courageous." On euro zone fiscal consolidation: "We will pursue fiscal consolidation beyond 2011." On special-purpose vehicle for financial stability: "The facility has just been set up today in the form of a limited-liability company under Luxembourg law." On talks with IMF Managing Director Dominique Strauss-Kahn: "We are sharing a common analysis of the importance of front-loading consolidation efforts." IMF MANAGING DIRECTOR DOMINIQUE STRAUSS-KAHN On Hungary: "I see no reason to be concerned. They will do what they have to do. I have no special concern." On a possible earlier meeting with Hungary: "On our side, we are ready. It depends on the Hungarian government. I see no reason why it could not happen. On the possible spread of Greek problems to other countries: "Today, the Europeans are going to complete the EFSF (European Financial Stability Facility) and that's a good step forward. But of course it takes time...Markets have to understand this, that the commitment of the euro zone countries with the help of the IMF is a strong one. "The mechanism that will be established by the members of the euro group is an important element of the stabilization of the system...So I think after some time things will come back to normal. "Fiscal sustainability is certainly an important thing for all countries, including in Europe ... But you have to differentiate your policies depending on the fiscal room that different countries may have, taking into account the balance between the face that you have to go back to the sustainable track on the fiscal side and the fact that you need to maintain the highest possible level of growth... So it leads to different actions in different countries." Asked if the IMF was ready to contribute 250 billion euros to the EU assistance fund: "The IMF has said it is ready to contribute to all the programs which the Europeans announced ... in proportion to their contributions (to the IMF)." GERMAN FINANCE MINISTER WOLFGANG SCHAEUBLE "We have a shared responsibility, we have a shared currency. The necessary steps must be taken. We need more efficient tools. We must decide what we change quickly within the framework of existing treaties. He said they needed action on more efficient supervision, steps to take early action on cases where stability and growth pact rules may be broken. "It shows the development (in the euro currency) that we have to push ahead with what we have started. It is important that we get the special purpose vehicle underway." BELGIAN FINANCE MINISTER DIDIER REYNDERS "A euro which allows one to be more competitive and helps to prepare exports better in the European Union is not a euro which poses problems. "What we must avoid is rapid and frequent fluctuations (ie in the euro's exchange rate)." FINNISH FINANCE MINISTER JYRKI KATAINEN On G20 and bank levy: "It would have been very good if they had agreed on this issue. It is a little bit sad that they did not agree on that." On euro zone enlargement: "We have to treat everybody similarly. If there is a country that fulfils all the criteria it should have the same right as we all have had." CYPRIOT FINANCE MINISTER CHARILAOS STAVRAKIS "Certainly we are facing huge imbalances. The challenge is for the deficits to be reduced without leading to a recession, which would turn into a vicious circle in the sense that a further slow down reduces tax receipts and increases government spending." JEAN-CLAUDE JUNCKER, CHAIRMAN OF THE EUROGROUP "I do not see any problem at all with Hungary. I only see the problem that politicians from Hungary talk too much." "I am not concerned about the existing level of the euro. I am concerned about the abruptness of the change." AUSTRIAN FINANCE MINISTER JOSEF PROELL "Today we will consult intensely on how we will further develop the special purpose vehicle into a safety mechanism to back up the euro. Asked if Hungary's debt situation posed a risk for the euro zone, he said: "I do not think that Hungary can present a danger." DUTCH FINANCE MINISTER JAN KEES DE JAGER "What we do see is that the present exchange rate of the euro is at about its historic average. Other economies in the world have a higher debt and a higher deficit than the average of the euro zone. "We should look also at markets such as the United Kingdom, the United States and Japan which have both higher debts and higher deficit levels. "Of course Europe has to do its part. We need to consolidate and we need to frontload. But do I have big concerns about the sustainability of the euro zone? No, I don't." OLLI REHN, EUROPEAN COMMISSIONER FOR ECONOMIC AND MONETARY AFFAIRS "I am confident we will have an agreement today on the SPV (special purpose vehicle). "We will have substantial discussion on the fiscal exit strategy because it is evident that many countries need to accelerate fiscal consolidation. Some are in the process of doing so, such as Spain and Portugal. "I concur with Jean-Claude Juncker that it is the pace of evolution (of the euro exchange rate) and not the level that is of concern. Asked if Hungary is becoming a new Greece, he answered: "No." "The main challenge is to boost confidence." |
Apple unveils iPhone 4 to fend off Google. Chief Executive Steve Jobs wowed a packed room on Monday with the new $199 "iPhone 4," which is a quarter slimmer than the current handset, with about double the picture quality; sports the in-house A4 processor or computing brain; and allows video chat. A slim but energetic Jobs told an investor and industry audience at Apple's annual developers' conference in San Francisco that the latest phone goes on sale June 24 in five countries, expanding to 18 by July and 88 by September in the fastest-ever international roll-out for an iPhone. But many of the technological improvements had been expected, and analysts say it will take a lot to stand out from the crowd. Google's Android operating system -- used by many brands from Motorola Inc and HTC Corp to Samsung Electronics Co Ltd and Dell Inc -- poses the biggest threat, analysts say. "This is more evolutionary than revolutionary -- it doesn't completely change the paradigm for the iPhone," said Hudson Square Research analyst Daniel Ernst. "Expectations get so high for these product launches and announcements that a lot of times, by the time it comes out it's already in the stock. They always have to walk on water in order to impress the market." The stock has gained more than 20 percent this year, and the company overtook Microsoft Corp to become the world's most valuable technology company. Apple's shares were down 1.9 percent to $251.11 in busy late afternoon Nasdaq trading in a weakening market. Google shares were off 2.9 percent, while Research in Motion Ltd was down 6.0 percent. Still, the phone garnered mostly positive initial reviews. "But what you're buying from Apple is not just the hardware. It's the whole package, including the apps and the store. That is very impressive," said Gartner analyst Kenneth Dulaney. GOLD STANDARD The iPhone -- introduced in 2007 and creating the touchscreen, on-demand application template now adopted by its rivals -- remains the gold standard in the smartphone market. The smartphone market is exploding. According to research group Gartner, global sales rose nearly 50 percent in the first quarter. The iPhone has boosted Apple's margins, transforming the company into one of the world's leading mobile device makers and setting the competitive landscape in a smartphone battle that will play out for years. Apple sold a record 8.75 million iPhones in its latest quarter. accounting for 40 percent of its revenue. With margins estimated at 60 percent, it is Apple's prime growth driver, helping margins climb to a record 41.7 percent in the most recent quarter from 34 percent in fiscal 2007. On Monday, Jobs strutted about the stage and whipped up the crowd into a near-frenzy -- stopping short only when his demo choked up in mid-stride and he demanded that the audience power down laptops to free up wireless-network bandwidth. But the competition is wising up. Only last year, Research in Motion Ltd was seen as Apple's top rival. While the company's BlackBerry remains the smartphone of choice for many corporations that need fast email, Apple has made strides in that market as security concerns addressed by the BlackBerry have eased. Now, new competitors are designing high-powered handsets based on Google's Android software, offering fast, web-surfing and video-enabled phones with access to thousands of apps. The iPhone's global share surged to more than 15 percent in the first quarter, making it No. 3 in cellphones. Phones based on Android ranked No. 4 with close to 10 percent of the market, a huge increase from the previous year and gaining, Gartner data show. Gartner said Android beat Apple in the North American market in the first quarter and would catch the iPhone maker globally soon. Many analysts believe Apple may have also struck gold with its newest gadget, the iPad, which could provide another growth engine to complement the iPhone. The iPad launched in April and has already sold more than 2 million units. The iPhone and iPad are linked by a common operating system. The latest version of that software -- complete with the long-awaited multi-tasking function and Apple's iAd ad network -- will ship on the newest iPhone model. In the United States, Wall Street and consumers alike are also anticipating an iPhone on the network of Verizon Wireless, the No. 1 phone company and a venture of Verizon Communications Inc and Vodafone Group Plc. Most analysts expect a Verizon iPhone some time next year, or perhaps as early as this fall. (Editing by Edwin Chan and Gerald E. McCormick) |
Euro ministers add final stitch to debt safety net. Germany's coalition government agreed in parallel to budget cuts and taxes worth 11.2 billion euros next year -- and more than 80 billion euros by the end of 2014 -- in the latest of a series of austerity plans being hatched across the euro zone. Ministers from the 16 countries that use the euro finalized arrangements for a Special Purpose Vehicle (SPV) to raise up to 440 billion euros ($525.4 billion) to lend to euro zone countries that run into Greek-style payments problems. "There is no uncertainty left about the euro zone's capacity to provide conditional aid to countries in fiscal trouble," European Economic and Monetary Affairs Commissioner Olli Rehn told a news conference after talks in Luxembourg. Jean-Claude Juncker, who chaired the meeting, said the SPV would be operational this month. A statement issued by the ministers said governments would make bigger commitments than first planned to ensure smooth operation and to justify a top credit rating. The SPV is essentially a company that will be able to raise money on markets by issuing bonds thanks to loan guarantees provided by governments of the euro zone. Member states hope it will never be mobilized but that its existence will convince markets that default fears are unfounded. Juncker and Rehn also welcomed additional austerity measures announced in mid-May by Spain and Portugal, which markets see as potential trouble spots after Greece, the first country in the euro zone's 11-year history to require a financial rescue. International Monetary Fund chief Dominique Strauss-Kahn, who joined the ministers, said the anti-contagion plan -- a safety net worth up to 750 billion euros once an IMF commitment of 250 billion euros is included -- was a "good step forward." WARNING BY BRITISH PM British Prime Minister David Cameron said the scale of his country's budget problems was worse than he had anticipated and cited Greece as an example of what happens when countries lose credibility or pretend difficult decisions can be avoided. Hungary's new center-right rulers, who alarmed markets last week by suggesting the country could face a Greek-style crisis, tried to reassure investors on Monday by pledging to stick to deficit-cutting targets their predecessors agreed with the IMF. Britain and Hungary are not in the euro zone, but the risk of financial turmoil in wider EU countries is a factor weighing on confidence in the euro and in euro zone banks which have substantial exposure to central and eastern Europe. Juncker said he saw "no problem at all" with Hungary, adding: "I only see the problem that politicians from Hungary talk too much." The finance ministers also discussed ways of tightening surveillance of national budgets and applying earlier and tougher sanctions against countries that breach EU deficit limits or misrepresent their statistics, as Greece did. EU President Herman Van Rompuy said they agreed in principle on the need to subject national budget strategy to greater peer scrutiny and to find more effective penalties for countries with wayward or potentially wayward public finances. EURO DOWN Investors fled peripheral euro zone government stocks and bonds last week because of doubts about how the euro rescue mechanism would work and worries about the solvency of European banks exposed to the sovereign debt crisis. World share prices dipped further on Monday. U.S. stocks closed lower in thin volume, and the euro fell below $1.20 for the first time in more than four years. Concern about political stability in Spain, one of the troubled euro zone economies, fed market anxiety. Juncker and Rehn said they were more concerned by the pace of the euro's decline than by the lower exchange rate, and the IMF said a currency long seen by many as too strong was now closer to what economic fundamentals justified. "But rigidities, especially in labor and financial markets in some countries, are limiting the necessary restructuring in the aftermath of the global crisis," it said in a report. Germany needs less than others to slow spending but, keen to set an example, will pursue savings of 30 billion euros over four years in welfare, mainly from unemployment benefits, and will cut thousands of federal government jobs. The new savings are unlikely to please some of Germany's partners, including the United States, which pressured Berlin at a G20 meeting in South Korea to stimulate domestic demand. Despite the efforts in Luxembourg to reassure markets, German Chancellor Angela Merkel postponed talks with French President Nicolas Sarkozy on reforming governance of the euro zone. Officials cited diary problems. The two had been due to patch up their differences over the euro zone and financial regulation, 10 days before an EU summit. The meeting will take place next Monday, German officials said. (Additional reporting by Marcin Grajewski , Sudip Kar-gupta and Brian Rohan in Luxembourg, Krisztina Than in Budapest, Matthias Sobolewski and Dave Graham in Berlin, George Matlock in London; writing by Brian Love and Paul Taylor; Editing by Noah Barkin and Timothy Heritage ) |
Walgreen to shun new CVS Caremark drug plans. CVS shares fell 8 percent in a blow to its pharmacy benefits management (PBM) business, which administers prescription drug benefits for employers and health plans, and operates a large mail-order pharmacy. Walgreen shares were down nearly 2 percent. Some analysts see Walgreen's decision as a negotiating tactic to obtain more favorable terms from CVS. Other analysts say, however, that CVS has less to lose than Walgreen, which obtains about 7 percent of its revenue from the pharmacy business with CVS. Walgreen said the move would take several years to affect all of its business with CVS. Since PBM contracts usually last for an average of three years, the full impact from the decision won't be felt for some years, said Walgreen spokesman Michael Polzin. In a letter explaining its move, Walgreen cited examples such as CVS's promotion of prescription drug plans for patients with chronic conditions that requires them to use CVS pharmacies or Caremark mail service over Walgreen drugstores. Walgreen further said it receives little information when CVS transfers drug plans to a new network or when CVS obtains new drug plans as clients. It also said CVS Caremark's reimbursement rates to Walgreen were increasingly unpredictable, often did not reflect market rates and made it unacceptably difficult for Walgreen to plan its business. Walgreen's move does not affect current CVS Caremark plans in which Walgreen participates, only new plans or renewals. CVS, which bought Caremark for $27 billion in 2007 to expand its PBM operations, said it met with Walgreen officials recently and is still open to discussing these issues. RIVALS BENEFIT Bernstein Research analyst Helen Wolk said Walgreen's actions represent an aggressive negotiating tactic to win increased reimbursement from Caremark. Walgreen, with an 18 percent market share, is the biggest chain in the retail pharmacy market, and CVS faces a relatively light year in 2011 with 16 percent of its PBM agreements up for renewal, Wolk wrote in a note to clients. "We expect the two companies to come to an agreement before long, which likely will include increased reimbursement for WAG," she said. Walgreen's decision was more of a "near-term hiccup for CVS Caremark", analyst George Hill of Leerink Swann Research said. He sees rivals Express Scripts and Medco Health benefiting as clients look to offer their members more pharmacies from which to choose, leading to a shift in market share. Medco MHS.N shares were up 3.5 percent Monday afternoon, while Express Scripts ( ESRX.O ) was up 5.3 percent. CVS, which said it was surprised by Walgreen's decision, has struggled to make its combined business realize its expected potential. Late last year, its PBM business lost $4.8 billion in contracts. CVS is also the subject of a Federal Trade Commission investigation into its business practices. But some analysts think Walgreen has more cause for worry. "Even without Walgreens within their network, CVS has a broad footprint of pharmacies, and members would have enough other alternatives to fill their prescriptions," said JPMorgan analyst Lisa Gill in a research note. (Reporting by Nivedita Bhattacharjee; Editing by Michele Gershberg , Lisa Von Ahn, Matthew Lewis and Steve Orlofsky) |
Warren Buffett lunch auction gets no bids. (Yet). Arguably the world's most admired investor, Buffett drew no bids in the first 14 hours of his annual online auction of a steak lunch. Proceeds will benefit the Glide Foundation, a San Francisco nonprofit that offers meals, health and child care, housing and job training for the poor and homeless. The winning bidder and up to seven others will dine with Buffett at the Smith & Wollensky steakhouse in New York. As of 12:30 p.m. EDT (1630 GMT), there were no bids for the lunch posted on eBay Inc's ( EBAY.O ) website, where the auction is being held. The minimum bid is $25,000. The auction closes on Friday at 10:30 p.m. EDT (230 GMT Saturday). In prior auctions, the lunch typically drew several early bids, and then bid prices soared in the last hour or two. Last year Salida Capital Corp, a Toronto-based wealth management firm, won with a $1,680,300 bid. The record bid is $2,110,100 in 2008 by Hong Kong-based investor Zhao Danyang. The 10 prior auctions have raised more than $5.9 million. Buffett began donating the lunches after his first wife, Susan, introduced him to Glide and the Rev. Cecil Williams, who founded the nonprofit more than 45 years ago. Susan Buffett died in 2004, and Warren Buffett has remarried. Williams said the lunch covers about one-tenth of Glide's $17 million annual budget, and is crucial this year because donations are down while demand for Glide's services is up. Buffett is worth $47 billion according to Forbes magazine. He built his fortune through his Omaha-based insurance and investment company, Berkshire Hathaway Inc ( BRKa.N ) ( BRKb.N ). In 2006, Buffett pledged most of his wealth to the Bill & Melinda Gates Foundation and four family charities. (Reporting by Jonathan Stempel; Editing by Steve Orlofsky) |
World oil refining capacity must be rationalized: BP. "There is surplus refining capacity relative to demand. The surplus will be with us for some," said Clive Christison, Director and CEO, Supply & Trading, Integrated Supply & Trading, Global Oil, Eastern Hemisphere of BP. "The bulk of new refinery capacity is likely to be added in the East of Suez region, but some expansions will be deferred or canceled due to poor economics," he told an oil and gas conference in the Malaysian capital. (Reporting by Jennifer Tan, Writing by Ramthan Hussain) |
Skin cancer drug news boosts Bristol shares. Bristol's ipilimumab added an average of four months to the lives of patients with advanced melanoma, according to data released at a major cancer meeting, marking a huge advance in a disease littered with failures. Celgene Corp ( CELG.O ) shares also rose more than 4 percent after data from the meeting on its multiple myeloma drug Revlimid showed that when taken as maintenance therapy following stem-cell transplantation, it reduced the risk of disease progression more than 50 percent. Sanford Bernstein analyst Geoff Porges said the eagerly anticipated presentations at the meeting on Revlimid "did not disappoint ... showing a conclusive improvement" and Jefferies analysts upgraded Celgene shares to "buy" from "hold." However, shares of smaller biotechnology companies Delcath Systems Inc ( DCTH.O ), ArQule Inc ( ARQL.O ), Celldex Therapeutics ( CLDX.O ) and Pharmacyclics Inc ( PCYC.O ) each slumped more than 10 percent after data on their respective products were released at the American Society of Clinical Oncology (ASCO) meeting in Chicago. Delcath shares fell nearly 25 percent after its drug delivery system was shown to help melanoma patients whose cancer had spread to their liver, live more than three times as long as patients treated with best available care. The Delcath study was criticized during the meeting over its lack of demonstrated survival benefit, its design and over questions of how many patients could benefit, according to Cowen & Co analyst Sara Michelmore. Michelmore said in a research note that the criticism did not alter her opinion on the treatment's potential but acknowledged it may be attracting investor attention. ArQule's experimental drug ARQ197 showed that it was most effective in certain types of lung cancer tumors, but investors apparently were not impressed. Its shares fell 13 percent. The stock declines cut into yearly gains for Delcath and ArQule, which have seen their shares soar in recent months on initial positive results for their respective products. The success of Bristol's ipilimumab heralded a new era of cancer "immunotherapy" -- drugs that enlist the help of the immune system to fight the disease, researchers said on Saturday. Credit Suisse analyst Catherine Arnold raised her forecast for the drug's sales to $720 million in 2015, from $500 million on the strength of the data. "While some regulatory risk still exists ... at minimum the probability of success for the drug reaching the market has now increased," Arnold said in a research note. Goldman Sachs analyst Jami Rubin raised Bristol to "buy" from "neutral," calling ipilimumab "the first pipeline drug in the pharma sector that has the potential to re-rate the way investors perceive pharma terminal growth rates." Industry analysts at Jefferies said the success underscored the drug's $1 billion-plus sales potential, although questions remain about adverse events. There is also a potential competitor on the horizon in the form of Roche's experimental treatment PLX4032. Pfizer's shares ( PFE.N ) slid 0.7 percent after the world's largest drugmaker's experimental medicine crizotinib showed it shrank lung cancer tumors in more than half of treated patients. Leerink Swann analysts called the results impressive but said the initial opportunity for the treatment was modest because a relatively small number of patients are estimated to have the genetic mutation targeted by the drug. Novartis AG ( NOVN.VX ) shares slipped 0.3 percent following news about two rivals to its leukemia drug Gleevec -- a competitor called from Sprycel from Bristol-Myers and Novartis's own follow-on product Tasigna. Data at ASCO showed patients on both the new drugs did better than those on Gleevec. Morgan Stanley analysts said Tasigna appeared to have the edge, with superior safety and efficacy over Sprycel. Roche Holding AG ( ROG.VX ) -- which along with Novartis had the most data being shown at the world's top cancer meeting -- reported results of a high-profile clinical study showing the benefits of its blockbuster drug Avastin in ovarian cancer. However, the impact was limited since the company had previously announced the ovarian study had been positive and some investors were also concerned about questions by an outside expert at ASCO about the design of the study and its findings. Roche stock fell 1.2 percent. Among biotech stocks, British minnow Antisoma ASM.L, whose stock plunged 70 percent in March when a lung cancer drug it was developing with Novartis failed in a Phase III trial, saw a partial revival in its fortunes on hopes for other drugs in earlier-stage development. Shares in Antisoma, which presented updates on both AS1413 and AS1411 at ASCO, rose 21 percent. (Reporting by Ben Hirschler in London and Lewis Krauskopf in New York; Editing by Karen Foster and Maureen Bavdek) |
Final act begins in Congress on Wall St reform. Some congressional Democrats want to fashion a bill that forces a basic banking industry restructuring, but leaders will have to balance that agenda against the need to forge compromise legislation that retains some Republican support. Analysts are expecting that fundamental restructuring will be avoided, "This bill is more about profitability and less about viability. That means the legislation will hurt the banking sector, but it will not sink it," said Jaret Seiberg, a policy analyst at investment firm Concept Capital. The delicate task of crafting a winning compromise will fall to Representative Barney Frank, who will chair the "conference committee" getting under way in a few days, and Senator Christopher Dodd, a consensus builder who will lead the Senate negotiating team. Both lawmakers are old-school liberal Democrats with more than 60 years on Capitol Hill between them. They will need all of that experience to finish up a legislative project that is at the top of President Barack Obama's priority list. Disputes loom over banks' lucrative dealings in derivative contracts, such as credit default swaps; the amount of capital they must set aside for hard times; and the trading they do on their own books unrelated to customers' needs. A late amendment to the Senate's version of financial reform, approved last month, would limit fees on debit card transactions. It directly threatens the profits of card issuers, and banks are resisting it. In all these areas, the banks are working to protect and preserve business models that have changed remarkably little since the 2007-2009 credit crisis that hammered economies globally and triggered huge taxpayer bailouts. While key issues remain unsettled, enactment of a reform package -- probably by mid-year -- is seen as certain. It would be the biggest regulatory revamp since the Great Depression. But one top investment strategist said on Monday the proposed reforms don't go far enough in tackling key problems in the banking system. Richard Bernstein, chief executive officer of Richard Bernstein Capital Management said the reforms focus too much on preserving corporate entities rather than on the role these entities are supposed to play in the economy. "I think it is immensely wimpy," Bernstein said , , told the Reuters Investment Outlook Summit in New York. The aim of banking should be to help build productive assets in the real economy, he said. "As a policy maker in Washington your issue is if banks are lending in the domestic 50 states," Bernstein said. Policy makers should not care how profitable banks are and if they can do "currency swaps in Australia," he said. FRANK HOPES TO FINISH BY JUNE 24 The Senate approved its bill on May 20; the House passed a bill in December. The two versions must now be merged by the conference committee, whose final report must then be approved once more in each chamber before going to Obama to be enacted. The Senate's 12 conference negotiators -- both Democrats and Republicans -- have been named. In the House, Frank has recommended eight Democrats to join the panel, but House Speaker Nancy Pelosi has final say. House Republicans have not yet named their members. The definitive word on panel membership -- a factor in shaping the bill -- is expected on Tuesday or Wednesday, aides said. Frank hopes to complete the panel's work by June 24, when the Group of 20 leading nations begins a conference in Toronto where international regulatory cooperation will be a topic. EU nations are also pursuing regulatory reforms. A final U.S. package could give President Barack Obama leverage to push other G20 nations to step up to the plate with their own reforms. The G20 has already shelved an idea for a universal bank tax that get the industry to cover the cost of any future bailouts. The conference committee's first substantive public meeting is expected on Wednesday or Thursday, with much speech-making but probably no real decisions. That will begin next week. The Senate bill will be the base text the panel works on. EYES ON SWAP-TRADING PROPOSAL The outlook for a plan that would force banks to spin off their swap-trading desks dimmed late last month when the White House made clear it was not among its core reform goals. Swaps are among a class of financial derivatives traded in a $615 trillion, off-exchange market dominated by major firms such Goldman Sachs ( GS.N ), JPMorgan Chase ( JPM.N ), Citigroup ( C.N ), Bank of America ( BAC.N ) and Morgan Stanley ( MS.N ). Wall Street is lobbying to kill the swap-desk "push-out" plan. "The impact on the cost of capital and capital formation is really far-reaching here," said Sharon Brown-Hruska, a vice president of NERA Economic Consulting. The plan's author, Democratic Senator Blanche Lincoln, has vowed to fight for it. But she faces a tough primary election challenge on Tuesday in Arkansas, and a loss would likely doom her proposal; most analysts expect it to be watered or dropped anyway. The Lincoln plan is not a part of the House reform bill. Obama and congressional Democrats want to tighten financial regulation to prevent a recurrence of the 2007-2009 crisis. Core Obama goals include redirecting much of the swaps market through more accountable channels such as exchanges, electronic trading platforms and clearinghouses. Another goal is higher capital requirements for banks and financial firms. Until Republican Senator Susan Collins got involved, Congress was on its way to calling for those standards, but leaving the details up to someone else. A late amendment by Collins to the Senate bill would make the new standards more definite and reflect global efforts to standardize capital calculations. Administration officials are divided on the Collins plan. Another flashpoint in the conference will be the so-called "Volcker rule" to curb trading by banks with their own money that is not related to customers' needs. Both bills contain language related to the rule first proposed in January by Obama and White House economic adviser Paul Volcker. The Senate version more specifically endorses the rule and some Democrats support toughening that even further. (Additional reporting by Roberta Rampton , David Morgan , Rachelle Younglai and Andy Sullivan ; Editing by Leslie Adler) |
Hungary eyes budget cuts, market says signals mixed. Economy Minister Gyorgy Matolcsy said the country's new center-right Fidesz government, which took office on May 29, would stick to the budget deficit target of 3.8 percent and would need to cut spending worth 1.0-1.5 percent of gross domestic product (GDP) to do so. But he later said the government could introduce a flat personal income tax for families, lower than current rates, which would be hard to square with commitments agreed under a 2008 bailout from the European Union and International Monetary Fund. Moody's credit rating agency said the government's willingness to consider unorthodox measures was cause for concern, while other analysts said Fidesz was still sending mixed messages to international and domestic audiences, a practice which prompted the selloff that sent the forint to a one-year low last week. "We'll stick to our 3.8 percent budget deficit level for this year. It was agreed by the IMF and the EU and it was also agreed by the Hungarian government so there is no doubt about that, we'll stick to that figure," Matolcsy told CNBC. He repeated that there were blunders in government communication last week, when officials suggested there was a slim chance Budapest would avoid a similar fate to Athens, but added "it is blatant that Hungary is not Greece." Economists say last week's comments from officials appeared to be a case of the new government preparing to backtrack on promises made before it swept an April election. But they said mixed messages, and previous statements that this year's budget deficit could be as high as 7 percent of GDP, continued to sow confusion. "One cannot help being puzzled when Hungarian officials talk about a much larger than planned budget deficit and at the same time rule out austerity measures and instead promise tax cuts," said Danske Bank analyst Lars Christensen. The government started a three-day meeting on Saturday and is expected to decide on an action plan on Monday. UNORTHODOX METHODS Most economists say Hungary is in a much stronger position than Greece. Its deficit and debt ratios to GDP are not nearly as high; public debt was about 80 percent last year, compared with 133 percent projected for Greece this year. It also ran a current account surplus last year and had a budget gap of 4 percent after deep spending cuts. But Moody's said the government's statements and its consideration of unorthodox measures to boost growth brought new attention to Hungary's still high public and external debt. "In our view, these uncertainties threaten to further impair Hungary's creditworthiness," Moody's analyst Dietmar Hornung said, adding Hungary's Baa1-rated government bonds were on negative outlook. Citing unnamed sources, online news portal Index reported the government was considering levying a special tax on banks and channeling private pension funds to the state system as a way to boost revenues and hit its budget deficit goal. Neither the government nor banking officials were available to comment, but the report sent shares tumbling 5 percent on the Budapest bourse, which briefly suspended trading in leading lender OTP Bank OTPB.BU after its shares fell 10 percent. At 0950 GMT, OTP was down 1.2 percent. Markets steadied, with the forint hovering just off a one-year low, keeping pressure on regional peers like the Polish zloty. Concern over Hungary also helped drag the euro to a four-year low against the dollar on Friday. The yield that investors demand to hold Hungary's 3-year government bonds rose by 15 basis points from Friday to 5-month highs at 7.25 percent, while 5- and 10-year yields stayed near 9-month highs. "The market will return to normalcy once again," one fixed income trader said. "(But) it will take much longer than the weakening took." Economy Minister Matolcsy said that by end-May the budget deficit had reached 87 percent of the full-year target but the government would keep it under control. While there was no need for an austerity package, having a fiscal stimulus package was not an option now. He also told domestic viewers on TV2 television the government was examining a possible 15-20 percent flat tax for families. "As we see now, and the government is preparing to make such a decision, that from January 1, 2011, a flat family tax could be introduced and finalized over a period of two years," he said. (Reporting by Krisztina Than and Marton Dunai; writing by Michael Winfrey ; Editing by Ruth Pitchford) |
Exxon in discussions with China firms on partnership. The partnership will cover projects both inside and outside of China. "We are in specific discussions on a number of opportunities that may be of interest to Chinese NOCs (national oil companies) on upstream outside China," Senior Vice President Mark Albers told Reuters in an interview. Albers said Exxon was "very encouraged" by China's recent gas price increase and moves toward a more market-based pricing. "It's a clear recognition of the need for gas prices to be sufficient to warm investment," he said. Albers also said Exxon, the world's largest refiner, is in early studies to expand China's Fujian refining and petrochemical plant, a $5 billion venture in which the U.S. oil giant owns a 25 percent stake. (Reporting by Chen Aizhu and Shao Xiaoyi; Editing by Ken Wills ) |
Scenarios: Pivotal vote for key senator in Wall Street reform. Lieutenant Governor Bill Halter held a small lead over Lincoln in polls of likely voters ahead of the vote. Lincoln led in the May 18 primary but did not get an outright majority to claim nomination for a third Senate term. Lincoln is the author of a provision to force banks to spin off their swaps desks, which potentially could cost them billions of dollars in revenue. Lincoln says the step would prevent taxpayer bail-outs of banks due to risky trades. Because of anti-Washington sentiment, Lincoln is regarded as one of the most vulnerable incumbents in this year's congressional elections. Opinion polls give Republican nominee John Boozman a huge lead for the general election in the fall. Here are scenarios for the runoff election and its impact in Washington: LINCOLN WINS THE NOMINATION A victory would vindicate Lincoln as a centrist in tune with the political mainstream and elevate her stature in House-Senate negotiations expected to begin this week on financial reform. Her swaps-desk language ranks as one of the key issues to resolve. Financial reform played a small role at best in the primary election but Lincoln argued as chairman of the Agriculture Committee, which oversees the futures markets, she is in a position to get results on important matters. With a come-back victory, Lincoln would gain momentum for the general election in November. Her folksy approach -- she speaks proudly of being a farmer's daughter -- has fitted well with Arkansans since she won a House race in 1992. HALTER OUSTS LINCOLN IN RUNOFF Victory by Halter would be a stinging loss for the Democratic establishment, including President Barack Obama and former President Bill Clinton, and presage losses by incumbents in the fall. Two incumbent senators, Robert Bennett, Utah Republican, and Arlen Specter, Pennsylvania Democrat, were denied renomination this spring during intraparty contests. Labor unions and political liberals poured money and workers into Arkansas because they say Lincoln is not progressive enough on health care. They would use the race as a warning to other senators against supporting conservative ideas. Halter's brand of economic populism resonated strongly with rural voters in the May 18 primary, so he could have a foothold in normally Republican areas if he is the nominee. He also would benefit from anti-incumbent anger among voters. LINCOLN REMAINS A FACTOR Even if she loses the runoff, Lincoln would remain in office through the end of the year and in position to affect Wall Street reforms in the near term. A loss can translate to less legislative leverage; lawmakers are attuned to electoral results. There have been repeated predictions that the swaps-desk language will be dropped. Lincoln has said she will fight for a spin-off of swaps desks and sometimes in House-Senate negotiations, persistence pays off. Negotiators operate by consensus and usually try to find an agreement within the bounds of each chamber's language. There is no House provision similar to Lincoln's plan. REPUBLICAN BOOZMAN IS FALL FAVORITE A political conservative, Boozman, who has represented northwestern Arkansas in the U.S. House of Representatives for a decade, won the Republican nomination with 53 percent of the vote in an eight-way race. He led Lincoln and Halter by as much as 2-to-1 in a poll taken immediately after the primary. Political analysts consistently list Arkansas as one of the states where Republicans are likely to pick up Senate seats this year. Arkansas voted Republican by a 3-to-2 margin in the 2008 presidential election. Polling this year shows strong support for conservative policies. Boozman says he wants to balance the federal budget and cut taxes. But, congressmen generally are not well-known outside their districts. Whoever Democrats choose, their candidate will have more experience in winning a statewide election. (Reporting by Charles Abbott, Editing by Sandra Maler) |
Ratings agencies concerned about Hungary. Moody's said comments made by officials in Hungary's new center-right Fidesz government suggesting the country was close to a Greek-style economic meltdown were "inflammatory" and came at "a delicate time" for global markets. "The statements are a credit negative because they bring renewed attention to Hungary's high public and external debts, which, by threatening to drive up interest rates and push down the exchange rate, endanger Hungary's economic recovery," Moody's analyst Dietmar Hornung said in Moody's weekly credit outlook. David Heslam, director of Fitch Ratings' emerging Europe sovereigns, said the comments would not affect Hungary's funding options but ultimately played into a "key ratings driver" -- its fiscal path. "We are concerned about the fiscal outlook post-elections... Given the high level of debt, there is little room for policy slippage," he told Reuters. Noting that Hungary still had a multilateral financing program with the International Monetary Fund that has yet to be drawn this year, Heslam said Fitch would wait to see further details of the government's new fiscal measures before moving on its credit rating. Moody's Hornung said the new government displayed an "apparent willingness to adopt unorthodox measures to stimulate economic growth" which was also sparking concerns. "In our view, these uncertainties threaten to further impair Hungary's creditworthiness," Hornung added. Moody's has Hungary's Baa1-rated government bonds on negative outlook. Fitch has Hungary's ratings at BBB with a negative outlook. Standard & Poor's, which has Hungary's ratings at BBB- with a stable outlook, said in a statement: "We will review the government's report on public finances and the government's action plan before we would comment further." (Reporting by Sebastian Tong and Carolyn Cohn ; editing by ) |
BA not neglecting strike peace talks: CEO Walsh. "What we are doing is absolutely right. We are looking to secure the long-term viability of BA," Walsh told Reuters on the sidelines of the annual meeting of global airlines group IATA in Berlin. "I am here on business ... We have people available to meet and are ready to talk." British Airways cabin crew started their latest five-day strike Saturday in a long-running dispute which has so far cost the airline more than 120 million pounds ($173 million). The strikes stem from BA's decision last November to cut cabin crew pay and alter staffing levels on its flights. Shares in BA, which have fallen 11 percent in the last three months, were 1.4 percent down at 197.9 pence by 1045 GMT, valuing the company at around 2.3 billion pounds. Walsh and Unite, which represents BA's cabin staff, blame each other for a breakdown in communication. Derek Simpson, joint general secretary of Unite, said on his Twitter page that Walsh's absence meant no meetings were possible, with Walsh out of the country until Tuesday. "I have made it clear that I am available anytime day or night to meet with BA and Willie Walsh to attempt to resolve this dispute," Simpson said in a statement. Meanwhile, one of Unite's joint leaders, Tony Woodley, was criticized in the British press Monday for flying off on holiday to Cyprus late last week as union members continue to strike. The issue of travel allowances for cabin crew has become a serious sticking point in the conflict, which comes at a difficult time for BA. "We have made it absolutely clear that if BA re-instates our members' travel concessions we would suspend the strike action," said Simpson. A BA spokesman said conciliation service ACAS was trying to arrange discussions between the two parties but that no peace talks were planned. Talks over the past six months have failed to yield a resolution, with the walkouts having caused BA to ground flights on 19 occasions so far. The latest strike took place less than a week before the start of the soccer World Cup in South Africa and followed a five-day stoppage which ended Thursday. There was a four-day walkout last week and seven days of stoppages in March. A BA spokesman said conciliation service ACAS was trying to arrange discussions between the two parties but that no peace talks were planned. (Additional reporting by Kylie Maclellan; Editing by James Regan and Jon Loades-Carter) ($1=.6929 Pound) |
NY Fed staffer: Public stress tests can be "calming". Simon Potter, director of economic research at the New York Fed, told a Connecticut Bank and Trust Company economic outlook breakfast that the U.S. tests "proved to be confidence-enhancing and served to make banks 'investable' again." "Under certain circumstances transparency about the methods used and a willingness to commit to disclosure of the results by public authorities can be a calming force," he said in his prepared remarks. But he said the credibility of the stress tests was dependent on the Treasury's Capital Assistance Program being available to provide capital if markets were unable to do so. Potter's remarks come as Europe is grappling with whether to publicly disclose its own stress tests. Top European Central Bank officials said over the weekend that Europe is close to completing stress tests on its banks to gauge their ability to withstand a market slump, and the results should be published to help restore market conference. In a speech tackling lessons from various phases of the financial crisis, Potter said bank regulators made a "tactical misstep" by failing to force banks to raise high-quality capital early in the crisis. But he said as the crisis intensified, the Fed and other government agencies' ability act with speed and flexibility was "vital to stabilizing the system." While the global financial crisis also highlighted the need for banks to hold high-quality buffers, it did not give a "definitive indication" of how big these buffers have to be. "While the financial crisis has taught us that financial institutions need high-quality common equity capital to absorb losses ... it has not given any definitive indication of how much larger the capital buffers of financial institutions need to be to assuage worries about future tail events that can drive panics," he said. |
Final act begins in Congress on Wall Street reform. Some congressional Democrats want to fashion a bill that forces a basic banking industry restructuring, but leaders will have to balance that agenda against the need to forge compromise legislation that retains some Republican support. Analysts are expecting that fundamental restructuring will be avoided, "This bill is more about profitability and less about viability. That means the legislation will hurt the banking sector, but it will not sink it," said Jaret Seiberg, a policy analyst at investment firm Concept Capital. The delicate task of crafting a winning compromise will fall to Representative Barney Frank, who will chair the "conference committee" getting under way in a few days, and Senator Christopher Dodd, a consensus builder who will lead the Senate negotiating team. Both lawmakers are old-school liberal Democrats with more than 60 years on Capitol Hill between them. They will need all of that experience to finish up a legislative project that is at the top of President Barack Obama's priority list. Disputes loom over banks' lucrative dealings in derivative contracts, such as credit default swaps; the amount of capital they must set aside for hard times; and the trading they do on their own books unrelated to customers' needs. A late amendment to the Senate's version of financial reform, approved last month, would limit fees on debit card transactions. It directly threatens the profits of card issuers, and banks are resisting it. In all these areas, the banks are working to protect and preserve business models that have changed remarkably little since the 2007-2009 credit crisis that hammered economies globally and triggered huge taxpayer bailouts. While key issues remain unsettled, enactment of a reform package -- probably by mid-year -- is seen as certain. It would be the biggest regulatory revamp since the Great Depression. But one top investment strategist said on Monday the proposed reforms don't go far enough in tackling key problems in the banking system. Richard Bernstein, chief executive officer of Richard Bernstein Capital Management said the reforms focus too much on preserving corporate entities rather than on the role these entities are supposed to play in the economy. "I think it is immensely wimpy," Bernstein said , , told the Reuters Investment Outlook Summit in New York. The aim of banking should be to help build productive assets in the real economy, he said. "As a policy maker in Washington your issue is if banks are lending in the domestic 50 states," Bernstein said. Policy makers should not care how profitable banks are and if they can do "currency swaps in Australia," he said. FRANK HOPES TO FINISH BY JUNE 24 The Senate approved its bill on May 20; the House passed a bill in December. The two versions must now be merged by the conference committee, whose final report must then be approved once more in each chamber before going to Obama to be enacted. The Senate's 12 conference negotiators -- both Democrats and Republicans -- have been named. In the House, Frank has recommended eight Democrats to join the panel, but House Speaker Nancy Pelosi has final say. House Republicans have not yet named their members. The definitive word on panel membership -- a factor in shaping the bill -- is expected on Tuesday or Wednesday, aides said. Frank hopes to complete the panel's work by June 24, when the Group of 20 leading nations begins a conference in Toronto where international regulatory cooperation will be a topic. EU nations are also pursuing regulatory reforms. A final U.S. package could give President Barack Obama leverage to push other G20 nations to step up to the plate with their own reforms. The G20 has already shelved an idea for a universal bank tax that get the industry to cover the cost of any future bailouts. The conference committee's first substantive public meeting is expected on Wednesday or Thursday, with much speech-making but probably no real decisions. That will begin next week. The Senate bill will be the base text the panel works on. EYES ON SWAP-TRADING PROPOSAL The outlook for a plan that would force banks to spin off their swap-trading desks dimmed late last month when the White House made clear it was not among its core reform goals. Swaps are among a class of financial derivatives traded in a $615 trillion, off-exchange market dominated by major firms such Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America and Morgan Stanley. Wall Street is lobbying to kill the swap-desk "push-out" plan. "The impact on the cost of capital and capital formation is really far-reaching here," said Sharon Brown-Hruska, a vice president of NERA Economic Consulting. The plan's author, Democratic Senator Blanche Lincoln, has vowed to fight for it. But she faces a tough primary election challenge on Tuesday in Arkansas, and a loss would likely doom her proposal; most analysts expect it to be watered or dropped anyway. The Lincoln plan is not a part of the House reform bill. Obama and congressional Democrats want to tighten financial regulation to prevent a recurrence of the 2007-2009 crisis. Core Obama goals include redirecting much of the swaps market through more accountable channels such as exchanges, electronic trading platforms and clearinghouses. Another goal is higher capital requirements for banks and financial firms. Until Republican Senator Susan Collins got involved, Congress was on its way to calling for those standards, but leaving the details up to someone else. A late amendment by Collins to the Senate bill would make the new standards more definite and reflect global efforts to standardize capital calculations. Administration officials are divided on the Collins plan. Another flashpoint in the conference will be the so-called "Volcker rule" to curb trading by banks with their own money that is not related to customers' needs. Both bills contain language related to the rule first proposed in January by Obama and White House economic adviser Paul Volcker. The Senate version more specifically endorses the rule and some Democrats support toughening that even further. (Additional reporting by Roberta Rampton , David Morgan , Rachelle Younglai and Andy Sullivan ; Editing by Leslie Adler) |
Burger King sees EPS hit due to currency. The pressure on earnings is coming from a basket of foreign currencies but the euro is having the most significant impact, R.W. Baird analyst David Tarantino told Reuters. Germany, Europe's largest economy, was the only international market to account for 10 percent or more of Burger King's total revenue during the fiscal third quarter, which ended March 31. During the third quarter, the United States and Canada contributed revenue of $407.1 million, while the Asia-Pacific and Europe, Middle East and Africa regions kicked in $163.8 million and Latin America contributed $26 million. For the full fiscal year, which ends on June 30, Burger King said it expects currency exchange to have a neutral to slightly negative influence on results. The Miami-based company, known for its Whopper hamburgers, previously said it expected currency translation to benefit fourth-quarter results and to have a slightly positive impact on all of fiscal 2010. "Our model had assumed a drag of half a cent in Q4," Tarantino said. "Even with slightly lower estimates, we still consider (Burger King) a good value," said Tarantino, who cut his fourth-quarter earnings per share estimate by 1 cent to 34 cents and his fiscal 2011 estimate by 2 cents to $1.45. Burger King shares are down almost 1 percent so far this year, compared with the 8 percent gain in McDonald's shares and the more than 11 percent rise in the Dow Jones U.S. Restaurant and Bars index .DJUSRU. Burger King, the second-largest hamburger chain after McDonald's Corp ( MCD.N ), also lowered its net restaurant growth target to 230 to 250 from 250 to 300 outlets previously, due to its exit from Israel, where it had 55 restaurants. Shares were down 0.3 percent, or 5 cents, to $18.67 on the on the New York Stock Exchange. (Reporting by Lisa Baertlein, additional reporting by Shobhana Chadha in Bangalore; Editing by Dave Zimmerman and Steve Orlofsky) |
Toyota to recall 2.8 million vehicles worldwide for steering glitch. Toyota is recalling 1.5 million vehicles in Japan, 670,000 vehicles in the United States and 496,000 vehicles in Europe over a problem in the steering intermediate extension shafts, which could be damaged at slow speed, spokesman Joichi Tachikawa said on Wednesday. This problem, seen in cars such as the second-generation Prius and certain Corolla models can be fixed in about 50 minutes, he said. Separately, the Japanese carmaker is also recalling 630,000 vehicles worldwide, including 350,000 in the United States and 175,000 in Japan, to fix water pumps in hybrid vehicles, Tachikawa said. Some vehicles are target of both recalls, making the total number of vehicles to be recalled at 2.77 million, he said. Shares in Toyota were down 0.5 percent to 3,070 yen as of 2:44 p.m. (0544 GMT), slightly underperforming the main Nikkei that rose 0.1 percent. In October, Toyota said it was pulling back more than 7.4 million vehicles worldwide to fix faulty power window switches, the industry's biggest single recall since Ford Motor Co took 8 million vehicles off the road in 1996. A series of Toyota recalls involving more than 10 million vehicles between 2009 and 2011 damaged the firm's image, but it recovered and earlier this month raised its full-year net profit forecast to $9.7 billion, citing solid sales. Toyota has sold about 3.3 million Prius hybrid vehicles globally since the car went on sale in December 1997. The total number of hybrid vehicles it sold worldwide, including other models such as the Camry, was 4.6 million as of end-October. This year's profit forecast comes despite a big drop in car sales in China since September, when anti-Japanese protests erupted over a diplomatic row. (Reporting by Yoko Kubota ; Editing by Daniel Magnowski ) |
Cablevision sued for $250 million over Sandy outages. The complaint, filed on Tuesday with the New York State Supreme Court in Nassau County, said Cablevision had not met its contractual obligation to offer credits to customers who lost service for more than 24 hours. It said the Bethpage, New York-based company instead offered rebates only to its "most favored" customers on a discretionary basis, and only after they requested them. The lawsuit seeks class-action status, rebates, punitive damages and a halt on future billing for periods where there are lengthy service outages. Cablevision spokesman Charlie Schueler said the complaint "misstates the facts" and is without merit. "Blanket or arbitrary credits for cable outages could shortchange customers," he said. "Each case is different and our policy covers the entire period of time when Cablevision service was out, including when the service interruption was caused by the loss of electrical power." The lawsuit was brought on behalf of subscribers Irwin Bard, a retired businessman from Oyster Bay, New York, and his son Jeffery, a lawyer from Huntington, New York, their lawyer Hunter Shkolnik said. He said the $250 million figure is based on the duration of outages, the number of people affected, and the services lost. "Most customers didn't complain because the company was making public statements that it was doing its best to restore service," Shkolnik said in a phone interview. "But that means if you didn't call, you didn't know you could get a rebate." Also on Tuesday, the Long Island Power Authority and UK-based National Grid Plc were sued over alleged negligence linked to power outages in Nassau and Suffolk counties that followed the late-October storm. In afternoon trading, Cablevision shares were down 2.1 percent to $13.94. The case is Bard et al v. Cablevision Systems Corp et al, New York State Supreme Court, Nassau County, No. 602291/2012. (Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Tim Dobbyn ) |
Cargill says Mexico owes it $95 million in NAFTA dispute. In its filing with the U.S. District Court of New York, Cargill CARG.UL says Mexico "adversely affected Cargill's investment in Mexico, namely Cargill's high fructose corn syrup distribution business." Mexico's economy ministry, named as defendant in the case, did not immediately respond to a request for comment. Nicole Reichert, Cargill's communications director for corn milling, told Reuters that the firm had filed an enforcement action to preserve its legal rights while awaiting payment. In May, the Supreme Court of Canada let stand a unanimous NAFTA arbitration panel decision that Mexico should pay Cargill more than $77 million plus interest and legal costs. The original 2009 award has since risen more than 22 percent due to interest, the company said in its filing. The case was heard in Canada because that is where the original NAFTA panel was held. (Reporting by David Alire Garcia; Editing by M.D. Golan) |