Vivian Wai-yin Kwok, 06.30.08, 5:15 AM ET
HONG KONG -
Having won a reprieve from its creditors, Australian investment firm Babcock & Brown, whose shares surged nearly 18% Monday, is keeping the short-sellers off its back.
Babcock & Brown (other-otc: BBNLF - news - people ) said Monday that its financiers, a 25-member bank consortium, agreed to drop a clause stating that it could review the terms of its 2.8 billion Australian dollar ($2.7 billion) corporate debt facility if Babcock & Brown's market capitalization were to fall below 2.5 billion Australian dollars ($2.4 billion).
Babcock & Brown had held several urgent meetings with its bankers over the past two weeks, after its market capitalization fell below the trigger point earlier this month.
The lenders exacted a price for agreeing to remove the binding review clause, charging Babcock & Brown more for financing. The investment firm agreed to a change of 50 basis points, to a 200-point margin, in its cost of capital. The hike in the finance charge could be revised down if Babcock & Brown's previous S&P rating of BBB were reinstated.
In return for having the review clause dropped, Babcock & Brown, which manages about 72.0 billion Australian dollars ($69.3 billion) in infrastructure assets worldwide, will also prepay approximately 400 million Australian dollars ($384.9 million) of the corporate debt facility from previously announced asset sales, once those transactions have closed.
Phil Green, CEO of Babcock & Brown, said, "We are pleased that our banking syndicate was able to move quickly not only to waive their right to a review but also to remove this clause altogether from our facilities.… The decision by the banks underscores the strength of our business and the banks commitment to Babcock & Brown."
The investment firm said the higher interest rate would cost it an extra 10 million Australian dollars ($9.6 million) over the three years if the facility is fully drawn upon, but it did not expect that the new arrangement would have a material impact on its overall cost of capital.
Having escaped, at least for the time being, its debt crisis, Babcock & Brown will now focus on further reducing its level of gearing, primarily through sales of noncore assets. As part of these efforts, Green confirmed that the company is looking for international investment banks to advise it.
Shares of Babcock & Brown swelled by 1.14 Australian dollars ($1.10), or 17.9%, to 7.50 Australian dollars ($7.24), in Monday trading.
The sharp rise in the stock backfired on short-sellers, who used shares borrowed from various fund managers to drive down the share price of Babcock & Brown by more than one-quarter of their value earlier this month. Speculators ambushed the firm after its subsidiary Babcock & Brown Power (other-otc: BCCBF - news - people ) requested a trading halt in early June. The energy retailing firm said it needed time to assess the business implications of the disruption of its gas supply to customers caused by a June 3 explosion at Apache Corp. (nyse: APA - news - people )'s Varanus Island processing plant in Western Australia. (See "Babcock & Brown In Tight Spot As Short-Sellers Circle")
Taken From : http://www.forbes.com
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Monday, June 30, 2008
U.S. Treasury's Paulson says strong dollar is 'good thing' UPDATE
MOSCOW (Thomson Financial) - A strong American currency is a 'good thing' and in the interest of the United States, U.S. Treasury Secretary Henry Paulson said.
'I would agree that a strong dollar is a good thing and I believe a strong dollar in our nation's interest. Every economy is going to have some ups and downs. We are going through a tough period in the U.S. right now,' Paulson said in a radio interview with Ekho Moskvy.
'I believe that the long-term economic fundamentals in the United States are solid. I believe that they compare favorably with the long-term economic fundamentals of any other major industrialized nation and they will be reflected in the value of our currency,' he said.
Paulson met Sunday with Russian finance minister Alexei Kudrin and is scheduled to meet with Russian President Dmitry Medvedev and Russian Prime Minister Vladimir Putin later on Monday.
Asked about Russia's bid to join the global club of trading nations, the former Goldman Sachs (nyse: GS - news - people ) executive called Russia's economic progress 'quite noteworthy'.
'I believe that Russia's accession to the WTO is very important for the world,' Paulson said during his first visit to Russia as Treasury Secretary. 'This will not be easy, there will be opposition in Congress but I think it's important to try.'
Asked about the rising price of oil, Paulson said there are no quick fixes to what he called a 'big burden on the world economy and on consumers all over the world'.
'I don't have an optimal price of oil,' he said, repeating the Bush administration's position that prices are based on supply and demand.
Lawmakers on Capitol Hill have grown increasingly vocal that speculators have exacerbated the oil price rise and are considering stricter regulations on financial investment in energy futures contracts.
'Markets have got a great ability to adapt and consumer behavior I think will change significantly in the face of prices at this level,' Paulson told the radio interviewer.
corbett.daly@thomsonreuters.com
cbd/wash/ms1/wash/ms1
COPYRIGHT
Copyright Thomson Financial News Limited 2007. All rights reserved.
The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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'I would agree that a strong dollar is a good thing and I believe a strong dollar in our nation's interest. Every economy is going to have some ups and downs. We are going through a tough period in the U.S. right now,' Paulson said in a radio interview with Ekho Moskvy.
'I believe that the long-term economic fundamentals in the United States are solid. I believe that they compare favorably with the long-term economic fundamentals of any other major industrialized nation and they will be reflected in the value of our currency,' he said.
Paulson met Sunday with Russian finance minister Alexei Kudrin and is scheduled to meet with Russian President Dmitry Medvedev and Russian Prime Minister Vladimir Putin later on Monday.
Asked about Russia's bid to join the global club of trading nations, the former Goldman Sachs (nyse: GS - news - people ) executive called Russia's economic progress 'quite noteworthy'.
'I believe that Russia's accession to the WTO is very important for the world,' Paulson said during his first visit to Russia as Treasury Secretary. 'This will not be easy, there will be opposition in Congress but I think it's important to try.'
Asked about the rising price of oil, Paulson said there are no quick fixes to what he called a 'big burden on the world economy and on consumers all over the world'.
'I don't have an optimal price of oil,' he said, repeating the Bush administration's position that prices are based on supply and demand.
Lawmakers on Capitol Hill have grown increasingly vocal that speculators have exacerbated the oil price rise and are considering stricter regulations on financial investment in energy futures contracts.
'Markets have got a great ability to adapt and consumer behavior I think will change significantly in the face of prices at this level,' Paulson told the radio interviewer.
corbett.daly@thomsonreuters.com
cbd/wash/ms1/wash/ms1
COPYRIGHT
Copyright Thomson Financial News Limited 2007. All rights reserved.
The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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Nikkei down 0.5 pct, ends worst H1 since 1995
(Adds trade volume, detail)
By Aiko Hayashi
TOKYO, June 30 (Reuters) - Japan's Nikkei stock average dipped 0.5 percent on Monday to end its worst first half since 1995, though it gained about 8 percent this quarter, recovering about half of what it lost since a year-low hit in mid-March.
Retailers weighed on the market, with Takashimaya Co (8233.T: Quote, Profile, Research, Stock Buzz) down 1.3 percent after the department store operator's first-quarter operating profit fell 8 percent and it cut its annual sales outlook. [ID:nT272SUYQR]
One bright spot was trading houses such as Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz) and other energy-linked shares after oil prices rose to a record near $143 a barrel on Friday as a drop in global equities markets sent investors into commodities. [O/R]
"There are expectations for a rebound, but investors can't buy too aggressively due to last week's fall in U.S. stocks, unstable currency moves and uncertainty about the outlook for oil prices," said Yoshinori Nagano, chief strategist at Daiwa Asset Management.
The Nikkei average .N225 shed 62.98 points to 13,481.38, falling for an eighth straight day, its longest losing streak since last November.
The benchmark fell 11.9 percent for the first half of this year, the worst since 1995 when it lost 26 percent.
Still, it gained 7.6 percent for the April-June quarter.
The broader Topix edged down 0.04 percent to 1,320.10.
Nagano also said that while the market could expect another downturn in the short term, the U.S. economy, a key market for global goods, appears to be on a recovery track from next year.
"The U.S. economy is bad now, but it's not accelerating in a downward spiral," he said.
"I wouldn't be surprised if the (Japanese) market started moving solidly in the latter half of this year as the stock market could start factoring in the recovery about six months in advance."
Market participants said active buying was also inhibited before the Bank of Japan's tankan business sentiment survey due on Tuesday and U.S. jobs data later in the week.
"We can't really be sure if the market has hit its bottom as that still depends on how the credit-squeeze problems will pan out," said Katsuhiko Kodama, senior strategist at Toyo Securities.
RETAIL DRAGS
Takashimaya shed 1.3 percent to 963 yen.
Fellow department store operator Isetan Mitsukoshi (3099.T: Quote, Profile, Research, Stock Buzz) also slid after Takashimaya's results confirmed a tough operating environment. It lost 5.6 percent to 1,137 yen.
Scattered selling of blue-chip exporters saw Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) dragged down 4.1 percent to 4,640 yen, while industrial robot maker Fanuc Ltd (6954.T: Quote, Profile, Research, Stock Buzz) slid 3.1 percent to 10,370 yen.
Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) slipped 1.2 percent to 5,010 yen.
Sony also fell after its mobile phone joint venture with Ericsson (ERICb.ST: Quote, Profile, Research, Stock Buzz) warned on Friday net income before taxes is estimated to be about break-even in the second quarter of calendar 2008 due to weaker demand for its more expensive phones.
Trading houses gained as Japan's top trading firms invest heavily in overseas oil fields and mines. Mitsubishi Corp, Japan's largest trading house, rose 3.2 percent to 3,500 yen.
Among other energy-linked shares, Nippon Oil (5001.T: Quote, Profile, Research, Stock Buzz), Japan's largest oil distributor, shot up 7.4 percent to 713 yen. Oil explorer Inpex Holdings (1605.T: Quote, Profile, Research, Stock Buzz) gained 4.7 percent to 1.34 million yen.
Trade was moderate on the Tokyo exchange's first section, with 1.83 billion shares changing hands, in line with last week's daily average.
Declining stocks outpaced advancing ones by 816 to 796. (Reporting by Aiko Hayashi; Editing by Chris Gallagher)
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By Aiko Hayashi
TOKYO, June 30 (Reuters) - Japan's Nikkei stock average dipped 0.5 percent on Monday to end its worst first half since 1995, though it gained about 8 percent this quarter, recovering about half of what it lost since a year-low hit in mid-March.
Retailers weighed on the market, with Takashimaya Co (8233.T: Quote, Profile, Research, Stock Buzz) down 1.3 percent after the department store operator's first-quarter operating profit fell 8 percent and it cut its annual sales outlook. [ID:nT272SUYQR]
One bright spot was trading houses such as Mitsubishi Corp (8058.T: Quote, Profile, Research, Stock Buzz) and other energy-linked shares after oil prices rose to a record near $143 a barrel on Friday as a drop in global equities markets sent investors into commodities. [O/R]
"There are expectations for a rebound, but investors can't buy too aggressively due to last week's fall in U.S. stocks, unstable currency moves and uncertainty about the outlook for oil prices," said Yoshinori Nagano, chief strategist at Daiwa Asset Management.
The Nikkei average .N225 shed 62.98 points to 13,481.38, falling for an eighth straight day, its longest losing streak since last November.
The benchmark fell 11.9 percent for the first half of this year, the worst since 1995 when it lost 26 percent.
Still, it gained 7.6 percent for the April-June quarter.
The broader Topix edged down 0.04 percent to 1,320.10.
Nagano also said that while the market could expect another downturn in the short term, the U.S. economy, a key market for global goods, appears to be on a recovery track from next year.
"The U.S. economy is bad now, but it's not accelerating in a downward spiral," he said.
"I wouldn't be surprised if the (Japanese) market started moving solidly in the latter half of this year as the stock market could start factoring in the recovery about six months in advance."
Market participants said active buying was also inhibited before the Bank of Japan's tankan business sentiment survey due on Tuesday and U.S. jobs data later in the week.
"We can't really be sure if the market has hit its bottom as that still depends on how the credit-squeeze problems will pan out," said Katsuhiko Kodama, senior strategist at Toyo Securities.
RETAIL DRAGS
Takashimaya shed 1.3 percent to 963 yen.
Fellow department store operator Isetan Mitsukoshi (3099.T: Quote, Profile, Research, Stock Buzz) also slid after Takashimaya's results confirmed a tough operating environment. It lost 5.6 percent to 1,137 yen.
Scattered selling of blue-chip exporters saw Sony Corp (6758.T: Quote, Profile, Research, Stock Buzz) dragged down 4.1 percent to 4,640 yen, while industrial robot maker Fanuc Ltd (6954.T: Quote, Profile, Research, Stock Buzz) slid 3.1 percent to 10,370 yen.
Toyota Motor Corp (7203.T: Quote, Profile, Research, Stock Buzz) slipped 1.2 percent to 5,010 yen.
Sony also fell after its mobile phone joint venture with Ericsson (ERICb.ST: Quote, Profile, Research, Stock Buzz) warned on Friday net income before taxes is estimated to be about break-even in the second quarter of calendar 2008 due to weaker demand for its more expensive phones.
Trading houses gained as Japan's top trading firms invest heavily in overseas oil fields and mines. Mitsubishi Corp, Japan's largest trading house, rose 3.2 percent to 3,500 yen.
Among other energy-linked shares, Nippon Oil (5001.T: Quote, Profile, Research, Stock Buzz), Japan's largest oil distributor, shot up 7.4 percent to 713 yen. Oil explorer Inpex Holdings (1605.T: Quote, Profile, Research, Stock Buzz) gained 4.7 percent to 1.34 million yen.
Trade was moderate on the Tokyo exchange's first section, with 1.83 billion shares changing hands, in line with last week's daily average.
Declining stocks outpaced advancing ones by 816 to 796. (Reporting by Aiko Hayashi; Editing by Chris Gallagher)
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Oil nears $142 on weak dlr, Israel-Iran tensions
06.30.08, 2:18 AM ET
United States - * Oil nears $142 on weak U.S. dollar and growing Israel-Iran tensions
* Iran says will impose controls on a vital Gulf oil route if the country is attacked. (Updates prices, China's CNPC to increase imports)
By Fayen Wong
PERTH, June 30 (Reuters) - Oil rose over $1 to near $142 a barrel on Monday, bolstered by a weak U.S. dollar and continuing tensions between Israel and Iran over Tehran's nuclear programme.
U.S. light crude for August delivery was up $1.68 at $141.89 a barrel in Globex electronic trading by 0558 GMT, within range of the record of $142.99 struck on Friday.
London Brent crude rose $1.57 cents to $141.88.
"The U.S. dollar is down and there are many high-level geopolitical news items, particularly in the Middle East, that are pushing prices up," said Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank in Melbourne.
"Oil is now a very jittery and news-sensitive market that is running on rumours and concerns of future supply disruptions."
Iran's foreign minister said on Sunday he did not believe Israel was in a position to attack his country over its nuclear programme, while an Iranian general announced plans to prepare 320,000 graves for enemy soldiers.
The comments were the latest in an escalating war of words between the arch-foes that has helped fuel speculation of a possible Israeli attack on Iran, the world's fourth-largest oil exporter. The speculation has helped push oil prices to record highs.
Comments from Iran that it would impose controls on shipping on a vital Gulf oil route if the country was attacked also added to supply jitters.
The Straits of Hormuz, a narrow waterway separating Iran from the Arabian Peninsula, accounts for roughly 40 percent of the world's traded oil flows.
News that top Chinese oil firm CNPC would increase imports of refined oil products in the third quarter to boost supply to the domestic markets also lent support to prices.
Oil prices have jumped more than 45 percent this year, extending a six-year rally, as supply struggles to keep pace with rising demand from emerging economies such as China and India.
Additional support has come from a flood of cash from new investors buying up commodities to hedge against inflation and the weak U.S. dollar, which fell to three-week lows against the euro on Monday.
Analysts said dealers would be eyeing U.S. economic indicators due later on Monday as well as the European Central Bank's interest rates decision on Thursday for further guidance on the U.S. dollar.
U.S economic indicators due Monday include the New York National Association of Purchasing Managers' index for June and a similar report from Chicago, due at 1300 GMT and 1345 GMT respectively. (Editing by Michael Urquhart)
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United States - * Oil nears $142 on weak U.S. dollar and growing Israel-Iran tensions
* Iran says will impose controls on a vital Gulf oil route if the country is attacked. (Updates prices, China's CNPC to increase imports)
By Fayen Wong
PERTH, June 30 (Reuters) - Oil rose over $1 to near $142 a barrel on Monday, bolstered by a weak U.S. dollar and continuing tensions between Israel and Iran over Tehran's nuclear programme.
U.S. light crude for August delivery was up $1.68 at $141.89 a barrel in Globex electronic trading by 0558 GMT, within range of the record of $142.99 struck on Friday.
London Brent crude rose $1.57 cents to $141.88.
"The U.S. dollar is down and there are many high-level geopolitical news items, particularly in the Middle East, that are pushing prices up," said Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank in Melbourne.
"Oil is now a very jittery and news-sensitive market that is running on rumours and concerns of future supply disruptions."
Iran's foreign minister said on Sunday he did not believe Israel was in a position to attack his country over its nuclear programme, while an Iranian general announced plans to prepare 320,000 graves for enemy soldiers.
The comments were the latest in an escalating war of words between the arch-foes that has helped fuel speculation of a possible Israeli attack on Iran, the world's fourth-largest oil exporter. The speculation has helped push oil prices to record highs.
Comments from Iran that it would impose controls on shipping on a vital Gulf oil route if the country was attacked also added to supply jitters.
The Straits of Hormuz, a narrow waterway separating Iran from the Arabian Peninsula, accounts for roughly 40 percent of the world's traded oil flows.
News that top Chinese oil firm CNPC would increase imports of refined oil products in the third quarter to boost supply to the domestic markets also lent support to prices.
Oil prices have jumped more than 45 percent this year, extending a six-year rally, as supply struggles to keep pace with rising demand from emerging economies such as China and India.
Additional support has come from a flood of cash from new investors buying up commodities to hedge against inflation and the weak U.S. dollar, which fell to three-week lows against the euro on Monday.
Analysts said dealers would be eyeing U.S. economic indicators due later on Monday as well as the European Central Bank's interest rates decision on Thursday for further guidance on the U.S. dollar.
U.S economic indicators due Monday include the New York National Association of Purchasing Managers' index for June and a similar report from Chicago, due at 1300 GMT and 1345 GMT respectively. (Editing by Michael Urquhart)
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Yen Climbs After Moody's Raises Japan's Local-Currency Rating
By Stanley White and Kosuke Goto
June 30 (Bloomberg) -- The yen rose, paring its biggest quarterly decline against the euro in five years, after Moody's Investors Service raised Japan's local-currency debt rating.
The yen pared a daily decline of as much as 0.3 percent after Moody's said Japanese banks had avoided the worst effects of the credit crisis. The yen also reversed losses against the Australian dollar and the British pound on speculation stock losses in Tokyo will spread to Europe, prompting a reduction in purchases of higher-yielding assets funded with Japan's currency.
``Some people in Europe are taking advantage of the Moody's news to buy the yen,'' said Akio Shimizu, chief manager of foreign exchange trading at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. ``Sentiment is leaning toward yen buying as traders look to reduce risk. People wary of stocks may also buy yen.''
The yen traded at 166.85 against the euro at 7:24 a.m. in London from 167.58 late in New York on June 27 and 157.40 on March 31. Against the dollar, it was at 105.66 from 106.13 last week and 99.69 last quarter. The dollar was quoted at $1.5792 against the euro, after falling to $1.5797, the lowest since June 9. The yen may rise to 105.50 today, Shimizu said.
The yen advanced to 101.79 per Australian dollar from 101.99 in New York and to 210.67 against the British pound from 211.73. The Aussie, as Australia's currency is known, climbed to 96.33 U.S. cents from 96.10 cents as prices of commodities the nation exports rose to records.
Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, slid 12 to 3,358 following the Nikkei 225 Stock Average's decline for an eighth day.
In carry trades, investors get funds in a country with low borrowing costs and purchase assets where returns are higher. Japan's target lending rate of 0.5 percent, is the lowest among industrialized countries.
Moody's Upgrade
Japan had its rating raised one level to Aa3 by Moody's, which said the government will keep trying to restrain spending to reduce debt. Japanese Prime Minister Yasuo Fukuda last week reaffirmed his pledge to balance the budget by 2011 so that the government can cut the world's largest public debt.
``News on Moody's upgrade was a big surprise, triggering yen-buying,'' said Yuji Saito, head of foreign-exchange sales at Societe Generale SA in Tokyo. Even so, he added, ``we Japanese think the Fukuda administration is reluctant to cut spending and the Japanese economy is slowing.''
The yen may rise to 105.60 a dollar today, Saito said.
BOJ Tankan
Gains in the yen may be limited by speculation the Bank of Japan will keep interest rates on hold, while the European Central Bank prepares to raise borrowing costs.
The Bank of Japan's Tankan index of sentiment, due tomorrow at 8:50 a.m. in Tokyo, will slide for a third straight quarter to 3 points in June, the lowest in almost five years, from 11 in March, a Bloomberg News survey showed. A positive number means optimists outnumber pessimists.
Japan's central bank will keep its target lending rate at 0.5 percent through September 2009, a Bloomberg News survey of economists showed. Benchmark rates are 7.25 percent in Australia and 12.25 percent in Brazil.
``With Japan's interest rates still very low, there is no catalyst for yen-buying,'' said Koji Fukaya, a senior currency strategist at the Tokyo unit of Deutsche Bank AG, the world's largest currency trader. ``The yen may fall to 110 a dollar in two months.''
Group of Seven
The dollar headed for a 6.5 percent quarterly gain against the yen, its biggest since December 2001, after finance ministers from the Group of Seven nations said on April 11 they were concerned about the impact of ``sharp fluctuations in major currencies.'' The euro was little changed against the dollar this quarter after rising 8.2 percent the previous three months.
Investors should avoid the dollar ``at all costs,'' said Jim Rogers, chairman of Rogers Holdings. Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, made the comments in a speech in Shanghai today.
The dollar was near a three-week low against the euro before a reports this week that may show declines in payrolls and manufacturing, limiting the Federal Reserve's scope to reverse seven interest-rate cuts since September.
U.S. nonfarm payrolls shrank by 60,000 workers, according to a Bloomberg News survey before the Labor Department's report on July 3. That would follow a decline of 49,000 in May.
U.S. Economy
The Institute for Supply Management's factory index due tomorrow fell to 48.6 in June from 49.6 in May, a separate survey showed. A reading below 50 signals contraction.
``U.S. economic data simply don't support the case for a rate hike,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``With the ECB likely to raise rates, that makes the euro seem more attractive.''
The dollar may fall to 106.10 yen and $1.5840 per euro today, he said.
Futures on the Chicago Board of Trade show a 25 percent chance that the Fed will raise the target rate for overnight lending between banks by a quarter-percentage point to 2.25 percent on Aug. 5, compared with 40 percent odds a week ago.
The euro was supported by speculation a report today will show price increases accelerated in June, allowing ECB President Jean-Claude Trichet to raise interest rates.
The inflation rate in the euro area rose to 3.9 percent, from 3.6 percent in May, the European Union statistics office in Luxembourg may say today, according to a Bloomberg survey. The ECB aims to keep consumer-price growth below 2 percent.
``The euro remains firm ahead of the ECB meeting,'' said Masaki Fukui, a senior economist and currency analyst in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded financial group. ``The ECB may raise rates beyond July, possibly in September or October.''
Europe's single currency may move between $1.56 and $1.60 against the dollar this week, Fukui said.
Columbian Peso
The Columbian peso's five-year, 49 percent rally is leading to mounting job losses in South American country's export industry and is threatening President Alvaro Uribe's greatest achievements: the fastest economic expansion in three decades and victories over guerrillas.
``The concern is that people lose jobs and have no other alternatives in the legal economy,'' said Javier Diaz, head of the National Exporters Association in Bogota. ``And then the drug trade becomes their only alternative.''
Colombian central bankers announced on June 20 a plan to buy $20 million a day in the currency market. The move sparked an 11 percent decline in the peso last week to 1,888.4 per dollar, paring the peso's advance this year to 6.8 percent.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Kosuke Goto in Tokyo at kgoto2@bloomberg.net
Last Updated: June 30, 2008 03:17 EDT
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Crude Oil Rises a Third Day on Outlook for Declines in Dollar
By Christian Schmollinger and Nesa Subrahmaniyan
June 30 (Bloomberg) -- Crude oil rose for a third day, trading near a record $142.99 a barrel in New York as the falling dollar spurred demand for commodities.
The dollar, which has declined 7.3 percent this year against the euro, may drop if the European Central Bank boosts rates on July 3, said Gerard Burg, the energy and minerals economist at National Australia Bank Ltd. in Melbourne. The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent, according to a survey of economists by Bloomberg News.
``The dollar will be getting weaker so that is bringing fresh money into the oil market,'' said Tetsu Emori, a fund manager with Astmax Ltd., a fund management company, in Tokyo. ``Oil market sentiment is getting stronger.''
Crude oil for August delivery rose as much as $2.14, or 1.5 percent, to $142.35 a barrel in electronic trading on the New York Mercantile Exchange. It was at $142.19 a barrel at 3:12 p.m. in Singapore.
The contract reached its all-time high of $142.99 a barrel on June 27 before settling at $140.06, a gain of 0.3 percent on the day. Prices rose 4.2 percent last week as the Federal Reserve left interest rates unchanged and showed no signs it will support the dollar any time soon.
John Bolton, the former U.S. envoy to the United Nations, has said Israel would strike Iran between the U.S. presidential election in November and inauguration in January because the government in Tehran continues to resist pressure to halt its enrichment of uranium, which could be used to build a weapon.
Threats to Supply
Declines in the dollar and pressure on Iran to end its uranium enrichment program may push oil to $170 a barrel by the end of the year, OPEC President Chakib Khelil said June 28.
Foreign ministers from the Group of Eight nations last week suggested more talks to coax Iran into opening its nuclear program to inspectors, after speculation the Islamic Republic faces an imminent Israeli strike. Iran is the second-largest oil producer within OPEC.
The Organization of Petroleum Exporting Countries pumps about 40 percent of the world's oil and Iran is the group's second-biggest member.
Oil has also gained this year as militant attacks in Nigeria, Africa's second-biggest crude producer, and output failures in the North Sea reduced supplies.
U.S. Manufacturing
Brent crude oil for August settlement rose as much as $2.06, or 1.5 percent, to $142.37 a barrel on London's ICE Futures Europe exchange. It was at $142.20 a barrel at 3:13 p.m. Singapore time. Prices reached $142.97 a barrel on June 27, the highest since trading began in 1988.
The Institute for Supply Management's factory index probably showed U.S. manufacturing fell to 48.6 in June from 49.6 the previous month, according to a Bloomberg survey of economists. A reading below 50 signals contraction. The ISM will release the data tomorrow.
``That will have a pretty good impact across all the commodity markets,'' National Australia Bank's Burg said. The ECB meeting on interest rates ``as well will provide a bit of guidance as to what the potential for demand is going forward,'' said National Australia's Burg.
The dollar was at $1.5785 against the euro at 2:41 p.m. Singapore time from $1.5794, the lowest since June 9.
Avoid the dollar ``at all costs,'' investor Jim Rogers said in Shanghai today. ``The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything including seeds.''
Currency Moves
While the biggest driver in oil prices remains tight global supplies, movements in currencies and declining world equity markets have increased investment in commodities and volatility of prices, National Australia's Burg said.
Hedge fund managers and other large speculators almost doubled their bets on rising prices in the week ended June 24, according to U.S. Commodity Futures Trading commission data.
Net-long positions in New York oil contracts, the difference between contracts to buy and sell the commodity, gained 90.5 percent to 24,217 contracts. Long positions rose from a five-month low a week earlier while contracts to sell oil fell a second week to a two-month low.
A dispute over safety and staff selection at Chevron Corp.'s unit in Nigeria, Africa's biggest oil producer has been settled, ending a five-day strike, a union official said June 28.
To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.
Last Updated: June 30, 2008 03:15 EDT
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June 30 (Bloomberg) -- Crude oil rose for a third day, trading near a record $142.99 a barrel in New York as the falling dollar spurred demand for commodities.
The dollar, which has declined 7.3 percent this year against the euro, may drop if the European Central Bank boosts rates on July 3, said Gerard Burg, the energy and minerals economist at National Australia Bank Ltd. in Melbourne. The European Central Bank is expected to raise interest rates a quarter-percentage point to 4.25 percent, according to a survey of economists by Bloomberg News.
``The dollar will be getting weaker so that is bringing fresh money into the oil market,'' said Tetsu Emori, a fund manager with Astmax Ltd., a fund management company, in Tokyo. ``Oil market sentiment is getting stronger.''
Crude oil for August delivery rose as much as $2.14, or 1.5 percent, to $142.35 a barrel in electronic trading on the New York Mercantile Exchange. It was at $142.19 a barrel at 3:12 p.m. in Singapore.
The contract reached its all-time high of $142.99 a barrel on June 27 before settling at $140.06, a gain of 0.3 percent on the day. Prices rose 4.2 percent last week as the Federal Reserve left interest rates unchanged and showed no signs it will support the dollar any time soon.
John Bolton, the former U.S. envoy to the United Nations, has said Israel would strike Iran between the U.S. presidential election in November and inauguration in January because the government in Tehran continues to resist pressure to halt its enrichment of uranium, which could be used to build a weapon.
Threats to Supply
Declines in the dollar and pressure on Iran to end its uranium enrichment program may push oil to $170 a barrel by the end of the year, OPEC President Chakib Khelil said June 28.
Foreign ministers from the Group of Eight nations last week suggested more talks to coax Iran into opening its nuclear program to inspectors, after speculation the Islamic Republic faces an imminent Israeli strike. Iran is the second-largest oil producer within OPEC.
The Organization of Petroleum Exporting Countries pumps about 40 percent of the world's oil and Iran is the group's second-biggest member.
Oil has also gained this year as militant attacks in Nigeria, Africa's second-biggest crude producer, and output failures in the North Sea reduced supplies.
U.S. Manufacturing
Brent crude oil for August settlement rose as much as $2.06, or 1.5 percent, to $142.37 a barrel on London's ICE Futures Europe exchange. It was at $142.20 a barrel at 3:13 p.m. Singapore time. Prices reached $142.97 a barrel on June 27, the highest since trading began in 1988.
The Institute for Supply Management's factory index probably showed U.S. manufacturing fell to 48.6 in June from 49.6 the previous month, according to a Bloomberg survey of economists. A reading below 50 signals contraction. The ISM will release the data tomorrow.
``That will have a pretty good impact across all the commodity markets,'' National Australia Bank's Burg said. The ECB meeting on interest rates ``as well will provide a bit of guidance as to what the potential for demand is going forward,'' said National Australia's Burg.
The dollar was at $1.5785 against the euro at 2:41 p.m. Singapore time from $1.5794, the lowest since June 9.
Avoid the dollar ``at all costs,'' investor Jim Rogers said in Shanghai today. ``The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything including seeds.''
Currency Moves
While the biggest driver in oil prices remains tight global supplies, movements in currencies and declining world equity markets have increased investment in commodities and volatility of prices, National Australia's Burg said.
Hedge fund managers and other large speculators almost doubled their bets on rising prices in the week ended June 24, according to U.S. Commodity Futures Trading commission data.
Net-long positions in New York oil contracts, the difference between contracts to buy and sell the commodity, gained 90.5 percent to 24,217 contracts. Long positions rose from a five-month low a week earlier while contracts to sell oil fell a second week to a two-month low.
A dispute over safety and staff selection at Chevron Corp.'s unit in Nigeria, Africa's biggest oil producer has been settled, ending a five-day strike, a union official said June 28.
To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.
Last Updated: June 30, 2008 03:15 EDT
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Stock, Bond Slumps Signal Worse Than '94 as Inflation Says '74
By Michael Patterson
June 30 (Bloomberg) -- It's been 14 years since investors suffered as big a retreat in stocks and bonds and some of the largest money managers say the losses may have more in common with the 1974 bear market before the worst is over.
The Standard & Poor's 500 Index dropped 3.4 percent since March and investors in Treasuries lost 2.88 percent, the steepest combined plunge in 14 years, according to data compiled by Merrill Lynch & Co. and Bloomberg. Equity and debt markets fell in tandem for only the sixth time since the savings and loan crisis of the 1990s as oil closed at a record 19 times and concern grew that inflation will cut the value of bond payments.
Dreman Value Management LLC, BlackRock Inc. and Cambiar Investors LLC, which together oversee $1.38 trillion, are buying banks, phone companies and oil producers to weather more declines in benchmark indexes. David Dreman, whose DWS Dreman Small Cap Value Fund beat 90 percent of its peers over five years, bought Cleveland-based KeyCorp as financial firms fell to a 10-year low last week. BlackRock added AT&T Inc. for the best dividend yield since 2006. Cambiar says Marathon Oil Corp. is inexpensive.
``Between inflation and the liquidity crisis, this is one of the toughest markets I've seen,'' said Dreman, who oversees about $15 billion in Jersey City, New Jersey. ``But it's not a market you sell into. Any losses you take by being too early will be more than offset by buying cheaply.''
Coordinated Plunge
Dreman founded his firm in 1977, three years after the S&P 500 fell 30 percent for its worst annual loss in the last 60 years. Stocks plunged as the Arab oil embargo pushed up U.S. consumer prices as much as 12.3 percent, at the time the biggest annual advance since 1947.
Consumer prices climbed 4.2 percent in the 12 months to May. The Reuters/Jefferies CRB Index, a gauge of 19 commodities, added 49 percent in the past year, exceeding the record 48 percent annual gain in 1973.
Investors were whipsawed this month by the Dow Jones Industrial Average's worst June since 1930 and the biggest losses in Treasuries in four years. Bets that the Federal Reserve will increase interest rates helped spur a 1,292-point tumble in the Dow average this month on concern higher borrowing costs will prolong the worst profit slump in six years.
Just two of 10 industries in the S&P 500 rose this year. Energy producers gained 6.3 percent and a group of mining and chemical companies added 0.5 percent. Massey Energy Co., the fourth-biggest U.S. coal producer, advanced 155 percent for the index's biggest rally after the Richmond, Virginia-based company's first-quarter profit topped analysts' forecasts.
Bear Market
The drop in the Dow to its lowest level since September 2006 is part of a ``secular bear market'' that may last 10 to 15 years as home prices fall, consumers default and tighter credit slows economic growth, says Ryan Atkinson of Balestra Capital Ltd., which manages $550 million including last year's fourth-best performing U.S. hedge fund and is wagering equities will fall.
``The vast majority of investors are long-only investors and they would like nothing more than for stocks to always move to the upside,'' said Atkinson after the Dow came within 15 points of a 20 percent retreat from its October record. ``History shows we have bull markets and we have bear markets, and this is a bear market. That's what they're missing.''
Global stocks are poised for their worst monthly decline since September 2002. The MSCI World Index retreated 8.4 percent in June, while China's CSI 300 Index lost 22 percent for the steepest slide among the 20 biggest markets. An 11 percent retreat in Brazil's Bovespa index cut its year-to-date return to 0.7 percent, leaving Canada as the world's best performer in 2008. The S&P/Toronto Stock Exchange Composite Index climbed 3.8 percent this year.
Credit Losses
The Balestra Capital Partners fund rose about 130 percent in nine months last year after betting mortgage bonds would default, according to a letter sent to investors. Almost $400 billion of bank credit losses and writedowns sent financial stocks in the S&P 500 down 44 percent since the beginning of 2007, the worst performance among 10 industries.
Citigroup Inc. fell 19 percent this quarter and is trading at a decade low. Goldman Sachs Group Inc. added the biggest U.S. lender by assets to its ``conviction sell'' list last week and cut its recommendation on U.S. brokerages, saying losses in the industry will be ``far worse'' than it originally anticipated.
KeyCorp shares decreased 49 percent this quarter, the fifth- steepest drop among 90 financial companies in the S&P 500, after it said it would sell new stock and reduce its dividend to cover a tax ruling. Only one of the 21 analysts following the shares rate it a ``buy,'' according to data compiled by Bloomberg.
Speculation that the Fed will lift its target rate for overnight loans between banks pushed the Merrill Lynch Treasury Master Index down 2.88 percent this quarter, the biggest loss since 2004. The index has averaged a total return of about 1.75 percent in quarters when the S&P 500 fell over the last two decades, data compiled by Bloomberg show.
Dividend Yields
Dennis Stattman, who helps manage about $46 billion in asset allocation funds for BlackRock, owns fewer stocks and bonds than are represented in his benchmark in part because oil's rise is spurring inflation even as the outlook for economic growth deteriorates. He likes AT&T, the biggest U.S. phone company, because a 21 percent drop this year pushed its dividend to 4.88 percent of the share price, the highest yield since July 2006.
``We're buying pretty carefully and we're able to get some attractive stocks,'' Stattman, whose BlackRock Global Allocation Fund outperformed 86 percent of peers last year, said in a phone interview from Chicago. Still, ``there's some risk now that inflation is damaging the value of all financial assets, stocks and bonds included,'' he said.
`Very Treacherous'
Laszlo Birinyi, president of Westport, Connecticut-based research and money-management firm Birinyi Associates Inc., says it's ``very treacherous'' to make long-term bets on stock markets now because equities are swinging too much and there's ``very few historical parallels'' to gauge when they will stop.
The S&P 500 alternated between gains and losses for six days before ending last week with the steepest two-day plunge in four months. The Chicago Board Options Exchange Volatility Index, a gauge of expected swings in the S&P 500, almost doubled in 2007 and surged 13 percent on June 26.
Birinyi is purchasing companies such as Paris-based handbag maker Hermes International, which has no ``buy'' ratings and 17 ``sells'' from Wall Street analysts, according to Bloomberg data. He also owns stocks that outperformed peers such as U.S. Steel Corp., the country's largest steelmaker by revenue.
Hermes rose 16 percent in 2008, helped by takeover speculation and first-quarter revenue that topped analysts' estimates. U.S. Steel rallied 55 percent since December after hot-rolled steel-sheet prices jumped about 86 percent in the year through May.
Stock Picking
``We want to look for individual stocks,'' said Birinyi, who oversees more than $300 million. ``That's probably the toughest part of the process but it's the most rewarding. It's where the opportunities are.''
Cambiar's Brian Barish beat his peers this year by purchasing energy and raw-materials producers. He's betting Houston-based Marathon Oil, the fourth-largest U.S. oil company, and Newmont Mining Corp., the world's third-largest gold producer, will advance because they haven't caught up with a 102 percent surge in oil and 45 percent gain in gold over the past year.
Marathon's stock fetches 7.4 times analysts' average 2008 profit estimate, 30 percent less than the average for energy companies in the S&P 500, according to Bloomberg data. Newmont's 7.9 percent gain this year is the eighth-best in the Philadelphia Stock Exchange Gold & Silver Index, which rose 12 percent.
Barish is shunning any company that relies on low energy costs and a surging economy to boost earnings.
``You're winding up with a handful of winners and a whole lot of losers,'' said Barish, who outperformed 98 percent of his peers this year running the Cambiar Aggressive Value Fund and the Cambiar Opportunity Fund. ``It's painful, but we're trying to concentrate our positions around the areas of the market where you don't have these ferocious headwinds.''
For related news: For top stocks stories: TOP STK For top bond stories: TOP BON For stories on bear markets: NSE Bear Market IN WIRE:BN
Last Updated: June 29, 2008 19:04 EDT
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June 30 (Bloomberg) -- It's been 14 years since investors suffered as big a retreat in stocks and bonds and some of the largest money managers say the losses may have more in common with the 1974 bear market before the worst is over.
The Standard & Poor's 500 Index dropped 3.4 percent since March and investors in Treasuries lost 2.88 percent, the steepest combined plunge in 14 years, according to data compiled by Merrill Lynch & Co. and Bloomberg. Equity and debt markets fell in tandem for only the sixth time since the savings and loan crisis of the 1990s as oil closed at a record 19 times and concern grew that inflation will cut the value of bond payments.
Dreman Value Management LLC, BlackRock Inc. and Cambiar Investors LLC, which together oversee $1.38 trillion, are buying banks, phone companies and oil producers to weather more declines in benchmark indexes. David Dreman, whose DWS Dreman Small Cap Value Fund beat 90 percent of its peers over five years, bought Cleveland-based KeyCorp as financial firms fell to a 10-year low last week. BlackRock added AT&T Inc. for the best dividend yield since 2006. Cambiar says Marathon Oil Corp. is inexpensive.
``Between inflation and the liquidity crisis, this is one of the toughest markets I've seen,'' said Dreman, who oversees about $15 billion in Jersey City, New Jersey. ``But it's not a market you sell into. Any losses you take by being too early will be more than offset by buying cheaply.''
Coordinated Plunge
Dreman founded his firm in 1977, three years after the S&P 500 fell 30 percent for its worst annual loss in the last 60 years. Stocks plunged as the Arab oil embargo pushed up U.S. consumer prices as much as 12.3 percent, at the time the biggest annual advance since 1947.
Consumer prices climbed 4.2 percent in the 12 months to May. The Reuters/Jefferies CRB Index, a gauge of 19 commodities, added 49 percent in the past year, exceeding the record 48 percent annual gain in 1973.
Investors were whipsawed this month by the Dow Jones Industrial Average's worst June since 1930 and the biggest losses in Treasuries in four years. Bets that the Federal Reserve will increase interest rates helped spur a 1,292-point tumble in the Dow average this month on concern higher borrowing costs will prolong the worst profit slump in six years.
Just two of 10 industries in the S&P 500 rose this year. Energy producers gained 6.3 percent and a group of mining and chemical companies added 0.5 percent. Massey Energy Co., the fourth-biggest U.S. coal producer, advanced 155 percent for the index's biggest rally after the Richmond, Virginia-based company's first-quarter profit topped analysts' forecasts.
Bear Market
The drop in the Dow to its lowest level since September 2006 is part of a ``secular bear market'' that may last 10 to 15 years as home prices fall, consumers default and tighter credit slows economic growth, says Ryan Atkinson of Balestra Capital Ltd., which manages $550 million including last year's fourth-best performing U.S. hedge fund and is wagering equities will fall.
``The vast majority of investors are long-only investors and they would like nothing more than for stocks to always move to the upside,'' said Atkinson after the Dow came within 15 points of a 20 percent retreat from its October record. ``History shows we have bull markets and we have bear markets, and this is a bear market. That's what they're missing.''
Global stocks are poised for their worst monthly decline since September 2002. The MSCI World Index retreated 8.4 percent in June, while China's CSI 300 Index lost 22 percent for the steepest slide among the 20 biggest markets. An 11 percent retreat in Brazil's Bovespa index cut its year-to-date return to 0.7 percent, leaving Canada as the world's best performer in 2008. The S&P/Toronto Stock Exchange Composite Index climbed 3.8 percent this year.
Credit Losses
The Balestra Capital Partners fund rose about 130 percent in nine months last year after betting mortgage bonds would default, according to a letter sent to investors. Almost $400 billion of bank credit losses and writedowns sent financial stocks in the S&P 500 down 44 percent since the beginning of 2007, the worst performance among 10 industries.
Citigroup Inc. fell 19 percent this quarter and is trading at a decade low. Goldman Sachs Group Inc. added the biggest U.S. lender by assets to its ``conviction sell'' list last week and cut its recommendation on U.S. brokerages, saying losses in the industry will be ``far worse'' than it originally anticipated.
KeyCorp shares decreased 49 percent this quarter, the fifth- steepest drop among 90 financial companies in the S&P 500, after it said it would sell new stock and reduce its dividend to cover a tax ruling. Only one of the 21 analysts following the shares rate it a ``buy,'' according to data compiled by Bloomberg.
Speculation that the Fed will lift its target rate for overnight loans between banks pushed the Merrill Lynch Treasury Master Index down 2.88 percent this quarter, the biggest loss since 2004. The index has averaged a total return of about 1.75 percent in quarters when the S&P 500 fell over the last two decades, data compiled by Bloomberg show.
Dividend Yields
Dennis Stattman, who helps manage about $46 billion in asset allocation funds for BlackRock, owns fewer stocks and bonds than are represented in his benchmark in part because oil's rise is spurring inflation even as the outlook for economic growth deteriorates. He likes AT&T, the biggest U.S. phone company, because a 21 percent drop this year pushed its dividend to 4.88 percent of the share price, the highest yield since July 2006.
``We're buying pretty carefully and we're able to get some attractive stocks,'' Stattman, whose BlackRock Global Allocation Fund outperformed 86 percent of peers last year, said in a phone interview from Chicago. Still, ``there's some risk now that inflation is damaging the value of all financial assets, stocks and bonds included,'' he said.
`Very Treacherous'
Laszlo Birinyi, president of Westport, Connecticut-based research and money-management firm Birinyi Associates Inc., says it's ``very treacherous'' to make long-term bets on stock markets now because equities are swinging too much and there's ``very few historical parallels'' to gauge when they will stop.
The S&P 500 alternated between gains and losses for six days before ending last week with the steepest two-day plunge in four months. The Chicago Board Options Exchange Volatility Index, a gauge of expected swings in the S&P 500, almost doubled in 2007 and surged 13 percent on June 26.
Birinyi is purchasing companies such as Paris-based handbag maker Hermes International, which has no ``buy'' ratings and 17 ``sells'' from Wall Street analysts, according to Bloomberg data. He also owns stocks that outperformed peers such as U.S. Steel Corp., the country's largest steelmaker by revenue.
Hermes rose 16 percent in 2008, helped by takeover speculation and first-quarter revenue that topped analysts' estimates. U.S. Steel rallied 55 percent since December after hot-rolled steel-sheet prices jumped about 86 percent in the year through May.
Stock Picking
``We want to look for individual stocks,'' said Birinyi, who oversees more than $300 million. ``That's probably the toughest part of the process but it's the most rewarding. It's where the opportunities are.''
Cambiar's Brian Barish beat his peers this year by purchasing energy and raw-materials producers. He's betting Houston-based Marathon Oil, the fourth-largest U.S. oil company, and Newmont Mining Corp., the world's third-largest gold producer, will advance because they haven't caught up with a 102 percent surge in oil and 45 percent gain in gold over the past year.
Marathon's stock fetches 7.4 times analysts' average 2008 profit estimate, 30 percent less than the average for energy companies in the S&P 500, according to Bloomberg data. Newmont's 7.9 percent gain this year is the eighth-best in the Philadelphia Stock Exchange Gold & Silver Index, which rose 12 percent.
Barish is shunning any company that relies on low energy costs and a surging economy to boost earnings.
``You're winding up with a handful of winners and a whole lot of losers,'' said Barish, who outperformed 98 percent of his peers this year running the Cambiar Aggressive Value Fund and the Cambiar Opportunity Fund. ``It's painful, but we're trying to concentrate our positions around the areas of the market where you don't have these ferocious headwinds.''
For related news: For top stocks stories: TOP STK
Last Updated: June 29, 2008 19:04 EDT
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ConEd, Marvel, Northwest Airlines: U.S. Equity Preview
By Jeff Kearns
June 29 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets tomorrow. Stock symbols are in parentheses after company names, and prices are as of June 27 in New York, unless stated otherwise.
Consolidated Edison Inc. (ED US): The New York utility and its union agreed to a three-day cooling-off period proposed by Governor David Paterson, leaving Wall Street's power-line repair crews on duty until at least the morning of July 2. ConEd's stock fell 75 cents to $38.42.
Marvel Entertainment Inc. (MVL US): The comic-book publisher's shares may fall should the company lose the rights to such billion-dollar character franchises as Spider-Man and the Hulk, Barron's reported, without citing anyone. Marvel shares fell 92 cents to $33.
NDS Group Plc (NNDS US): News Corp. (NWS/A US) and Permira Advisers LLP offered to buy out public investors in NDS Group Plc for $60 a share. NDS, whose technology enables access to pay- television services, is already 72 percent owned by News Corp. Under the offer, Permira would end up with 51 percent of the company and News Corp. would reduce its stake to 49 percent, the companies said June 27 in an e-mailed statement. NDS fell 78 cents to $49.70.
Northwest Airlines Corp. (NWA US): The leaders of the carrier's pilots union approved a tentative contract agreement with merger partner Delta Air Lines Inc. and its pilots, according to a message on the Air Line Pilots Association Web site today. Northwest added 1.9 percent to $6.31 in regular trading.
Parexel International Corp. (PRXL US): Quintiles Transnational Corp. said it won't proceed with an offer for computer software-maker ClinPhone Plc, leaving the door open for Parexel as the sole bidder. On June 13, Parexel offered to buy ClinPhone for 91 million pounds ($181.5 million) or 135 pence in cash per share. Parexel rose 9 cents to $26.59 on June 27.
Petroleo Brasileiro SA (PBR US): Brazil's state-controlled oil company may rise 25 percent within a year should three new deepwater oil wells it found prove productive, Barron's reported, citing analysts. The company's American depositary receipts, which each represent two common shares, rose 91 cents to $69.23.
Tongjitang Chinese Medicines Co. (TCM US) lost 20 percent to $5.30 in extended trading. The maker of Chinese medications said Chief Executive Officer Xiaochun Wang and director Yongcun Chen withdrew their offer to purchase the company. The two canceled their offer because of ``the recent deterioration of the credit market,'' the company said in a statement.
Walt Disney Co. (DIS US): The media company's ``Wall-E,'' a movie about a trash-compacting robot, earned $62.5 million in its first weekend to top the domestic box office, bettering the $55 million estimate of Steve Mason, an analyst at FantasyMoguls.com. Disney shares rose 4 cents to $31.57 on June 27.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: June 29, 2008 14:32 EDT
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June 29 (Bloomberg) -- The following companies may have unusual price changes in U.S. markets tomorrow. Stock symbols are in parentheses after company names, and prices are as of June 27 in New York, unless stated otherwise.
Consolidated Edison Inc. (ED US): The New York utility and its union agreed to a three-day cooling-off period proposed by Governor David Paterson, leaving Wall Street's power-line repair crews on duty until at least the morning of July 2. ConEd's stock fell 75 cents to $38.42.
Marvel Entertainment Inc. (MVL US): The comic-book publisher's shares may fall should the company lose the rights to such billion-dollar character franchises as Spider-Man and the Hulk, Barron's reported, without citing anyone. Marvel shares fell 92 cents to $33.
NDS Group Plc (NNDS US): News Corp. (NWS/A US) and Permira Advisers LLP offered to buy out public investors in NDS Group Plc for $60 a share. NDS, whose technology enables access to pay- television services, is already 72 percent owned by News Corp. Under the offer, Permira would end up with 51 percent of the company and News Corp. would reduce its stake to 49 percent, the companies said June 27 in an e-mailed statement. NDS fell 78 cents to $49.70.
Northwest Airlines Corp. (NWA US): The leaders of the carrier's pilots union approved a tentative contract agreement with merger partner Delta Air Lines Inc. and its pilots, according to a message on the Air Line Pilots Association Web site today. Northwest added 1.9 percent to $6.31 in regular trading.
Parexel International Corp. (PRXL US): Quintiles Transnational Corp. said it won't proceed with an offer for computer software-maker ClinPhone Plc, leaving the door open for Parexel as the sole bidder. On June 13, Parexel offered to buy ClinPhone for 91 million pounds ($181.5 million) or 135 pence in cash per share. Parexel rose 9 cents to $26.59 on June 27.
Petroleo Brasileiro SA (PBR US): Brazil's state-controlled oil company may rise 25 percent within a year should three new deepwater oil wells it found prove productive, Barron's reported, citing analysts. The company's American depositary receipts, which each represent two common shares, rose 91 cents to $69.23.
Tongjitang Chinese Medicines Co. (TCM US) lost 20 percent to $5.30 in extended trading. The maker of Chinese medications said Chief Executive Officer Xiaochun Wang and director Yongcun Chen withdrew their offer to purchase the company. The two canceled their offer because of ``the recent deterioration of the credit market,'' the company said in a statement.
Walt Disney Co. (DIS US): The media company's ``Wall-E,'' a movie about a trash-compacting robot, earned $62.5 million in its first weekend to top the domestic box office, bettering the $55 million estimate of Steve Mason, an analyst at FantasyMoguls.com. Disney shares rose 4 cents to $31.57 on June 27.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: June 29, 2008 14:32 EDT
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Invermar, Mexichem, Natura, Sao Martinho: Latin Equity Preview
By Paulo Winterstein and William Freebairn
June 30 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares fell 0.4 percent to 4,669.74 on June 27. Colombian markets are closed today for a holiday. In Brazil, preferred shares are the most commonly traded class of stock.
Brazil
Natura Cosmeticos SA (NATU3 BS): The board of Brazil's biggest cosmetics company approved plans to open subsidiaries in Spain and the Netherlands, Natura said in a June 27 filing, without specifying when the expansion will take place. Natura rose 3.1 percent to 16.20 reais.
Sao Martinho SA (SMTO3 BS): Brazil's second-biggest sugar and ethanol producer said on June 27 that fourth-quarter revenue rose 26 percent from the year-ago period to 231.5 million reais ($145.1 million). That's more than the 183 million reais average of two estimates compiled by Bloomberg. Sao Martinho rose 1 percent to 25.75 reais.
Tele Norte Leste Participacoes SA (TNLP4 BS): Oi, as the operating unit of Brazil's largest telephone company is known, will form a joint venture with Cantv, Venezuela's state-owned telephone company, to build a ring of fiber-optic cable around South America, Sergio Andrade, chairman of Brazilian construction firm Andrade Gutierrez SA, said in a June 27 interview in Caracas. Andrade Gutierrez is one of the largest shareholders of Oi's parent company, Telemar Participacoes SA. Oi dropped 2.1 percent to 39.90 reais.
Usinas Siderurgicas de Minas Gerais SA (USIM5 BS): Brazil's second-biggest steelmaker paid 72 million reais ($45 million) for land on Sepetiba Bay in southeastern Brazil, where it plans to build a port terminal. The terminal will begin operations in 2012, Usiminas said June 27 in a regulatory filing. Usiminas added 0.8 percent to 79.70 reais.
Chile
Multiexport Foods SA (MULTIFOO CC) and Invertec Pesquera Mar de Chiloe SA (INVERMAR CC): The value of salmon exports from Chile, the world's second-largest producer, may drop in 2008 for the first time in seven years after a virus caused anemia in some fish, an industry group said. Shipments may fall ``a bit'' from $2.17 billion last year, the first decline since a price slump in 2001, Cesar Barros, the president of the Santiago-based Association of Chile's Salmon Industry AG, said in a telephone interview June 27. Multiexport, the world's sixth largest salmon producer, rose 5.7 percent to 166.98 pesos. Invermar, a rival producer, gained 5.9 percent to 360 pesos.
Mexico
Alfa SAB (ALFAA MM) and Mexichem SAB (MEXCHEM* MM): Alfa, the world's largest maker of engine blocks, and Mexichem, the biggest plastic pipe maker in Latin America, agreed with a third company to consider investing more than $2 billion to build a chemical plant in Peru. The chairmen of the three companies met with Peru President Alan Garcia to discuss the investment, state news agency Andina reported June 27. Alfa rose 0.7 percent to 74.46 pesos. Mexichem was unchanged at 84.99 pesos.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.
Last Updated: June 30, 2008 00:00 EDT
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June 30 (Bloomberg) -- The following stocks may have significant gains or losses in Latin American markets. Symbols are in parentheses after company names, and stock prices are from the last session.
The MSCI index of Latin American shares fell 0.4 percent to 4,669.74 on June 27. Colombian markets are closed today for a holiday. In Brazil, preferred shares are the most commonly traded class of stock.
Brazil
Natura Cosmeticos SA (NATU3 BS): The board of Brazil's biggest cosmetics company approved plans to open subsidiaries in Spain and the Netherlands, Natura said in a June 27 filing, without specifying when the expansion will take place. Natura rose 3.1 percent to 16.20 reais.
Sao Martinho SA (SMTO3 BS): Brazil's second-biggest sugar and ethanol producer said on June 27 that fourth-quarter revenue rose 26 percent from the year-ago period to 231.5 million reais ($145.1 million). That's more than the 183 million reais average of two estimates compiled by Bloomberg. Sao Martinho rose 1 percent to 25.75 reais.
Tele Norte Leste Participacoes SA (TNLP4 BS): Oi, as the operating unit of Brazil's largest telephone company is known, will form a joint venture with Cantv, Venezuela's state-owned telephone company, to build a ring of fiber-optic cable around South America, Sergio Andrade, chairman of Brazilian construction firm Andrade Gutierrez SA, said in a June 27 interview in Caracas. Andrade Gutierrez is one of the largest shareholders of Oi's parent company, Telemar Participacoes SA. Oi dropped 2.1 percent to 39.90 reais.
Usinas Siderurgicas de Minas Gerais SA (USIM5 BS): Brazil's second-biggest steelmaker paid 72 million reais ($45 million) for land on Sepetiba Bay in southeastern Brazil, where it plans to build a port terminal. The terminal will begin operations in 2012, Usiminas said June 27 in a regulatory filing. Usiminas added 0.8 percent to 79.70 reais.
Chile
Multiexport Foods SA (MULTIFOO CC) and Invertec Pesquera Mar de Chiloe SA (INVERMAR CC): The value of salmon exports from Chile, the world's second-largest producer, may drop in 2008 for the first time in seven years after a virus caused anemia in some fish, an industry group said. Shipments may fall ``a bit'' from $2.17 billion last year, the first decline since a price slump in 2001, Cesar Barros, the president of the Santiago-based Association of Chile's Salmon Industry AG, said in a telephone interview June 27. Multiexport, the world's sixth largest salmon producer, rose 5.7 percent to 166.98 pesos. Invermar, a rival producer, gained 5.9 percent to 360 pesos.
Mexico
Alfa SAB (ALFAA MM) and Mexichem SAB (MEXCHEM* MM): Alfa, the world's largest maker of engine blocks, and Mexichem, the biggest plastic pipe maker in Latin America, agreed with a third company to consider investing more than $2 billion to build a chemical plant in Peru. The chairmen of the three companies met with Peru President Alan Garcia to discuss the investment, state news agency Andina reported June 27. Alfa rose 0.7 percent to 74.46 pesos. Mexichem was unchanged at 84.99 pesos.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; William Freebairn in Mexico City at wfreebairn@bloomberg.net.
Last Updated: June 30, 2008 00:00 EDT
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Bank Rights Offerings Reveal Need to Throw Good Money After Bad
By Elena Logutenkova and Elisa Martinuzzi
June 30 (Bloomberg) -- Merrill Lynch & Co. and UBS AG, fresh from raising a combined $47.3 billion after losses on subprime investments, are using their capital to help rivals find cash.
Merrill and UBS joined Goldman Sachs Group Inc. in arranging the 12.3 billion-pound ($24.4 billion) rights offering by Royal Bank of Scotland Group Plc, the biggest European share sale to existing investors. A 31 percent drop in RBS's stock price pushed the underwriters to within 20 pence of having to buy the shares.
``In the current environment, investing in financials is pretty much like throwing good money after bad,'' said Franz Wenzel, the Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees about $830 billion. ``We have been looking at some banks, but it's still way too early to start buying.''
The inducement of as much as $107 million in fees from arranging rights offers helps explain why investment banks are risking their capital to help shore up the losses of rivals. Underwriters have booked more than $1 billion this year from the share sales, partly offsetting the 50 percent drop in income from managing initial public offerings. European financial firms have announced plans to raise $78.5 billion through rights offerings since January, exceeding the total raised by companies during all of 2007, according to data compiled by Bloomberg.
``We've lost many of our traditional sources of revenue,'' said John Crompton, the London-based head of European equity capital markets for Europe, Middle East and Africa at Merrill. ``Rights issues have been one of the most active contributors'' for underwriters this year, he said.
Rising Risk
The appeal of rights offerings may wane as financial stock prices drop -- the MSCI World Financials Index has declined 24 percent this year, the worst performance of the 10 industry groups in the index.
Morgan Stanley and Dresdner Kleinwort Group Ltd., the securities unit of Munich-based Allianz SE, may have to buy shares of Edinburgh-based HBOS Plc next month. The U.K.'s largest mortgage lender, which is in the midst of a 4.1 billion-pound share sale underwritten by the two banks, traded below the 275 pence offer price in London every day last week.
Bradford & Bingley Plc, Britain's biggest lender to landlords, cut the price of its 258 million-pound rights offer by 33 percent after the stock fell, exposing underwriters Citigroup Inc. and UBS to the risk of ending up with stock that other investors refuse to buy. Its share price fell 21 percent on June 27 to 63.25 pence, compared with the 55 pence offer price in the stock sale, scheduled to run from July 8 till Aug. 1.
`One-Legged Banks'
Royal Bank of Scotland fell to 219.5 pence in London trading on June 2, a week before the rights offer was concluded, from 381.09 pence at the start of the year. The underwriters had guaranteed to buy any shares not purchased at 200 pence.
``It's a slightly bizarre situation,'' said Andrew Lynch, who helps oversee about $3.5 billion in European equities at London-based Schroders Investment Management Ltd. ``The one- legged bank is supporting another one-legged bank.''
The fund raisings come as writedowns linked to subprime mortgage losses -- $399 billion since the start of last year -- triggered some of the worst collapses in banking history. JPMorgan Chase & Co. bought Bear Stearns Cos. for one-third of its market value after the New York-based securities firm faced bankruptcy in March. In the U.K., the government nationalized mortgage lender Northern Rock Plc in February after it had to be bailed out by the Bank of England.
New York-based Citigroup and UBS of Zurich have taken the largest writedowns and losses, data compiled by Bloomberg show. Citigroup raised more than $44 billion from investors, including the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp., while Merrill got $17.9 billion.
UBS Rights Offer
UBS, which raised 16 billion Swiss francs ($15.7 billion) in a rights offering this month after $19 billion of first-quarter writedowns, was able to guarantee part of RBS's sale because its own issue was fully underwritten by investment banks led by New York-based Morgan Stanley and JPMorgan. UBS shares fell to as low as 7 percent above the rights-offer price during the subscription period.
James Renwick, a UBS vice chairman of investment banking in London, said capital problems at the Swiss bank haven't constrained its underwriting activities because risks are mitigated by setting offer prices at large discounts to the market, seeking bigger fees and finding sub-underwriters.
``The situation in the global banking market continues to be critical,'' Renwick said. ``As we move through this cycle, I think we're going to see people being slightly more cautious in their underwriting.''
So far, that hasn't always happened. While fees should have been rising to compensate for the greater risk, competition among underwriters in what has been the slowest start for IPOs in four years is bringing fees down.
Lower Fees
RBS paid underwriters fees of 1.75 percent, UBS paid about 1.65 percent and Paris-based Societe Generale SA about 1.5 percent for its 5.5 billion-euro deal. Banca Monte dei Paschi di Siena SpA, Italy's No. 3 bank, paid securities firms 1.2 percent for its 5 billion-euro rights offer in May. That compares with fees of 4.3 percent for Allianz's 4.4 billion-euro rights offer in April 2003.
``We asked 15 banks to submit proposals based on a very competitive set fee, and they were all interested,'' said Marco Morelli, deputy general manager of Siena, Italy-based Monte Paschi. The bank sold stock to help fund the takeover of Banca Antonveneta.
Paul Marsh, a professor of finance at London Business School and author of a study on fees charged in rights offers, likens underwriting to a put option. A company that hires underwriters buys a put option to place the stock with the investment banks if investors don't buy it. The value of the put depends on the stock's volatility and the duration, he said.
`Money for Old Rope'
``It comes as no surprise that banks want to underwrite rights offers,'' said Marsh, who analyzed about 1,000 rights offerings over four decades. ``Underwriting rights issues has been like money for old rope.''
With the volatility of European financial stocks at their highest level in five years, the underwriting of banks' share sales is riskier than in the past.
``Never before has such an amount been raised by one industry in such a short period of time,'' said Viswas Raghavan, the London-based head of international capital markets at JPMorgan, the largest U.S. bank by market value. That has caused greater stock swings, as investors become pickier about the companies they're willing to back, he said.
Underwriters may have also misjudged the risks involved in guaranteeing the deals, said Theo Vermaelen, a professor of finance at Insead business school near Paris.
``It's one of a few businesses that hasn't collapsed,'' Vermaelen said. ``Investment banks may have been overly optimistic in thinking that the stocks were undervalued.''
Sub-Underwriting
There are more rights offerings in Europe because regulations in most European countries oblige companies to offer existing shareholders new stock first so they can maintain a proportional stake in the company. Investors in the U.S. typically don't have such rights, bankers said.
Securities firms can reduce their underwriting risks by finding investors willing to buy part of the offering in a so- called sub-underwriting. In return, sub-underwriters get a cut of the overall fees.
Fees for sub-underwriting also are falling, and the gap between what firms get for underwriting and what investors receive for sub-underwriting is getting wider as banks seek to keep more for themselves, according to Marsh.
Typically, firms received fees of about 1.25 percent to sub- underwrite, Marsh said. Commissions offered to sub-underwrite RBS's stock offering were as low as 0.8 percent.
Risk and Reward
``Traditionally, banks wouldn't take the exposure unless they had a fairly good idea that they could obtain sub- underwriting,'' said Derek Chambers, a London-based analyst at Standard & Poor's Equity Research. ``In some of the recent rights offers, the banks arranging underwriting thought the discount was so wide they could afford to retain the risk and the reward.''
Investment banks may have no choice but to underwrite rights offers to help support customers in their own industry.
``Stepping away from these transactions when your clients are under pressure means that you get longer-term impact on the quality of your franchise,'' said Dirk Hoffmann-Becking, a London-based banking analyst at Sanford C. Bernstein & Co. ``You can't be a fair-weather underwriter, but when it rains you're not providing an umbrella.''
The number of rights offers from financial companies will probably continue to increase as European banks have only just started to shore up their balance sheets, according to analysts at Citigroup.
Sovereign Funds
``In an environment where banks have to deleverage quite sharply, they'll have to either shrink their balance sheet or come back to raise more money,'' said Lynch, the Schroders fund manager. ``I'd be very surprised if we didn't see any more banks coming to the market with more rights issues.''
Credit Agricole SA, which had the luxury of not having to ask investment banks to underwrite its 5.9 billion-euro offering, went to its regional banks instead.
``Our banks have more capital than the biggest investment banks,'' Credit Agricole Chief Executive Officer Georges Pauget said in an interview in Milan on June 20.
London-based Barclays Plc got sovereign wealth funds in Singapore, China and Qatar to guarantee its stock sale to help Britain's No. 4 bank raise 4.5 billion pounds last week.
Concern that rights offers may fail and damage financial companies' efforts to shore up their balance sheets prompted Britain's market regulator to demand disclosure of short selling during rights offers. That occurs when investors bet on declines of share prices by selling borrowed stock in the hope of repurchasing it later at a lower price.
Short Selling
The Financial Services Authority cited short sellers earlier this month for causing ``severe volatility in the shares of companies conducting rights issues.'' The new rules, introduced June 20, require disclosure of short positions of more than 0.25 percent of stock for companies selling new shares in rights offerings.
Even if the ability of hedge funds to short shares has been curtailed, the risks of underwriting aren't about to diminish.
``It used to be a pretty low-risk business,'' said Hoffmann- Becking of Sanford Bernstein. ``Now we see it actually can be risky. And though they got away this time around, we don't know what's going to happen next.''
To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.netElena Logutenkova in Zurich at elogutenkova@bloomberg.net
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June 30 (Bloomberg) -- Merrill Lynch & Co. and UBS AG, fresh from raising a combined $47.3 billion after losses on subprime investments, are using their capital to help rivals find cash.
Merrill and UBS joined Goldman Sachs Group Inc. in arranging the 12.3 billion-pound ($24.4 billion) rights offering by Royal Bank of Scotland Group Plc, the biggest European share sale to existing investors. A 31 percent drop in RBS's stock price pushed the underwriters to within 20 pence of having to buy the shares.
``In the current environment, investing in financials is pretty much like throwing good money after bad,'' said Franz Wenzel, the Paris-based deputy director for investment strategy at Axa Investment Managers, which oversees about $830 billion. ``We have been looking at some banks, but it's still way too early to start buying.''
The inducement of as much as $107 million in fees from arranging rights offers helps explain why investment banks are risking their capital to help shore up the losses of rivals. Underwriters have booked more than $1 billion this year from the share sales, partly offsetting the 50 percent drop in income from managing initial public offerings. European financial firms have announced plans to raise $78.5 billion through rights offerings since January, exceeding the total raised by companies during all of 2007, according to data compiled by Bloomberg.
``We've lost many of our traditional sources of revenue,'' said John Crompton, the London-based head of European equity capital markets for Europe, Middle East and Africa at Merrill. ``Rights issues have been one of the most active contributors'' for underwriters this year, he said.
Rising Risk
The appeal of rights offerings may wane as financial stock prices drop -- the MSCI World Financials Index has declined 24 percent this year, the worst performance of the 10 industry groups in the index.
Morgan Stanley and Dresdner Kleinwort Group Ltd., the securities unit of Munich-based Allianz SE, may have to buy shares of Edinburgh-based HBOS Plc next month. The U.K.'s largest mortgage lender, which is in the midst of a 4.1 billion-pound share sale underwritten by the two banks, traded below the 275 pence offer price in London every day last week.
Bradford & Bingley Plc, Britain's biggest lender to landlords, cut the price of its 258 million-pound rights offer by 33 percent after the stock fell, exposing underwriters Citigroup Inc. and UBS to the risk of ending up with stock that other investors refuse to buy. Its share price fell 21 percent on June 27 to 63.25 pence, compared with the 55 pence offer price in the stock sale, scheduled to run from July 8 till Aug. 1.
`One-Legged Banks'
Royal Bank of Scotland fell to 219.5 pence in London trading on June 2, a week before the rights offer was concluded, from 381.09 pence at the start of the year. The underwriters had guaranteed to buy any shares not purchased at 200 pence.
``It's a slightly bizarre situation,'' said Andrew Lynch, who helps oversee about $3.5 billion in European equities at London-based Schroders Investment Management Ltd. ``The one- legged bank is supporting another one-legged bank.''
The fund raisings come as writedowns linked to subprime mortgage losses -- $399 billion since the start of last year -- triggered some of the worst collapses in banking history. JPMorgan Chase & Co. bought Bear Stearns Cos. for one-third of its market value after the New York-based securities firm faced bankruptcy in March. In the U.K., the government nationalized mortgage lender Northern Rock Plc in February after it had to be bailed out by the Bank of England.
New York-based Citigroup and UBS of Zurich have taken the largest writedowns and losses, data compiled by Bloomberg show. Citigroup raised more than $44 billion from investors, including the Abu Dhabi Investment Authority and the Government of Singapore Investment Corp., while Merrill got $17.9 billion.
UBS Rights Offer
UBS, which raised 16 billion Swiss francs ($15.7 billion) in a rights offering this month after $19 billion of first-quarter writedowns, was able to guarantee part of RBS's sale because its own issue was fully underwritten by investment banks led by New York-based Morgan Stanley and JPMorgan. UBS shares fell to as low as 7 percent above the rights-offer price during the subscription period.
James Renwick, a UBS vice chairman of investment banking in London, said capital problems at the Swiss bank haven't constrained its underwriting activities because risks are mitigated by setting offer prices at large discounts to the market, seeking bigger fees and finding sub-underwriters.
``The situation in the global banking market continues to be critical,'' Renwick said. ``As we move through this cycle, I think we're going to see people being slightly more cautious in their underwriting.''
So far, that hasn't always happened. While fees should have been rising to compensate for the greater risk, competition among underwriters in what has been the slowest start for IPOs in four years is bringing fees down.
Lower Fees
RBS paid underwriters fees of 1.75 percent, UBS paid about 1.65 percent and Paris-based Societe Generale SA about 1.5 percent for its 5.5 billion-euro deal. Banca Monte dei Paschi di Siena SpA, Italy's No. 3 bank, paid securities firms 1.2 percent for its 5 billion-euro rights offer in May. That compares with fees of 4.3 percent for Allianz's 4.4 billion-euro rights offer in April 2003.
``We asked 15 banks to submit proposals based on a very competitive set fee, and they were all interested,'' said Marco Morelli, deputy general manager of Siena, Italy-based Monte Paschi. The bank sold stock to help fund the takeover of Banca Antonveneta.
Paul Marsh, a professor of finance at London Business School and author of a study on fees charged in rights offers, likens underwriting to a put option. A company that hires underwriters buys a put option to place the stock with the investment banks if investors don't buy it. The value of the put depends on the stock's volatility and the duration, he said.
`Money for Old Rope'
``It comes as no surprise that banks want to underwrite rights offers,'' said Marsh, who analyzed about 1,000 rights offerings over four decades. ``Underwriting rights issues has been like money for old rope.''
With the volatility of European financial stocks at their highest level in five years, the underwriting of banks' share sales is riskier than in the past.
``Never before has such an amount been raised by one industry in such a short period of time,'' said Viswas Raghavan, the London-based head of international capital markets at JPMorgan, the largest U.S. bank by market value. That has caused greater stock swings, as investors become pickier about the companies they're willing to back, he said.
Underwriters may have also misjudged the risks involved in guaranteeing the deals, said Theo Vermaelen, a professor of finance at Insead business school near Paris.
``It's one of a few businesses that hasn't collapsed,'' Vermaelen said. ``Investment banks may have been overly optimistic in thinking that the stocks were undervalued.''
Sub-Underwriting
There are more rights offerings in Europe because regulations in most European countries oblige companies to offer existing shareholders new stock first so they can maintain a proportional stake in the company. Investors in the U.S. typically don't have such rights, bankers said.
Securities firms can reduce their underwriting risks by finding investors willing to buy part of the offering in a so- called sub-underwriting. In return, sub-underwriters get a cut of the overall fees.
Fees for sub-underwriting also are falling, and the gap between what firms get for underwriting and what investors receive for sub-underwriting is getting wider as banks seek to keep more for themselves, according to Marsh.
Typically, firms received fees of about 1.25 percent to sub- underwrite, Marsh said. Commissions offered to sub-underwrite RBS's stock offering were as low as 0.8 percent.
Risk and Reward
``Traditionally, banks wouldn't take the exposure unless they had a fairly good idea that they could obtain sub- underwriting,'' said Derek Chambers, a London-based analyst at Standard & Poor's Equity Research. ``In some of the recent rights offers, the banks arranging underwriting thought the discount was so wide they could afford to retain the risk and the reward.''
Investment banks may have no choice but to underwrite rights offers to help support customers in their own industry.
``Stepping away from these transactions when your clients are under pressure means that you get longer-term impact on the quality of your franchise,'' said Dirk Hoffmann-Becking, a London-based banking analyst at Sanford C. Bernstein & Co. ``You can't be a fair-weather underwriter, but when it rains you're not providing an umbrella.''
The number of rights offers from financial companies will probably continue to increase as European banks have only just started to shore up their balance sheets, according to analysts at Citigroup.
Sovereign Funds
``In an environment where banks have to deleverage quite sharply, they'll have to either shrink their balance sheet or come back to raise more money,'' said Lynch, the Schroders fund manager. ``I'd be very surprised if we didn't see any more banks coming to the market with more rights issues.''
Credit Agricole SA, which had the luxury of not having to ask investment banks to underwrite its 5.9 billion-euro offering, went to its regional banks instead.
``Our banks have more capital than the biggest investment banks,'' Credit Agricole Chief Executive Officer Georges Pauget said in an interview in Milan on June 20.
London-based Barclays Plc got sovereign wealth funds in Singapore, China and Qatar to guarantee its stock sale to help Britain's No. 4 bank raise 4.5 billion pounds last week.
Concern that rights offers may fail and damage financial companies' efforts to shore up their balance sheets prompted Britain's market regulator to demand disclosure of short selling during rights offers. That occurs when investors bet on declines of share prices by selling borrowed stock in the hope of repurchasing it later at a lower price.
Short Selling
The Financial Services Authority cited short sellers earlier this month for causing ``severe volatility in the shares of companies conducting rights issues.'' The new rules, introduced June 20, require disclosure of short positions of more than 0.25 percent of stock for companies selling new shares in rights offerings.
Even if the ability of hedge funds to short shares has been curtailed, the risks of underwriting aren't about to diminish.
``It used to be a pretty low-risk business,'' said Hoffmann- Becking of Sanford Bernstein. ``Now we see it actually can be risky. And though they got away this time around, we don't know what's going to happen next.''
To contact the reporters on this story: Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.netElena Logutenkova in Zurich at elogutenkova@bloomberg.net
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Carrefour, France Telecom, LVMH, Safran: French Equity Preview
By Ladka Bauerova
June 30 (Bloomberg) -- The following is a list of companies whose stocks may have unusual changes in Paris. Symbols are in parentheses and prices are from the last close.
France's CAC 40 Index slid 28.87, or 0.7 percent, to 4,397.32 on June 27. The broader SBF 120 Index decreased 0.8 percent to 3,190.89.
Carrefour SA (CA FP): Europe's biggest retailer was raised to ``neutral'' from ``underperform'' at Exane BNP Paribas after the shares tumbled 17 percent last week on a disappointing profit outlook. The shares lost 2.97 euros, or 7.8 percent, to 34.91 on June 27.
Electricite de France SA (EDF FP): Construction of EDF's nuclear reactor in Normandy, France, may be delayed by Greenpeace activists blocking the plant that supplies concrete to the site. Shares of Europe's biggest power producer rose 13 cents, or 0.2 percent, to 59.30 euros.
France Telecom SA (FTE FP): Europe's third-biggest telephone company ended its unsolicited bid to buy TeliaSonera AB for 244 billion kronor ($40.8 billion) after the Swedish company rejected the offer as too low. France Telecom shares declined 35 cents, or 2 percent, to 17.46 euros.
Groupe Eurotunnel SA (GET FP): Shareholders authorized the operator of the rail link between the U.K. and France to buy back stock. The plan follows a sale to existing shareholders in May. The rights offer raised 951 million euros to repurchase convertible bonds Eurotunnel sold as part of a program to rescue the company from insolvency last year. The stock advanced 14 cents, or 1.4 percent, to 10.09 euros.
LVMH Moet Hennessy Louis Vuitton SA (MC FP): France's commercial court will decide on June 30 whether EBay Inc., the world's biggest online auctioneer, must increase steps to stop the sale of counterfeit LVMH goods. Shares of the world's largest luxury-goods maker dropped 8 cents, or 0.1 percent, to 66.05 euros.
Safran SA (SAF FP) and Thales SA (HO FP): Thales, Europe's biggest defense-electronics manufacturer, would be interested in a merger with aircraft engine maker Safran, though there are obstacles, Journal des Finances reported June 28, citing Thales Chief Executive Officer Denis Ranque. Thales stock dropped 69 cents, or 1.9 percent, to 36.12 euros. Safran declined 7 cents, or 0.6 percent, to 12.38 euros.
To contact the reporter on this story: Ladka Bauerova in Paris at lbauerova@bloomberg.net.
Last Updated: June 30, 2008 02:38 EDT
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June 30 (Bloomberg) -- The following is a list of companies whose stocks may have unusual changes in Paris. Symbols are in parentheses and prices are from the last close.
France's CAC 40 Index slid 28.87, or 0.7 percent, to 4,397.32 on June 27. The broader SBF 120 Index decreased 0.8 percent to 3,190.89.
Carrefour SA (CA FP): Europe's biggest retailer was raised to ``neutral'' from ``underperform'' at Exane BNP Paribas after the shares tumbled 17 percent last week on a disappointing profit outlook. The shares lost 2.97 euros, or 7.8 percent, to 34.91 on June 27.
Electricite de France SA (EDF FP): Construction of EDF's nuclear reactor in Normandy, France, may be delayed by Greenpeace activists blocking the plant that supplies concrete to the site. Shares of Europe's biggest power producer rose 13 cents, or 0.2 percent, to 59.30 euros.
France Telecom SA (FTE FP): Europe's third-biggest telephone company ended its unsolicited bid to buy TeliaSonera AB for 244 billion kronor ($40.8 billion) after the Swedish company rejected the offer as too low. France Telecom shares declined 35 cents, or 2 percent, to 17.46 euros.
Groupe Eurotunnel SA (GET FP): Shareholders authorized the operator of the rail link between the U.K. and France to buy back stock. The plan follows a sale to existing shareholders in May. The rights offer raised 951 million euros to repurchase convertible bonds Eurotunnel sold as part of a program to rescue the company from insolvency last year. The stock advanced 14 cents, or 1.4 percent, to 10.09 euros.
LVMH Moet Hennessy Louis Vuitton SA (MC FP): France's commercial court will decide on June 30 whether EBay Inc., the world's biggest online auctioneer, must increase steps to stop the sale of counterfeit LVMH goods. Shares of the world's largest luxury-goods maker dropped 8 cents, or 0.1 percent, to 66.05 euros.
Safran SA (SAF FP) and Thales SA (HO FP): Thales, Europe's biggest defense-electronics manufacturer, would be interested in a merger with aircraft engine maker Safran, though there are obstacles, Journal des Finances reported June 28, citing Thales Chief Executive Officer Denis Ranque. Thales stock dropped 69 cents, or 1.9 percent, to 36.12 euros. Safran declined 7 cents, or 0.6 percent, to 12.38 euros.
To contact the reporter on this story: Ladka Bauerova in Paris at lbauerova@bloomberg.net.
Last Updated: June 30, 2008 02:38 EDT
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European Stock Futures Are Little Changed; Lufthansa May Drop
By Adria Cimino
June 30 (Bloomberg) -- European stock-index futures were little changed. U.S.-traded securities of Deutsche Lufthansa AG, Europe's second-biggest airline, Daimler AG and Royal Philips Electronics NV fell after oil climbed to a record.
StatoilHydro ASA and Eni SpA may lead gains by energy producers. France Telecom SA will probably be active after Europe's third-biggest telephone company ended its bid for Sweden's TeliaSonera AB.
Futures on the Dow Jones Euro Stoxx 50 Index, a benchmark for the euro region, slipped 3, or less than 0.1 percent, to 3,366 at 7:38 a.m. in London. The U.K.'s FTSE 100 Index may decrease 15, according to Cantor Index, a betting firm.
The Stoxx 600 last week completed its fourth weekly decline on mounting concern that record oil prices, higher borrowing costs and slowing economic growth will erode earnings. The index is down 21 percent so far this year.
``If oil prices keep going up, the market will keep coming off, it's as simple as that,'' said Alan Beaney, head of investments at Principal Investment Management Ltd. in London, which oversees about $2 billion. ``The read-through is we have less economic growth.''
U.S. stocks slumped last week, pushing the Dow Jones Industrial Average to the brink of a bear market. Asian stocks advanced today, trimming the regional index's steepest first- half loss in 16 years.
American depositary receipts of Deutsche Lufthansa lost 0.8 percent from the stock's close in Germany. ADRs of Daimler, the world's second-biggest maker of luxury vehicles, slipped 0.7 percent below the finish in Germany. ADRs of Philips, Europe's largest consumer-electronics maker, slid 0.6 percent from the share's close in the Netherlands.
Oil, Metals
Crude oil rose for a third day, trading near a record $142.99 a barrel in New York, as the slumping dollar and concern that supply may be disrupted spurred demand for commodities. The contract reached its all-time high on June 27.
Oil has climbed 48 percent so far this year, compared with the 57 percent gain in all of 2007.
ADRs of Statoil, Norway's largest oil company, added 1 percent from the stock's close. ADRs of Eni, Italy's biggest, gained 0.8 percent from the share's close.
``Bullish commodity prices and ongoing concerns as to the overall economic outlook seem set to continue weighing on market sentiment,'' Maninka Miller, a trader at CMC Markets in London, wrote in a note to clients. ``It's been a grueling first half. There's little to suggest that the month-end will bring any wholesale change of opinion.''
Copper in Shanghai rose, while gold traded near a one-month high in Asia.
Consumer Confidence
U.K. consumer confidence dropped in June to the lowest level since the London riots that preceded Margaret Thatcher's downfall in 1990, as house prices fell across the nation, a GfK NOP Ltd. survey showed today.
Business confidence among U.K. banks and insurers recorded its steepest decline in the second quarter since 1990, according to the Confederation of British Industry.
BNP Paribas SA, France's largest bank by assets, may slip. HSBC cut its recommendation on the stock to ``neutral'' from ``overweight.''
France Telecom, Europe's third-biggest telephone company, ended its unsolicited bid to buy TeliaSonera for 244 billion kronor ($40.8 billion) after the Swedish company rejected the offer as too low.
``The dialogue opened with the board of directors of TeliaSonera was unable to reach agreement on its financial conditions,'' the Paris-based company said in a statement today.
Taylor Wimpey
Taylor Wimpey Plc, the U.K.'s largest homebuilder, is in talks with investors to raise money as it writes down the value of its land and renegotiates banking covenants in response to a ``sustained weak'' housing market.
Siemens AG, Europe's second-largest engineering company, may cut as many as 17,200 jobs, or about 4 percent of its workforce, by 2010 as part of an effort to save 1.2 billion euros ($1.9 billion), according to reports in Sueddeutsche Zeitung and the Financial Times.
J Sainsbury Plc, the U.K.'s third-largest supermarket chain, is considering the sale of its 2 billion-pound ($4 billion) pension fund, raising the possibility of a renewed takeover bid, the Sunday Express reported, citing unidentified people.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
Last Updated: June 30, 2008 02:47 EDT
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Barclays, Bradford & Bingley, TDG: U.K., Irish Equity Preview
By Sabine Pirone
June 30 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses, and prices are from the last market close.
The benchmark FTSE 100 Index rose 11.70, or 0.2 percent, to 5,529.90 The FTSE All-Share Index rose 4.35, or 0.2 percent, to 2,812.59. Ireland's ISEQ Index rose 64.92, or 1.2 percent, to 5,295.66.
U.K. Companies:
Barclays Plc (BARC LN): Chief Executive Officer John Varley considers the 4.5 billion pounds ($9 billion) the bank is raising in a share sale sufficient to absorb credit-related writedowns, the Sunday Telegraph reported. Barclays fell 5.75 pence, or 1.9 percent, to 298 pence.
Bradford & Bingley Plc (BB/ LN): Resolution Ltd. would renew a bid for Bradford & Bingley Plc if asked by the mortgage lender's board, the Sunday Telegraph said, citing the head of Resolution. Bradford & Bingley fell 16.75 pence, or 20.9 percent, to 63.25 pence.
Cable & Wireless Plc (CW/ LN): The U.K.'s second-biggest phone company may raise its offer for Thus Group Plc by as much as 27 million pounds ($53.8 million), the Sunday Times reported, without saying where it got the information. Cable & Wireless fell 2.2 pence, or 1.5 percent, to 147.4 pence.
ClinPhone Plc (CNP LN): Quintiles Transnational Corp. said it won't proceed with an offer for computer software-maker ClinPhone Plc, leaving the door open for Parexel International Corp. as the sole bidder. ClinPhone rose 0.75 pence, or 0.5 percent, to 140 pence.
Drax Group Plc (DRX LN): The U.K. owner of Europe's biggest coal-fired power plant is issuing a trading statement. Drax Group fell 3.5 pence, or 0.5 percent, to 736.5 pence.
IMI Plc (IMI LN): The world's biggest maker of pneumatic controls is issuing a trading statement. IMI rose 2.5 pence, or 0.6 percent, to 438 pence.
Informa Plc (INF LN): The publisher of Lloyd's List is issuing a trading statement. Informa fell 9.5 pence, or 2.3 percent, to 400.25 pence.
J Sainsbury Plc (SBRY LN): The U.K.'s third-largest supermarket chain is considering the sale of its 2 billion-pound ($4 billion) pension fund, raising the possibility of a renewed takeover bid, the Sunday Express reported, citing unidentified people. J Sainsbury fell 6.25 pence, or 2 percent, to 308.75 pence.
Qinetiq Plc (QQ/ LN): The U.K. government will probably sell its 19 percent stake in defense researcher Qinetiq Plc, the Sunday Telegraph reported, without saying where it got the information. Qinetiq rose 1.5 pence, or 0.8 percent, to 200 pence.
ScS Upholstery Plc (SUY LN): Sun Capital Partners Inc., a Florida-based private-equity firm, is close to acquiring U.K. furniture retailer ScS Upholstery Plc, the Sunday Times reported, without saying where it got the information. ScS Upholstery fell 0.13 pence, or 2 percent, to 6.5 pence.
Taylor Wimpey Plc (TW/ LN): The U.K.'s biggest home developer will receive 500 million pounds ($997 million) from institutional shareholders to ``repair its shattered balance sheet,'' the Sunday Telegraph reported, without saying where it got the information. Taylor Wimpey rose 7 pence, or 12.7 percent, to 62 pence.
TDG Plc (TDG LN): The U.K. transportation and storage company said it agreed on terms of a possible buyout offer from investment firm Laxey Partners Ltd. TDG fell 3.25 pence, or 1.5 percent, to 216 pence.
Irish Companies:
DCC Plc (DCC ID): ReachCapital, an investor in DCC Plc, wants the Irish consumer goods distributor to appoint bankers to break up the company, the Sunday Times reported, citing Nigel Hart, managing directo
Kingspan Group Plc (KSP ID): Europe's largest maker of flooring and insulation panels, is closing a timber frame housing plant in Wales due to the slowdown in the British building market, the Sunday Business Post said, citing an unnamed spokeswoman. Kingspan Group rose 0.38 cents, or 6.4 percent, to 6.35 euros.
To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net
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June 30 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.K. and Irish markets today. Stock symbols are in parentheses, and prices are from the last market close.
The benchmark FTSE 100 Index rose 11.70, or 0.2 percent, to 5,529.90 The FTSE All-Share Index rose 4.35, or 0.2 percent, to 2,812.59. Ireland's ISEQ Index rose 64.92, or 1.2 percent, to 5,295.66.
U.K. Companies:
Barclays Plc (BARC LN): Chief Executive Officer John Varley considers the 4.5 billion pounds ($9 billion) the bank is raising in a share sale sufficient to absorb credit-related writedowns, the Sunday Telegraph reported. Barclays fell 5.75 pence, or 1.9 percent, to 298 pence.
Bradford & Bingley Plc (BB/ LN): Resolution Ltd. would renew a bid for Bradford & Bingley Plc if asked by the mortgage lender's board, the Sunday Telegraph said, citing the head of Resolution. Bradford & Bingley fell 16.75 pence, or 20.9 percent, to 63.25 pence.
Cable & Wireless Plc (CW/ LN): The U.K.'s second-biggest phone company may raise its offer for Thus Group Plc by as much as 27 million pounds ($53.8 million), the Sunday Times reported, without saying where it got the information. Cable & Wireless fell 2.2 pence, or 1.5 percent, to 147.4 pence.
ClinPhone Plc (CNP LN): Quintiles Transnational Corp. said it won't proceed with an offer for computer software-maker ClinPhone Plc, leaving the door open for Parexel International Corp. as the sole bidder. ClinPhone rose 0.75 pence, or 0.5 percent, to 140 pence.
Drax Group Plc (DRX LN): The U.K. owner of Europe's biggest coal-fired power plant is issuing a trading statement. Drax Group fell 3.5 pence, or 0.5 percent, to 736.5 pence.
IMI Plc (IMI LN): The world's biggest maker of pneumatic controls is issuing a trading statement. IMI rose 2.5 pence, or 0.6 percent, to 438 pence.
Informa Plc (INF LN): The publisher of Lloyd's List is issuing a trading statement. Informa fell 9.5 pence, or 2.3 percent, to 400.25 pence.
J Sainsbury Plc (SBRY LN): The U.K.'s third-largest supermarket chain is considering the sale of its 2 billion-pound ($4 billion) pension fund, raising the possibility of a renewed takeover bid, the Sunday Express reported, citing unidentified people. J Sainsbury fell 6.25 pence, or 2 percent, to 308.75 pence.
Qinetiq Plc (QQ/ LN): The U.K. government will probably sell its 19 percent stake in defense researcher Qinetiq Plc, the Sunday Telegraph reported, without saying where it got the information. Qinetiq rose 1.5 pence, or 0.8 percent, to 200 pence.
ScS Upholstery Plc (SUY LN): Sun Capital Partners Inc., a Florida-based private-equity firm, is close to acquiring U.K. furniture retailer ScS Upholstery Plc, the Sunday Times reported, without saying where it got the information. ScS Upholstery fell 0.13 pence, or 2 percent, to 6.5 pence.
Taylor Wimpey Plc (TW/ LN): The U.K.'s biggest home developer will receive 500 million pounds ($997 million) from institutional shareholders to ``repair its shattered balance sheet,'' the Sunday Telegraph reported, without saying where it got the information. Taylor Wimpey rose 7 pence, or 12.7 percent, to 62 pence.
TDG Plc (TDG LN): The U.K. transportation and storage company said it agreed on terms of a possible buyout offer from investment firm Laxey Partners Ltd. TDG fell 3.25 pence, or 1.5 percent, to 216 pence.
Irish Companies:
DCC Plc (DCC ID): ReachCapital, an investor in DCC Plc, wants the Irish consumer goods distributor to appoint bankers to break up the company, the Sunday Times reported, citing Nigel Hart, managing directo
Kingspan Group Plc (KSP ID): Europe's largest maker of flooring and insulation panels, is closing a timber frame housing plant in Wales due to the slowdown in the British building market, the Sunday Business Post said, citing an unnamed spokeswoman. Kingspan Group rose 0.38 cents, or 6.4 percent, to 6.35 euros.
To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net
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Most Asian Stocks Decline in Worst First Half Loss Since 1992
By Chen Shiyin and Chan Tien Hin
June 30 (Bloomberg) -- Most Asian stocks fell, putting the regional index on course for its worst first-half decline in 16 years, on speculation record oil prices will damp spending and after Citigroup Inc. said Asian markets will extend losses.
Samsung Electronics Co. led a drop in technology shares after Lehman Brothers Holdings Inc. cut its share-price target. Takashimaya Co. led Japanese retailers lower after reducing its full-year sales forecast. BHP Billiton Ltd., the world's largest mining company, gained after oil and metals advanced.
``The high inflationary environment'' is hurting Asian shares, said Scott Lim, who helps manage $431 million as chief investment officer at CMS Asset management Sdn. in Kuala Lumpur. ``Commodities are outperforming all asset classes right now.''
The MSCI Asia Pacific Index added 0.1 percent to 137.03 as of 3:18 p.m. in Tokyo as about five stocks fell for every four that rose and taking its first-half loss to 13 percent. That's the worst performance since a 23 percent decline in the same period of 1992, when Japan's asset bubble was deflating.
China's CSI 300 Index lost 1.9 percent today, poised for a 23 percent rout since the end of May and its worst month on record. Japan's Nikkei 225 Stock Average dropped 0.5 percent to 13,481.38. Indexes in Singapore, Indonesia and Vietnam posted the region's only gains.
U.S. stocks retreated on June 27, with the Dow Jones Industrial Average losing 0.9 percent. That left the 30-member index within 0.1 percent of a so-called bear market, defined as a 20 percent slump. Standard & Poor's 500 Index futures expiring in September rose 0.2 percent recently.
To contact the reporter for this story: Chen Shiyin in Singapore at schen37@bloomberg.net; Chan Tien Hin in Kuala Lumpur thchan@bloomberg.net.
Last Updated: June 30, 2008 02:21 EDT
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EDF, Eurotunnel, LVMH, Thales, Safran: French Equity Preview
By Ladka Bauerova
June 30 (Bloomberg) -- The following is a list of companies whose stocks may have unusual changes in Paris. Symbols are in parentheses and prices are from the last close.
France's CAC 40 Index slid 28.87, or 0.7 percent, to 4,397.32 on June 27. The broader SBF 120 Index decreased 0.8 percent to 3,190.89.
Electricite de France SA (EDF FP): Construction of EDF's nuclear reactor in Normandy, France, may be delayed by Greenpeace activists blocking the plant that supplies concrete to the site. Shares of Europe's biggest power producer rose 13 cents, or 0.2 percent, to 59.30 euros.
Groupe Eurotunnel SA (GET FP): Shareholders authorized the operator of the rail link between the U.K. and France to buy back stock. The plan follows a sale to existing shareholders in May. The rights offer raised 951 million euros ($1.5 billion) to repurchase convertible bonds Eurotunnel sold as part of a program to rescue the company from insolvency last year. The stock advanced 14 cents, or 1.4 percent, to 10.09 euros.
LVMH Moet Hennessy Louis Vuitton SA (MC FP): France's commercial court will decide on June 30 whether EBay Inc., the world's biggest online auctioneer, must increase steps to stop the sale of counterfeit LVMH goods. Shares of the world's largest luxury-goods maker dropped 8 cents, or 0.1 percent, to 66.05 euros.
Safran SA (SAF FP) and Thales SA (HO FP): Thales, Europe's biggest defense-electronics manufacturer, would be interested in a merger with aircraft engine maker Safran, though there are obstacles, Journal des Finances reported June 28, citing Thales Chief Executive Officer Denis Ranque. Thales stock dropped 69 cents, or 1.9 percent, to 36.12 euros. Safran declined 7 cents, or 0.6 percent, to 12.38 euros.
To contact the reporter on this story: Ladka Bauerova in Paris at lbauerova@bloomberg.net.
Read more...
June 30 (Bloomberg) -- The following is a list of companies whose stocks may have unusual changes in Paris. Symbols are in parentheses and prices are from the last close.
France's CAC 40 Index slid 28.87, or 0.7 percent, to 4,397.32 on June 27. The broader SBF 120 Index decreased 0.8 percent to 3,190.89.
Electricite de France SA (EDF FP): Construction of EDF's nuclear reactor in Normandy, France, may be delayed by Greenpeace activists blocking the plant that supplies concrete to the site. Shares of Europe's biggest power producer rose 13 cents, or 0.2 percent, to 59.30 euros.
Groupe Eurotunnel SA (GET FP): Shareholders authorized the operator of the rail link between the U.K. and France to buy back stock. The plan follows a sale to existing shareholders in May. The rights offer raised 951 million euros ($1.5 billion) to repurchase convertible bonds Eurotunnel sold as part of a program to rescue the company from insolvency last year. The stock advanced 14 cents, or 1.4 percent, to 10.09 euros.
LVMH Moet Hennessy Louis Vuitton SA (MC FP): France's commercial court will decide on June 30 whether EBay Inc., the world's biggest online auctioneer, must increase steps to stop the sale of counterfeit LVMH goods. Shares of the world's largest luxury-goods maker dropped 8 cents, or 0.1 percent, to 66.05 euros.
Safran SA (SAF FP) and Thales SA (HO FP): Thales, Europe's biggest defense-electronics manufacturer, would be interested in a merger with aircraft engine maker Safran, though there are obstacles, Journal des Finances reported June 28, citing Thales Chief Executive Officer Denis Ranque. Thales stock dropped 69 cents, or 1.9 percent, to 36.12 euros. Safran declined 7 cents, or 0.6 percent, to 12.38 euros.
To contact the reporter on this story: Ladka Bauerova in Paris at lbauerova@bloomberg.net.
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Siemens, Repower, Lanxess, Adidas, Bwin: German Equity Preview
By Nicholas Comfort and Rainer Buergin
June 30 (Bloomberg) -- The following companies may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.
The DAX declined 37.69, or 0.6 percent, to 6,421.91.
Adidas AG (ADS GY): The world's second largest sporting- goods maker confirmed its full-year sales forecast for soccer- related goods and said revenue from these products should rise ``slightly'' next year, Die Welt reported, citing board member Erich Stamminger. The shares fell 72 cents, or 1.8 percent, to 40.40 euros.
Bwin Interactive Entertainment AG (BWIN AV): Europe's biggest online sports-gaming company, said it has met its target for an increase in sales derived from the Euro 2008 soccer championship. The shares fell 70 cents, or 3.6 percent, to 18.60 euros.
Daimler AG (DAI GY): ArcelorMittal will raise steel prices paid by European automakers such as the world's second-biggest maker of luxury vehicles by about 60 percent through a series of increases over the coming months, Auto Motor und Sport said, citing unidentified people close to the industry.
The magazine also reported the carmaker will begin selling an electric-powered version of its Mercedes-Benz A-Class in 2010. Daimler dropped 1.20 euros, or 2.9 percent, to 39.88 euros.
Hannover Re (HNR1 GY): Germany's second-biggest reinsurer after Munich Re reiterated a target for earnings per share of about 5 euros ($7.87) this year. The stock fell 36 cents, or 1.14 percent, to 31.15 euros.
Lanxess AG (LXS GY): Germany's biggest publicly traded specialty chemicals maker said it will buy 270,098 of its shares listed on the Xetra section of the Frankfurt stock exchange from July 1 through July 14 as part of an employee incentive program. The stock slipped 34 cents, or 1.31 percent, to 25.57 euros.
Repower Systems AG (RPW GY): The German wind turbine builder releases shortened fiscal year earnings and holds a teleconference at 10 a.m. CET. The stock dropped 20.90 euros, or 9.1 percent, to 208.10 euros.
RWE AG (RWE GY): Juergen Grossmann, the chief executive officer of Germany's second-largest utility, told Frankfurter Allgemeine Sonntagszeitung he has bought 5 million euros ($7.9 million) worth of RWE shares and won't sell his stake while he's CEO. The shares fell 6 cents, or 0.1 percent, to 78.58 euros.
Siemens AG (SIE GY): Europe's second-largest engineering company may cut as many as 17,200 jobs, or about 4 percent of its workforce, by 2010 as part of an effort to save 1.2 billion euros ($1.9 billion), according to reports in Sueddeutsche Zeitung and Financial Times. The shares fell 12 cents, or 0.2 percent, to 70.89 euros.
Volkswagen AG (VOW GY): Europe's biggest carmaker's management board will decide where to build a U.S. plant on July 8, Auto Motor und Sport reported, citing unidentified people close to the carmaker's management. The stock gained 1.05 euros, or 0.6 percent, to 179.06 euros.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net
Read more...
June 30 (Bloomberg) -- The following companies may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.
The DAX declined 37.69, or 0.6 percent, to 6,421.91.
Adidas AG (ADS GY): The world's second largest sporting- goods maker confirmed its full-year sales forecast for soccer- related goods and said revenue from these products should rise ``slightly'' next year, Die Welt reported, citing board member Erich Stamminger. The shares fell 72 cents, or 1.8 percent, to 40.40 euros.
Bwin Interactive Entertainment AG (BWIN AV): Europe's biggest online sports-gaming company, said it has met its target for an increase in sales derived from the Euro 2008 soccer championship. The shares fell 70 cents, or 3.6 percent, to 18.60 euros.
Daimler AG (DAI GY): ArcelorMittal will raise steel prices paid by European automakers such as the world's second-biggest maker of luxury vehicles by about 60 percent through a series of increases over the coming months, Auto Motor und Sport said, citing unidentified people close to the industry.
The magazine also reported the carmaker will begin selling an electric-powered version of its Mercedes-Benz A-Class in 2010. Daimler dropped 1.20 euros, or 2.9 percent, to 39.88 euros.
Hannover Re (HNR1 GY): Germany's second-biggest reinsurer after Munich Re reiterated a target for earnings per share of about 5 euros ($7.87) this year. The stock fell 36 cents, or 1.14 percent, to 31.15 euros.
Lanxess AG (LXS GY): Germany's biggest publicly traded specialty chemicals maker said it will buy 270,098 of its shares listed on the Xetra section of the Frankfurt stock exchange from July 1 through July 14 as part of an employee incentive program. The stock slipped 34 cents, or 1.31 percent, to 25.57 euros.
Repower Systems AG (RPW GY): The German wind turbine builder releases shortened fiscal year earnings and holds a teleconference at 10 a.m. CET. The stock dropped 20.90 euros, or 9.1 percent, to 208.10 euros.
RWE AG (RWE GY): Juergen Grossmann, the chief executive officer of Germany's second-largest utility, told Frankfurter Allgemeine Sonntagszeitung he has bought 5 million euros ($7.9 million) worth of RWE shares and won't sell his stake while he's CEO. The shares fell 6 cents, or 0.1 percent, to 78.58 euros.
Siemens AG (SIE GY): Europe's second-largest engineering company may cut as many as 17,200 jobs, or about 4 percent of its workforce, by 2010 as part of an effort to save 1.2 billion euros ($1.9 billion), according to reports in Sueddeutsche Zeitung and Financial Times. The shares fell 12 cents, or 0.2 percent, to 70.89 euros.
Volkswagen AG (VOW GY): Europe's biggest carmaker's management board will decide where to build a U.S. plant on July 8, Auto Motor und Sport reported, citing unidentified people close to the carmaker's management. The stock gained 1.05 euros, or 0.6 percent, to 179.06 euros.
To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net; Rainer Buergin in Berlin at rbuergin1@bloomberg.net
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Japan Debt Rating Raised By Moody's on Fiscal Policy
By Gregory Turk and Lily Nonomiya
June 30 (Bloomberg) -- Japan's debt rating was raised one level to Aa3 by Moody's Investors Service, which said the government will keep trying to restrain spending to reduce debt.
The increase from A1 ``was prompted by expectations of continued fiscal restraint and consolidation, coupled with an easing-out of the debilitating effects of deflation,'' Thomas Byrne, senior vice president of Moody's, said in a statement. ``The government and ruling party is firmly committed to fiscal consolidation.''
Prime Minister Yasuo Fukuda last week reiterated his pledge to balance the budget by 2011 so that the government can cut the world's largest public debt. Economists say Japan hasn't done enough to pare the debt, which the Organization for Economic Cooperation and Development estimates stands at 182 percent of gross domestic product.
``I wonder why Moody's is upgrading now while Japan still faces a harsh fiscal environment,'' said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. ``On the top of that, they probably downgraded too far before.''
The increase to the fourth-highest investment grade came eight months after Moody's raised the rating to A1 and puts Japan on a par with Taiwan and Cyprus. Japan still ranks the lowest among the Group of Seven nations. Within the G-7 only Italy, with Aa2, and Japan have ratings below the top Aaa grade.
Four Cuts
After Moody's assigned Japan Aaa in 1993, the rating had been cut four times since 1998 as the nation's borrowings swelled.
The yen traded at 106.21 per dollar at 12:43 p.m. in Tokyo from 106.28 before the announcement. The yield on Japan's 10- year bond fell 1 basis point to 1.6 percent.
``News on Moody's upgrade was a big surprise,'' said Yuji Saito, head of foreign-exchange sales at Societe Generale SA in Tokyo. ``This is all because we Japanese think the Fukuda administration is reluctant to cut spending and the Japanese economy is slowing.''
Moody's said Japan's economy is ``resilient'' to a global slowdown and added that it didn't expect any ``preemptive'' interest-rate increases by the Bank of Japan because inflation in the world's second-largest economy is still lower than in other countries.
The central bank's benchmark overnight lending rate is 0.5 percent, the lowest in the industrialized world. Consumer prices excluding fresh food climbed 1.5 percent in May, the fastest pace in a decade.
Further improvement in the nation's debt rating hinges on government efforts towards ``sustained fiscal consolidation'' and debt reduction and a falling birthrate and rising welfare costs will be headwinds for Japan, Moody's added.
Moody's was criticized by the government and summoned to parliament in 2002, when it cuts its rating below Botswana's. Masajuro Shiokawa, then the nation's finance minister, called Moody's ``out of touch with reality.''
To contact the reporters on this story: Drew Gibson in Tokyo at dgibson2@bloomberg.net; Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net
Read more...
June 30 (Bloomberg) -- Japan's debt rating was raised one level to Aa3 by Moody's Investors Service, which said the government will keep trying to restrain spending to reduce debt.
The increase from A1 ``was prompted by expectations of continued fiscal restraint and consolidation, coupled with an easing-out of the debilitating effects of deflation,'' Thomas Byrne, senior vice president of Moody's, said in a statement. ``The government and ruling party is firmly committed to fiscal consolidation.''
Prime Minister Yasuo Fukuda last week reiterated his pledge to balance the budget by 2011 so that the government can cut the world's largest public debt. Economists say Japan hasn't done enough to pare the debt, which the Organization for Economic Cooperation and Development estimates stands at 182 percent of gross domestic product.
``I wonder why Moody's is upgrading now while Japan still faces a harsh fiscal environment,'' said Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. ``On the top of that, they probably downgraded too far before.''
The increase to the fourth-highest investment grade came eight months after Moody's raised the rating to A1 and puts Japan on a par with Taiwan and Cyprus. Japan still ranks the lowest among the Group of Seven nations. Within the G-7 only Italy, with Aa2, and Japan have ratings below the top Aaa grade.
Four Cuts
After Moody's assigned Japan Aaa in 1993, the rating had been cut four times since 1998 as the nation's borrowings swelled.
The yen traded at 106.21 per dollar at 12:43 p.m. in Tokyo from 106.28 before the announcement. The yield on Japan's 10- year bond fell 1 basis point to 1.6 percent.
``News on Moody's upgrade was a big surprise,'' said Yuji Saito, head of foreign-exchange sales at Societe Generale SA in Tokyo. ``This is all because we Japanese think the Fukuda administration is reluctant to cut spending and the Japanese economy is slowing.''
Moody's said Japan's economy is ``resilient'' to a global slowdown and added that it didn't expect any ``preemptive'' interest-rate increases by the Bank of Japan because inflation in the world's second-largest economy is still lower than in other countries.
The central bank's benchmark overnight lending rate is 0.5 percent, the lowest in the industrialized world. Consumer prices excluding fresh food climbed 1.5 percent in May, the fastest pace in a decade.
Further improvement in the nation's debt rating hinges on government efforts towards ``sustained fiscal consolidation'' and debt reduction and a falling birthrate and rising welfare costs will be headwinds for Japan, Moody's added.
Moody's was criticized by the government and summoned to parliament in 2002, when it cuts its rating below Botswana's. Masajuro Shiokawa, then the nation's finance minister, called Moody's ``out of touch with reality.''
To contact the reporters on this story: Drew Gibson in Tokyo at dgibson2@bloomberg.net; Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net
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U.K. Consumer Confidence Falls to Lowest Level Since 1990 Riots
By Jennifer Ryan
June 30 (Bloomberg) -- U.K. consumer confidence dropped in June to the lowest level since the London riots that preceded Margaret Thatcher's downfall in 1990, as house prices fell across the nation.
An index of consumer confidence based on a survey of 2,001 people fell 5 points to minus 34, the lowest since March 1990, GfK NOP Ltd. said today. Property prices dropped 1 percent from May, the most since Hometrack Ltd.'s housing index started in 2001, the London-based researcher said in a statement.
Bank of England Governor Mervyn King said last week that economic growth needs to slow to contain inflation as policy makers consider whether to raise interest rates. With the threat of a recession looming, Prime Minister Gordon Brown's poll ratings a year after he took office are the lowest since World War II.
``With rising inflation, gloomy forecasts for interest rates and soaring fuel, utility and food prices dominating the front- page headlines, it's no surprise that confidence in the general economy is almost in freefall,'' Rachael Joy, a researcher at GfK NOP, said in a statement.
The Bank of England kept its main interest rate at 5 percent for the past two months after three reductions since December. Policy makers predict economic growth will slow to a 1 percent annual pace in the first quarter of 2009, the least since 1992, as inflation accelerates to more than twice the 2 percent target.
London Riot
The confidence gauge is only one point higher than in March 1990, on the eve of the country's last recession. On March 31, as Thatcher's government introduced a new local levy in England and Wales known as the poll tax, rioters rampaged in London's Trafalgar Square. She resigned that November after a leadership challenge by her former colleague Michael Heseltine.
Brown vowed on June 27 to help living standards improve after his Labour Party slumped to fifth place in a by-election. Labour trails the opposition Conservatives by at least 20 percentage points in national opinion polls.
The measure of confidence in the economic outlook dropped 6 points to minus 45, and for personal finances it fell 5 points to minus 9, GfK said. Britons' attitude toward the economy and their own situation in the previous 12 months also deteriorated.
House prices in all 10 regions tracked in the Hometrack survey declined on the month, led by a 1.3 percent drop in the London region and a 1.1 percent decline in the southeast. The average value of a home now stands at 170,500 pounds ($339,000).
Mortgage Squeeze
The property market is cooling as Britons find it harder to get a mortgage. Bank of England data due today will probably show home-loan approvals fell to 51,000 in May, the lowest since at least 1999, according to the median forecast of 29 economists in a Bloomberg News survey.
King told lawmakers on June 26 that banks ``are going to go a lot further than might have been expected initially'' in declaring losses as market turmoil continues. Total worldwide losses and writedowns at financial institutions from the collapse of the U.S. subprime mortgage market now exceed $400 billion.
``In the short term it seems inevitable that prices will continue to post modest falls until such time as confidence improves,'' Richard Donnell, director of research at Hometrack, said in the statement.
Accelerating inflation may prevent the central bank from helping by cutting interest rates. Crude oil rose above $141 a barrel for the first time June 27, while corn, wheat and rice prices have all reached records this year. Inflation reached 3.3 percent in May, the fastest in at least 11 years.
``The impact of the rise in energy and food prices means we all together, as a country, will see a pause in the growth of our living standards,'' King said. ``I am confident we will bring inflation back to the target but I cannot tell you what level of interest rates we will need to set to do that.''
To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
Read more...
June 30 (Bloomberg) -- U.K. consumer confidence dropped in June to the lowest level since the London riots that preceded Margaret Thatcher's downfall in 1990, as house prices fell across the nation.
An index of consumer confidence based on a survey of 2,001 people fell 5 points to minus 34, the lowest since March 1990, GfK NOP Ltd. said today. Property prices dropped 1 percent from May, the most since Hometrack Ltd.'s housing index started in 2001, the London-based researcher said in a statement.
Bank of England Governor Mervyn King said last week that economic growth needs to slow to contain inflation as policy makers consider whether to raise interest rates. With the threat of a recession looming, Prime Minister Gordon Brown's poll ratings a year after he took office are the lowest since World War II.
``With rising inflation, gloomy forecasts for interest rates and soaring fuel, utility and food prices dominating the front- page headlines, it's no surprise that confidence in the general economy is almost in freefall,'' Rachael Joy, a researcher at GfK NOP, said in a statement.
The Bank of England kept its main interest rate at 5 percent for the past two months after three reductions since December. Policy makers predict economic growth will slow to a 1 percent annual pace in the first quarter of 2009, the least since 1992, as inflation accelerates to more than twice the 2 percent target.
London Riot
The confidence gauge is only one point higher than in March 1990, on the eve of the country's last recession. On March 31, as Thatcher's government introduced a new local levy in England and Wales known as the poll tax, rioters rampaged in London's Trafalgar Square. She resigned that November after a leadership challenge by her former colleague Michael Heseltine.
Brown vowed on June 27 to help living standards improve after his Labour Party slumped to fifth place in a by-election. Labour trails the opposition Conservatives by at least 20 percentage points in national opinion polls.
The measure of confidence in the economic outlook dropped 6 points to minus 45, and for personal finances it fell 5 points to minus 9, GfK said. Britons' attitude toward the economy and their own situation in the previous 12 months also deteriorated.
House prices in all 10 regions tracked in the Hometrack survey declined on the month, led by a 1.3 percent drop in the London region and a 1.1 percent decline in the southeast. The average value of a home now stands at 170,500 pounds ($339,000).
Mortgage Squeeze
The property market is cooling as Britons find it harder to get a mortgage. Bank of England data due today will probably show home-loan approvals fell to 51,000 in May, the lowest since at least 1999, according to the median forecast of 29 economists in a Bloomberg News survey.
King told lawmakers on June 26 that banks ``are going to go a lot further than might have been expected initially'' in declaring losses as market turmoil continues. Total worldwide losses and writedowns at financial institutions from the collapse of the U.S. subprime mortgage market now exceed $400 billion.
``In the short term it seems inevitable that prices will continue to post modest falls until such time as confidence improves,'' Richard Donnell, director of research at Hometrack, said in the statement.
Accelerating inflation may prevent the central bank from helping by cutting interest rates. Crude oil rose above $141 a barrel for the first time June 27, while corn, wheat and rice prices have all reached records this year. Inflation reached 3.3 percent in May, the fastest in at least 11 years.
``The impact of the rise in energy and food prices means we all together, as a country, will see a pause in the growth of our living standards,'' King said. ``I am confident we will bring inflation back to the target but I cannot tell you what level of interest rates we will need to set to do that.''
To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net
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Malaysia's Zeti Says Soaring Prices May Damp Growth
By Nipa Piboontanasawat
June 30 (Bloomberg) -- Malaysia's central bank Governor ZetiAkhtar Aziz said soaring food and energy prices may hurt household spending and damp economic growth, slowing expansion in 2008 to below its March forecast.
``The important consideration in this scenario is to sustain domestic demand,'' Zeti said in an interview yesterday in Basel, Switzerland. ``If this is sustained then we would indeed have the potential to realize growth between 4.5 percent and 5 percent, but this is still very preliminary.''
The central bank in March forecast economic expansion of 5 percent to 6 percent this year after growth of 6.3 percent in 2007. Surging food and oil prices have forced neighboring Vietnam, Indonesia and the Philippines to raise borrowing costs this year to tame inflation, which is threatening growth.
Bank Negara Malaysia, which kept its overnight policy rate at 3.5 percent for a 17th straight meeting in May, isn't scheduled to review rates until the end of July. Malaysia's inflation rate may reach a nine-year high of 5 percent this month after the government lifted retail gasoline and diesel prices, Zeti has said.
``What we have to monitor very closely is what is the impact on wages and to what extent these prices, increasing costs, are passed on to consumers,'' Zeti said in Basel, where she's attending a meeting of central bankers at the Bank for International Settlements. ``When that becomes clear, a necessary response will be based on these considerations.''
Malaysia won't use the exchange rate to counter inflation, because the currency market is ``too volatile,'' Zeti said.
Rate Increase
The central bank this month raised its 2008 average inflation forecast to 4.2 percent from a March estimate of as much as 3 percent, causing some economists to predict a rate increase in July or earlier.
A ``careful balance will be made in determining the interest-rate policy,'' Zeti said. While the increase in costs will have a ``significant'' impact on inflation in the short term, ``this does not mean that it's going to result in significant, persistent price increases going forward.''
Second Finance Minister Nor Mohamed Yakcop said June 24 that inflation in Malaysia is being driven by rising costs rather than demand, so higher interest rates won't necessarily cool price pressures.
``A large component of expenditure by households is for food and energy,'' Zeti said yesterday. Higher prices ``leads to a contraction in their purchasing power, and therefore this in itself will have a moderating impact on prices.''
To contact the reporter on this story: Nipa Piboontanasawat in Basel at npiboontanas@bloomberg.net
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Australia Will Probably Leave Benchmark Rate at 7.25%
By Jacob Greber
June 30 (Bloomberg) -- Australia's central bank will probably leave its benchmark interest rate at a 12-year high as it assesses whether the economy is slowing enough to cool the fastest inflation in almost two decades.
Governor Glenn Stevens will keep the overnight cash rate target at 7.25 percent tomorrow in Sydney, according to all 25 economists surveyed by Bloomberg News. Six say the bank will raise the rate by the end of the year, and one forecasts a cut.
Slumping stock markets, record gasoline prices and rising borrowing costs have slashed consumer confidence and forced companies to trim spending and fire workers. Policy makers said a month ago it ``was important for the slowing trend to continue'' in Australia's $1 trillion economy, which grew in the first quarter at the weakest pace in almost two years.
``The bank should be starting to feel a bit more confident that the demand slowdown they're looking for is on track,'' said Shane Oliver, chief economist at AMP Capital Investors in Sydney. ``That will head off the need for another rate hike, regardless of the short-term threat to inflation coming from gasoline.''
The central bank has left borrowing costs unchanged since March, when it raised the benchmark rate by a quarter point for the fourth time in seven months.
The bank's board will announce its July decision at 2:30 p.m. in Sydney tomorrow.
The Australian dollar traded today near its highest in 25 years as prices of commodities the nation exports, from iron ore to coal, rose to records. The currency rose to 96.25 U.S. cents at 10:38 a.m. in Sydney from 96.20 cents late on June 27.
Global View
Australia's current interest rates ``are essential'' to restrain inflation, which poses a greater threat to the economy than the global credit crunch, Stevens said on June 13.
Monetary policy needs to damp domestic demand ``because inflation has already picked up,'' he said.
Steven's concern about accelerating inflation is being echoed by central banks around the world. The U.S. Federal Reserve kept its benchmark rate at 2 percent last week and warned faster inflation may accompany some strengthening of the economy. European Central Bank President Jean-Claude Trichet has left open the option of raising interest rates after July.
Surging fuel, food and housing costs pushed Australia's annual core inflation to 4.4 percent in the first quarter, the highest rate in almost 17 years. The central bank aims to keep price increases between 2 percent and 3 percent on average.
Building Approvals
Reports published since the bank's last meeting support Steven's view that the economy is slowing. Employment fell in May for the first time in 18 months, ending the longest run of monthly job gains since 1978, consumer confidence dropped in June and businesses remained pessimistic for a fifth consecutive month.
Home-building approvals probably fell 3.4 percent in May, the fourth decline this year, according to the median estimate of 24 economists surveyed by Bloomberg. A separate report may show retail sales rose 0.1 percent. The housing and retail sales figures will be published on July 2.
Consumer and investor sentiment is also being battered by crude oil prices, which hit a record $142.99 a barrel last week, and tumbling stock markets.
Australia's benchmark S&P/ASX 200 Index has slumped 16 percent this year, and the Dow Jones Industrial Average had its worst June since the Great Depression.
``The Reserve Bank can be a little more confident'' that this year's interest-rate increases are working, said Matthew Johnson, an economist at ICAP Australia Ltd. in Sydney. ``They know inflation is going to be high for a while, but their emphasis will be making sure this growth slowdown sticks.''
Bloomberg Survey
Following is a table of forecasts for the benchmark rate following the July 1 policy meeting and at the end of the third and fourth quarters and the first three months of 2009:
===============================================================
Median 7.25% 7.25% 7.25% 7.25%
High 7.25% 7.50% 7.75% 7.75%
Low Forecast 7.25% 7.25% 7.00% 6.75%
No of replies 25 25 25 25
===============================================================
===============================================================
Rate Q3 Q4 Q1
1-Jul-08 2008 2008 2009
===============================================================
4cast 7.25% 7.25% 7.25% 7.25%
ANZ Bank 7.25% 7.50% 7.75% 7.75%
ABN Amro 7.25% 7.25% 7.25% 7.25%
AMP Capital 7.25% 7.25% 7.25% 7.25%
Ausbil Dexia 7.25% 7.25% 7.25% 7.00%
Barclays 7.25% 7.25% 7.25% 7.00%
BT Financial 7.25% 7.25% 7.25% 7.25%
Citigroup 7.25% 7.25% 7.25% 7.25%
Commonwealth Bank 7.25% 7.50% 7.50% 7.50%
Deutsche Bank 7.25% 7.50% 7.50% 7.50%
Goldman Sachs 7.25% 7.25% 7.25% 7.25%
ICAP Australia 7.25% 7.25% 7.50% 7.50%
JP Morgan Chase 7.25% 7.25% 7.25% 7.25%
Lehman Brothers 7.25% 7.25% 7.25% 7.25%
Macquarie 7.25% 7.50% 7.50% 7.50%
Merrill Lynch 7.25% 7.25% 7.25% 7.25%
National Australia 7.25% 7.25% 7.25% 7.00%
Nomura 7.25% 7.25% 7.25% 7.25%
RBC Capital 7.25% 7.25% 7.25% 7.25%
St. George Bank 7.25% 7.25% 7.25% 7.25%
Suncorp Banking 7.25% 7.25% 7.50% 7.50%
Thomson Reuters 7.25% 7.25% 7.25% 7.00%
TD Securities 7.25% 7.25% 7.00% 6.75%
UBS Australia 7.25% 7.25% 7.25% 7.00%
Westpac Bank 7.25% 7.25% 7.25% 7.25%
===============================================================
To contact the reporter for this story:
[bn:PRSN=1] Jacob Greber [] in Sydney at
jgreber@bloomberg.net
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South Korea Manufacturers' Confidence at 3-Year Low
By William Sim
June 30 (Bloomberg) -- South Korean manufacturers' confidence fell to the lowest level in more than three years as record fuel prices increased production costs amid a global economic slowdown.
An index measuring businesses expectations for July dropped to 77 from 88 in June, according to a survey of 1,554 manufacturers released by the Bank of Korea in Seoul today. That's the weakest reading since February 2005, and a score lower than 100 means pessimists outnumber optimists.
Business and consumer confidence is declining worldwide as oil costs, which have doubled in the past year, erode household incomes and squeeze corporate profits. South Korea's economy, Asia's fourth-largest, expanded at the slowest pace in more than a year last quarter while inflation has accelerated to the highest rate since 2001.
``Deteriorating sentiment will drag down the already slowing global economy further this year,'' said Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul. ``The outlook depends on when oil prices will peak out.''
South Korean manufacturers were surveyed this month at the same time as truck drivers' nationwide went on strike because of rising fuel costs and amid mass street protests over the resumption of U.S. beef imports.
Hyundai Motor Co.'s labor union voted on June 28 in favor of a strike to demand higher pay and to protest the U.S. beef imports.
President Lee Myung Bak's approval has plunged more than half to 21 percent since he took office in February, according to a survey by newspaper Chosun Ilbo, which gave a margin of error of plus or minus 3 percentage points.
Shares Decline
South Korea's benchmark Kospi index, which has dropped 11 percent this year, fell 0.2 percent to 1,681.77 at 10:15 a.m. in Seoul, led by exporter Samsung Electronics Co. The won slipped 0.3 percent to 1,045.15 against the U.S. dollar.
U.S. consumers were the gloomiest in 28 years in June and European confidence fell to the lowest in three years.
In Japan tomorrow, the central bank's Tankan poll of manufacturers may show sentiment sank to the lowest in almost five years, according to a Bloomberg News survey of economists.
An index measuring South Korean manufacturers' outlook for domestic sales declined to 100 from 105, while that for exports fell to 110 from 113. Exporters, so far, have been able to weather the economic slowdown in the U.S. by boosting sales to China and other emerging markets.
An index of non-manufacturing companies' expectations for July plunged to 75 from 82 as concern grew that sales and profits may slow. Construction and transport companies led the decline.
The Bank of Korea surveyed the manufacturers and 791 non- manufacturers between June 17 and June 23.
To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.
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Treasuries' Worst Performance Since 2004 Makes Rebound Unlikely
By Daniel Kruger
June 30 (Bloomberg) -- The biggest bear market in Treasuries since 2004 may get worse.
Unlike four years ago, when Federal Reserve Chairman Alan Greenspan embarked on 17 consecutive interest-rate increases to contain the threat of rising consumer prices, his successor Ben S. Bernanke is giving investors few assurances that the scourge of inflation will abate anytime soon.
``The Treasury market going forward is more an inflation story,'' said Colin Lundgren, head of institutional fixed income for RiverSource Institutional Advisors in Minneapolis, which manages $100 billion in bonds. RiverSource is reducing Treasuries in favor of securities backed by commercial mortgages and investment-grade corporate debt, he said.
Investors have lost 2.88 percent on average since March, including reinvested interest, according to Merrill Lynch & Co.'s Treasury Master Index. That's the worst performance since the second quarter of 2004, when they tumbled 3.1 percent.
Based on past years when the Fed, like now, was grappling with faster inflation and concern about turmoil in credit markets was starting to ease, investors might not enjoy a rebound.
In the second halves of 1994 and 1999, U.S. government debt returned less than 1 percent. In the first case the Fed increased interest rates in response to inflation threats, while in 1999 the collapse of hedge fund Long-Term Capital Management LP the year before failed to bring down the economy.
Slump Interrupted
As recently as June 23 Treasuries were down 3.27 percent for the quarter, the most since the three months ended Sept. 30, 1980, when they tumbled 5.1 percent. Back then, Fed Chairman Paul Volcker was raising rates to stamp out inflation.
Treasuries then recovered some of their losses as the Fed ended the most aggressive series of rate cuts in two decades and gave no indication that it will soon raise borrowing costs. That caused traders to pare bearish bets they placed in anticipation that policy makers would be more hawkish.
``Investors believe that future moves by the Fed are likely to be tightenings rather than easings,'' said Jane Caron, chief economic strategist in Burlington, Vermont, at Dwight Asset Management Co. The firm oversees $70 billion of bonds.
The yield on the 2.875 percent note maturing in June 2010 fell 27 basis points last week to 2.63 percent, according to BGCantor Market Data. The yield on the benchmark 10-year Treasury, a 3.875 percent note due in May 2018, dropped 20 basis points to 3.97 percent.
Cutting Back
Even with the rally, managers overseeing $1.37 trillion cut their holdings of Treasuries to 30 percent of assets on June 27 from 34 percent two weeks earlier, according to a survey by Jersey City, New Jersey-based Ried, Thunberg & Co.
Changing sentiment among investors can be seen in two-year notes, which are more sensitive to expectations for monetary policy than longer-maturity debt.
Yields climbed to 104 basis points above the Fed's target rate for overnight loans between banks this month from 190 basis points below at the start of the year. The spread, which ended last week at 63 basis points, has averaged 23 basis points, or 0.23 percentage point, this decade.
``The Committee expects inflation to moderate later this year and next year,'' the Fed said in a statement on June 25. ``However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.''
`Upward Drift'
American consumers, as well as investors such as Thomas Atteberry of First Pacific Advisors, are less optimistic than Fed officials. They anticipate average annual inflation of 3.4 percent over the next five years, the highest expectation since 1995, according to the Reuters/University of Michigan survey. The consumer price index increased 0.6 percent in May, the most since November, the Labor Department said June 13.
``I'm not convinced they're going to see the sort of inflation moderation they're hoping for,'' Atteberry, who manages $3.5 billion in fixed income assets for First Pacific in Los Angeles, said of the Fed. ``You will continue to see the upward drift in Treasury rates.''
U.S. government debt fell 3.35 percent in 1994 as the central bank raised rates to 5.5 percent from 3 percent to prevent the economy from entering an inflationary expansion. Consumer prices had climbed 2.5 percent in the 12 months ended in February 1994, when the Fed began boosting its target.
And in 1999 Treasuries lost 2.38 percent as Greenspan boosted rates three times, to 5.5 percent from 4.75 percent. Inflation was 2 percent at the time of the first increase. The tightening reversed three cuts in 1998 intended to revive confidence in credit markets shaken by the collapse of Greenwich, Connecticut-based Long-Term Capital.
Bernanke Versus Greenspan
Bernanke lowered rates seven times between September and April, to 2 percent from 5.25 percent as the subprime mortgage market collapsed. Now, traders see an 86 percent chance the Fed will lift rates to 2.25 percent or more by year-end, futures contracts on the Chicago Board of Trade show. One month ago the odds of an increase were 15 percent.
When Greenspan began to boost borrowing costs in 2004, lifting the target rate to 5.25 percent in 2006 from 1 percent, Treasuries gained 3.5 percent as investors bet the moves were sufficient to contain inflation. Consumer priced had increased 3.3 percent in the 12 months ended in June 2004.
Bernanke isn't inspiring the same confidence, though he presided over the last three increases in 2006. That's because the economy isn't rebounding. The Commerce Department said last week the economy grew at a 1 percent annual pace in the first quarter, capping the weakest six-month expansion in five years.
Consumer, Producer Prices
Consumer prices climbed 4.2 percent in the 12 months to May, while producer prices jumped 7.2 percent during the same period. The Reuters/Jefferies CRB Index has gained 48 percent in the past year, compared with an increase of 14 percent in the 12 months ended June 2004.
Inflation expectations as measured by difference in yields between 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes are rising. The so-called breakeven rate was 2.53 percentage points on June 27, up from this year's low of 2.20 percentage points on Jan. 22.
``The Fed will talk tough but actions speak louder than words and they're not going to act,'' said Richard Schlanger, a money manager at Pioneer Asset Management in Boston, which oversees $44 billion in fixed income. ``I just can't see the Fed tightening at this point. The economy's too weak, the financial system still is in jeopardy, you've got unemployment rising.''
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
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June 30 (Bloomberg) -- The biggest bear market in Treasuries since 2004 may get worse.
Unlike four years ago, when Federal Reserve Chairman Alan Greenspan embarked on 17 consecutive interest-rate increases to contain the threat of rising consumer prices, his successor Ben S. Bernanke is giving investors few assurances that the scourge of inflation will abate anytime soon.
``The Treasury market going forward is more an inflation story,'' said Colin Lundgren, head of institutional fixed income for RiverSource Institutional Advisors in Minneapolis, which manages $100 billion in bonds. RiverSource is reducing Treasuries in favor of securities backed by commercial mortgages and investment-grade corporate debt, he said.
Investors have lost 2.88 percent on average since March, including reinvested interest, according to Merrill Lynch & Co.'s Treasury Master Index. That's the worst performance since the second quarter of 2004, when they tumbled 3.1 percent.
Based on past years when the Fed, like now, was grappling with faster inflation and concern about turmoil in credit markets was starting to ease, investors might not enjoy a rebound.
In the second halves of 1994 and 1999, U.S. government debt returned less than 1 percent. In the first case the Fed increased interest rates in response to inflation threats, while in 1999 the collapse of hedge fund Long-Term Capital Management LP the year before failed to bring down the economy.
Slump Interrupted
As recently as June 23 Treasuries were down 3.27 percent for the quarter, the most since the three months ended Sept. 30, 1980, when they tumbled 5.1 percent. Back then, Fed Chairman Paul Volcker was raising rates to stamp out inflation.
Treasuries then recovered some of their losses as the Fed ended the most aggressive series of rate cuts in two decades and gave no indication that it will soon raise borrowing costs. That caused traders to pare bearish bets they placed in anticipation that policy makers would be more hawkish.
``Investors believe that future moves by the Fed are likely to be tightenings rather than easings,'' said Jane Caron, chief economic strategist in Burlington, Vermont, at Dwight Asset Management Co. The firm oversees $70 billion of bonds.
The yield on the 2.875 percent note maturing in June 2010 fell 27 basis points last week to 2.63 percent, according to BGCantor Market Data. The yield on the benchmark 10-year Treasury, a 3.875 percent note due in May 2018, dropped 20 basis points to 3.97 percent.
Cutting Back
Even with the rally, managers overseeing $1.37 trillion cut their holdings of Treasuries to 30 percent of assets on June 27 from 34 percent two weeks earlier, according to a survey by Jersey City, New Jersey-based Ried, Thunberg & Co.
Changing sentiment among investors can be seen in two-year notes, which are more sensitive to expectations for monetary policy than longer-maturity debt.
Yields climbed to 104 basis points above the Fed's target rate for overnight loans between banks this month from 190 basis points below at the start of the year. The spread, which ended last week at 63 basis points, has averaged 23 basis points, or 0.23 percentage point, this decade.
``The Committee expects inflation to moderate later this year and next year,'' the Fed said in a statement on June 25. ``However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.''
`Upward Drift'
American consumers, as well as investors such as Thomas Atteberry of First Pacific Advisors, are less optimistic than Fed officials. They anticipate average annual inflation of 3.4 percent over the next five years, the highest expectation since 1995, according to the Reuters/University of Michigan survey. The consumer price index increased 0.6 percent in May, the most since November, the Labor Department said June 13.
``I'm not convinced they're going to see the sort of inflation moderation they're hoping for,'' Atteberry, who manages $3.5 billion in fixed income assets for First Pacific in Los Angeles, said of the Fed. ``You will continue to see the upward drift in Treasury rates.''
U.S. government debt fell 3.35 percent in 1994 as the central bank raised rates to 5.5 percent from 3 percent to prevent the economy from entering an inflationary expansion. Consumer prices had climbed 2.5 percent in the 12 months ended in February 1994, when the Fed began boosting its target.
And in 1999 Treasuries lost 2.38 percent as Greenspan boosted rates three times, to 5.5 percent from 4.75 percent. Inflation was 2 percent at the time of the first increase. The tightening reversed three cuts in 1998 intended to revive confidence in credit markets shaken by the collapse of Greenwich, Connecticut-based Long-Term Capital.
Bernanke Versus Greenspan
Bernanke lowered rates seven times between September and April, to 2 percent from 5.25 percent as the subprime mortgage market collapsed. Now, traders see an 86 percent chance the Fed will lift rates to 2.25 percent or more by year-end, futures contracts on the Chicago Board of Trade show. One month ago the odds of an increase were 15 percent.
When Greenspan began to boost borrowing costs in 2004, lifting the target rate to 5.25 percent in 2006 from 1 percent, Treasuries gained 3.5 percent as investors bet the moves were sufficient to contain inflation. Consumer priced had increased 3.3 percent in the 12 months ended in June 2004.
Bernanke isn't inspiring the same confidence, though he presided over the last three increases in 2006. That's because the economy isn't rebounding. The Commerce Department said last week the economy grew at a 1 percent annual pace in the first quarter, capping the weakest six-month expansion in five years.
Consumer, Producer Prices
Consumer prices climbed 4.2 percent in the 12 months to May, while producer prices jumped 7.2 percent during the same period. The Reuters/Jefferies CRB Index has gained 48 percent in the past year, compared with an increase of 14 percent in the 12 months ended June 2004.
Inflation expectations as measured by difference in yields between 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes are rising. The so-called breakeven rate was 2.53 percentage points on June 27, up from this year's low of 2.20 percentage points on Jan. 22.
``The Fed will talk tough but actions speak louder than words and they're not going to act,'' said Richard Schlanger, a money manager at Pioneer Asset Management in Boston, which oversees $44 billion in fixed income. ``I just can't see the Fed tightening at this point. The economy's too weak, the financial system still is in jeopardy, you've got unemployment rising.''
To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net
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