By Rebecca Christie and Peter Cook
Sept. 8 (Bloomberg) -- Treasury Secretary Henry Paulson said the discussions over how to prop up Fannie Mae and Freddie Mac were ``all consuming'' in recent weeks, when he was forced to make a decision he would rather have avoided.
``This is the first time in my career I had trouble sleeping, and it wasn't because it was a difficult decision,'' Paulson said in interview with Bloomberg television. Paulson, 62, took the Treasury's helm in 2006 after a 32-year career at Goldman Sachs Group Inc.
As financial markets deteriorated, resembling the situation in March when Bear Stearns Cos. collapsed, foreign central banks began expressing concerns about Fannie and Freddie, the mortgage companies whose debt they hold. Paulson said that while he preferred not to oversee a government takeover, in the end there was no choice.
``Government intervention is not something that I came here wanting to espouse, but it sure is better than the alternative,'' the Treasury chief said. He spoke a day after the Treasury and Federal Housing Finance Agency put the companies into conservatorship, providing for up to $100 billion of equity investments by the Treasury in each to keep them solvent.
Foreign central banks had concerns about the two companies, in part because of their size, Paulson said. Fannie and Freddie make up almost half of the $12 trillion U.S. mortgage market. U.S. investors also wanted to know what they were facing, he said.
Stocks, Bonds
Fannie fell 79 percent to $1.46 and Freddie lost 71 percent to $1.50 as of 9:53 a.m. in New York Stock Exchange trading. Credit Suisse analysts cut their price target on the companies to $1. At the same time, the companies' bonds rallied.
The rescue won backing from the world's major central banks, including those in Asia where much of the mortgage companies' debt is held.
``This is positive,'' People's Bank of China Governor Zhou Xiaochuan told reporters today in Basel, Switzerland, at a meeting at the Bank for International Settlements. Bank of Japan Governor Masaaki Shirakawa said he expects the takeover to ``stabilize'' U.S. and global financial markets.
Paulson said the current management and boards of the two companies aren't to blame for the firms' situation. They had a ``flawed'' business model with a federal charter and shareholder ownership, and suffered from the rout in the U.S. mortgage market, he said.
No `Happy Time'
The episode has ``not been a happy time for anyone,'' Paulson said. ``I've never been through any situation which was as difficult, as stressful, as complex.''
The Treasury chief reiterated that yesterday's intervention is a ``time-out'' that leaves it to the next Congress and administration to decide on Fannie's and Freddie's long-term structure.
Yesterday's action leaves open the option favored by former Federal Reserve Chairman Alan Greenspan, to split up and sell off the companies, or a full nationalization that would cement the government's role in mortgage markets. Avoiding a decision on the issue enhances the likelihood of congressional backing for the emergency steps, Democratic Senator Charles Schumer of New York said.
Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, warned against any attempt to dismantle Fannie and Freddie.
`Real Problem'
``This will be a real problem'' if the takeover was ideologically driven Dodd said. The Fannie-Freddie model has allowed the U.S. to be the ``only country'' where homeowners are able to get 30-year fixed-rate mortgages, he said.
The FHFA, which will run the conservatorship, ejected Fannie CEO Daniel Mudd, 50, and Freddie CEO Richard Syron, 64. They were replaced by Herbert Allison, 65, former CEO of TIAA- Cref, and David Moffett, 56, who was a US Bancorp vice chairman.
The Treasury also said yesterday it will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market. The New York Federal Reserve Bank will act as the Treasury's agent for the lending facility.
``This is not a permanent solution -- they've not saved Fannie and Freddie, what they've done is they've bought 15 months,'' said Bill Ackman, founder of Pershing Square Capital Management in New York, which has sold short the two companies, or bet on declines in their securities. ``It's a band-aid. They haven't permanently recapitalized the companies.''
Bond Rally
Yields on Fannie Mae and Freddie Mac debt relative to Treasuries tumbled by the most on record on rising confidence in their creditworthiness after the government takeover.
The difference between yields on Fannie's five-year debt and five-year Treasuries fell 29.1 basis points to 64.9 basis points as of 8 a.m. in New York, the lowest since May, according to data complied by Bloomberg. The yield fell to 22.1 basis points below interest-rate swaps, another benchmark, the lowest since February and down from 4.8 basis points.
The takeovers bring Fannie, formed after the Great Depression and spun off in 1968, and Freddie, created in 1970, back under the government's fold. It's the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns.
Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on its stake.
Portfolio Limits
As a condition for the assistance, Fannie and Freddie eventually will have to reduce their holdings of mortgages and securities backed by home loans.
While common stockholders of Fannie and Freddie won't be eliminated, they will be last in line for any claims, Paulson said. Preferred shareholders will be second in absorbing losses, he said. Interest and principal payments will continue to be made on the companies' subordinated debt, Lockhart said.
The government is taking an increasing role in financial markets, after the Fed six months ago provided $29 billion of financing to prevent the collapse of Bear Stearns Cos. Chairman Ben S. Bernanke praised yesterday's action.
Democratic presidential nominee Barack Obama said yesterday that ``some'' intervention was necessary to prevent a ``larger and deeper crisis.'' After the current crisis subsides, ``the plan must move toward clarifying the true public and private status of our housing policies,'' he said.
`Downward Spiral'
``We've got to keep people in their homes,'' Republican presidential candidate John McCain said in an interview with CBS's ``Face the Nation'' program. ``There's got to be restructuring, there's got to be reorganization, and there's got to be some confidence that we've stopped this downward spiral.''
The government takeover comes almost two months after Paulson first sought emergency powers to inject capital into the beleaguered mortgage-finance companies. Congress approved the measure in legislation signed by President George W. Bush on July 30.
Paulson had indicated until early last month that it was unlikely he'd use the authority, and then kept silent even as investors clamored for clarity on how a government intervention would work.
``There are an enormous number of decisions ahead and they will be very controversial and there will be a lot of conflict,'' William Poole, former president of the Federal Reserve Bank of St. Louis, said in a Bloomberg Television interview. ``We don't know what the ultimate cost is. If they lose 5 percent on all their obligations, that doesn't seem like an outrageous amount to lose. That's right away $300 billion.''
MBS Purchases
Included in yesterday's measures is a Treasury program to purchase new mortgage-backed securities from the two companies, starting with a $5 billion purchase this month.
The Treasury will also hire independent asset managers to purchase and run the portfolio of mortgage-backed securities it will buy. ``There is no reason to expect taxpayer losses from this program, and it could produce gains,'' the department said.
Paulson's decision, taken after consulting with Bernanke, followed a review that found Washington-based Fannie and McLean, Virginia-based Freddie used accounting methods that inflated their capital, according to people with knowledge of the decision.
Morgan Stanley Role
Paulson hired Morgan Stanley a month ago to probe the companies' finances. The investment bank concluded that the accounting, while legal, enabled Freddie, and to a lesser extent Fannie, to overstate the value of their reserves, according to the people who declined to be identified because the findings were confidential.
Fannie and Freddie own or guarantee almost half of the $12 trillion in U.S. home loans and the government had been leaning on the companies to help pull the economy out of the housing crisis.
Concern over the companies' capital pushed their borrowing costs to record levels over U.S. Treasuries, sent their common and preferred stocks tumbling and boosted mortgage rates. Fannie is down about 93 percent in New York Stock Exchange trading since the end of June. Freddie has fallen about 92 percent.
To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net;
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Monday, September 8, 2008
Trichet Says Central Banks See Economic Recovery After Slowdown
By Simone Meier
Sept. 8 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said global central banks expect the world economy to re-gather strength after a slowdown.
``We see at the level of the global economy that growth remains positive and significant,'' Trichet said at a briefing after chairing a meeting of central bankers from around the world in Basel, Switzerland. There will be a ``slowing down'' of growth followed by ``some picking up,'' he said.
Economic growth in emerging markets such as China, India and Russia has bolstered global expansion even after a housing slump pushed the U.S. economy close to a recession. Trichet said global central banks remain committed to fighting inflation.
``We see inflation very high at a global level,'' he said. ``We all agree that at the level of the central bank constituency, a solid anchoring in inflation expectations is of the essence for all of us in the present global environment.''
In the U.S., the Federal Reserve has kept its key rate on hold for the past five months, while the ECB in July raised borrowing costs to a seven-year high to fight inflation.
The Organization for Economic Cooperation and Development said on Sept. 2 that the world's leading central banks should keep borrowing costs at their current levels to balance strong inflation with reduced expansion. The Paris-based group forecast ``weak activity through the end of the year.''
Headline Inflation
With the global economy losing strength, it has become more difficult for central banks to raise interest rates to fight inflation. Crude oil prices have surged 39 percent in the past year, reaching a record $147.27 a barrel on July 11.
``After the shocks, headline inflation will have to go back to the definition of price stability'' in each nation, Trichet said. ``We all consider that we have an abnormal level of'' headline inflation because of ``commodity prices, food prices. We have to avoid second-round effects.''
Global inflation is already eroding the spending power of companies and consumers. In Japan and the 15-nation euro region, gross domestic product fell in the second quarter.
The International Monetary Fund said on July 17 that rising global inflation threats are constraining the ``policy response to slower growth.'' Among industrial economies, the case for rate increases ``is stronger than before the recent oil-price increase,'' the Washington-based fund said.
`Scope for Optimism'
``There might be some scope for optimism with respect to commodity prices,'' said Steven Barrow, head of G-10 research at Standard Bank in London. The retreat in oil prices ``could open up a little bit of a window for some central banks to talk in more dovish terms.''
The ECB on Sept. 4 kept its key rate at a seven-year high of 4.25 percent to keep faster inflation from fueling wages. By comparison, the Fed earlier this year ended a series of cuts that had slashed borrowing costs by 3.25 percentage points to 2 percent since September. That's still above the Bank of Japan's 0.5 percent main lending rate.
Central banks ``are waiting for inflation pressures to ease on weaker growth,'' said Janwillem Acket, chief economist at Julius Baer Holding AG in Zurich. ``The second half will be even weaker than the first six months.''
Trichet, 65, met with his counterparts from the world's largest central banks. The G-10 meeting is held every two months under the auspices of the Bank for International Settlements, the central bank of the world's central banks.
To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said global central banks expect the world economy to re-gather strength after a slowdown.
``We see at the level of the global economy that growth remains positive and significant,'' Trichet said at a briefing after chairing a meeting of central bankers from around the world in Basel, Switzerland. There will be a ``slowing down'' of growth followed by ``some picking up,'' he said.
Economic growth in emerging markets such as China, India and Russia has bolstered global expansion even after a housing slump pushed the U.S. economy close to a recession. Trichet said global central banks remain committed to fighting inflation.
``We see inflation very high at a global level,'' he said. ``We all agree that at the level of the central bank constituency, a solid anchoring in inflation expectations is of the essence for all of us in the present global environment.''
In the U.S., the Federal Reserve has kept its key rate on hold for the past five months, while the ECB in July raised borrowing costs to a seven-year high to fight inflation.
The Organization for Economic Cooperation and Development said on Sept. 2 that the world's leading central banks should keep borrowing costs at their current levels to balance strong inflation with reduced expansion. The Paris-based group forecast ``weak activity through the end of the year.''
Headline Inflation
With the global economy losing strength, it has become more difficult for central banks to raise interest rates to fight inflation. Crude oil prices have surged 39 percent in the past year, reaching a record $147.27 a barrel on July 11.
``After the shocks, headline inflation will have to go back to the definition of price stability'' in each nation, Trichet said. ``We all consider that we have an abnormal level of'' headline inflation because of ``commodity prices, food prices. We have to avoid second-round effects.''
Global inflation is already eroding the spending power of companies and consumers. In Japan and the 15-nation euro region, gross domestic product fell in the second quarter.
The International Monetary Fund said on July 17 that rising global inflation threats are constraining the ``policy response to slower growth.'' Among industrial economies, the case for rate increases ``is stronger than before the recent oil-price increase,'' the Washington-based fund said.
`Scope for Optimism'
``There might be some scope for optimism with respect to commodity prices,'' said Steven Barrow, head of G-10 research at Standard Bank in London. The retreat in oil prices ``could open up a little bit of a window for some central banks to talk in more dovish terms.''
The ECB on Sept. 4 kept its key rate at a seven-year high of 4.25 percent to keep faster inflation from fueling wages. By comparison, the Fed earlier this year ended a series of cuts that had slashed borrowing costs by 3.25 percentage points to 2 percent since September. That's still above the Bank of Japan's 0.5 percent main lending rate.
Central banks ``are waiting for inflation pressures to ease on weaker growth,'' said Janwillem Acket, chief economist at Julius Baer Holding AG in Zurich. ``The second half will be even weaker than the first six months.''
Trichet, 65, met with his counterparts from the world's largest central banks. The G-10 meeting is held every two months under the auspices of the Bank for International Settlements, the central bank of the world's central banks.
To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net
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Paulson Aims to Do What Eluded Fed: Get Banks to Lend
By Craig Torres
Sept. 8 (Bloomberg) -- Henry Paulson is making a colossal bet that the U.S. Treasury can do what Ben S. Bernanke's Federal Reserve failed to do: Get banks to lend more freely when the deteriorating economy is still telling them to hold back.
Paulson's gamble is that government control of Fannie Mae and Freddie Mac, the two biggest purchasers of home loans, will foster a liquid market for mortgage securities that will encourage lower rates and induce banks to lend. The risk is banks will still balk because the fundamentals underlying housing have soured. Unemployment is rising, real earnings have fallen, and house prices haven't broken an 18-month streak of declines.
``If the housing market doesn't turn around, then Fannie and Freddie become bad assets,'' said Vincent Reinhart, former director of the Fed's Monetary Affairs Division. ``Paulson sold this to Congress as, `Give me a blank check and I won't have to write it.' The question now is: How big is that check going to have to be?''
The Fed cut the benchmark lending rate 3.25 percentage points to 2 percent over the past year and provided billions of dollars in financial backstops to Wall Street investment firms and banks. The actions failed to lower interest rates on mortgages, leaving home values in a free-fall that created a vicious circle where credit became even harder to obtain.
The weekend announcements followed a crescendo of news showing the housing recession spilling over into the broader economy. Reports on Sept. 5 showed the U.S. unemployment rate climbed to a five-year high in August and average hourly earnings after inflation fell for the ninth consecutive month. Foreclosure rates reached the highest in 29 years of record- keeping.
New Wave of Risk
The worsening economy injected a new wave of credit risk into funding markets for banks, which they in turn translated into higher costs for borrowers.
Thirty-year mortgage rates averaged 6.35 percent in the first week of September, according to data compiled by Freddie Mac, almost matching the 6.34 percent they averaged when the Fed began its campaign of reducing its benchmark rate a year ago.
The government conservatorship of Fannie Mae and Freddie Mac may reduce spreads on mortgage bonds by assuring banks they will have an active secondary market for the new loans they make. What's more, the Treasury has agreed to buy the two companies' mortgage bonds.
No Guarantee
That in itself doesn't guarantee that mortgage rates will fall low enough to pull home prices out of their tailspin.
``The key question'' is whether the week's actions will bring a bottoming in the housing market, says Charles Diebel, head of European interest-rate strategy at Nomura International Plc in London. ``We would suggest the answer is no, but it does mean it will continue to function.''
The Treasury's rescue plan limits the growth of the two agencies' portfolios of home loans and mortgage-backed securities, capping them at $850 billion each as of December 2009. That allows them to expand their combined holdings by $144 billion over 16 months, compared with where they were on July 31. After 2009, the two agencies' balance sheets will begin to decline at a rate of 10 percent a year until they reach $250 billion each, under the Treasury's plan.
The Treasury also said it will purchase mortgage-backed security assets issued by the agencies, providing liquidity for banks who want to make new home loans and then sell them off.
Taxpayer First
Treasury said there is no reason to expect taxpayer losses from the program. ``The taxpayer will be repaid if we put something in before the shareholders get paid,'' Paulson said in an interview with Bloomberg Television. ``The taxpayer will come first.''
For now, the Treasury's immediate risk is limited to the performance of the $5 billion it plans to invest in the companies' mortgage bonds. The larger implied risk is in the backstops the Treasury has pledged.
If the Federal Housing Finance Agency determines that Fannie or Freddie's liabilities exceed their assets, ``Treasury will contribute cash capital'' to make the agencies solvent, the Treasury said yesterday.
Ultimately, whether the Treasury has to take that step depends on the performance of the housing collateral that underlies the securities.
``It's not a silver bullet,'' said Ajay Rajadhyaksha, head of fixed-income strategy at Barclays Capital Inc. in New York. ``The only way in which this helps the housing market is if it gets agency rates down a lot. That might not be as easy to achieve as it appears.''
Unsold Properties
Sales of previously owned homes in the U.S. rose in July from a 10-year low, not enough to whittle away a glut of unsold properties that's weighing on prices.
There were 4.67 million unsold houses and condos on the market in July, representing 11.2 months supply, about double the inventory of a stable market, according to the National Association of Realtors. Home prices nationally were down 18 percent in the second quarter from their peak two years earlier, according to the S&P Case-Shiller home-price index.
``What do these two agencies own? Mortgages on U.S. houses,'' said Mark Spindel, chief investment officer of Washington-based Potomac River Capital LLC. ``To the extent that house prices were to fall further, the value of the assets the government just acquired could fall further.''
To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net
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StatoilHydro Sees Oil Below $100 a Barrel by Year End
By Marianne Stigset
Sept. 8 (Bloomberg) -- StatoilHydro ASA, Norway's largest oil and gas company, expects the price of oil to fall to less than $100 barrel by year end amid near-record OPEC production and slowing global economic growth.
Current output by the Organization of Petroleum Exporting Countries is increasing commercial oil inventories, said Sandrine Toerstad, head of market analysis at the Stavanger- based company. The global economy, led by the U.S., the European Union and Japan, will weaken further next year and cut demand for crude, she said, adding that oil will average less than $110 a barrel in 2009.
``OPEC will need to trim down output, although it's unlikely that they will reduce their quota tomorrow'' at a meeting in Vienna, Toerstad said at a seminar in Oslo today. ``They're likely to reduce it unofficially'' to meet the set quota levels, she said.
OPEC members with quotas produced about 592,000 barrels a day more than their official limit of 29.673 million last month, according to Bloomberg estimates. Iraq has no quota. Output from all 13 members slipped 200,000 barrels a day from July's record.
Fear of Plunge
Iran and Venezuela will urge the group at the meeting tomorrow to trim supplies to prevent oil prices retreating below $100 a barrel. The cartel is more likely to reduce its quota at a meeting in Algeria in December, Toerstad said.
``They'll want to reduce the quota ahead of the maintenance shutdowns of the major refineries this spring,'' she said. ``There is a fear that the price decline will get out of control and plunge.''
Oil has dropped $40 a barrel, or 27 percent, from a record $147.27 on July 11 as slowing global growth as reduced demand and the dollar halted a three-year slide against the euro. Oil was up $1.05, or 1 percent, to $107.28 a barrel in after-hours electronic trading on the New York Mercantile Exchange as of 10:59 a.m. in Oslo.
Norway, the world's fifth biggest oil exporter, isn't a member of OPEC.
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
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Sept. 8 (Bloomberg) -- StatoilHydro ASA, Norway's largest oil and gas company, expects the price of oil to fall to less than $100 barrel by year end amid near-record OPEC production and slowing global economic growth.
Current output by the Organization of Petroleum Exporting Countries is increasing commercial oil inventories, said Sandrine Toerstad, head of market analysis at the Stavanger- based company. The global economy, led by the U.S., the European Union and Japan, will weaken further next year and cut demand for crude, she said, adding that oil will average less than $110 a barrel in 2009.
``OPEC will need to trim down output, although it's unlikely that they will reduce their quota tomorrow'' at a meeting in Vienna, Toerstad said at a seminar in Oslo today. ``They're likely to reduce it unofficially'' to meet the set quota levels, she said.
OPEC members with quotas produced about 592,000 barrels a day more than their official limit of 29.673 million last month, according to Bloomberg estimates. Iraq has no quota. Output from all 13 members slipped 200,000 barrels a day from July's record.
Fear of Plunge
Iran and Venezuela will urge the group at the meeting tomorrow to trim supplies to prevent oil prices retreating below $100 a barrel. The cartel is more likely to reduce its quota at a meeting in Algeria in December, Toerstad said.
``They'll want to reduce the quota ahead of the maintenance shutdowns of the major refineries this spring,'' she said. ``There is a fear that the price decline will get out of control and plunge.''
Oil has dropped $40 a barrel, or 27 percent, from a record $147.27 on July 11 as slowing global growth as reduced demand and the dollar halted a three-year slide against the euro. Oil was up $1.05, or 1 percent, to $107.28 a barrel in after-hours electronic trading on the New York Mercantile Exchange as of 10:59 a.m. in Oslo.
Norway, the world's fifth biggest oil exporter, isn't a member of OPEC.
To contact the reporter on this story: Marianne Stigset in Oslo at mstigset@bloomberg.net
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Natural Gas Gains as Hurricane Ike Moves Toward Gulf of Mexico
By Aaron Clark
Sept. 8 (Bloomberg) -- Natural gas futures rose for a fourth day as Hurricane Ike moved toward the Gulf of Mexico, a region that produces about 14 percent of U.S. supplies.
Ike is over Cuba on a course that would take it into the Gulf within two days, U.S. government forecasters said. About 70 percent of offshore gas production is still shut because of Hurricane Gustav, which made landfall in Louisiana last week.
``The main driver this morning is Ike,'' said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``In fact, it may be the only driver this morning.''
Natural gas for October delivery rose 12.6 cents, or 1.7 percent, to $7.575 per million British thermal units at 10:08 a.m. on the New York Mercantile Exchange.
Crude oil for October delivery gained 84 cents, or 0.8 percent, to $107.07 a barrel on the exchange.
Ike was a Category 2 storm on the 5 step Saffir-Simpson scale of intensity, with sustained winds of 100 miles (160 kilometers) per hour, the Miami-based National Hurricane Center said on its Web site at 8 a.m. The storm weakened earlier today from Category 3 and may weaken further while over land, the forecasters said.
The hurricane is on a track toward ``the richest natural-gas and crude-areas that we have,'' Rose said.
Energy companies that were in the process of restoring production after Gustav now are taking precautions for Ike, the U.S. Minerals Management Service said. Hurricanes Katrina and Rita in 2005 damaged energy production and pipelines, sending gas futures to a record $15.78 per million Btu on Dec. 13, 2005.
``You still have a lot of stuff shut in the Gulf of Mexico due to Gustav,'' said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. ``Inventories are looking much more bullish than they were just two weeks ago.''
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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Sept. 8 (Bloomberg) -- Natural gas futures rose for a fourth day as Hurricane Ike moved toward the Gulf of Mexico, a region that produces about 14 percent of U.S. supplies.
Ike is over Cuba on a course that would take it into the Gulf within two days, U.S. government forecasters said. About 70 percent of offshore gas production is still shut because of Hurricane Gustav, which made landfall in Louisiana last week.
``The main driver this morning is Ike,'' said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``In fact, it may be the only driver this morning.''
Natural gas for October delivery rose 12.6 cents, or 1.7 percent, to $7.575 per million British thermal units at 10:08 a.m. on the New York Mercantile Exchange.
Crude oil for October delivery gained 84 cents, or 0.8 percent, to $107.07 a barrel on the exchange.
Ike was a Category 2 storm on the 5 step Saffir-Simpson scale of intensity, with sustained winds of 100 miles (160 kilometers) per hour, the Miami-based National Hurricane Center said on its Web site at 8 a.m. The storm weakened earlier today from Category 3 and may weaken further while over land, the forecasters said.
The hurricane is on a track toward ``the richest natural-gas and crude-areas that we have,'' Rose said.
Energy companies that were in the process of restoring production after Gustav now are taking precautions for Ike, the U.S. Minerals Management Service said. Hurricanes Katrina and Rita in 2005 damaged energy production and pipelines, sending gas futures to a record $15.78 per million Btu on Dec. 13, 2005.
``You still have a lot of stuff shut in the Gulf of Mexico due to Gustav,'' said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. ``Inventories are looking much more bullish than they were just two weeks ago.''
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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Intercontinental Exchange Resumes U.S., Europe Futures Trading
By Alexander Kwiatkowski and Matthew Leising
Sept. 8 (Bloomberg) -- Intercontinental Exchange Inc. resumed energy and commodities trading on all its European and U.S. platforms after a technical fault had shut down operations.
Trading restarted at 9:55 a.m. New York time and ICE's three platforms are now ``normal,'' the exchange said on its Web site. Trading was halted at 8:34 a.m. because of ``technical issues,'' ICE said earlier today.
Energy futures including Brent crude, natural gas, gasoil, heating oil and gasoline trade on the European exchange while commodities such as sugar, cotton, coffee, cocoa and orange juice trade on ICE Futures U.S.
``I don't know the technical nature of the problem,'' Intercontinental spokeswoman Kelly Loeffler said by telephone. Loeffler said she didn't know if there was a connection to a computer failure that halted trading on the London Stock Exchange today.
Trading in the U.S. Dollar Index, a benchmark for the dollar against a weighted basket of the euro, yen, pound and three other major currencies, was also stopped, as was ICE's Canadian agriculture contracts including canola, wheat and barley. The Atlanta-based company no longer has any floor trading operations for futures contracts.
Intercontinental is scheduled to switch its clearing operations from the LCH.Clearnet to its own operation next week. The company owns London-based ICE Futures Europe, New York-based ICE Futures U.S. and Winnipeg, Canada-based ICE Futures Canada.
The trading outage is not connected to the clearing transfer, Loeffler said. ``I don't think it's human error.''
-- With reporting by Patrick McKiernan in New York Editors: Jonas Bergman, Guy Collins
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net; Matthew Leising in New York at mleising@bloomberg.net.
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Sept. 8 (Bloomberg) -- Intercontinental Exchange Inc. resumed energy and commodities trading on all its European and U.S. platforms after a technical fault had shut down operations.
Trading restarted at 9:55 a.m. New York time and ICE's three platforms are now ``normal,'' the exchange said on its Web site. Trading was halted at 8:34 a.m. because of ``technical issues,'' ICE said earlier today.
Energy futures including Brent crude, natural gas, gasoil, heating oil and gasoline trade on the European exchange while commodities such as sugar, cotton, coffee, cocoa and orange juice trade on ICE Futures U.S.
``I don't know the technical nature of the problem,'' Intercontinental spokeswoman Kelly Loeffler said by telephone. Loeffler said she didn't know if there was a connection to a computer failure that halted trading on the London Stock Exchange today.
Trading in the U.S. Dollar Index, a benchmark for the dollar against a weighted basket of the euro, yen, pound and three other major currencies, was also stopped, as was ICE's Canadian agriculture contracts including canola, wheat and barley. The Atlanta-based company no longer has any floor trading operations for futures contracts.
Intercontinental is scheduled to switch its clearing operations from the LCH.Clearnet to its own operation next week. The company owns London-based ICE Futures Europe, New York-based ICE Futures U.S. and Winnipeg, Canada-based ICE Futures Canada.
The trading outage is not connected to the clearing transfer, Loeffler said. ``I don't think it's human error.''
-- With reporting by Patrick McKiernan in New York Editors: Jonas Bergman, Guy Collins
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net; Matthew Leising in New York at mleising@bloomberg.net.
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TV, Turnout, Buzz Will Shape Obama-McCain Race: Albert R. Hunt
Commentary by Albert R. Hunt
Sept. 8 (Bloomberg) -- In my 40 years of covering American politics, I've never seen anything like the past week and a half.
An African-American, against all odds, wins his party's nomination, then gives an acceptance speech as part of an eight-hour celebration and voter-registration rally before 80,000 people. A hurricane threatens to force the cancellation of the other party's convention, which then comes alive when a moose-hunting, creationist-embracing, basketball-playing former beauty queen is picked to run for vice president.
Anyone who predicts with any certainty what will happen in the next eight weeks ought to explain how well they forecast what would happen in the past eight days.
The conventional wisdom is that the presidential race will be shaped by the debates, especially the initial Sept. 26 encounter and the vice presidential face-off on Oct. 2.
Some presidential contests have been strongly affected by debates: Ronald Reagan's victory in 1980 -- when he memorably asked, ``Are you better off than you were four years ago?'' -- and Vice President Al Gore's surprisingly poor performance in 2000 against a less-articulate George W. Bush.
Since 1976, however, most presidential outcomes haven't been decided by the debates.
And the only memorable vice presidential encounter was in 1988, when the late Lloyd Bentsen humiliated Republican Dan Quayle. A month later, the Democratic ticket was clobbered anyway in the election.
Controlling the Conversation
There are several other elements that may prove more decisive in the next two months.
One is the conversation and who controls it. Although the news-cycle-to-news-cycle battle is erratic, a campaign narrative usually emerges after a few weeks. In 1992, Bill Clinton capitalized on the sense that America was neglecting its domestic needs -- ``It's the economy, stupid'' -- and in the last election, an unpopular president prevailed as the challenger, John Kerry, was depicted as a waffler.
There is the simple change (Barack Obama) versus experience (John McCain) match-up this time, although both sides made progress at their conventions in closing the gap on their weaknesses. Actually, these somewhat vague terms connect more to national security versus economic security.
``If in October we're talking about Russia and national defense and who can manage America in a difficult world, John McCain will be president,'' predicts Thomas Rath, the leading Republican strategist in the swing state of New Hampshire. ``If we're talking largely about domestic issues and health care, Barack Obama probably will be president.''
Unforeseen Events
Events can affect that conversation. If Russia invades another country on Oct. 20 or Iran detonates a nuclear weapon, advantage McCain; if there's another Bear Stearns meltdown, or a stock market crash, put a few points on the Obama side.
Where they're going and where they're spending will also prove decisive. Both these campaigns are rich with resources and technology and can calibrate the voters and states they need to target. The last four presidential elections suggest that each political party has a base of a little over 200 electoral votes with a half-dozen to a dozen swing states.
It's no secret that Obama and McCain, and Joe Biden and Sarah Palin, will see a lot of autumn days in Ohio. If, however, the candidates are spending a disproportionate amount of time in Democratic, or blue, states, like Pennsylvania and Michigan, it's bad news for the Obama-Biden ticket.
Conversely, if McCain is struggling to hold Virginia or Florida, he's in trouble.
Check the Ratings
Television buys, and who has the comparative advantage, might be crucial. There will be thousands of weekly ratings points (reflecting viewers) bought in Pittsburgh, Denver and Columbus, Ohio. Check who's spending more in Albuquerque, New Mexico, or Charlotte, North Carolina.
Look for the enthusiasm quotient. Prior to the Republican convention, every index of intensity favored Obama -- party registration, primary turnout, crowds, volunteers.
Republicans believe the choice of Palin as McCain's running mate goes a long way toward closing that gap. Her appeal to independents or Hillary Clinton voters is dubious. What she really does is gin up the party's conservative base that supplies the foot soldiers to rally people in November.
In late October, see how many campaign offices and volunteers there are in Loudoun County, Virginia, or Appleton, Wisconsin. If there is still a bigger and more enthusiastic Obama presence, it will add a percentage point or two to his vote.
Follow the Money
``If you look at where the money is being spent and what's going on on the ground, you'll have a pretty good idea of who's going to win this election,'' says Tad Devine, a top strategist for the Gore and Kerry Campaigns.
The other indicator, which may not be clear until after the election, is race. How many Americans, in the privacy of their voting decision, won't vote for a black man? Fewer probably than a decade ago, but certainly some.
In 2004, voter turnout rose to 120 million from 105 million four years before. Many of these new voters were evangelicals and small-town Republicans, who were turned out by a crack Bush organization.
Sobering Reminder
For McCain, the electorate has to concur with his campaign chief, Rick Davis, that the strikingly unpopular Bush became a forgotten figure at the Republican convention. If most voters think McCain, on the big issues of the economy and Iraq, would be the equivalent of a third Bush term, he won't win.
This time, it's the Democrats who expect a big turnout. If so, it's more likely to be younger voters, Hispanics and African-Americans, most of whom will support the party.
One final sobering reminder for the ebullient Republicans who just left St. Paul, Minnesota: At this exact time in 1984, Democrats left their convention in San Francisco convinced that a little-known woman vice presidential candidate had energized their party and created a competitive election. It didn't last.
(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)
To contact the writer of this column: Albert R. Hunt in Washington at ahunt1@bloomberg.net
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Natural Gas Gains as Hurricane Ike Moves Toward Gulf of Mexico
By Aaron Clark
Sept. 8 (Bloomberg) -- Natural gas futures rose for a fourth day as Hurricane Ike moved toward the Gulf of Mexico, a region that produces about 14 percent of U.S. supplies.
Ike is over Cuba on a course that would take it into the Gulf within two days, U.S. government forecasters said. About 70 percent of offshore gas production is still shut because of Hurricane Gustav, which made landfall in Louisiana last week.
``The main driver this morning is Ike,'' said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``In fact, it may be the only driver this morning.''
Natural gas for October delivery rose 12.6 cents, or 1.7 percent, to $7.575 per million British thermal units at 10:08 a.m. on the New York Mercantile Exchange.
Crude oil for October delivery gained 84 cents, or 0.8 percent, to $107.07 a barrel on the exchange.
Ike was a Category 2 storm on the 5 step Saffir-Simpson scale of intensity, with sustained winds of 100 miles (160 kilometers) per hour, the Miami-based National Hurricane Center said on its Web site at 8 a.m. The storm weakened earlier today from Category 3 and may weaken further while over land, the forecasters said.
The hurricane is on a track toward ``the richest natural-gas and crude-areas that we have,'' Rose said.
Energy companies that were in the process of restoring production after Gustav now are taking precautions for Ike, the U.S. Minerals Management Service said. Hurricanes Katrina and Rita in 2005 damaged energy production and pipelines, sending gas futures to a record $15.78 per million Btu on Dec. 13, 2005.
``You still have a lot of stuff shut in the Gulf of Mexico due to Gustav,'' said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. ``Inventories are looking much more bullish than they were just two weeks ago.''
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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Sept. 8 (Bloomberg) -- Natural gas futures rose for a fourth day as Hurricane Ike moved toward the Gulf of Mexico, a region that produces about 14 percent of U.S. supplies.
Ike is over Cuba on a course that would take it into the Gulf within two days, U.S. government forecasters said. About 70 percent of offshore gas production is still shut because of Hurricane Gustav, which made landfall in Louisiana last week.
``The main driver this morning is Ike,'' said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``In fact, it may be the only driver this morning.''
Natural gas for October delivery rose 12.6 cents, or 1.7 percent, to $7.575 per million British thermal units at 10:08 a.m. on the New York Mercantile Exchange.
Crude oil for October delivery gained 84 cents, or 0.8 percent, to $107.07 a barrel on the exchange.
Ike was a Category 2 storm on the 5 step Saffir-Simpson scale of intensity, with sustained winds of 100 miles (160 kilometers) per hour, the Miami-based National Hurricane Center said on its Web site at 8 a.m. The storm weakened earlier today from Category 3 and may weaken further while over land, the forecasters said.
The hurricane is on a track toward ``the richest natural-gas and crude-areas that we have,'' Rose said.
Energy companies that were in the process of restoring production after Gustav now are taking precautions for Ike, the U.S. Minerals Management Service said. Hurricanes Katrina and Rita in 2005 damaged energy production and pipelines, sending gas futures to a record $15.78 per million Btu on Dec. 13, 2005.
``You still have a lot of stuff shut in the Gulf of Mexico due to Gustav,'' said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. ``Inventories are looking much more bullish than they were just two weeks ago.''
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.net
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BP's BTC Crude Oil Pipeline Will Export 35 Cargoes in October
By Alexander Kwiatkowski
Sept. 8 (Bloomberg) -- Shipments of Azeri crude via the Baku-Tbilisi-Ceyhan pipeline will total 28.6 million barrels in October, the highest in at least 10 months.
Thirty-five cargoes, or an average of 922,581 barrels a day, will be exported next month, according to a revised loading schedule. That's the highest daily average since at least January, according to calculations based on Bloomberg data.
The pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, was shut on Aug. 5 after a fire on the Turkish part of the link. Shipments resumed on Aug. 25.
As a result of the closure, some August shipments were delayed to September, with a total of about 30 million barrels scheduled to load between Aug. 25 and Sept. 30, according to previously-revised schedules.
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
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Sept. 8 (Bloomberg) -- Shipments of Azeri crude via the Baku-Tbilisi-Ceyhan pipeline will total 28.6 million barrels in October, the highest in at least 10 months.
Thirty-five cargoes, or an average of 922,581 barrels a day, will be exported next month, according to a revised loading schedule. That's the highest daily average since at least January, according to calculations based on Bloomberg data.
The pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, was shut on Aug. 5 after a fire on the Turkish part of the link. Shipments resumed on Aug. 25.
As a result of the closure, some August shipments were delayed to September, with a total of about 30 million barrels scheduled to load between Aug. 25 and Sept. 30, according to previously-revised schedules.
To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
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Ospraie Killer XTO Bottoms, Stock Cheapest Since 2001
By Dan Lonkevich
Sept. 8 (Bloomberg) -- The worst may be over for the biggest U.S. natural-gas companies as colder weather and the cheapest valuations since the Sept. 11 terrorist attacks prove irresistible.
Investors bought a net $114 million of XTO Energy Inc. and Oklahoma City-based Chesapeake Energy Corp. as they fell in New York Stock Exchange trading, a record for the first week of September, according to data compiled by Bloomberg. B.J. Willingham, a hedge-fund manager who predicted oil's collapse in the 1980s, is purchasing XTO shares because the value of its stock and debt is about $2.75 per thousand cubic feet of reserves, the cheapest since 2001 compared with gas on the New York Mercantile Exchange.
``We could see a 20 percent increase in these stocks between now and the end of the year,'' said Willingham, who helps manage about $100 million at Moncrief Willingham Energy Advisers in Houston. ``The first whiff of cold weather and the shorts are going to head for the hills.''
Just a week ago, traders speculated the largest independent gas producers were nowhere near bottom because the Standard & Poor's GSCI commodity index was tumbling 26 percent and Hurricane Gustav had done almost no damage to oil and gas facilities in the Gulf of Mexico. XTO's 31 percent plunge in July, the biggest drop in a decade, forced Ospraie Management LLC to shut down its largest hedge fund last week after losses of 38 percent.
Winter Demand
Robert Goodof, who helps manage $25 billion at Loomis Sayles & Co. in Boston, says Chesapeake, the biggest producer in the industry, and Fort Worth, Texas-based XTO, the second- largest, are ``attractive at these levels.'' He expects a rebound as the onset of winter in the Northern Hemisphere lifts demand for gas, which heats 57 percent of U.S. homes, according to the American Petroleum Institute.
Nymex futures, which dropped 43 percent since June 30, rose 19 percent on average from Sept. 1 to Dec. 31 during the past five years, data compiled by Bloomberg show. Futures now show prices will increase 16 percent to $8.66 per million British thermal units by February.
Gas for delivery in January traded as high as $9 per million Btu last week, while October contracts sold for as little as $7.02, a 2008 low.
Before today, XTO dropped 29 percent since the end of June on the NYSE, while Chesapeake tumbled 33 percent, dragging the ratios of price to earnings to the lowest levels since March.
Stock Rally
XTO fell to about 12 times earnings, 20 percent below its average since the start of 2007, on Aug. 5. Chesapeake's ratio, at 14.7 times, was 15 percent below its average. Other gas producers, including Houston-based EOG Resources Inc. and Fort Worth-based Range Resources Corp., reached similar lows.
Analysts anticipate higher prices in the next 12 months. XTO will climb 56 percent, according to the average of price targets compiled by Bloomberg. Chesapeake will rally 79 percent, the estimates show.
XTO fell 28 cents to $48.32 at 10:30 a.m. in New York Stock Exchange composite trading, and Chesapeake dropped 44 cents to $43.90. Gas futures rose 1.8 percent to $7.58.
Earnings per share will jump at least 21 percent this year and 14 percent in 2009, the estimates show. Houston-based gas producer Petrohawk Energy Corp., which had its biggest decline in more than four years last week, will see its profit and share price more than double, according to the estimates.
Production Increases
Gas, which outperformed all commodities other than coal in this year's first half, tumbled as U.S. production rose toward the highest since 1973.
Net short positions, or bets that gas prices will drop, more than doubled since June to 161,076 contracts on Sept. 2, the most since reporting of the data began in 1993, according to the U.S. Commodity Futures Trading Commission in Washington.
Should prices decline, producers will cut output and face the prospect of getting paid less money for less gas, said Philip Weiss, an analyst at Argus Research in New York. Some producers may slow output when prices go below $6 or $7 per million British thermal units, he said.
XTO and other companies contributed to price declines by unlocking gas that was trapped in so-called shale formations from Texas to Pennsylvania. The deposits reduce reliance on the Gulf of Mexico, where 14 percent of America's gas is produced. Prices rose to an all-time high of $15.78 in December 2005, after Hurricanes Katrina and Rita idled wells in the Gulf.
`Massive Amounts'
One shale formation, the Haynesville Shale in Louisiana and Texas, may hold enough gas to meet U.S. demand for a decade, according to Chesapeake Chief Executive Officer Aubrey McClendon.
``What the hedge-fund community has been concerned about is you have massive amounts of natural gas,'' said Scott Gieselman, the managing partner at Natural Gas Partners, a private-equity firm in Houston. ``The amount of discoveries over the past five months has been prolific.''
Vince White, a vice president at Oklahoma City-based Devon Energy Corp., said investors have ``some unrealistic optimism'' about Haynesville. It will take at least 10 years to develop the formation, pipelines and related infrastructure, he said.
Devon became the largest producer in the Barnett Shale, the second-biggest source of U.S. gas, after its 2002 acquisition of Mitchell Energy & Development Corp., which pioneered techniques to tap resources beneath hundreds of feet of rock.
Ospraie Fund Folds
Ospraie had profited on XTO for years, Dwight Anderson, the New York investment firm's founder, said last week. The failed Ospraie Fund, which started in 1999, had returned an average 15 percent annually through 2007. XTO was its biggest holding.
XTO, founded in 1986, made dozens of acquisitions since 2002, increasing sales more than sixfold, data compiled by Bloomberg show. Chesapeake, founded three years later by McClendon, a co-owner of Oklahoma City's National Basketball Association team, made even more deals in the same period, growing 10-fold.
Investors aren't willing to bet against them. So-called short interest in XTO, EOG, Chesapeake, Houston-based Southwestern Energy Co. and Petrohawk reached the lowest levels since at least 2006 in July, according to data compiled by Bloomberg.
When XTO and Chesapeake took a similar beating seven years ago, both stocks gained more than 28 percent the next month. The last time both had bigger one-month declines in December 1998 the companies' market values surged five- and 10-fold, respectively, in the next two years.
Adding Gas Stocks
Willingham, the Houston hedge-fund manager, said he sold most of his gas stocks in June, before prices plunged, because valuations had gotten too high. Now he's buying XTO and others again.
Jason Putnam, an analyst who helps oversee $60 billion at Victory Capital Management in Cleveland, is targeting Chesapeake and Devon and said his firm may add shares of Houston oil and gas producer Apache Corp.
Investors who are willing to stomach possible declines of another 8 percent in the next few weeks can profit with Chesapeake and EOG, said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut.
``Given the incredible level of pessimism and selling, that could just stop and turn on a dime,'' he said. ``It'd be foolhardy to be short here. It's down too much.''
To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net.
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ConocoPhillips Buys $8 Billion Origin Venture Stake
By Angela Macdonald-Smith
Sept. 8 (Bloomberg) -- ConocoPhillips, the second-biggest U.S. oil refiner, agreed to pay as much as $8 billion for a stake in a natural gas venture with Origin Energy Ltd., helping the Australian company resist a hostile takeover bid by BG Group Plc.
Houston-based ConocoPhillips will buy 50 percent of the unit from Origin, Australia's biggest producer of gas from coal seams. The agreement is part of an independent valuation of Origin that is about double the A$15.37 a share offered by BG, Chairman Kevin McCann said today. Origin surged 13 percent to a record.
ConocoPhillips will make an initial $5 billion payment to Sydney-based Origin to buy into the venture, which will process coal-seam gas into liquefied natural gas for export to Asia. Origin said the transaction ``more than justifies'' its rejection of BG's A$13.5 billion offer.
``This is a massive deal and the sum that ConocoPhillips is prepared to pay really puts a firm valuation under Origin,'' said Gavin Wendt, a senior resources analyst at Fat Prophets Funds Management in Sydney. ``It makes it impossible now for BG with its current offer.''
Origin, which is also Australia's second-biggest electricity and gas retailer, rose A$2.00 to A$17.65 on the Australian stock exchange, after earlier reaching as high as A$19.99. The shares closed 15 percent higher than BG's offer.
`Daylight' Gap
BG is reviewing the documents available on the ConocoPhillips-Origin transaction and will comment further ``in due course,'' said Rob Millhouse, a spokesman for the Reading, England-based company in Australia. BG rose 4.5 percent to 1,079 pence at 11:16 a.m. in London.
An assessment Origin commissioned from Grant Samuel & Associates Pty values the company at between A$28.55 and A$30.71 a share, the Australian company said today in a statement to the exchange. Assuming the transaction with ConocoPhillips is completed, Grant Samuel valued Origin's coal-seam gas unit at between A$18.70 and A$19.49 a share, as much as 27 percent higher than BG's offer for all of the company.
``There is a substantial gap called daylight between that valuation and the BG bid,'' Origin Managing Director Grant King told reporters in Sydney at a briefing on the ConocoPhillips transaction. The valuation ``highlights the inadequacy of BG's offer,'' Chairman McCann said.
The ConocoPhillips investment represents an up-front payment of A$6 per share to Origin, with potentially a further A$3 per share cash to come from subsequent installments for half of the coal-seam gas unit, said John Colnan at Shaw Stockbroking Ltd. in Sydney.
Retailing, Power
Assuming Origin's energy retailing and power generation business is worth about A$10 a share, that means Origin has demonstrated its business is worth in the ``mid to high A$20s'' a share, in line with Grant Samuel's report, he said.
ConocoPhillips and Origin expect to commit in late 2010 to building a ``multi billion dollar'' LNG plant, involving two units producing 3.5 million metric tons a year, said John Lowe, executive vice president for exploration and production at the U.S. company. Shipments are due to start from a site in Queensland in 2013.
LNG demand is set to increase by 10 percent a year through 2015, more than five times projected gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup Inc.
`Rare Opportunity'
ConocoPhillips is ``really excited'' about the opportunity presented by the Origin venture to meet rising LNG demand in Asia, said Lowe. ConocoPhillips' technical team is ``giddy'' about Origin's resource, totaling 42 trillion cubic feet of coal-bed methane, he said.
``This is a really rare opportunity that we're really grateful for,'' Lowe said at the briefing. Credit Suisse Group is advising ConocoPhillips on the transaction.
BG Group may abandon its hostile bid for Origin following news of the deal with ConocoPhillips, analysts said. The BG bid, pitched at A$15.5 a share in cash, is now worth A$15.37 because Origin is paying a 13-cent dividend this month.
``This deal essentially should cancel the BG bid for Origin, as we doubt BG will take its A$15.5 a share offer up to over A$18 a share in order to win,'' Neil McMahon, a London- based analyst at Sanford C. Bernstein & Co., wrote in an e- mailed report today. ConocoPhillips is paying a premium of about 33 percent for Origin's proved and probable coal-seam gas reserves compared with the BG offer, he said.
`Project Fridge'
``BG Group notes the announcement from Origin Energy and ConocoPhillips and we are currently reviewing the available documentation and will comment in due course,'' Edel McCaffrey, a spokeswoman at the Reading, U.K.-based company, said today by phone.
The deal will ``transform'' Origin, which will reduce debt, return some funds to shareholders and have money available for expansion, King said. It will boost Origin's earnings per share in the year ending June 30, 2009, by more than 35 percent, or more than 55 percent on an annualized basis, he said. Origin started a process, codenamed ``Project Fridge,'' three months ago to find a partner to help develop its coal-seam gas resource.
Origin plans to start buying back as much as A$1.275 billion of its shares once the transaction is completed. It will also pay an immediate extra dividend to shareholders of 25 cents a share, doubling the 2008 distribution.
ConocoPhillips's investment values Origin's coal-seam gas resource at A$1.65 per gigajoule of proven, probable and possible resources based on an LNG project with two production units, King said.
Petronas-Santos
That's the same valuation as for an investment by Malaysia's Petroliam Nasional Bhd. in a rival LNG project in Queensland led by Santos Ltd., he said.
Origin last month used the value of the Petronas-Santos deal to justify rejecting the offer from BG. The U.K. company argued in its bid document that a more relevant valuation is the 52 cents a gigajoule that Royal Dutch Shell Plc paid in a transaction with Arrow Energy Ltd.
With the transaction, Origin and ConocoPhillips become the sixth venture proposing to build an LNG plant in Queensland state based on coal-seam gas. BG Group, Petronas and Shell are among partners in rival projects.
Coal-Seam Gas
Origin will operate the coal-seam gas production part of the venture, while ConocoPhillips, which already runs an LNG plant in northern Australia, will manage the LNG output.
News of the transaction boosted the shares of rival coal- seam gas producers in Australia. Queensland Gas Co., BG's partner in a proposed A$8 billion LNG project, rose 30 percent to A$4.80 in Sydney, the biggest advance in 3 1/2 years. Arrow Energy rose 7.8 percent to A$3.18, while Santos rose for the first time in seven days, climbing 7.4 percent.
Origin had the outlook on its BBB+ credit rating revised to positive from stable by Standard & Poor's Ratings Service, which said the ConocoPhillips investment ``delivers greatly enhanced financial flexibility.''
Coal-seam gas, mostly comprising methane, bonds as a thin film on the surface of coal and is released when pressure is reduced, usually after water is removed. LNG is natural gas that has been chilled to liquid form, reducing it to one-six- hundredth of its original volume for transportation by ship to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Sept. 8 (Bloomberg) -- ConocoPhillips, the second-biggest U.S. oil refiner, agreed to pay as much as $8 billion for a stake in a natural gas venture with Origin Energy Ltd., helping the Australian company resist a hostile takeover bid by BG Group Plc.
Houston-based ConocoPhillips will buy 50 percent of the unit from Origin, Australia's biggest producer of gas from coal seams. The agreement is part of an independent valuation of Origin that is about double the A$15.37 a share offered by BG, Chairman Kevin McCann said today. Origin surged 13 percent to a record.
ConocoPhillips will make an initial $5 billion payment to Sydney-based Origin to buy into the venture, which will process coal-seam gas into liquefied natural gas for export to Asia. Origin said the transaction ``more than justifies'' its rejection of BG's A$13.5 billion offer.
``This is a massive deal and the sum that ConocoPhillips is prepared to pay really puts a firm valuation under Origin,'' said Gavin Wendt, a senior resources analyst at Fat Prophets Funds Management in Sydney. ``It makes it impossible now for BG with its current offer.''
Origin, which is also Australia's second-biggest electricity and gas retailer, rose A$2.00 to A$17.65 on the Australian stock exchange, after earlier reaching as high as A$19.99. The shares closed 15 percent higher than BG's offer.
`Daylight' Gap
BG is reviewing the documents available on the ConocoPhillips-Origin transaction and will comment further ``in due course,'' said Rob Millhouse, a spokesman for the Reading, England-based company in Australia. BG rose 4.5 percent to 1,079 pence at 11:16 a.m. in London.
An assessment Origin commissioned from Grant Samuel & Associates Pty values the company at between A$28.55 and A$30.71 a share, the Australian company said today in a statement to the exchange. Assuming the transaction with ConocoPhillips is completed, Grant Samuel valued Origin's coal-seam gas unit at between A$18.70 and A$19.49 a share, as much as 27 percent higher than BG's offer for all of the company.
``There is a substantial gap called daylight between that valuation and the BG bid,'' Origin Managing Director Grant King told reporters in Sydney at a briefing on the ConocoPhillips transaction. The valuation ``highlights the inadequacy of BG's offer,'' Chairman McCann said.
The ConocoPhillips investment represents an up-front payment of A$6 per share to Origin, with potentially a further A$3 per share cash to come from subsequent installments for half of the coal-seam gas unit, said John Colnan at Shaw Stockbroking Ltd. in Sydney.
Retailing, Power
Assuming Origin's energy retailing and power generation business is worth about A$10 a share, that means Origin has demonstrated its business is worth in the ``mid to high A$20s'' a share, in line with Grant Samuel's report, he said.
ConocoPhillips and Origin expect to commit in late 2010 to building a ``multi billion dollar'' LNG plant, involving two units producing 3.5 million metric tons a year, said John Lowe, executive vice president for exploration and production at the U.S. company. Shipments are due to start from a site in Queensland in 2013.
LNG demand is set to increase by 10 percent a year through 2015, more than five times projected gains in crude oil, as power producers switch to cleaner fuels, according to Citigroup Inc.
`Rare Opportunity'
ConocoPhillips is ``really excited'' about the opportunity presented by the Origin venture to meet rising LNG demand in Asia, said Lowe. ConocoPhillips' technical team is ``giddy'' about Origin's resource, totaling 42 trillion cubic feet of coal-bed methane, he said.
``This is a really rare opportunity that we're really grateful for,'' Lowe said at the briefing. Credit Suisse Group is advising ConocoPhillips on the transaction.
BG Group may abandon its hostile bid for Origin following news of the deal with ConocoPhillips, analysts said. The BG bid, pitched at A$15.5 a share in cash, is now worth A$15.37 because Origin is paying a 13-cent dividend this month.
``This deal essentially should cancel the BG bid for Origin, as we doubt BG will take its A$15.5 a share offer up to over A$18 a share in order to win,'' Neil McMahon, a London- based analyst at Sanford C. Bernstein & Co., wrote in an e- mailed report today. ConocoPhillips is paying a premium of about 33 percent for Origin's proved and probable coal-seam gas reserves compared with the BG offer, he said.
`Project Fridge'
``BG Group notes the announcement from Origin Energy and ConocoPhillips and we are currently reviewing the available documentation and will comment in due course,'' Edel McCaffrey, a spokeswoman at the Reading, U.K.-based company, said today by phone.
The deal will ``transform'' Origin, which will reduce debt, return some funds to shareholders and have money available for expansion, King said. It will boost Origin's earnings per share in the year ending June 30, 2009, by more than 35 percent, or more than 55 percent on an annualized basis, he said. Origin started a process, codenamed ``Project Fridge,'' three months ago to find a partner to help develop its coal-seam gas resource.
Origin plans to start buying back as much as A$1.275 billion of its shares once the transaction is completed. It will also pay an immediate extra dividend to shareholders of 25 cents a share, doubling the 2008 distribution.
ConocoPhillips's investment values Origin's coal-seam gas resource at A$1.65 per gigajoule of proven, probable and possible resources based on an LNG project with two production units, King said.
Petronas-Santos
That's the same valuation as for an investment by Malaysia's Petroliam Nasional Bhd. in a rival LNG project in Queensland led by Santos Ltd., he said.
Origin last month used the value of the Petronas-Santos deal to justify rejecting the offer from BG. The U.K. company argued in its bid document that a more relevant valuation is the 52 cents a gigajoule that Royal Dutch Shell Plc paid in a transaction with Arrow Energy Ltd.
With the transaction, Origin and ConocoPhillips become the sixth venture proposing to build an LNG plant in Queensland state based on coal-seam gas. BG Group, Petronas and Shell are among partners in rival projects.
Coal-Seam Gas
Origin will operate the coal-seam gas production part of the venture, while ConocoPhillips, which already runs an LNG plant in northern Australia, will manage the LNG output.
News of the transaction boosted the shares of rival coal- seam gas producers in Australia. Queensland Gas Co., BG's partner in a proposed A$8 billion LNG project, rose 30 percent to A$4.80 in Sydney, the biggest advance in 3 1/2 years. Arrow Energy rose 7.8 percent to A$3.18, while Santos rose for the first time in seven days, climbing 7.4 percent.
Origin had the outlook on its BBB+ credit rating revised to positive from stable by Standard & Poor's Ratings Service, which said the ConocoPhillips investment ``delivers greatly enhanced financial flexibility.''
Coal-seam gas, mostly comprising methane, bonds as a thin film on the surface of coal and is released when pressure is reduced, usually after water is removed. LNG is natural gas that has been chilled to liquid form, reducing it to one-six- hundredth of its original volume for transportation by ship to destinations not connected by pipeline.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net
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Swiss Franc Drops as Fannie, Freddie Takeover Boosts Confidence
By Andrew MacAskill
Sept. 8 (Bloomberg) -- The Swiss franc fell to its lowest level in more than eight months against the dollar and slid versus the euro after the U.S. government's takeover of Fannie Mae and Freddie Mac sparked demand for higher-yielding assets.
The franc's third straight decline sent it lower against all 16 major currency counterparts tracked by Bloomberg. Rising equities worldwide boosted the allure of so-called carry trades, where investors buy higher-yielding assets such as stocks with money from Switzerland.
``The U.S. takeover plans of Freddie and Fannie have led to a significant rebound in risk appetite and clearly that has weighed heavily on the Swiss franc,'' said Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd. ``This means the franc will continue to weaken in the coming weeks.''
Against the dollar, the franc dropped to as low as 1.1317, the weakest level since Jan. 2, and was trading at 1.1294 by 2:41 p.m. in Zurich, from 1.1188 at the end of last week. The franc had its biggest drop in more than four months against the euro, trading at $1.6046, from $1.5960.
The MSCI World Index climbed as much as 1.9 percent, its biggest gain since April 16, and the Swiss Market Index, a benchmark for the largest and most actively traded companies, climbed 3.6 percent, the most since January.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed the two firms in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.
Carry Trades
Rising stock markets encouraged investors to resume carry trades, whereby investors borrow in a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return. They take the risk that currency fluctuations will erode their profits.
Switzerland's target rate of 2.75 percent is the third lowest among industrialized nations, after Japan and the U.S. This Swiss benchmark rate compares with 8 percent in New Zealand, 7 percent in Australia and 4.25 percent in the euro region, making it an attractive source for carry-trade funding.
When carry-trade appetite increases, investors might sell the franc to buy higher-yielding assets, sending the safe-haven currency such as the franc lower. When carry-trades wane, traders may use the higher-yielding currencies to buy the franc, boosting its value.
Swiss government bonds fell, with the yield on the 3 percent note due in January 2018 rising 4 basis points, to 2.81 percent. Yields move inversely to bond prices.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- The Swiss franc fell to its lowest level in more than eight months against the dollar and slid versus the euro after the U.S. government's takeover of Fannie Mae and Freddie Mac sparked demand for higher-yielding assets.
The franc's third straight decline sent it lower against all 16 major currency counterparts tracked by Bloomberg. Rising equities worldwide boosted the allure of so-called carry trades, where investors buy higher-yielding assets such as stocks with money from Switzerland.
``The U.S. takeover plans of Freddie and Fannie have led to a significant rebound in risk appetite and clearly that has weighed heavily on the Swiss franc,'' said Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd. ``This means the franc will continue to weaken in the coming weeks.''
Against the dollar, the franc dropped to as low as 1.1317, the weakest level since Jan. 2, and was trading at 1.1294 by 2:41 p.m. in Zurich, from 1.1188 at the end of last week. The franc had its biggest drop in more than four months against the euro, trading at $1.6046, from $1.5960.
The MSCI World Index climbed as much as 1.9 percent, its biggest gain since April 16, and the Swiss Market Index, a benchmark for the largest and most actively traded companies, climbed 3.6 percent, the most since January.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart yesterday placed the two firms in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent.
Carry Trades
Rising stock markets encouraged investors to resume carry trades, whereby investors borrow in a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return. They take the risk that currency fluctuations will erode their profits.
Switzerland's target rate of 2.75 percent is the third lowest among industrialized nations, after Japan and the U.S. This Swiss benchmark rate compares with 8 percent in New Zealand, 7 percent in Australia and 4.25 percent in the euro region, making it an attractive source for carry-trade funding.
When carry-trade appetite increases, investors might sell the franc to buy higher-yielding assets, sending the safe-haven currency such as the franc lower. When carry-trades wane, traders may use the higher-yielding currencies to buy the franc, boosting its value.
Swiss government bonds fell, with the yield on the 3 percent note due in January 2018 rising 4 basis points, to 2.81 percent. Yields move inversely to bond prices.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
Read more...
Brazil's Real Gains as Fannie, Freddie Takeover Spurs Demand
By Lester Pimentel
Sept. 8 (Bloomberg) -- Brazil's real gained the most in almost three weeks as the U.S. government's takeover of mortgage finance companies Fannie Mae and Freddie Mac triggered demand for high-yielding assets.
The real strengthened 0.8 percent, the most since Aug. 19, to 1.7027 per dollar at 9:10 a.m. in New York, from 1.7160. The currency is rebounding from its biggest weekly decline in 5 1/2 years.
``There's been an abrupt reversal of risk aversion,'' said Alvise Marino, an emerging-markets analyst at research firm IDEAglobal in New York.
The U.S. government seized control of Fannie Mae and Freddie Mac yesterday as a surge in mortgage defaults threatened to topple the companies, which make up almost half of the $12 trillion U.S. home-loan market.
The yield on Brazil's zero-coupon bonds due in January 2010 fell 3 basis points, or 0.03 percentage point, today to 14.8 percent, according to Banco Votorantim. The yield on the overnight futures contract for January delivery climbed 3 basis points to 13.95 percent.
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- Brazil's real gained the most in almost three weeks as the U.S. government's takeover of mortgage finance companies Fannie Mae and Freddie Mac triggered demand for high-yielding assets.
The real strengthened 0.8 percent, the most since Aug. 19, to 1.7027 per dollar at 9:10 a.m. in New York, from 1.7160. The currency is rebounding from its biggest weekly decline in 5 1/2 years.
``There's been an abrupt reversal of risk aversion,'' said Alvise Marino, an emerging-markets analyst at research firm IDEAglobal in New York.
The U.S. government seized control of Fannie Mae and Freddie Mac yesterday as a surge in mortgage defaults threatened to topple the companies, which make up almost half of the $12 trillion U.S. home-loan market.
The yield on Brazil's zero-coupon bonds due in January 2010 fell 3 basis points, or 0.03 percentage point, today to 14.8 percent, according to Banco Votorantim. The yield on the overnight futures contract for January delivery climbed 3 basis points to 13.95 percent.
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net
Read more...
Paulson Taps Allison, Moffett to Run Fannie, Freddie
By Christopher Condon
Sept. 8 (Bloomberg) -- Herbert M. Allison Jr. and David M. Moffett, picked to run Fannie Mae and Freddie Mac, face an uphill battle in bringing the mortgage-finance companies back from the brink of collapse.
Allison, 65, the former head of retirement-plan manager TIAA-CREF, was named chief executive officer of Washington-based Fannie. Moffett, 56, a Carlyle Group executive who was once vice chairman of U.S. Bancorp, will head McLean, Virginia-based Freddie. Treasury Secretary Henry Paulson yesterday put the companies into conservatorship and ousted their CEOs to avert ``systemic risk'' to financial markets.
Allison and Moffett are stepping in where their predecessors failed. Fannie CEO Daniel Mudd and Freddie's Richard Syron, both hired in 2004 to help the companies recover from accounting scandals, led the firms into riskier investments, moving well beyond their public mission of housing affordability, and then failed to react quickly enough when the subprime-mortgage market began to deteriorate in 2007.
``Daniel Mudd and Dick Syron, have been very slow to recognize the depth of the problems or to raise enough capital to deal with it,'' said Paul Miller, an analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia. ``The government wasn't going to allow them to muddle through this mess.''
Moffett brings his history in risk management and analysis having served as chief financial officer at U.S. Bancorp in Minneapolis from 2001 until early 2007. Allison's experience in the 1998 bailout of hedge fund Long Term Capital Management while president of Merrill Lynch & Co. may help the Treasury in its efforts to round up private-sector support for Fannie.
Lower Pay
``If he's there to run the basic business of buying and repackaging mortgages, that's probably something that Allison is very capable of doing,'' Geoff Bobroff, a former Securities and Exchange Commission lawyer who is now an investment consultant in East Greenwich, Rhode Island, said in an interview.
Paulson this weekend took unprecedented measures to end the crisis of confidence in Fannie and Freddie, which account for the majority of new mortgages and own or guarantee almost half the $12 trillion in home loans already outstanding. Mudd and Syron, who received almost $30 million in combined compensation last year, will serve in a transition period as paid consultants.
Pay for Allison and Moffett ``will be significantly lower than the outgoing CEOs,'' Federal Housing Finance Agency Director James Lockhart, the companies' regulator, said in a statement yesterday.
A Controversial Figure
Allison, who served as national finance chairman on John McCain's unsuccessful 2000 presidential campaign, headed New York-based Teachers Insurance and Annuity Association - College Retirement Equity Fund for five, sometimes controversial, years.
Allison created TIAA-CREF's wealth-management division and increased its total assets by 68 percent to $435 billion at the end of 2007 as the company stepped up marketing to investors beyond its base. He faced criticism from clients for bringing Wall Street practices, including job cuts and higher fees, to an institution that manages savings for teachers and academics.
``Allison basically took an organization that had styled itself as a Mother Teresa organization and put it in a more business-like setting,'' Burton Greenwald, a mutual-fund consultant in Philadelphia, said in an interview at the time of Allison's departure from TIAA-CREF in April.
Long Term Capital Management
A philosophy major at Yale, Allison spent 28 years at New York-based Merrill, rising from a junior employee to president and chief operating officer. He quit in 1999 after losing out on getting the top job to David Komansky, who retired in 2003.
Allison played a key role in the negotiations that led to LTCM bailout. Allison is quoted in the 2005 book ``What Goes Up, The Uncensored History of Modern Wall Street,'' by Eric Weiner, as saying ``the best idea was to take an approach that was deliberately crude.''
Allison said he and other bailout supporters threatened other large banks with the potential public fallout if they let the fund fail.
``Herb Allison is a proven leader in overseeing complex and challenging financial matters and is well-suited to leading Fannie Mae forward,'' Roger W. Ferguson, TIAA-CREF president and CEO, said in an e-mailed statement.
Bobroff said Allison wouldn't be especially qualified to lead Fannie from a risk-management perspective.
``I don't know what Paulson envisions for these individuals to do, but Allison doesn't have the background for risk management,'' Bobroff said. ``He would need others around him.''
Risk Manager
Moffett, by contrast, has extensive experience in risk management and financial analysis.
He stepped down at U.S. Bancorp in February 2007 as the company shifted away from mortgages and consumer loans to build fee-based businesses. Washington-based Carlyle, headed by David Rubenstein, started a financial-services group that year and brought in Moffett and other executives to work in the group.
Rubenstein declined to comment through Carlyle spokesman Chris Olman. ``We wish him well,'' Olman said.
Moffett got a bachelor's degree in economics from the University of Oklahoma in Norman in 1974 and a master's degree in economics the following year from Southern Methodist University in Dallas.
Moffett joined U.S. Bancorp predecessor Star Banc Corp. in 1993 after leaving Bank of America, where he was a senior vice president. He was named to the board of directors of Armonk, New York-based MBIA Inc., the troubled bond insurer, in May 2007.
Accounting Restatements
Mudd, a one-time Marine and the son of former CBS Evening News reporter Roger Mudd, ran General Electric Capital Corp.'s Asian businesses during the region's slump in 1998. In 2004, four years after joining Fannie as chief operating officer, he took over for CEO Franklin Raines as the company tried to recover from an $11 billion accounting restatement and securities fraud charges.
Syron, a former head of the American Stock Exchange, was hired by Freddie in 2004 to help the company move on from a $5 billion accounting restatement and restore investor confidence. A native of Watertown, Massachusetts, Syron did just that as CEO and of industrial instrument maker Thermo Electron Corp.
He consolidated operations at that company, now called Thermo Fisher Scientific Inc., spinning off units and turning it into the largest maker of laboratory instruments.
`They're Not Victims'
Fannie has lost 88 percent of its market value since Mudd was elevated from his interim post as CEO in June 2005. The stock, which was near $60 a share at the time of his promotion, reached a closing high of $69.49 in June 2007 before beginning a freefall to $7.04 on Sept. 5 in New York.
Freddie followed a similar pattern, starting out near $60 at the time of Syron's hiring, peaking at $73.70 in 2004, then beginning a drop in 2007 to $5.10 three days ago. As of the end of last week, shareholders had lost about 91 percent during Syron's tenure.
Fannie plunged 49 percent in European trading today and Freddie dropped 50 percent as common and preferred shareholders will bear losses ahead of the government. Fannie fell $3.47 to $3.57 by 10:24 a.m. in Frankfurt, and Freddie slipped $2.55 to $2.55, according to data compiled by Bloomberg.
The Treasury's takeover yesterday is primarily a ``stopgap to try to prevent the mortgage market from falling apart,'' former Federal Reserve Bank of St. Louis President William Poole said on Bloomberg Radio.
The takeovers bring Fannie, formed after the Great Depression and spun off in 1968, and Freddie, created in 1970, back into the government fold. It's the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns.
``The statements by Paulson and Lockhart that this is nobody's fault, just a flaw in the business models and the housing downturn, that's ridiculous,'' said Armando Falcon, Fannie and Freddie's former government supervisor from 1999 through mid-2005. ``These companies made a conscious decision to take on excessive risk in order to maximize profits and bonuses. They're not victims.''
To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- Herbert M. Allison Jr. and David M. Moffett, picked to run Fannie Mae and Freddie Mac, face an uphill battle in bringing the mortgage-finance companies back from the brink of collapse.
Allison, 65, the former head of retirement-plan manager TIAA-CREF, was named chief executive officer of Washington-based Fannie. Moffett, 56, a Carlyle Group executive who was once vice chairman of U.S. Bancorp, will head McLean, Virginia-based Freddie. Treasury Secretary Henry Paulson yesterday put the companies into conservatorship and ousted their CEOs to avert ``systemic risk'' to financial markets.
Allison and Moffett are stepping in where their predecessors failed. Fannie CEO Daniel Mudd and Freddie's Richard Syron, both hired in 2004 to help the companies recover from accounting scandals, led the firms into riskier investments, moving well beyond their public mission of housing affordability, and then failed to react quickly enough when the subprime-mortgage market began to deteriorate in 2007.
``Daniel Mudd and Dick Syron, have been very slow to recognize the depth of the problems or to raise enough capital to deal with it,'' said Paul Miller, an analyst with Friedman Billings Ramsey & Co. in Arlington, Virginia. ``The government wasn't going to allow them to muddle through this mess.''
Moffett brings his history in risk management and analysis having served as chief financial officer at U.S. Bancorp in Minneapolis from 2001 until early 2007. Allison's experience in the 1998 bailout of hedge fund Long Term Capital Management while president of Merrill Lynch & Co. may help the Treasury in its efforts to round up private-sector support for Fannie.
Lower Pay
``If he's there to run the basic business of buying and repackaging mortgages, that's probably something that Allison is very capable of doing,'' Geoff Bobroff, a former Securities and Exchange Commission lawyer who is now an investment consultant in East Greenwich, Rhode Island, said in an interview.
Paulson this weekend took unprecedented measures to end the crisis of confidence in Fannie and Freddie, which account for the majority of new mortgages and own or guarantee almost half the $12 trillion in home loans already outstanding. Mudd and Syron, who received almost $30 million in combined compensation last year, will serve in a transition period as paid consultants.
Pay for Allison and Moffett ``will be significantly lower than the outgoing CEOs,'' Federal Housing Finance Agency Director James Lockhart, the companies' regulator, said in a statement yesterday.
A Controversial Figure
Allison, who served as national finance chairman on John McCain's unsuccessful 2000 presidential campaign, headed New York-based Teachers Insurance and Annuity Association - College Retirement Equity Fund for five, sometimes controversial, years.
Allison created TIAA-CREF's wealth-management division and increased its total assets by 68 percent to $435 billion at the end of 2007 as the company stepped up marketing to investors beyond its base. He faced criticism from clients for bringing Wall Street practices, including job cuts and higher fees, to an institution that manages savings for teachers and academics.
``Allison basically took an organization that had styled itself as a Mother Teresa organization and put it in a more business-like setting,'' Burton Greenwald, a mutual-fund consultant in Philadelphia, said in an interview at the time of Allison's departure from TIAA-CREF in April.
Long Term Capital Management
A philosophy major at Yale, Allison spent 28 years at New York-based Merrill, rising from a junior employee to president and chief operating officer. He quit in 1999 after losing out on getting the top job to David Komansky, who retired in 2003.
Allison played a key role in the negotiations that led to LTCM bailout. Allison is quoted in the 2005 book ``What Goes Up, The Uncensored History of Modern Wall Street,'' by Eric Weiner, as saying ``the best idea was to take an approach that was deliberately crude.''
Allison said he and other bailout supporters threatened other large banks with the potential public fallout if they let the fund fail.
``Herb Allison is a proven leader in overseeing complex and challenging financial matters and is well-suited to leading Fannie Mae forward,'' Roger W. Ferguson, TIAA-CREF president and CEO, said in an e-mailed statement.
Bobroff said Allison wouldn't be especially qualified to lead Fannie from a risk-management perspective.
``I don't know what Paulson envisions for these individuals to do, but Allison doesn't have the background for risk management,'' Bobroff said. ``He would need others around him.''
Risk Manager
Moffett, by contrast, has extensive experience in risk management and financial analysis.
He stepped down at U.S. Bancorp in February 2007 as the company shifted away from mortgages and consumer loans to build fee-based businesses. Washington-based Carlyle, headed by David Rubenstein, started a financial-services group that year and brought in Moffett and other executives to work in the group.
Rubenstein declined to comment through Carlyle spokesman Chris Olman. ``We wish him well,'' Olman said.
Moffett got a bachelor's degree in economics from the University of Oklahoma in Norman in 1974 and a master's degree in economics the following year from Southern Methodist University in Dallas.
Moffett joined U.S. Bancorp predecessor Star Banc Corp. in 1993 after leaving Bank of America, where he was a senior vice president. He was named to the board of directors of Armonk, New York-based MBIA Inc., the troubled bond insurer, in May 2007.
Accounting Restatements
Mudd, a one-time Marine and the son of former CBS Evening News reporter Roger Mudd, ran General Electric Capital Corp.'s Asian businesses during the region's slump in 1998. In 2004, four years after joining Fannie as chief operating officer, he took over for CEO Franklin Raines as the company tried to recover from an $11 billion accounting restatement and securities fraud charges.
Syron, a former head of the American Stock Exchange, was hired by Freddie in 2004 to help the company move on from a $5 billion accounting restatement and restore investor confidence. A native of Watertown, Massachusetts, Syron did just that as CEO and of industrial instrument maker Thermo Electron Corp.
He consolidated operations at that company, now called Thermo Fisher Scientific Inc., spinning off units and turning it into the largest maker of laboratory instruments.
`They're Not Victims'
Fannie has lost 88 percent of its market value since Mudd was elevated from his interim post as CEO in June 2005. The stock, which was near $60 a share at the time of his promotion, reached a closing high of $69.49 in June 2007 before beginning a freefall to $7.04 on Sept. 5 in New York.
Freddie followed a similar pattern, starting out near $60 at the time of Syron's hiring, peaking at $73.70 in 2004, then beginning a drop in 2007 to $5.10 three days ago. As of the end of last week, shareholders had lost about 91 percent during Syron's tenure.
Fannie plunged 49 percent in European trading today and Freddie dropped 50 percent as common and preferred shareholders will bear losses ahead of the government. Fannie fell $3.47 to $3.57 by 10:24 a.m. in Frankfurt, and Freddie slipped $2.55 to $2.55, according to data compiled by Bloomberg.
The Treasury's takeover yesterday is primarily a ``stopgap to try to prevent the mortgage market from falling apart,'' former Federal Reserve Bank of St. Louis President William Poole said on Bloomberg Radio.
The takeovers bring Fannie, formed after the Great Depression and spun off in 1968, and Freddie, created in 1970, back into the government fold. It's the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns.
``The statements by Paulson and Lockhart that this is nobody's fault, just a flaw in the business models and the housing downturn, that's ridiculous,'' said Armando Falcon, Fannie and Freddie's former government supervisor from 1999 through mid-2005. ``These companies made a conscious decision to take on excessive risk in order to maximize profits and bonuses. They're not victims.''
To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net
Read more...
Sasol Names First Black Chairman, Earnings Surge
By Carli Lourens and Antony Sguazzin
Sept. 8 (Bloomberg) -- Sasol Ltd., used by the South African government to shield the country from sanctions during the apartheid era, named Hixonia Nyasulu to replace its chairman and become its first woman and black in the role.
Nyasulu, 54, will replace Pieter Cox on Nov. 28, the Johannesburg-based company said today. Founded in 1950 and state-owned until 1979, Sasol operates the world's biggest coal- to-motor-fuel plants and has the largest market value of any company based in South Africa. The company today posted a 47 percent gain in second-half profit.
South Africa is pushing companies from gold miners to life insurers to boost black participation in the biggest economy in Africa and curb inequalities created during the apartheid system of racial discrimination that ended in 1994. The government had clashed with Sasol in recent years, saying it hadn't promoted enough black executives into senior management.
``It's symbolically important,'' Nic Borain, a Cape Town- based political consultant for HSBC Holdings Plc, said in an interview. ``Sasol was a key asset in the apartheid state.''
Former DaimlerChrysler AG Chief Executive Officer Juergen Schrempp was appointed as ``lead independent director'' to chair the board on matters including oil, Sasol said in a statement to the city's stock exchange news service today. The appointment was to avoid any conflict of interest because Hixonia owns ``a small interest'' in Sasol Oil, CEO Pat Davies said.
Mindset Outgrown?
Following discussions with state pension fund, the Public Investment Corp., Sasol appointed Imogen Mkhize as the first black woman on its board in 2004, four days after rejecting her candidacy. The government criticized the company the next year for not appointing a black CEO when Cox retired from that job. Of Sasol's 14 board members, five are now black South Africans.
The company needed to ``outgrow an outdated mindset,'' South African President Thabo Mbeki said in 2003 after Sasol stated in a regulatory filing to the U.S. Securities and Exchange Commission that laws to boost black participation in the economy were a threat to shareholder value.
``We've been on a journey to transform this company in South Africa,'' Davies said in an interview from Johannesburg today. ``This is a further step in that process.''
Oil companies have agreed to sell 25 percent of their assets in South Africa to black investors with Sasol currently in the midst of a program to offer 10 percent of its shares for 27 billion rand, the biggest transaction of its kind.
Unilever, Anglo
The government is also demanding an increased percentage of black managers and wants companies to do more to train junior black staff. During apartheid, black South Africans were denied the same education and economic opportunities given to whites.
Nyasulu worked for Unilever Plc before setting up her own marketing company, Sasol said. She has served on the boards of companies including Nedbank Group Ltd. and Anglo Platinum Ltd.
Sasol posted a 47 percent gain in net income to 13.3 billion rand for the six months to June 30. The profit was calculated by subtracting first-half earnings from full-year figures released today.
The company rose 10.60 rand, or 2.8 percent, to 383.60 rand as of 11:53 a.m. in Johannesburg trading, giving it a market value of 256 billion rand. The shares have gained 13 percent in 2008, compared with an 8.3 percent drop in the FTSE/JSE Africa All Share Index of the 40 biggest Johannesburg-traded companies.
Sasol benefited in the period from crude oil prices that rose 52 percent from a year earlier to average $96.89 a barrel and said prices and production would gain this fiscal year.
Expansion Plans
Fixed prices for about 30 percent of so-called synthetic fuel output curbed income by 2.3 billion rand, it said. Coal production was 42.8 million tons, Davies said.
Full-year net income increased 32 percent to 22.42 billion rand, or 36.78 rand a share, in the year to June 30, from 17.03 billion rand, or 27.02 rand, a year earlier, the company said. Profit before one-time items was 38.09 rand a share, lagging the 38.50 rand median estimate of 13 analysts.
Sasol will spend 70 billion rand on expansion over the next three financial years, Finance Director Christine Ramon said.
``Oil may go below the $100s and into the $90s but Sasol makes lots of money even at that level,'' Wayne McCurrie, who helps manage the equivalent of $23 billion at RMB Asset Management in Johannesburg, said by phone. ``The oil price is not going to collapse to $50 or $60. Demand is still there.''
To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.netAntony Sguazzin in Johannesburg at asguazzin@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- Sasol Ltd., used by the South African government to shield the country from sanctions during the apartheid era, named Hixonia Nyasulu to replace its chairman and become its first woman and black in the role.
Nyasulu, 54, will replace Pieter Cox on Nov. 28, the Johannesburg-based company said today. Founded in 1950 and state-owned until 1979, Sasol operates the world's biggest coal- to-motor-fuel plants and has the largest market value of any company based in South Africa. The company today posted a 47 percent gain in second-half profit.
South Africa is pushing companies from gold miners to life insurers to boost black participation in the biggest economy in Africa and curb inequalities created during the apartheid system of racial discrimination that ended in 1994. The government had clashed with Sasol in recent years, saying it hadn't promoted enough black executives into senior management.
``It's symbolically important,'' Nic Borain, a Cape Town- based political consultant for HSBC Holdings Plc, said in an interview. ``Sasol was a key asset in the apartheid state.''
Former DaimlerChrysler AG Chief Executive Officer Juergen Schrempp was appointed as ``lead independent director'' to chair the board on matters including oil, Sasol said in a statement to the city's stock exchange news service today. The appointment was to avoid any conflict of interest because Hixonia owns ``a small interest'' in Sasol Oil, CEO Pat Davies said.
Mindset Outgrown?
Following discussions with state pension fund, the Public Investment Corp., Sasol appointed Imogen Mkhize as the first black woman on its board in 2004, four days after rejecting her candidacy. The government criticized the company the next year for not appointing a black CEO when Cox retired from that job. Of Sasol's 14 board members, five are now black South Africans.
The company needed to ``outgrow an outdated mindset,'' South African President Thabo Mbeki said in 2003 after Sasol stated in a regulatory filing to the U.S. Securities and Exchange Commission that laws to boost black participation in the economy were a threat to shareholder value.
``We've been on a journey to transform this company in South Africa,'' Davies said in an interview from Johannesburg today. ``This is a further step in that process.''
Oil companies have agreed to sell 25 percent of their assets in South Africa to black investors with Sasol currently in the midst of a program to offer 10 percent of its shares for 27 billion rand, the biggest transaction of its kind.
Unilever, Anglo
The government is also demanding an increased percentage of black managers and wants companies to do more to train junior black staff. During apartheid, black South Africans were denied the same education and economic opportunities given to whites.
Nyasulu worked for Unilever Plc before setting up her own marketing company, Sasol said. She has served on the boards of companies including Nedbank Group Ltd. and Anglo Platinum Ltd.
Sasol posted a 47 percent gain in net income to 13.3 billion rand for the six months to June 30. The profit was calculated by subtracting first-half earnings from full-year figures released today.
The company rose 10.60 rand, or 2.8 percent, to 383.60 rand as of 11:53 a.m. in Johannesburg trading, giving it a market value of 256 billion rand. The shares have gained 13 percent in 2008, compared with an 8.3 percent drop in the FTSE/JSE Africa All Share Index of the 40 biggest Johannesburg-traded companies.
Sasol benefited in the period from crude oil prices that rose 52 percent from a year earlier to average $96.89 a barrel and said prices and production would gain this fiscal year.
Expansion Plans
Fixed prices for about 30 percent of so-called synthetic fuel output curbed income by 2.3 billion rand, it said. Coal production was 42.8 million tons, Davies said.
Full-year net income increased 32 percent to 22.42 billion rand, or 36.78 rand a share, in the year to June 30, from 17.03 billion rand, or 27.02 rand, a year earlier, the company said. Profit before one-time items was 38.09 rand a share, lagging the 38.50 rand median estimate of 13 analysts.
Sasol will spend 70 billion rand on expansion over the next three financial years, Finance Director Christine Ramon said.
``Oil may go below the $100s and into the $90s but Sasol makes lots of money even at that level,'' Wayne McCurrie, who helps manage the equivalent of $23 billion at RMB Asset Management in Johannesburg, said by phone. ``The oil price is not going to collapse to $50 or $60. Demand is still there.''
To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.netAntony Sguazzin in Johannesburg at asguazzin@bloomberg.net
Read more...
Oil Rises From Five-Month Low as Hurricane Nears Gulf of Mexico
By Mark Shenk
Sept. 8 (Bloomberg) -- Crude oil rose from a five-month low as Hurricane Ike swept across Cuba, delaying the resumption of production of oil production in the Gulf of Mexico.
Royal Dutch Shell Plc evacuated workers from Gulf platforms or kept staff onshore who were moved out of the path of Hurricane Gustav last month. About 80 percent of the region's oil output and 70 percent of its gas production was still shut yesterday, according to the U.S. Minerals Management Service.
``We have a monster storm in the Caribbean,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``The most recent forecasts have clarified the path and strength of Ike. There's a significant potential for damage to oil facilities in the Gulf.''
Crude oil for October delivery rose $2.66, or 2.5 percent, to $108.89 a barrel at 9:05 a.m. on the New York Mercantile Exchange. Prices are up 42 percent from a year ago.
Gasoline for October delivery increased 14.54 cents, or 5.4 percent, to $2.8315 a gallon in New York. Heating oil rose 14.94 cents, or 5 percent, to $3.1322 a gallon.
Oil dropped 8 percent last week to the lowest since April as Hurricane Gustav passed west of New Orleans with less strength than forecast and the euro declined against the U.S. currency, reducing the appeal of dollar-priced commodities.
Gustav shut all the oil production and most of the gas output in the Gulf. Energy producers reported that personnel from 10 rigs have been evacuated in anticipation of Ike, or about 8.3 percent of the 121 rigs operating in the Gulf, as well as workers from 202 production platforms, the Minerals Management Service said today in a statement on its Web site.
Category 2
Ike weakened to Category 2 on the five-step Saffir-Simpson scale of intensity, with sustained winds of 100 miles (155 kilometers) per hour, the U.S. National Hurricane Center said on its Web site at 8 a.m. Miami time. Ike was moving west across Cuba at 14 mph and is forecast to enter the Gulf tomorrow.
Brent crude oil for October settlement rose $1.35, or 1.3 percent, to $105.44 a barrel on London's ICE Futures Europe exchange.
The 13 members of the Organization of Petroleum Exporting Countries, which supply more than 40 percent of the world's oil, probably will keep producing at a near-record pace as $106-a- barrel crude oil squeezes the global economy. The group is meeting tomorrow in Vienna.
``We have to discuss it with our colleagues the ministers, but we don't think there's a requirement for decreasing production,'' Kuwaiti oil minister, Mohammed Al-Olaim, said boarding a flight for Vienna.
Some members including Iran and Venezuela have asked the group to consider output cuts following the 27 percent decline in prices from their record $147.27 a barrel on July 11.
``Most people expect OPEC will take a deep breath tomorrow and wait to make any changes, so attention is focused on the hurricane,'' Lynch said.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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Sept. 8 (Bloomberg) -- Crude oil rose from a five-month low as Hurricane Ike swept across Cuba, delaying the resumption of production of oil production in the Gulf of Mexico.
Royal Dutch Shell Plc evacuated workers from Gulf platforms or kept staff onshore who were moved out of the path of Hurricane Gustav last month. About 80 percent of the region's oil output and 70 percent of its gas production was still shut yesterday, according to the U.S. Minerals Management Service.
``We have a monster storm in the Caribbean,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``The most recent forecasts have clarified the path and strength of Ike. There's a significant potential for damage to oil facilities in the Gulf.''
Crude oil for October delivery rose $2.66, or 2.5 percent, to $108.89 a barrel at 9:05 a.m. on the New York Mercantile Exchange. Prices are up 42 percent from a year ago.
Gasoline for October delivery increased 14.54 cents, or 5.4 percent, to $2.8315 a gallon in New York. Heating oil rose 14.94 cents, or 5 percent, to $3.1322 a gallon.
Oil dropped 8 percent last week to the lowest since April as Hurricane Gustav passed west of New Orleans with less strength than forecast and the euro declined against the U.S. currency, reducing the appeal of dollar-priced commodities.
Gustav shut all the oil production and most of the gas output in the Gulf. Energy producers reported that personnel from 10 rigs have been evacuated in anticipation of Ike, or about 8.3 percent of the 121 rigs operating in the Gulf, as well as workers from 202 production platforms, the Minerals Management Service said today in a statement on its Web site.
Category 2
Ike weakened to Category 2 on the five-step Saffir-Simpson scale of intensity, with sustained winds of 100 miles (155 kilometers) per hour, the U.S. National Hurricane Center said on its Web site at 8 a.m. Miami time. Ike was moving west across Cuba at 14 mph and is forecast to enter the Gulf tomorrow.
Brent crude oil for October settlement rose $1.35, or 1.3 percent, to $105.44 a barrel on London's ICE Futures Europe exchange.
The 13 members of the Organization of Petroleum Exporting Countries, which supply more than 40 percent of the world's oil, probably will keep producing at a near-record pace as $106-a- barrel crude oil squeezes the global economy. The group is meeting tomorrow in Vienna.
``We have to discuss it with our colleagues the ministers, but we don't think there's a requirement for decreasing production,'' Kuwaiti oil minister, Mohammed Al-Olaim, said boarding a flight for Vienna.
Some members including Iran and Venezuela have asked the group to consider output cuts following the 27 percent decline in prices from their record $147.27 a barrel on July 11.
``Most people expect OPEC will take a deep breath tomorrow and wait to make any changes, so attention is focused on the hurricane,'' Lynch said.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
Read more...
Ike Hits Cuba, May Head Toward Gulf Oil Installations
By Camilla Hall and Aaron Sheldrick
Sept. 8 (Bloomberg) -- Ike smashed into northeastern Cuba on a course that may take the hurricane through the center of the island and into the Gulf of Mexico, threatening U.S. oil installations hit by Gustav a week ago.
``The destruction in Cuba is going to be extensive,'' Matthew Rinde, meteorologist at Accuweather.com, said today in a telephone interview from State College, Pennsylvania. ``Once it gets back out over the water it should restrengthen and that should be as early as Wednesday morning.''
The system remained at Category 2 on the five-step Saffir- Simpson scale of intensity, with sustained winds of 160 kilometers (100 miles) per hour, after weakening earlier today from Category 3, the U.S. National Hurricane Center said on its Web site at 8 a.m. Miami time. Ike may weaken further while over land, forecasters said. The system was centered over the city of Camaguey and moving west at 23 kph.
Ike killed 47 people in Haiti before forcing the evacuation of more than 800,000 people in Cuba, Agence France-Presse said. Both nations were recovering from Hurricane Gustav. The hurricane center's five-day track for Ike shows the system moving toward coastal waters near the Louisiana-Texas border.
Crude oil rose 2.7 percent from a five-month low as producers delayed resuming operations in the region that were stalled by Gustav.
Warnings, Watches
The Cuban government issued a hurricane warning for the provinces of Guantanamo west through Matanzas. A tropical-storm warning and a hurricane watch were in effect for the provinces of La Habana, Ciudad de Habana, Pinar del Rio and the Isle of Youth.
In Florida, a tropical-storm warning and a hurricane watch were declared for the Keys from Ocean Reef south to the Dry Tortugas, the center said. A tropical-storm watch was issued for southwestern Florida's Gulf waters from East Cape Sable to Bonita Beach.
The Bahamas maintained a tropical-storm warning for Andros and Ragged islands, while a tropical-storm watch was in effect for Jamaica and the Cayman Islands.
A warning means tropical-storm or hurricane conditions are expected within 24 hours. A watch means the conditions are possible within 36 hours.
Louisiana Emergency
Louisiana Governor Bobby Jindal declared a state of emergency yesterday in preparation for Ike. New Orleans residents were warned to prepare to evacuate again, after orders to leave as Gustav approached last week, three years after Hurricane Katrina devastated the city. New Orleans was spared the worst of Gustav.
``Hurricane Ike may impact the coastal parishes of Louisiana with hurricane strength winds, wave surges, high tides, torrential rain and tornado activity,'' Jindal said in a statement on the state's Web site. ``The storm may make landfall on the Louisiana coast on or about Sept. 13, 2008, with the expectation that hurricane-force winds will reach the Louisiana coast prior to landfall.''
The storm may dump as much as 51 centimeters (20 inches) of rain on parts of Cuba, the center said. ``These rains are likely to cause life-threatening flash floods and mud slides over mountainous terrain,'' the center said.
Gustav destroyed western Cuba's main crops, bananas, citrus, avocadoes and corn, the official Granma news service said. Agriculture was further hit as hundreds of thousands of farm animals were killed, Granma said.
Haiti Hit
Ike brought more rain to Haiti, which was hit by Hurricane Gustav and Tropical Storm Fay last month before Hanna swept through last week.
``The rains from Ike have made it even more difficult for aid workers to get into some of the worst-flooded areas,'' Wesley Charles, the national director of World Vision in Haiti, said in an e-mailed statement. ``People are becoming increasingly desperate.''
In nearby Grand Turk and North Caicos Islands, initial reports show 80 percent of homes suffered damage from Ike, according to Risk Management Solutions Inc., which quantifies risk for insurance companies.
``A number of houses lost their roofs, as well as a prison,'' said Stephen Russell, commander of the National Emergency Management Agency in Nassau, the Bahamas. ``On Great Inagua, many homes also lost roofs and all phone lines are down.''
The British naval vessel HMS Iron Duke was dispatched to assist in relief efforts in the Turks and Caicos Islands, a U.K. overseas territory, the British Broadcasting Corp. reported, citing the ship's captain.
Death Toll
The death toll from the four storms has risen to at least 600 in Haiti, AFP said. As many as 600,000 people may need assistance in Haiti, the United Nations humanitarian affairs chief John Holmes said.
Cuba yesterday urged the U.S. to ease its trade embargo and open private credit lines for food imports into the island in the wake of Gustav, AFP reported.
President George W. Bush yesterday declared a state of emergency for Florida, authorizing federal disaster assistance, the White House said. Officials yesterday urged the 80,000 residents of the Keys to leave for the mainland.
``I haven't evacuated in 15 years,'' David Black, 47, a clerk at the Heron House hotel in Key West, said in a phone interview yesterday. ``It's less trouble to just weather the hurricane and if you go to Miami or Orlando, you can get hit by the storm you're running from.''
Oil Production
Energy producers reported that personnel from 10 rigs and 202 production platforms have been evacuated, the Minerals Management Service said yesterday on its Web site. There are about 717 manned production platforms in the Gulf of Mexico.
Most energy output in the Gulf has been halted since Hurricane Gustav ripped through the area and made landfall in Louisiana on Sept. 1. The Gulf is home to more than a quarter of U.S. oil production.
Officials in Florida's Monroe County, where the Keys are located, urged tourists to leave the islands yesterday, Chuck Mulligan, a spokesman with the Tallahassee-based state Division of Emergency Management, said yesterday.
Officials from the Federal Emergency Management Agency told reporters in Washington yesterday they had positioned supplies of food and water in the Gulf states and are ready to help.
Far to the east of Ike, the remnants of Tropical Storm Josephine produced showers and thunderstorms over the Atlantic and had a low potential to regenerate into a cyclone, the hurricane center said.
To contact the reporters on this story: Camilla Hall in London at chall24@bloomberg.net; Aaron Sheldrick in Tokyo at asheldrick@bloomberg.net.
Read more...
Sept. 8 (Bloomberg) -- Ike smashed into northeastern Cuba on a course that may take the hurricane through the center of the island and into the Gulf of Mexico, threatening U.S. oil installations hit by Gustav a week ago.
``The destruction in Cuba is going to be extensive,'' Matthew Rinde, meteorologist at Accuweather.com, said today in a telephone interview from State College, Pennsylvania. ``Once it gets back out over the water it should restrengthen and that should be as early as Wednesday morning.''
The system remained at Category 2 on the five-step Saffir- Simpson scale of intensity, with sustained winds of 160 kilometers (100 miles) per hour, after weakening earlier today from Category 3, the U.S. National Hurricane Center said on its Web site at 8 a.m. Miami time. Ike may weaken further while over land, forecasters said. The system was centered over the city of Camaguey and moving west at 23 kph.
Ike killed 47 people in Haiti before forcing the evacuation of more than 800,000 people in Cuba, Agence France-Presse said. Both nations were recovering from Hurricane Gustav. The hurricane center's five-day track for Ike shows the system moving toward coastal waters near the Louisiana-Texas border.
Crude oil rose 2.7 percent from a five-month low as producers delayed resuming operations in the region that were stalled by Gustav.
Warnings, Watches
The Cuban government issued a hurricane warning for the provinces of Guantanamo west through Matanzas. A tropical-storm warning and a hurricane watch were in effect for the provinces of La Habana, Ciudad de Habana, Pinar del Rio and the Isle of Youth.
In Florida, a tropical-storm warning and a hurricane watch were declared for the Keys from Ocean Reef south to the Dry Tortugas, the center said. A tropical-storm watch was issued for southwestern Florida's Gulf waters from East Cape Sable to Bonita Beach.
The Bahamas maintained a tropical-storm warning for Andros and Ragged islands, while a tropical-storm watch was in effect for Jamaica and the Cayman Islands.
A warning means tropical-storm or hurricane conditions are expected within 24 hours. A watch means the conditions are possible within 36 hours.
Louisiana Emergency
Louisiana Governor Bobby Jindal declared a state of emergency yesterday in preparation for Ike. New Orleans residents were warned to prepare to evacuate again, after orders to leave as Gustav approached last week, three years after Hurricane Katrina devastated the city. New Orleans was spared the worst of Gustav.
``Hurricane Ike may impact the coastal parishes of Louisiana with hurricane strength winds, wave surges, high tides, torrential rain and tornado activity,'' Jindal said in a statement on the state's Web site. ``The storm may make landfall on the Louisiana coast on or about Sept. 13, 2008, with the expectation that hurricane-force winds will reach the Louisiana coast prior to landfall.''
The storm may dump as much as 51 centimeters (20 inches) of rain on parts of Cuba, the center said. ``These rains are likely to cause life-threatening flash floods and mud slides over mountainous terrain,'' the center said.
Gustav destroyed western Cuba's main crops, bananas, citrus, avocadoes and corn, the official Granma news service said. Agriculture was further hit as hundreds of thousands of farm animals were killed, Granma said.
Haiti Hit
Ike brought more rain to Haiti, which was hit by Hurricane Gustav and Tropical Storm Fay last month before Hanna swept through last week.
``The rains from Ike have made it even more difficult for aid workers to get into some of the worst-flooded areas,'' Wesley Charles, the national director of World Vision in Haiti, said in an e-mailed statement. ``People are becoming increasingly desperate.''
In nearby Grand Turk and North Caicos Islands, initial reports show 80 percent of homes suffered damage from Ike, according to Risk Management Solutions Inc., which quantifies risk for insurance companies.
``A number of houses lost their roofs, as well as a prison,'' said Stephen Russell, commander of the National Emergency Management Agency in Nassau, the Bahamas. ``On Great Inagua, many homes also lost roofs and all phone lines are down.''
The British naval vessel HMS Iron Duke was dispatched to assist in relief efforts in the Turks and Caicos Islands, a U.K. overseas territory, the British Broadcasting Corp. reported, citing the ship's captain.
Death Toll
The death toll from the four storms has risen to at least 600 in Haiti, AFP said. As many as 600,000 people may need assistance in Haiti, the United Nations humanitarian affairs chief John Holmes said.
Cuba yesterday urged the U.S. to ease its trade embargo and open private credit lines for food imports into the island in the wake of Gustav, AFP reported.
President George W. Bush yesterday declared a state of emergency for Florida, authorizing federal disaster assistance, the White House said. Officials yesterday urged the 80,000 residents of the Keys to leave for the mainland.
``I haven't evacuated in 15 years,'' David Black, 47, a clerk at the Heron House hotel in Key West, said in a phone interview yesterday. ``It's less trouble to just weather the hurricane and if you go to Miami or Orlando, you can get hit by the storm you're running from.''
Oil Production
Energy producers reported that personnel from 10 rigs and 202 production platforms have been evacuated, the Minerals Management Service said yesterday on its Web site. There are about 717 manned production platforms in the Gulf of Mexico.
Most energy output in the Gulf has been halted since Hurricane Gustav ripped through the area and made landfall in Louisiana on Sept. 1. The Gulf is home to more than a quarter of U.S. oil production.
Officials in Florida's Monroe County, where the Keys are located, urged tourists to leave the islands yesterday, Chuck Mulligan, a spokesman with the Tallahassee-based state Division of Emergency Management, said yesterday.
Officials from the Federal Emergency Management Agency told reporters in Washington yesterday they had positioned supplies of food and water in the Gulf states and are ready to help.
Far to the east of Ike, the remnants of Tropical Storm Josephine produced showers and thunderstorms over the Atlantic and had a low potential to regenerate into a cyclone, the hurricane center said.
To contact the reporters on this story: Camilla Hall in London at chall24@bloomberg.net; Aaron Sheldrick in Tokyo at asheldrick@bloomberg.net.
Read more...
Copper Rises From 7-Month Low in London After Freddie Mac Aid
By Chanyaporn Chanjaroen
Sept. 8 (Bloomberg) -- Copper rose in London, rebounding from a seven-month low, as the U.S. government's takeover of Fannie Mae and Freddie Mac bolstered investor confidence in the outlook for the global economy.
The MSCI World Index of stocks added 1.6 percent as of 11:14 a.m. London time, ending six consecutive declines. Crude oil and other industrial metals also advanced. Copper has shed 18 percent since the end of June on concern that slower economic growth will sap demand for metals.
``It's a rebound across the board,'' Max Layton, an analyst at Macquarie Group Ltd., said today by phone from London. ``Demand may be better than otherwise it would have been'' after the U.S. government's rescue package, he said.
Copper for delivery in three months added $80, or 1.2 percent, to $6,980 a metric ton as of 11:06 a.m. on the London Metal Exchange. It fell 8.1 percent last week, the biggest decline since January 2007.
Copper, in its seventh year of gains, may extend advances in the fourth quarter as China, the world's largest user of the metal, increases buying, Layton said. The metal price will average $8,500 a ton in the last three months of the year, Barclays Capital said Sept. 5.
The rally also boosted mining companies. BHP Billiton Ltd., the world's largest diversified miner, soared as much as 7.7 percent and Anglo American Plc rose 8.1 percent.
LME-tracked copper stockpiles fell 50 tons to 200,825 tons, the first drop since Aug. 20. Including those monitored by the exchanges in Shanghai and New York, they totaled 224,826 tons, or 4.4 days of global consumption, according to Bloomberg calculations. Last year's average was 4.9 days.
Futures Premium
Rising LME stockpiles increased availability of the metal and reduced the premium of the metal for immediate delivery. The premium over the benchmark price shrank to $29 a ton Sept. 5, from this year's peak of $241 a ton July 7.
LME data also showed the largest holders of copper stockpiles scaled back their assets last week. One firm held 50 percent to 79 percent of the inventories as of Sept. 3, down from a range of 80 percent and 89 percent at the end of August. The exchange doesn't publish the identity of stockpile owners.
Aluminum increased $23 to $2,670 a ton. China's top 20 smelters, the largest in the world, have cut production by more than 350,000 tons on an annual basis as part of a July agreement to reduce energy consumption and boost prices, China's Nonferrous Metals Industry Association said.
Smelting Unprofitable
The companies took production offline between July 10 and Aug. 10 as smelting became increasingly unprofitable because of higher costs, Wen Xianjun, vice chairman of the association, said in an interview. The reduction is equivalent to about 2.8 percent of the nation's production last year of 12.6 million tons, according to Bloomberg calculations.
Tin exports from Indonesia, the world's second-largest producer of the metal, fell 17 percent to 8,231 tons in August from the previous month, Trade Ministry data showed. The decline bore little significance given the high level of imports in July, ITRI Ltd.'s research manager Peter Kettle said today by phone from St. Albans, England. ITRI is funded by producers of the metal.
Tin advanced $275, or 1.5 percent, to $18,650.
Among other metals traded on the LME, lead rose $54.75, or 3.3 percent, to $1,865 and nickel jumped $200, or 1 percent, to $18,800. Zinc gained $15 to $1,765.
-- With reporting by Yoga Rusmana and Naila Firdausi in Jakarta, and Xiao Yu in Beijing. Editors: James Ludden, Stuart Wallace.
To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net
Read more...
Sept. 8 (Bloomberg) -- Copper rose in London, rebounding from a seven-month low, as the U.S. government's takeover of Fannie Mae and Freddie Mac bolstered investor confidence in the outlook for the global economy.
The MSCI World Index of stocks added 1.6 percent as of 11:14 a.m. London time, ending six consecutive declines. Crude oil and other industrial metals also advanced. Copper has shed 18 percent since the end of June on concern that slower economic growth will sap demand for metals.
``It's a rebound across the board,'' Max Layton, an analyst at Macquarie Group Ltd., said today by phone from London. ``Demand may be better than otherwise it would have been'' after the U.S. government's rescue package, he said.
Copper for delivery in three months added $80, or 1.2 percent, to $6,980 a metric ton as of 11:06 a.m. on the London Metal Exchange. It fell 8.1 percent last week, the biggest decline since January 2007.
Copper, in its seventh year of gains, may extend advances in the fourth quarter as China, the world's largest user of the metal, increases buying, Layton said. The metal price will average $8,500 a ton in the last three months of the year, Barclays Capital said Sept. 5.
The rally also boosted mining companies. BHP Billiton Ltd., the world's largest diversified miner, soared as much as 7.7 percent and Anglo American Plc rose 8.1 percent.
LME-tracked copper stockpiles fell 50 tons to 200,825 tons, the first drop since Aug. 20. Including those monitored by the exchanges in Shanghai and New York, they totaled 224,826 tons, or 4.4 days of global consumption, according to Bloomberg calculations. Last year's average was 4.9 days.
Futures Premium
Rising LME stockpiles increased availability of the metal and reduced the premium of the metal for immediate delivery. The premium over the benchmark price shrank to $29 a ton Sept. 5, from this year's peak of $241 a ton July 7.
LME data also showed the largest holders of copper stockpiles scaled back their assets last week. One firm held 50 percent to 79 percent of the inventories as of Sept. 3, down from a range of 80 percent and 89 percent at the end of August. The exchange doesn't publish the identity of stockpile owners.
Aluminum increased $23 to $2,670 a ton. China's top 20 smelters, the largest in the world, have cut production by more than 350,000 tons on an annual basis as part of a July agreement to reduce energy consumption and boost prices, China's Nonferrous Metals Industry Association said.
Smelting Unprofitable
The companies took production offline between July 10 and Aug. 10 as smelting became increasingly unprofitable because of higher costs, Wen Xianjun, vice chairman of the association, said in an interview. The reduction is equivalent to about 2.8 percent of the nation's production last year of 12.6 million tons, according to Bloomberg calculations.
Tin exports from Indonesia, the world's second-largest producer of the metal, fell 17 percent to 8,231 tons in August from the previous month, Trade Ministry data showed. The decline bore little significance given the high level of imports in July, ITRI Ltd.'s research manager Peter Kettle said today by phone from St. Albans, England. ITRI is funded by producers of the metal.
Tin advanced $275, or 1.5 percent, to $18,650.
Among other metals traded on the LME, lead rose $54.75, or 3.3 percent, to $1,865 and nickel jumped $200, or 1 percent, to $18,800. Zinc gained $15 to $1,765.
-- With reporting by Yoga Rusmana and Naila Firdausi in Jakarta, and Xiao Yu in Beijing. Editors: James Ludden, Stuart Wallace.
To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net
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