By Jordan Burke
Sept. 13 (Bloomberg) -- Hurricane Ike, which made landfall along the U.S. Gulf Coast today, caused more than 19 percent of the nation's refining capacity to close and may limit fuel deliveries across the country.
At least 13 refineries in Texas shut down as Ike approached. Gulf Coast refineries and ports are the source of about 50 percent of the fuel and crude used in the eastern half of the U.S. Plants operated by Exxon Mobil Corp., Valero Energy Corp., ConocoPhillips and Royal Dutch Shell Plc were affected.
Gasoline shortages may occur across the southern U.S. up to Washington because of the closures caused by Hurricane Gustav and now Ike, Kevin Kolevar, assistant secretary for electricity delivery and energy reliability at the U.S. Department of Energy, said on a conference call yesterday.
``We expect to see constrained supplies of refined products,'' he said. ``The administration will utilize every tool at our disposal to lessen the likelihood of limited fuel supplies,'' including tapping the Strategic Petroleum Reserve.
Ike smashed into the Texas coast as a category 2 storm with winds almost 110 miles per hour (176 kilometers), making landfall in Galveston at 2:10 a.m. local time today. Ike's path toward Houston makes it the first storm to hit a major U.S. metropolitan area since Hurricane Katrina devastated New Orleans in 2005.
President George W. Bush today said the federal government was ``prepared to move'' quickly to help in recovery efforts from Hurricane Ike and said he has ordered federal authorities to guard against gasoline price gouging.
Idled Production
The storm idled about 98 percent of oil production and 94 percent of natural-gas output in the Gulf of Mexico, the U.S. Minerals Management Service said yesterday. Gulf fields produce 1.3 million barrels oil a day, about a quarter of U.S. output, and 7.4 billion cubic feet of gas, 14 percent of the total, government data show.
Royal Dutch Shell Plc, Europe's largest oil company, said today it plans to do a flyover of its Gulf of Mexico assets to assess any damage from Hurricane Ike, after the storm passes. Shell wants ``most notably'' to examine its Auger tension leg platform, the company said in a statement on its Web site.
Shell may redeploy some workers to Shell-operated assets that were not in the immediate path of Ike, the statement said.
``Once power and communications are restored at our facilities, then personnel can commence repairs, and where possible, conduct restart and production ramp up procedures,'' the company said. `Production ramp up at each facility will vary and could take from a few days to weeks.''
Calls for Conservation
Chevron Corp., the second-largest U.S. energy company, urged U.S. consumers outside the Gulf Coast region to conserve gasoline and other fuels to help avert shortages.
The company, in a statement on its Web site, said it's concerned about ``the potential impact of Hurricane Ike and the additional pressure it could have on an already stressed petroleum-distribution system.''
Gasoline futures traded in New York gained 3.1 percent this week. The futures rose 2.08 cents, or 0.8 percent, to settle at $2.7696 a gallon yesterday as the refineries closed.
CME Group Inc., the world's biggest futures exchange, is extending New York Mercantile Exchange electronic trading hours this weekend because of Ike. Trading will begin at 10 a.m. New York time on Sept. 14, earlier than the normal opening of 7 p.m.
Ike is similar to Hurricane Alicia in 1983, according to Jim Rouiller, senior energy meteorologist at Planlytics Inc. in Wayne, Pennsylvania.
`Devastated' Infrastructure
``It took them over a year to get their feet on the ground again,'' he said. ``The refineries were down for months. Basically, the whole infrastructure around the Houston metropolitan area was devastated.''
Hurricanes Katrina and Rita forced the temporary shutdown of at least 20 U.S. refineries during August and September 2005, idling 30 percent of the nation's capacity. Most of those plants resumed operations within a few weeks of the storms.
Gasoline supplies across the southern and eastern U.S. may be disrupted by Ike, Rouiller said.
``We could have this capability lost for a long period of time,'' he said.
Exxon Mobil shut down its Baytown, Texas, refinery, the biggest in the U.S, with processing capacity of 590,500 barrels of oil a day, and its Beaumont plant, which can process 363,100 barrels a day, according to the company's Web site. Exxon is the world's largest oil company.
Valero, the largest U.S. refiner, closed three Texas oil refineries with a combined capacity of 589,000 barrels a day. They are the 294,000-barrel-a-day Port Arthur refinery, a Texas City plant with a capacity of 210,000 barrels and a Houston facility able to process 85,000 barrels, spokesman Bill Day said.
Gas Station Closings
The company closed 64 company-operated gasoline stations out of almost 200 in the Houston region, Day said.
Motiva Enterprises LLC, a joint venture of Shell and Saudi Arabia's state oil company, started shutting down its 300,000- barrel-a-day plant in Port Arthur yesterday, Shell said on its Web site. Shell is also closing its Deer Park plant, which can process 340,000 barrels per day.
Motiva's Beaumont, Pasadena and North Houston terminals are also closed and refined product supplies at those terminals remain at ``safety levels,'' Shell said in a statement.
BP is closing its 475,000-barrel-a-day Texas City, Texas, refinery. ConocoPhillips, the second-largest U.S. refiner, said its 260,000 barrel-a-day refinery in Sweeny, Texas, is closing. LyondellBasell Industries is shutting its 299,300-barrel-a-day Houston Refining LP plant.
Texas City, Pasadena
Conoco's Pasadena, Texas, refined products terminal and Clifton Ridge Marine terminal near Lake Charles also closed, and all company-operated pipelines in the region are shut down.
Marathon Oil Corp., the fourth-largest U.S. oil company, began to shut its Texas City refinery, which can process about 81,500 barrels of oil a day.
Total SA, Europe's third-largest oil company, is shutting down its Port Arthur refinery, which can process about 240,000 barrels a day.
``Ike is headed into the heart of the refining industry,'' Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas, said in an interview. ``The damage is likely to come in flooding, a lack of power for an extended period of time.''
With winds decreasing to about 90 mph, making it a Category 1 storm, Ike was moving north at about 18 mph, the National Hurricane Center said in an 8 a.m. local time advisory. Ike is likely to remain a hurricane through the afternoon as it weakens on its inland path curving toward the northeast toward western Arkansas, the center said.
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
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Saturday, September 13, 2008
AIG May Disclose Its Strategic Review Before Sept. 25 Deadline
By Hugh Son and Shannon D. Harrington
Sept. 13 (Bloomberg) -- American International Group Inc., the largest U.S. insurer, may move up plans to raise capital or sell assets after the shares plunged 46 percent this week, said a person familiar with the company.
Chief Executive Officer Robert Willumstad may announce the reorganization before his Sept. 25 deadline, said the person, who declined to be named because the New York-based insurer hasn't made an official statement.
AIG shares slumped and the cost of insuring its debt rose to a record Friday on concern that the company may be the next big U.S. financial firm after Lehman Brothers Holdings Inc. to run short of capital. Standard & Poor's said it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital. New York insurance regulator Eric Dinallo is keeping in ``closer touch'' with the company, said his spokesman David Neustadt.
``It's a carbon-copy story for a lot of these guys that need capital,'' said Robert Bolton, managing director for trading at Mendon Capital Advisors Corp. in Rochester, New York. ``It's unprecedented that two storied franchises, Bear Stearns and Lehman, have taken on the type of water they have, and now there are fears about another titan, AIG.''
AIG dropped $5.41, or 31 percent, to $12.14 on Friday in New York Stock Exchange composite trading. The price of credit- default swaps, used as hedges against losses on bad debt, approached distressed levels and traded higher than those for Lehman, the securities firm that's fighting for survival.
Capital Seeking
The insurer hired JPMorgan Chase & Co. to raise capital, CNBC said, citing two people it didn't identify. A capital- raising plan may be disclosed today or Sept. 14 and involve Blackstone Group LP or BlackRock Inc., the network said.
AIG spokesman Nicholas Ashooh declined to comment on the CNBC report as did Joseph Evangelisti of JPMorgan, Bobbie Collins of BlackRock and John Ford of Blackstone.
AIG may be able to raise $20 billion selling assets including its consumer-finance, reinsurance and plane-leasing units, according to analysts at Citigroup Inc.
The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said Aug. 7.
``As distressed as they are, raising new capital could be extremely hard,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California.
Collateral Damage
A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from investors who bought protection from AIG through credit- default swaps, the insurer said in an Aug. 6 filing. The company was forced to put up $16.5 billion in collateral through July 31.
``Our job is to assess the ability of the insurance company to pay their claims, and that's not in question at this point,'' said Neustadt, spokesman for Dinallo. ``Given what's going on with the holding company, we're keeping in closer touch.''
S&P's Rodney Clark said ``AIG has sufficient capital and liquidity to meet its policy obligations and potential collateral requirements, which are significantly greater than the expected cash losses on the mortgage-related assets.''
Still, Clark said in a note, ``additional market value losses will place some strain on the company's resources.''
The firm reported about $25 billion in writedowns in three previous quarters on the swaps. The contracts backed $441 billion of assets as of June 30, including $57.8 billion in securities tied to subprime mortgages.
Writedowns
Most of the valuation declines on the swaps will reverse and AIG may have to pay $8.5 billion on the contracts in a worst-case scenario, the company said Aug. 7.
American General Finance, AIG's consumer lender, could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The stake in reinsurer Transatlantic Holdings Inc. is worth about $2.2 billion, based on Friday's share price.
Bank of America Corp. analyst Alain Karaoglan said Willumstad should reconsider the decision to keep its aircraft- leasing unit, which could sell for $7 billion to $14 billion.
Credit-default swap sellers demanded 12.5 percentage points upfront and 5 percentage points a year to protect AIG bonds from default for five years, according to broker Phoenix Partners Group. That means it would cost $1.25 million initially and $500,000 a year to protect $10 million in AIG bonds for five years. On Sept. 11, it cost $688,000 a year with no upfront payment, according to CMA Datavision.
Credit-Default Swaps
It now costs more to protect against an AIG default than it does to protect bonds of junk-rated casino operators MGM Mirage and Las Vegas Sands Corp. It costs $720,000 a year for protection on $10 million of MGM bonds and $675,000 for Sands.
Even before Friday, AIG's credit-default swaps traded as if the company was rated B1, four levels below investment grade on the Moody's Investors Service ratings scale and 10 levels under its actual rating of Aa3, according to data from Moody's capital markets research group.
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net
Read more...
Sept. 13 (Bloomberg) -- American International Group Inc., the largest U.S. insurer, may move up plans to raise capital or sell assets after the shares plunged 46 percent this week, said a person familiar with the company.
Chief Executive Officer Robert Willumstad may announce the reorganization before his Sept. 25 deadline, said the person, who declined to be named because the New York-based insurer hasn't made an official statement.
AIG shares slumped and the cost of insuring its debt rose to a record Friday on concern that the company may be the next big U.S. financial firm after Lehman Brothers Holdings Inc. to run short of capital. Standard & Poor's said it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital. New York insurance regulator Eric Dinallo is keeping in ``closer touch'' with the company, said his spokesman David Neustadt.
``It's a carbon-copy story for a lot of these guys that need capital,'' said Robert Bolton, managing director for trading at Mendon Capital Advisors Corp. in Rochester, New York. ``It's unprecedented that two storied franchises, Bear Stearns and Lehman, have taken on the type of water they have, and now there are fears about another titan, AIG.''
AIG dropped $5.41, or 31 percent, to $12.14 on Friday in New York Stock Exchange composite trading. The price of credit- default swaps, used as hedges against losses on bad debt, approached distressed levels and traded higher than those for Lehman, the securities firm that's fighting for survival.
Capital Seeking
The insurer hired JPMorgan Chase & Co. to raise capital, CNBC said, citing two people it didn't identify. A capital- raising plan may be disclosed today or Sept. 14 and involve Blackstone Group LP or BlackRock Inc., the network said.
AIG spokesman Nicholas Ashooh declined to comment on the CNBC report as did Joseph Evangelisti of JPMorgan, Bobbie Collins of BlackRock and John Ford of Blackstone.
AIG may be able to raise $20 billion selling assets including its consumer-finance, reinsurance and plane-leasing units, according to analysts at Citigroup Inc.
The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said Aug. 7.
``As distressed as they are, raising new capital could be extremely hard,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California.
Collateral Damage
A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from investors who bought protection from AIG through credit- default swaps, the insurer said in an Aug. 6 filing. The company was forced to put up $16.5 billion in collateral through July 31.
``Our job is to assess the ability of the insurance company to pay their claims, and that's not in question at this point,'' said Neustadt, spokesman for Dinallo. ``Given what's going on with the holding company, we're keeping in closer touch.''
S&P's Rodney Clark said ``AIG has sufficient capital and liquidity to meet its policy obligations and potential collateral requirements, which are significantly greater than the expected cash losses on the mortgage-related assets.''
Still, Clark said in a note, ``additional market value losses will place some strain on the company's resources.''
The firm reported about $25 billion in writedowns in three previous quarters on the swaps. The contracts backed $441 billion of assets as of June 30, including $57.8 billion in securities tied to subprime mortgages.
Writedowns
Most of the valuation declines on the swaps will reverse and AIG may have to pay $8.5 billion on the contracts in a worst-case scenario, the company said Aug. 7.
American General Finance, AIG's consumer lender, could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The stake in reinsurer Transatlantic Holdings Inc. is worth about $2.2 billion, based on Friday's share price.
Bank of America Corp. analyst Alain Karaoglan said Willumstad should reconsider the decision to keep its aircraft- leasing unit, which could sell for $7 billion to $14 billion.
Credit-default swap sellers demanded 12.5 percentage points upfront and 5 percentage points a year to protect AIG bonds from default for five years, according to broker Phoenix Partners Group. That means it would cost $1.25 million initially and $500,000 a year to protect $10 million in AIG bonds for five years. On Sept. 11, it cost $688,000 a year with no upfront payment, according to CMA Datavision.
Credit-Default Swaps
It now costs more to protect against an AIG default than it does to protect bonds of junk-rated casino operators MGM Mirage and Las Vegas Sands Corp. It costs $720,000 a year for protection on $10 million of MGM bonds and $675,000 for Sands.
Even before Friday, AIG's credit-default swaps traded as if the company was rated B1, four levels below investment grade on the Moody's Investors Service ratings scale and 10 levels under its actual rating of Aa3, according to data from Moody's capital markets research group.
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net
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Poland's Skrzypek Sees `Downside Risk' for 2009 GDP Forecast
By Monika Rozlal
Sept. 13 (Bloomberg) -- The Polish government's forecast for economic growth of 4.8 percent next year ``seems to be very optimistic,'' central bank Governor Slawomir Skrzypek said.
``There is a downside risk to this forecast,'' Skrzypek told reporters today at a meeting of European Union finance officials in Nice, France.
The government earlier this week cut its projection for 2009 growth in gross domestic product to 4.8 percent from 5 percent. This year's expansion is estimated at 5.5 percent.
Skrzypek said he forecasts 2008 growth between 5 percent and 5.5 percent.
The central bank governor also said Prime Minister Donald Tusk's plan to adopt the euro by 2011 is ``a challenge.'' Tusk on Sept. 11 said Poland, the largest of the EU's eastern members, plans to be the next country to switch to the common currency after Slovakia does so on Jan. 1, 2009.
``Everything related with the euro adoption by Poland in 2011 will be a challenge,'' Skrzypek said.
To contact the reporter on this story: Monika Rozlal in Nice, France, at mrozlal@bloomberg.net.
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Sept. 13 (Bloomberg) -- The Polish government's forecast for economic growth of 4.8 percent next year ``seems to be very optimistic,'' central bank Governor Slawomir Skrzypek said.
``There is a downside risk to this forecast,'' Skrzypek told reporters today at a meeting of European Union finance officials in Nice, France.
The government earlier this week cut its projection for 2009 growth in gross domestic product to 4.8 percent from 5 percent. This year's expansion is estimated at 5.5 percent.
Skrzypek said he forecasts 2008 growth between 5 percent and 5.5 percent.
The central bank governor also said Prime Minister Donald Tusk's plan to adopt the euro by 2011 is ``a challenge.'' Tusk on Sept. 11 said Poland, the largest of the EU's eastern members, plans to be the next country to switch to the common currency after Slovakia does so on Jan. 1, 2009.
``Everything related with the euro adoption by Poland in 2011 will be a challenge,'' Skrzypek said.
To contact the reporter on this story: Monika Rozlal in Nice, France, at mrozlal@bloomberg.net.
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European Stocks Climb Most in a Month; Barclays, BHP Advance
By Adam Haigh
Sept. 13 (Bloomberg) -- European stocks had the biggest weekly gain in a month, led by banks and raw-material producers, as concern eased that losses in the financial industry will worsen and higher metals prices lifted mining shares.
Barclays Plc added 10 percent and Credit Suisse Group AG rose 7 percent as the U.S. government provided funding to Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies. BHP Billiton Ltd., the world's largest mining company, climbed 4.9 percent as copper rebounded. ITV Plc rallied 21 percent as Mediaset SpA reiterated interest in the U.K.'s biggest commercial broadcaster.
Europe's Dow Jones Stoxx 600 Index added 3 percent to 280.41, trimming this year's decline to 23 percent. Almost $16 trillion has been erased from global equities in 2008 as the first nationwide decline in U.S. home prices since the Great Depression sparked more than $510 billion in credit-related losses worldwide and threatened economic growth.
``People will start to see some light at the end of the tunnel now'' for financial companies, said William De Vijlder, chief investment officer at Fortis Investments, which has the equivalent of $309 in assets under management. ``We still believe we are in a commodities bull market,'' he said in a Bloomberg Television interview.
National benchmark indexes advanced in 14 of the 18 western European markets this week. France's CAC 40 gained 3.2 percent, and Germany's DAX added 1.8 percent. The U.K.'s FTSE 100 Index increased 3.4 percent this week. A computer fault on Sept. 8 left some traders without prices and unable to buy or sell shares in London for more than six hours.
Bank Shares
Barclays, the U.K.'s third-largest bank, climbed 10 percent. Credit Suisse Group AG, Switzerland's second-biggest bank, increased 7 percent.
Treasury Secretary Henry Paulson said Sept. 7 the U.S. government will provide short-term funding to Fannie and Freddie and purchase debt backed by home loans. Paulson and Federal Housing Finance Agency Director James Lockhart placed the companies in a government-operated conservatorship.
Investors speculated Sept. 12 that Lehman Brothers Holdings Inc. will be bought after the stock erased more than 70 percent of its value this week on a larger-than-estimated loss for the third quarter.
Rising metal prices helped send a measure of raw-material producers to the steepest gain among 18 industry groups in the Stoxx 600, adding 5.4 percent. Copper rallied 3.4 percent in London this week, snapping a two-week decline. Nickel and tin also advanced.
Takeover Speculation
BHP increased 4.9 percent. Anglo American Plc, the world's fourth-biggest diversified mining company, rallied 8.6 percent.
ITV soared 21 percent, leading gains among media stocks in the Stoxx 600 and posting the steepest advance among all shares in the measure.
Mediaset, Italy's largest independent broadcaster and controlled by Italian Prime Minister Silvio Berlusconi, is looking at possible acquisitions, including ITV, Mediaset director Gina Nieri told the Telegraph newspaper. She said there are ``no real negotiations,'' according to the report on Sept. 6.
Separately, ITV named Ian Griffiths as group finance director to help revive the company.
Ciba Holding AG, the world's largest maker of colors for plastics, surged 18 on speculation that the company may be a takeover target for bigger chemical companies. Ciba spokesman Tobias Woelfing said the company doesn't comment on market ``rumors.''
`Positive'
British Land Co., the U.K.'s largest real-estate investment trust by assets, led British real-estate stocks higher after Lehman lifted its recommendation for the industry to ``positive'' from ``neutral.'' The stock soared 14 percent.
Stora Enso Oyj and UPM-Kymmene Oyj, Europe's biggest papermakers, surged after saying they plan to close unprofitable production lines and cut 3,300 jobs. Stora rallied 18 percent, while UPM gained 9.6 percent.
BG Group Plc added 13 percent. Citigroup Inc. recommended buying the shares after the U.K.'s third-largest oil and natural-gas producer reported exploration success in Brazil this week. The company, together with partners Petroleo Brasileiro SA and Portugal's Galp Energia SGPS SA, found ``another first- class'' oil field in the Santos Basin offshore Brazil, BG said.
Enterprise Inns Plc tumbled 17 percent after Britain's second-biggest pub landlord was removed from the FTSE 100 Index and Morgan Stanley downgraded the shares to ``underweight'' from ``equal-weight.''
``We continue to recommend investors avoid leased or tenanted pub companies, as trading remains poor,'' analyst Jamie Rollo wrote in a report.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.
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Sept. 13 (Bloomberg) -- European stocks had the biggest weekly gain in a month, led by banks and raw-material producers, as concern eased that losses in the financial industry will worsen and higher metals prices lifted mining shares.
Barclays Plc added 10 percent and Credit Suisse Group AG rose 7 percent as the U.S. government provided funding to Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies. BHP Billiton Ltd., the world's largest mining company, climbed 4.9 percent as copper rebounded. ITV Plc rallied 21 percent as Mediaset SpA reiterated interest in the U.K.'s biggest commercial broadcaster.
Europe's Dow Jones Stoxx 600 Index added 3 percent to 280.41, trimming this year's decline to 23 percent. Almost $16 trillion has been erased from global equities in 2008 as the first nationwide decline in U.S. home prices since the Great Depression sparked more than $510 billion in credit-related losses worldwide and threatened economic growth.
``People will start to see some light at the end of the tunnel now'' for financial companies, said William De Vijlder, chief investment officer at Fortis Investments, which has the equivalent of $309 in assets under management. ``We still believe we are in a commodities bull market,'' he said in a Bloomberg Television interview.
National benchmark indexes advanced in 14 of the 18 western European markets this week. France's CAC 40 gained 3.2 percent, and Germany's DAX added 1.8 percent. The U.K.'s FTSE 100 Index increased 3.4 percent this week. A computer fault on Sept. 8 left some traders without prices and unable to buy or sell shares in London for more than six hours.
Bank Shares
Barclays, the U.K.'s third-largest bank, climbed 10 percent. Credit Suisse Group AG, Switzerland's second-biggest bank, increased 7 percent.
Treasury Secretary Henry Paulson said Sept. 7 the U.S. government will provide short-term funding to Fannie and Freddie and purchase debt backed by home loans. Paulson and Federal Housing Finance Agency Director James Lockhart placed the companies in a government-operated conservatorship.
Investors speculated Sept. 12 that Lehman Brothers Holdings Inc. will be bought after the stock erased more than 70 percent of its value this week on a larger-than-estimated loss for the third quarter.
Rising metal prices helped send a measure of raw-material producers to the steepest gain among 18 industry groups in the Stoxx 600, adding 5.4 percent. Copper rallied 3.4 percent in London this week, snapping a two-week decline. Nickel and tin also advanced.
Takeover Speculation
BHP increased 4.9 percent. Anglo American Plc, the world's fourth-biggest diversified mining company, rallied 8.6 percent.
ITV soared 21 percent, leading gains among media stocks in the Stoxx 600 and posting the steepest advance among all shares in the measure.
Mediaset, Italy's largest independent broadcaster and controlled by Italian Prime Minister Silvio Berlusconi, is looking at possible acquisitions, including ITV, Mediaset director Gina Nieri told the Telegraph newspaper. She said there are ``no real negotiations,'' according to the report on Sept. 6.
Separately, ITV named Ian Griffiths as group finance director to help revive the company.
Ciba Holding AG, the world's largest maker of colors for plastics, surged 18 on speculation that the company may be a takeover target for bigger chemical companies. Ciba spokesman Tobias Woelfing said the company doesn't comment on market ``rumors.''
`Positive'
British Land Co., the U.K.'s largest real-estate investment trust by assets, led British real-estate stocks higher after Lehman lifted its recommendation for the industry to ``positive'' from ``neutral.'' The stock soared 14 percent.
Stora Enso Oyj and UPM-Kymmene Oyj, Europe's biggest papermakers, surged after saying they plan to close unprofitable production lines and cut 3,300 jobs. Stora rallied 18 percent, while UPM gained 9.6 percent.
BG Group Plc added 13 percent. Citigroup Inc. recommended buying the shares after the U.K.'s third-largest oil and natural-gas producer reported exploration success in Brazil this week. The company, together with partners Petroleo Brasileiro SA and Portugal's Galp Energia SGPS SA, found ``another first- class'' oil field in the Santos Basin offshore Brazil, BG said.
Enterprise Inns Plc tumbled 17 percent after Britain's second-biggest pub landlord was removed from the FTSE 100 Index and Morgan Stanley downgraded the shares to ``underweight'' from ``equal-weight.''
``We continue to recommend investors avoid leased or tenanted pub companies, as trading remains poor,'' analyst Jamie Rollo wrote in a report.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.
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Paulson, Bernanke Brave `Raptors' in Resisting Aid for Lehman
By Craig Torres and Shannon D. Harrington
Sept. 13 (Bloomberg) -- Henry Paulson and Ben S. Bernanke may have to weather more speculative attacks on financial institutions as they resist using public funds to aid the sale of Lehman Brothers Holdings Inc.
``The raptors test the fence for weak spots,'' said Vincent Reinhart, a former director of the Federal Reserve Board's Division of Monetary Affairs who is now a resident scholar at the American Enterprise Institute in Washington. ``The speculators think the authorities will blink, and the authorities think the speculators will run out of funds.''
By shutting the door on assistance for Lehman, Treasury Secretary Paulson and Fed Chairman Bernanke accelerated a plunge in the shares of other institutions perceived to face similar capital constraints. Merrill Lynch & Co., American International Group Inc. and Washington Mutual Inc. fell yesterday after a person familiar with Paulson's thinking said he was ``adamant'' that no government money be used in resolving Lehman's capital constraints. Fed officials are taking a similar stand.
Paulson and Bernanke are struggling to define which firms aren't too big to fail after the March bailout and merger of Bear Stearns Cos. and last weekend's seizure of Fannie Mae and Freddie Mac protected creditors, creating the perception the government would insure other firms against disorderly collapse.
Paulson, New York Fed President Timothy Geithner and Securities and Exchange Commissioner Christopher Cox late yesterday met with Wall Street chiefs to discuss this week's market slump. New York Fed spokesman Andrew Williams declined to comment on the details of the discussions at his bank.
No-Win Decision
After Bear Stearns, regulators face a no-win decision with Lehman, said former Representative Richard Baker, a Louisiana Republican who served on the House Financial Services Committee. ``You bail them out, you are putting taxpayers' money at risk,'' Baker said. ``You don't bail them out, you are facilitating the short sellers.''
Former Fed Chairman Alan Greenspan said in a Bloomberg Television interview yesterday that avoiding the use of government funds in the case of Lehman would be ``the ideal solution.'' He wouldn't make odds on whether that would be the case.
``Once you put the line under Bear Stearns, that whole structure of financial and non-financial institutions above that automatically became too big to fail,'' Greenspan said.
The showdown comes at a precarious moment for the Fed and Treasury. The presidential elections are two months away. The central bank's interest-rate cuts, 3.25 percentage points over the past year, haven't translated into a free flow of credit at low rates for consumers, the Fed's own surveys show.
Fed's Meeting
Fed policy makers meeting next week will likely leave the benchmark rate unchanged, according to futures trading that also indicates a one-in-three chance central bankers will need to resume easing credit by year-end.
Reports this month point to a heightened risk of a recession. Unemployment rose to a five-year high of 6.1 percent last month, and retail sales fell 0.7 percent, excluding autos, the biggest decline this year.
``Financial conditions are extremely fragile,'' said former Fed governor Lyle Gramley, now a senior economic adviser for the Stanford Group Company in Washington. ``With the Lehman situation deteriorating, this tends to have knock-on effects.''
In a sign that creditors don't expect Paulson to blink, the cost to protect against defaults by AIG, Merrill, WaMu and Wachovia Corp. reached records. Credit-default swaps on Seattle- based WaMu are trading at levels that imply a 75 percent chance the company will default in the next five years, a JPMorgan Chase & Co. valuation model shows.
`Coming to Grips'
``All of these firms are exposed to the real-estate market,'' said Len Blum, managing director at Westwood Capital LLC, a New York-based investment bank. Investors are ``coming to grips with the reality that real-estate markets have been and will be in a decline.''
An index created by New York-based Credit Derivatives Research LLC that tracks credit-default swaps on 15 banks and securities firms, known as the CDR Counterparty Risk Index, rose 51 basis points the past week to 215 basis points, the highest since the collapse of Bear Stearns in March.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
The Fed, Treasury and financial system ``are in a horrible situation,'' said Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico, which oversees about $46 billion. ``You have investors at large firms like Lehman saying: Why can't you do it again?''
Resolution Mechanism
One problem hobbling regulators is that they don't have a transparent process for dealing with investment banks in the same way that the Federal Deposit Insurance Corp. does for handling troubled commercial banks. That leaves Fed and Treasury officials with emergency decisions that set new precedents and change market incentives with every bailout or failure.
``The big policy question is, do you need to preserve investment banks in the public interest?'' said Joseph Mason, a Louisiana State University finance professor who served in the bank-research division of the Office of the Comptroller of the Currency from 1995 to 1998. ``We are at the inflection point,'' he said. ``Failures keep getting bigger and bigger.''
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net
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Sept. 13 (Bloomberg) -- Henry Paulson and Ben S. Bernanke may have to weather more speculative attacks on financial institutions as they resist using public funds to aid the sale of Lehman Brothers Holdings Inc.
``The raptors test the fence for weak spots,'' said Vincent Reinhart, a former director of the Federal Reserve Board's Division of Monetary Affairs who is now a resident scholar at the American Enterprise Institute in Washington. ``The speculators think the authorities will blink, and the authorities think the speculators will run out of funds.''
By shutting the door on assistance for Lehman, Treasury Secretary Paulson and Fed Chairman Bernanke accelerated a plunge in the shares of other institutions perceived to face similar capital constraints. Merrill Lynch & Co., American International Group Inc. and Washington Mutual Inc. fell yesterday after a person familiar with Paulson's thinking said he was ``adamant'' that no government money be used in resolving Lehman's capital constraints. Fed officials are taking a similar stand.
Paulson and Bernanke are struggling to define which firms aren't too big to fail after the March bailout and merger of Bear Stearns Cos. and last weekend's seizure of Fannie Mae and Freddie Mac protected creditors, creating the perception the government would insure other firms against disorderly collapse.
Paulson, New York Fed President Timothy Geithner and Securities and Exchange Commissioner Christopher Cox late yesterday met with Wall Street chiefs to discuss this week's market slump. New York Fed spokesman Andrew Williams declined to comment on the details of the discussions at his bank.
No-Win Decision
After Bear Stearns, regulators face a no-win decision with Lehman, said former Representative Richard Baker, a Louisiana Republican who served on the House Financial Services Committee. ``You bail them out, you are putting taxpayers' money at risk,'' Baker said. ``You don't bail them out, you are facilitating the short sellers.''
Former Fed Chairman Alan Greenspan said in a Bloomberg Television interview yesterday that avoiding the use of government funds in the case of Lehman would be ``the ideal solution.'' He wouldn't make odds on whether that would be the case.
``Once you put the line under Bear Stearns, that whole structure of financial and non-financial institutions above that automatically became too big to fail,'' Greenspan said.
The showdown comes at a precarious moment for the Fed and Treasury. The presidential elections are two months away. The central bank's interest-rate cuts, 3.25 percentage points over the past year, haven't translated into a free flow of credit at low rates for consumers, the Fed's own surveys show.
Fed's Meeting
Fed policy makers meeting next week will likely leave the benchmark rate unchanged, according to futures trading that also indicates a one-in-three chance central bankers will need to resume easing credit by year-end.
Reports this month point to a heightened risk of a recession. Unemployment rose to a five-year high of 6.1 percent last month, and retail sales fell 0.7 percent, excluding autos, the biggest decline this year.
``Financial conditions are extremely fragile,'' said former Fed governor Lyle Gramley, now a senior economic adviser for the Stanford Group Company in Washington. ``With the Lehman situation deteriorating, this tends to have knock-on effects.''
In a sign that creditors don't expect Paulson to blink, the cost to protect against defaults by AIG, Merrill, WaMu and Wachovia Corp. reached records. Credit-default swaps on Seattle- based WaMu are trading at levels that imply a 75 percent chance the company will default in the next five years, a JPMorgan Chase & Co. valuation model shows.
`Coming to Grips'
``All of these firms are exposed to the real-estate market,'' said Len Blum, managing director at Westwood Capital LLC, a New York-based investment bank. Investors are ``coming to grips with the reality that real-estate markets have been and will be in a decline.''
An index created by New York-based Credit Derivatives Research LLC that tracks credit-default swaps on 15 banks and securities firms, known as the CDR Counterparty Risk Index, rose 51 basis points the past week to 215 basis points, the highest since the collapse of Bear Stearns in March.
A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
The Fed, Treasury and financial system ``are in a horrible situation,'' said Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico, which oversees about $46 billion. ``You have investors at large firms like Lehman saying: Why can't you do it again?''
Resolution Mechanism
One problem hobbling regulators is that they don't have a transparent process for dealing with investment banks in the same way that the Federal Deposit Insurance Corp. does for handling troubled commercial banks. That leaves Fed and Treasury officials with emergency decisions that set new precedents and change market incentives with every bailout or failure.
``The big policy question is, do you need to preserve investment banks in the public interest?'' said Joseph Mason, a Louisiana State University finance professor who served in the bank-research division of the Office of the Comptroller of the Currency from 1995 to 1998. ``We are at the inflection point,'' he said. ``Failures keep getting bigger and bigger.''
To contact the reporters on this story: Craig Torres in Washington at ctorres3@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net
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Walgreen Challenges CVS Bid for Longs With $3 Billion Offer
By Lauren Coleman-Lochner and Ryan Flinn
Sept. 13 (Bloomberg) -- Walgreen Co., the largest U.S. pharmacy chain, offered to buy Longs Drug Stores Corp. for $3 billion, challenging CVS Caremark Corp.'s month-old agreement to acquire the California retailer.
The $75-a-share cash proposal is $3.50, or 4.9 percent, higher than CVS/Caremark's offer last month to buy Walnut Creek, California-based Longs, Walgreen said in a statement yesterday. Walgreen also said it was willing to pay the $115 million termination fee required to break up the CVS transaction.
The Walgreen bid, exactly one month after CVS disclosed its offer, puts pressure on CVS to increase its price or risk losing a chance to add drugstores in two of the fastest-growing U.S. states, Nevada and Arizona. Longs also has stores in California and Hawaii. CVS Chief Executive Officer Tom Ryan said yesterday on CNBC that the company is ``not moving'' on its price.
``I'm sure they're going to study the potential for a sweetened offer,'' said Matt Kaufler, a fund manager at Rochester, New York-based Clover Capital Management Inc., which oversees $2.8 billion including CVS shares.
CVS spokesman Michael DeAngelis in Woonsocket, Rhode Island, didn't immediately return messages seeking comment after regular business hours. Walgreen disclosed the bid almost four hours after the end of New York Stock Exchange composite trading.
Longs, which has 521 stores, jumped $2.84, or 4 percent, to $74.50 at 7:59 p.m. after the close of New York trading. CVS declined 2 cents to $37.64 in regular trading before the announcement, and Walgreen fell 60 cents to $36.07.
Investors Weigh In
The offer follows calls from investors urging Longs to seek a higher offer. Longs has closed above CVS's $71.50 bid price every day but three in New York trading since the agreement was disclosed.
Advisory Research Inc., Longs's biggest shareholder, said yesterday it wouldn't tender shares to CVS because the offer wasn't enough. That followed a similar statement from Pershing Square Capital Management LP, the hedge fund run by William Ackman. Ackman has said Longs's real estate is worth about as much as the CVS offer.
Ackman declined to comment on Walgreen's bid.
Deerfield, Illinois-based Walgreen said it is working with real estate investors Lubert-Adler Management Co. and Klaff Realty LP to ``address any potential store sales in connection with the transaction.''
Goldman, Sachs & Co. is giving Walgreen financial advice, and Weil, Gotshal and Manges LLP is serving as its legal adviser.
The chain said it proposed paying $70 for Longs in previous talks. Longs never provided financial details in response to the offer, Walgreen said.
`Long-Standing'
``Walgreens has had long-standing, sincere interest in Longs,'' Walgreen CEO Jeffrey Rein said in a letter to the Longs Board yesterday.
The latest offer requires a detailed study of Longs's financial statements by Walgreen and the real estate firms. Walgreen said it ``unquestionably'' prefers to negotiate a friendly transaction, although it is prepared to lobby shareholders directly to force an end to the CVS agreement and a merger with Walgreen.
``These are the two best buyers,'' Kaufler said. Walgreen has more stores that overlap with Longs, meaning it would probably be required to sell those locations to satisfy antitrust concerns, he said.
``CVS could be a buyer for some of them, ironically,'' Kaufler said.
To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Ryan Flinn in San Francisco at rflinn@bloomberg.net.
Read more...
Sept. 13 (Bloomberg) -- Walgreen Co., the largest U.S. pharmacy chain, offered to buy Longs Drug Stores Corp. for $3 billion, challenging CVS Caremark Corp.'s month-old agreement to acquire the California retailer.
The $75-a-share cash proposal is $3.50, or 4.9 percent, higher than CVS/Caremark's offer last month to buy Walnut Creek, California-based Longs, Walgreen said in a statement yesterday. Walgreen also said it was willing to pay the $115 million termination fee required to break up the CVS transaction.
The Walgreen bid, exactly one month after CVS disclosed its offer, puts pressure on CVS to increase its price or risk losing a chance to add drugstores in two of the fastest-growing U.S. states, Nevada and Arizona. Longs also has stores in California and Hawaii. CVS Chief Executive Officer Tom Ryan said yesterday on CNBC that the company is ``not moving'' on its price.
``I'm sure they're going to study the potential for a sweetened offer,'' said Matt Kaufler, a fund manager at Rochester, New York-based Clover Capital Management Inc., which oversees $2.8 billion including CVS shares.
CVS spokesman Michael DeAngelis in Woonsocket, Rhode Island, didn't immediately return messages seeking comment after regular business hours. Walgreen disclosed the bid almost four hours after the end of New York Stock Exchange composite trading.
Longs, which has 521 stores, jumped $2.84, or 4 percent, to $74.50 at 7:59 p.m. after the close of New York trading. CVS declined 2 cents to $37.64 in regular trading before the announcement, and Walgreen fell 60 cents to $36.07.
Investors Weigh In
The offer follows calls from investors urging Longs to seek a higher offer. Longs has closed above CVS's $71.50 bid price every day but three in New York trading since the agreement was disclosed.
Advisory Research Inc., Longs's biggest shareholder, said yesterday it wouldn't tender shares to CVS because the offer wasn't enough. That followed a similar statement from Pershing Square Capital Management LP, the hedge fund run by William Ackman. Ackman has said Longs's real estate is worth about as much as the CVS offer.
Ackman declined to comment on Walgreen's bid.
Deerfield, Illinois-based Walgreen said it is working with real estate investors Lubert-Adler Management Co. and Klaff Realty LP to ``address any potential store sales in connection with the transaction.''
Goldman, Sachs & Co. is giving Walgreen financial advice, and Weil, Gotshal and Manges LLP is serving as its legal adviser.
The chain said it proposed paying $70 for Longs in previous talks. Longs never provided financial details in response to the offer, Walgreen said.
`Long-Standing'
``Walgreens has had long-standing, sincere interest in Longs,'' Walgreen CEO Jeffrey Rein said in a letter to the Longs Board yesterday.
The latest offer requires a detailed study of Longs's financial statements by Walgreen and the real estate firms. Walgreen said it ``unquestionably'' prefers to negotiate a friendly transaction, although it is prepared to lobby shareholders directly to force an end to the CVS agreement and a merger with Walgreen.
``These are the two best buyers,'' Kaufler said. Walgreen has more stores that overlap with Longs, meaning it would probably be required to sell those locations to satisfy antitrust concerns, he said.
``CVS could be a buyer for some of them, ironically,'' Kaufler said.
To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net; Ryan Flinn in San Francisco at rflinn@bloomberg.net.
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Greenspan Says McCain Tax Cuts Need Similar Budget Reductions
By Scott Lanman
Sept. 13 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. can't afford $3.3 trillion of tax cuts proposed by Republican presidential nominee John McCain without similar reductions in the federal budget.
Greenspan, a lifelong Republican and longtime friend of McCain, said on Bloomberg Television's ``Political Capital With Al Hunt'' that ``I'm not in favor of financing tax cuts with borrowed money.''
McCain has said he would balance the cost of most of his tax cuts with budget reductions, while providing few details beyond eliminating earmarks and other pork-barrel spending, which have totaled about $171 billion since 2001. Democratic nominee Barack Obama is proposing fewer tax cuts and more ambitious spending programs.
Greenspan also said the loss of investor confidence in Lehman Brothers Holdings Inc. would best be resolved by Wall Street firms acting without federal financial aid. ``If that can be done, that's the ideal solution,'' he said when asked if regulators should pressure private financial institutions to work out the problems at Lehman.
Bank of America Corp. led a list of potential bidders for Lehman, a person with knowledge of the talks said yesterday, even as the U.S. Treasury opposed funding a deal and the structure of any transaction remained in flux.
Greenspan said he has ``mixed feelings'' about a second government economic-stimulus bill after the U.S. provided a $168 billion package in February. While such an action may increase the budget deficit at a time when spending on retirees' medical benefits is about to cause ``big'' financial problems, it may also boost economic growth, he said.
Even Odds
Greenspan has said there's at least a 50 percent chance the U.S. economy will slide into a recession.
``There is no infinite piggy bank here,'' Greenspan said in the interview. It's ``far more important'' to use federal resources, if necessary, to shore up the financial system and end the credit crisis, as Treasury Secretary Henry Paulson did in taking over mortgage-finance companies Fannie Mae and Freddie Mac, averting a possible run on the system, Greenspan said.
House Speaker Nancy Pelosi and other Democrats in Congress have called for an additional $50 billion in economic stimulus. A request by General Motors Corp., Ford Motor Co. and their suppliers for at least $25 billion in government loans to help them shift to more fuel-efficient auto models will likely be included, Democrats said this week.
`Critical Need'
Greenspan's memoir, ``The Age of Turbulence,'' was released in a paperback version this week, a year after the first hardcover edition. In a new epilogue, the former Fed chief, who retired in 2006, cited a ``critical need'' to create procedures for bank bailouts that ensure there is no impact on the Fed's balance sheet and interest-rate policy.
In the interview, Greenspan, 82, said the ``most critical question'' is where to draw the line between companies that get government-led bailouts. It's impossible to rule out such actions completely, Greenspan said, citing crises such as the current one as a ``once-in-a-half century, once-in-a-century event'' that can't be avoided.
``If you want the system to stay together, there comes a time when you basically have to substitute sovereign credit for private credit to keep the system moving,'' Greenspan said. If a bailout is necessary, it's important that ``you do it in a way which essentially does not have major long-term consequences.''
Pork-Barrel Spending
McCain's proposal, outlined April 15, would extend President George W. Bush's tax cuts, reduce the top corporate rate, repeal the alternative minimum tax and double exemptions for dependents. That would be offset by eliminating pork-barrel spending, freezing a portion of the budget and saving from Medicare spending, McCain said at the time.
``I always have tied tax cuts to spending,'' Greenspan said. In 2001 testimony before Congress, Greenspan was widely interpreted to have endorsed Bush's proposal to cut taxes by $1.6 trillion over 10 years. In the book, Greenspan characterized his testimony as politically careless and said his words were misinterpreted.
Paul Volcker, Greenspan's predecessor as Fed chairman, has endorsed Obama, a first-term U.S. senator from Illinois, in the presidential election, and is serving as an economic adviser to the candidate.
Greenspan said the widening income disparity among Americans is a ``very serious'' issue, and requires both raising the pay of lower-income workers and reducing higher incomes. ``The best way of doing that is to remove what is essentially protectionism for those skilled workers in the United States who are helped by keeping out their competition,'' he said, referring to the issue of ``skilled immigration.''
The U.S. education system is ``critical'' to help ``cutting- edge technologies'' replace older industries that will be phased out over time, Greenspan said.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
Read more...
Sept. 13 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. can't afford $3.3 trillion of tax cuts proposed by Republican presidential nominee John McCain without similar reductions in the federal budget.
Greenspan, a lifelong Republican and longtime friend of McCain, said on Bloomberg Television's ``Political Capital With Al Hunt'' that ``I'm not in favor of financing tax cuts with borrowed money.''
McCain has said he would balance the cost of most of his tax cuts with budget reductions, while providing few details beyond eliminating earmarks and other pork-barrel spending, which have totaled about $171 billion since 2001. Democratic nominee Barack Obama is proposing fewer tax cuts and more ambitious spending programs.
Greenspan also said the loss of investor confidence in Lehman Brothers Holdings Inc. would best be resolved by Wall Street firms acting without federal financial aid. ``If that can be done, that's the ideal solution,'' he said when asked if regulators should pressure private financial institutions to work out the problems at Lehman.
Bank of America Corp. led a list of potential bidders for Lehman, a person with knowledge of the talks said yesterday, even as the U.S. Treasury opposed funding a deal and the structure of any transaction remained in flux.
Greenspan said he has ``mixed feelings'' about a second government economic-stimulus bill after the U.S. provided a $168 billion package in February. While such an action may increase the budget deficit at a time when spending on retirees' medical benefits is about to cause ``big'' financial problems, it may also boost economic growth, he said.
Even Odds
Greenspan has said there's at least a 50 percent chance the U.S. economy will slide into a recession.
``There is no infinite piggy bank here,'' Greenspan said in the interview. It's ``far more important'' to use federal resources, if necessary, to shore up the financial system and end the credit crisis, as Treasury Secretary Henry Paulson did in taking over mortgage-finance companies Fannie Mae and Freddie Mac, averting a possible run on the system, Greenspan said.
House Speaker Nancy Pelosi and other Democrats in Congress have called for an additional $50 billion in economic stimulus. A request by General Motors Corp., Ford Motor Co. and their suppliers for at least $25 billion in government loans to help them shift to more fuel-efficient auto models will likely be included, Democrats said this week.
`Critical Need'
Greenspan's memoir, ``The Age of Turbulence,'' was released in a paperback version this week, a year after the first hardcover edition. In a new epilogue, the former Fed chief, who retired in 2006, cited a ``critical need'' to create procedures for bank bailouts that ensure there is no impact on the Fed's balance sheet and interest-rate policy.
In the interview, Greenspan, 82, said the ``most critical question'' is where to draw the line between companies that get government-led bailouts. It's impossible to rule out such actions completely, Greenspan said, citing crises such as the current one as a ``once-in-a-half century, once-in-a-century event'' that can't be avoided.
``If you want the system to stay together, there comes a time when you basically have to substitute sovereign credit for private credit to keep the system moving,'' Greenspan said. If a bailout is necessary, it's important that ``you do it in a way which essentially does not have major long-term consequences.''
Pork-Barrel Spending
McCain's proposal, outlined April 15, would extend President George W. Bush's tax cuts, reduce the top corporate rate, repeal the alternative minimum tax and double exemptions for dependents. That would be offset by eliminating pork-barrel spending, freezing a portion of the budget and saving from Medicare spending, McCain said at the time.
``I always have tied tax cuts to spending,'' Greenspan said. In 2001 testimony before Congress, Greenspan was widely interpreted to have endorsed Bush's proposal to cut taxes by $1.6 trillion over 10 years. In the book, Greenspan characterized his testimony as politically careless and said his words were misinterpreted.
Paul Volcker, Greenspan's predecessor as Fed chairman, has endorsed Obama, a first-term U.S. senator from Illinois, in the presidential election, and is serving as an economic adviser to the candidate.
Greenspan said the widening income disparity among Americans is a ``very serious'' issue, and requires both raising the pay of lower-income workers and reducing higher incomes. ``The best way of doing that is to remove what is essentially protectionism for those skilled workers in the United States who are helped by keeping out their competition,'' he said, referring to the issue of ``skilled immigration.''
The U.S. education system is ``critical'' to help ``cutting- edge technologies'' replace older industries that will be phased out over time, Greenspan said.
To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net
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Treasury, Fed Said to Call on Wall Street Chiefs to Back Lehman
By Bradley Keoun and Jesse Westbrook
Sept. 13 (Bloomberg) -- Treasury Secretary Henry Paulson and New York Federal Reserve Bank President Timothy Geithner urged the heads of Wall Street's biggest firms to find a solution to the plight of Lehman Brothers Holdings Inc., signaling their reluctance to use government funds to bail out the investment bank, two people familiar with the talks said.
Chief executives who attended the meeting at the New York Fed late yesterday afternoon included Citigroup Inc.'s Vikram Pandit, JPMorgan Chase & Co.'s Jamie Dimon, Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, Merrill Lynch & Co.'s John Thain and Bank of New York Mellon Corp.'s Robert Kelly, the people said, declining to be identified because the meeting wasn't public. Christopher Cox, chairman of the U.S. Securities and Exchange Commission, also participated.
Kendrick Wilson, a former Goldman Sachs executive whom Paulson tapped last month as an adviser, helped lead the discussions, which ended without a specific plan, one of the people said. Bank of America Corp. CEO Kenneth Lewis did not attend because his firm is a potential bidder for Lehman, the person said.
Bank of America, the biggest U.S. consumer bank, is among the firms weighing an acquisition of some or all of the 158-year- old investment bank after it reported its worst quarterly loss this week and the shares plummeted 77 percent in the past five days, according to people familiar with the situation who declined to be identified because the negotiations are confidential.
Orderly Process
Spokesmen for the New York Fed and the SEC confirmed that the meeting took place with ``senior representatives of major financial institutions,'' and declined to comment further. Treasury is ``in regular contact'' with market participants, spokeswoman Jennifer Zuccarelli said earlier today.
Paulson doesn't want to put up money to help fund any Lehman acquisition, a person familiar with his thinking said today. Unlike when the Fed committed $29 billion to help JPMorgan Chase & Co. take over Bear Stearns in March, Lehman now has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.
At the meeting yesterday, Paulson indicated he wants to avoid putting taxpayer money behind New York-based Lehman the way the government stepped in to guarantee the debt and mortgage- backed securities of home-loan financing companies Fannie Mae and Freddie Mac, said the people, who declined to be identified because the meeting was private. The government also wants to avoid a collapse of Lehman, which might disrupt U.S. financial markets.
Echoes of LTCM
The banks and brokers called into the meeting may be asked to contribute money to back Lehman long enough to unwind its trades, the people with knowledge of the discussion said. No agreement was reached and the discussion was preliminary, one person said.
Such an arrangement would be similar to the rescue of hedge fund Long-Term Capital Management LP, which failed in 1998 as Russia defaulted on its debt, roiling global markets. Spurred by the New York Fed, Wall Street firms including Lehman contributed cash to prop up LTCM.
Chief Executive Officer Richard Fuld, who participated in the LTCM talks and built Lehman into the biggest U.S. underwriter of mortgage securities during his four decades at the investment bank, was pushed toward a forced sale this week after talks about a cash infusion from Korea Development Bank ended, eroding investor confidence and the company's market value.
Government Protection
Potential buyers demanded some sort of government protection in the Bear Stearns case because of the mortgage-related assets the firm owned, which had plummeted in value. Since the collapse of the subprime mortgage market last year, banks have reported more than $510 billion of writedowns and credit losses on such assets.
Lehman still had a $50 billion mortgage portfolio at the end of August. While just $1.6 billion of that is in subprime mortgages, falling home prices and fear of a U.S. recession have brought down the prices of other mortgage-related securities in Lehman's holdings.
Lehman said Sept. 10 it would sell 55 percent of the investment unit as part of Fuld's plan to keep the firm independent. The company received bids for the unit yesterday from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., people familiar with the situation said.
Investment-Unit Bids
The bids value the unit, which includes the Neuberger Berman fund business, private-equity funds and a brokerage firm serving wealthy individuals, at about $5 billion, said the people, who asked not to be named because the auction is private. KKR & Co. LP, which was weighing an offer, hadn't made a bid by a 5 p.m. deadline in New York yesterday, the buyout firm told people involved in the process.
Bank of America is considering a joint bid for the company with J.C. Flowers & Co. and China Investment Corp., the Financial Times reported yesterday, citing people it didn't identify.
Bankers from several firms were reviewing Lehman's books this week, according to people with knowledge of the situation, and a deal may be announced before Asian markets open Sept. 15, one of the people said. The New York-based investment bank announced the biggest loss in its 158-year history on Sept. 10, as devalued real estate assets led to $5.6 billion of writedowns in the third quarter.
Bank of America
Lehman dropped 14 percent to $3.65 at 4:15 p.m. in New York Stock Exchange composite trading yesterday. The shares have lost almost 95 percent of their value this year. Bank of America rose 68 cents, or 2 percent, to $33.74.
Ladenburg Thalmann & Co. analyst Richard Bove said in a note to clients this week that Bank of America is the most likely buyer for Lehman. The Charlotte, North Carolina-based bank would gain ``one of the best'' fixed-income desks in the U.S. and boost its research and capital markets businesses, Bove said.
Bank of America may team up with Barclays Plc and private equity firms to make an offer for Lehman, analysts at MF Global Securities Ltd. said.
``We're entering the end-game,'' said Rupert Della-Porta, the London-based chief operating officer of research firm Atlantic Equities.
When Bear Stearns collapsed in March, the Fed agreed to take on $29 billion of hard-to-sell assets from the company to induce JPMorgan to buy it. At the same time, the central bank opened a lending facility for brokerages, including Lehman.
The decisions prompted warnings from current and former regulators, who said that the Fed was creating a so-called moral hazard by encouraging firms to take on excessive risk in anticipation of government aid in the event their bets fail.
`Alter Precedent'
``What would be best is to alter the precedent with Bear Stearns,'' said former Fed governor Laurence Meyer, who is now vice chairman of Macroeconomic Advisers LLC, an economic forecasting firm in Washington.
Lehman had advanced discussions about a deal with state- owned Korea Development Bank, which offered as much as $6 billion for a 25 percent stake in the firm, or about $26 a share, people briefed on the talks said last week. Goldman Sachs Group Inc., the biggest U.S. securities firm, has no plan to buy Lehman without financial backing from the Fed or Treasury, a person briefed on the matter said Sept. 10.
London-based HSBC said on Sept. 10 it was ``highly unlikely'' to buy an investment bank while Josef Ackermann, the CEO of Deutsche Bank AG said he wasn't interested in ``parts or all of Lehman.''
To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
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Sept. 13 (Bloomberg) -- Treasury Secretary Henry Paulson and New York Federal Reserve Bank President Timothy Geithner urged the heads of Wall Street's biggest firms to find a solution to the plight of Lehman Brothers Holdings Inc., signaling their reluctance to use government funds to bail out the investment bank, two people familiar with the talks said.
Chief executives who attended the meeting at the New York Fed late yesterday afternoon included Citigroup Inc.'s Vikram Pandit, JPMorgan Chase & Co.'s Jamie Dimon, Morgan Stanley's John Mack, Goldman Sachs Group Inc.'s Lloyd Blankfein, Merrill Lynch & Co.'s John Thain and Bank of New York Mellon Corp.'s Robert Kelly, the people said, declining to be identified because the meeting wasn't public. Christopher Cox, chairman of the U.S. Securities and Exchange Commission, also participated.
Kendrick Wilson, a former Goldman Sachs executive whom Paulson tapped last month as an adviser, helped lead the discussions, which ended without a specific plan, one of the people said. Bank of America Corp. CEO Kenneth Lewis did not attend because his firm is a potential bidder for Lehman, the person said.
Bank of America, the biggest U.S. consumer bank, is among the firms weighing an acquisition of some or all of the 158-year- old investment bank after it reported its worst quarterly loss this week and the shares plummeted 77 percent in the past five days, according to people familiar with the situation who declined to be identified because the negotiations are confidential.
Orderly Process
Spokesmen for the New York Fed and the SEC confirmed that the meeting took place with ``senior representatives of major financial institutions,'' and declined to comment further. Treasury is ``in regular contact'' with market participants, spokeswoman Jennifer Zuccarelli said earlier today.
Paulson doesn't want to put up money to help fund any Lehman acquisition, a person familiar with his thinking said today. Unlike when the Fed committed $29 billion to help JPMorgan Chase & Co. take over Bear Stearns in March, Lehman now has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.
At the meeting yesterday, Paulson indicated he wants to avoid putting taxpayer money behind New York-based Lehman the way the government stepped in to guarantee the debt and mortgage- backed securities of home-loan financing companies Fannie Mae and Freddie Mac, said the people, who declined to be identified because the meeting was private. The government also wants to avoid a collapse of Lehman, which might disrupt U.S. financial markets.
Echoes of LTCM
The banks and brokers called into the meeting may be asked to contribute money to back Lehman long enough to unwind its trades, the people with knowledge of the discussion said. No agreement was reached and the discussion was preliminary, one person said.
Such an arrangement would be similar to the rescue of hedge fund Long-Term Capital Management LP, which failed in 1998 as Russia defaulted on its debt, roiling global markets. Spurred by the New York Fed, Wall Street firms including Lehman contributed cash to prop up LTCM.
Chief Executive Officer Richard Fuld, who participated in the LTCM talks and built Lehman into the biggest U.S. underwriter of mortgage securities during his four decades at the investment bank, was pushed toward a forced sale this week after talks about a cash infusion from Korea Development Bank ended, eroding investor confidence and the company's market value.
Government Protection
Potential buyers demanded some sort of government protection in the Bear Stearns case because of the mortgage-related assets the firm owned, which had plummeted in value. Since the collapse of the subprime mortgage market last year, banks have reported more than $510 billion of writedowns and credit losses on such assets.
Lehman still had a $50 billion mortgage portfolio at the end of August. While just $1.6 billion of that is in subprime mortgages, falling home prices and fear of a U.S. recession have brought down the prices of other mortgage-related securities in Lehman's holdings.
Lehman said Sept. 10 it would sell 55 percent of the investment unit as part of Fuld's plan to keep the firm independent. The company received bids for the unit yesterday from private-equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., people familiar with the situation said.
Investment-Unit Bids
The bids value the unit, which includes the Neuberger Berman fund business, private-equity funds and a brokerage firm serving wealthy individuals, at about $5 billion, said the people, who asked not to be named because the auction is private. KKR & Co. LP, which was weighing an offer, hadn't made a bid by a 5 p.m. deadline in New York yesterday, the buyout firm told people involved in the process.
Bank of America is considering a joint bid for the company with J.C. Flowers & Co. and China Investment Corp., the Financial Times reported yesterday, citing people it didn't identify.
Bankers from several firms were reviewing Lehman's books this week, according to people with knowledge of the situation, and a deal may be announced before Asian markets open Sept. 15, one of the people said. The New York-based investment bank announced the biggest loss in its 158-year history on Sept. 10, as devalued real estate assets led to $5.6 billion of writedowns in the third quarter.
Bank of America
Lehman dropped 14 percent to $3.65 at 4:15 p.m. in New York Stock Exchange composite trading yesterday. The shares have lost almost 95 percent of their value this year. Bank of America rose 68 cents, or 2 percent, to $33.74.
Ladenburg Thalmann & Co. analyst Richard Bove said in a note to clients this week that Bank of America is the most likely buyer for Lehman. The Charlotte, North Carolina-based bank would gain ``one of the best'' fixed-income desks in the U.S. and boost its research and capital markets businesses, Bove said.
Bank of America may team up with Barclays Plc and private equity firms to make an offer for Lehman, analysts at MF Global Securities Ltd. said.
``We're entering the end-game,'' said Rupert Della-Porta, the London-based chief operating officer of research firm Atlantic Equities.
When Bear Stearns collapsed in March, the Fed agreed to take on $29 billion of hard-to-sell assets from the company to induce JPMorgan to buy it. At the same time, the central bank opened a lending facility for brokerages, including Lehman.
The decisions prompted warnings from current and former regulators, who said that the Fed was creating a so-called moral hazard by encouraging firms to take on excessive risk in anticipation of government aid in the event their bets fail.
`Alter Precedent'
``What would be best is to alter the precedent with Bear Stearns,'' said former Fed governor Laurence Meyer, who is now vice chairman of Macroeconomic Advisers LLC, an economic forecasting firm in Washington.
Lehman had advanced discussions about a deal with state- owned Korea Development Bank, which offered as much as $6 billion for a 25 percent stake in the firm, or about $26 a share, people briefed on the talks said last week. Goldman Sachs Group Inc., the biggest U.S. securities firm, has no plan to buy Lehman without financial backing from the Fed or Treasury, a person briefed on the matter said Sept. 10.
London-based HSBC said on Sept. 10 it was ``highly unlikely'' to buy an investment bank while Josef Ackermann, the CEO of Deutsche Bank AG said he wasn't interested in ``parts or all of Lehman.''
To contact the reporters on this story: Bradley Keoun in New York at bkeoun@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
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Lehman Gets Bids From Bain, Clayton for Asset-Management Unit
By Jason Kelly and Jonathan Keehner
Sept. 13 (Bloomberg) -- Lehman Brothers Holdings Inc. received bids for its asset-management unit from private- equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., said people familiar with the situation.
The bids value the unit, which includes the Neuberger Berman fund business, private-equity funds and a brokerage firm serving wealthy individuals, at about $5 billion, said the people, who asked not to be named because the auction is private. KKR & Co. LP, which was weighing an offer, hadn't made a bid by the 5 p.m. deadline, the buyout firm told people involved in the process.
Lehman said Sept. 10 it would sell 55 percent of the investment unit, part of Chief Executive Officer Richard Fuld's plan to keep the 158-year-old firm independent. After its shares dropped 53 percent in the next two days, Fuld, 62, began talks with companies including Bank of America Corp. to sell all of Lehman, potentially derailing the investment-management auction.
``It's still going to be a premier property,'' said Eric Weber, a managing director of Freeman & Co., a New York-based financial-services consulting firm. ``Three years from now, you can take it public, if you can get your hands on it.''
Hellman & Friedman LLC, the San Francisco-based buyout firm started by Warren Hellman, may also have submitted a bid, according to the people. Representatives for Lehman and the private-equity firms declined to comment.
Revenue of $2.3 Billion
The buyout companies are angling to own a business with assets of $273 billion headed by former Goldman Sachs Group Inc. banker George Walker, 39. The New York-based firm proceeded with the auction because the private-equity firms continued to express interest in a deal, according to the people. While Lehman aimed to complete the sale by late next month, the process may be disrupted by a takeover of the company, perhaps as soon as this weekend.
The private-equity firms may get the investment business at a discount. Lehman's asset-management unit earned $361 million on $2.3 billion of revenue this year through August, according to a Sanford Bernstein research note at that time. The report valued the unit at $7 billion, including stakes in hedge-funds not included in the sale.
Lehman announced on Sept. 10 a $3.9 billion loss, the biggest in its history, after $5.6 billion of writedowns on real-estate loans and mortgages. The stock has fallen more than 94 percent this year and is valued below $3 billion, less than St. Petersburg, Florida-based Raymond James Financial Inc., the largest regional brokerage firm.
Private-equity firms including Blackstone Group LP and Carlyle Group had weighed bids for the investment unit and opted to stay out of the auction, according to people familiar with the process.
To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net
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Sept. 13 (Bloomberg) -- Lehman Brothers Holdings Inc. received bids for its asset-management unit from private- equity firms including Bain Capital LLC and Clayton Dubilier & Rice Inc., said people familiar with the situation.
The bids value the unit, which includes the Neuberger Berman fund business, private-equity funds and a brokerage firm serving wealthy individuals, at about $5 billion, said the people, who asked not to be named because the auction is private. KKR & Co. LP, which was weighing an offer, hadn't made a bid by the 5 p.m. deadline, the buyout firm told people involved in the process.
Lehman said Sept. 10 it would sell 55 percent of the investment unit, part of Chief Executive Officer Richard Fuld's plan to keep the 158-year-old firm independent. After its shares dropped 53 percent in the next two days, Fuld, 62, began talks with companies including Bank of America Corp. to sell all of Lehman, potentially derailing the investment-management auction.
``It's still going to be a premier property,'' said Eric Weber, a managing director of Freeman & Co., a New York-based financial-services consulting firm. ``Three years from now, you can take it public, if you can get your hands on it.''
Hellman & Friedman LLC, the San Francisco-based buyout firm started by Warren Hellman, may also have submitted a bid, according to the people. Representatives for Lehman and the private-equity firms declined to comment.
Revenue of $2.3 Billion
The buyout companies are angling to own a business with assets of $273 billion headed by former Goldman Sachs Group Inc. banker George Walker, 39. The New York-based firm proceeded with the auction because the private-equity firms continued to express interest in a deal, according to the people. While Lehman aimed to complete the sale by late next month, the process may be disrupted by a takeover of the company, perhaps as soon as this weekend.
The private-equity firms may get the investment business at a discount. Lehman's asset-management unit earned $361 million on $2.3 billion of revenue this year through August, according to a Sanford Bernstein research note at that time. The report valued the unit at $7 billion, including stakes in hedge-funds not included in the sale.
Lehman announced on Sept. 10 a $3.9 billion loss, the biggest in its history, after $5.6 billion of writedowns on real-estate loans and mortgages. The stock has fallen more than 94 percent this year and is valued below $3 billion, less than St. Petersburg, Florida-based Raymond James Financial Inc., the largest regional brokerage firm.
Private-equity firms including Blackstone Group LP and Carlyle Group had weighed bids for the investment unit and opted to stay out of the auction, according to people familiar with the process.
To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net
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Funds Under Management Drop A$75 Billion, Australian Reports
By Iain Wilson
Sept. 13 (Bloomberg) -- Australia's managed funds industry has posted its worst performance for a six-month period in two decades, with a A$75 billion ($62 billion) slump in funds under management, the Australian newspaper said, citing a report from Merrill Lynch & Co.
Funds under management fell 5.4 percent to A$1.319 trillion for the six months ended June 30, the report said. The listed wealth manager sector fell even further, posting an average decline of 14 percent in funds under management, the report said.
For the 12 months ended June 30, the net inflow of funds totaled A$14 billion, falling well short of an expected A$65 billion inflow, the newspaper reported.
Australia's benchmark S&P/ASX 200 Index fell almost 18 percent in the first half of the year and is down almost 29 percent since its recent peak in early November last year.
To contact the reporter on this story: Iain Wilson in Sydney at iwilson2@bloomberg.net
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Sept. 13 (Bloomberg) -- Australia's managed funds industry has posted its worst performance for a six-month period in two decades, with a A$75 billion ($62 billion) slump in funds under management, the Australian newspaper said, citing a report from Merrill Lynch & Co.
Funds under management fell 5.4 percent to A$1.319 trillion for the six months ended June 30, the report said. The listed wealth manager sector fell even further, posting an average decline of 14 percent in funds under management, the report said.
For the 12 months ended June 30, the net inflow of funds totaled A$14 billion, falling well short of an expected A$65 billion inflow, the newspaper reported.
Australia's benchmark S&P/ASX 200 Index fell almost 18 percent in the first half of the year and is down almost 29 percent since its recent peak in early November last year.
To contact the reporter on this story: Iain Wilson in Sydney at iwilson2@bloomberg.net
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Fairfax Classified Ads Fall as Much as 40%, Australian Says
By Iain Wilson
Sept. 13 (Bloomberg) -- Classified advertising at some of Fairfax Media Ltd.'s largest metropolitan newspapers in Australia has declined by as much as 40 percent this year, the Australian newspaper said, citing a report from broker Goldman Sachs JBWere.
The volume of classified ad pages at all of Fairfax's metropolitan publications fell 13 percent in July compared with the same month a year earlier, the report said. Volumes fell 19 percent in August, it said.
Pages devoted to the employment classified market at the Sydney Morning Herald fell 25 percent in July and were down 28 percent in August, the newspaper said.
Fairfax, Australia's second-biggest newspaper publisher, announced last month that it would eliminate 5 percent of its payroll in a bid to shave A$50 million ($41 million) off annual costs.
To contact the reporter on this story: Iain Wilson in Sydney at iwilson2@bloomberg.net
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Sept. 13 (Bloomberg) -- Classified advertising at some of Fairfax Media Ltd.'s largest metropolitan newspapers in Australia has declined by as much as 40 percent this year, the Australian newspaper said, citing a report from broker Goldman Sachs JBWere.
The volume of classified ad pages at all of Fairfax's metropolitan publications fell 13 percent in July compared with the same month a year earlier, the report said. Volumes fell 19 percent in August, it said.
Pages devoted to the employment classified market at the Sydney Morning Herald fell 25 percent in July and were down 28 percent in August, the newspaper said.
Fairfax, Australia's second-biggest newspaper publisher, announced last month that it would eliminate 5 percent of its payroll in a bid to shave A$50 million ($41 million) off annual costs.
To contact the reporter on this story: Iain Wilson in Sydney at iwilson2@bloomberg.net
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Japan's Bonds Complete Second Weekly Decline as Stocks Advance
By Theresa Barraclough
Sept. 13 (Bloomberg) -- Japanese government bonds fell for a second week as the country's equities advanced, reducing demand for the relative safety of debt.
Ten-year yields climbed to a one-month high after the U.S. government took over mortgage finance firms Fannie Mae and Freddie Mac. Lehman Brothers Holdings Inc. said it was seeking a buyer after reporting a record loss, sending the Nikkei 225 Stock Average higher yesterday for the first time in four days.
``The equity market was so bullish and the bond market was so bearish with the Fannie and Freddie news,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. ``The effect of the Lehman talks is optimistic,'' which weighs on government bonds, he said.
The yield on the 1.5 percent bond due September 2018 added 9 basis points this week to 1.525 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price lost 0.785 yen to 99.783 yen. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery yesterday were little changed at 137.35 as of the afternoon close at the Tokyo Stock Exchange and the Nikkei 225 gained 0.9 percent.
Treasury Secretary Henry Paulson on Sept. 7 placed Fannie and Freddie in a government-operated conservatorship. The Treasury will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and buy mortgage-backed debt in the open market.
Ten-year bonds slumped the following day, pushing yields up to 1.55 percent, the highest since Aug. 6.
Inverse Correlation
``The inverse correlation is getting back between Japanese equities and bonds,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., one of the 26 primary dealers that are required to bid at auctions, in Tokyo.
Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.87 with the Nikkei 225 this month, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.
The bonds have handed investors a return of about 1 percent this quarter through Sept. 11, the least among Group of Seven nations, according to indexes compiled by Merrill Lynch & Co. The Nikkei has lost 10 percent in the same period.
Lehman Sale
Lehman Brothers entered into talks with potential buyers of the securities firm after Moody's Investors Service said the company must find a ``stronger financial partner'' and the shares plummeted. Bank of America Corp. is among the possible buyers, the Wall Street Journal said, citing unidentified people. Spokesmen for Lehman and Bank of America declined to comment.
The decline in bonds was limited after the Japanese government yesterday revised down second-quarter figures for gross domestic product.
The downward revision boosted speculation the Bank of Japan may be more inclined to cut interest rates as inflation ebbs, according to Calyon Securities. The economy shrank an annualized 3 percent, compared with a contraction of 2.4 percent originally announced on Aug. 13, the Cabinet Office said yesterday.
``Growth in July to September is expected to be another weak one as both domestic and external demand may remain rather weak,'' which supports bonds, said Susumu Kato, chief economist in Tokyo at Calyon Securities, also a primary dealer. There will be growing pressures for ``the BOJ to cut interest rates when core CPI inflation subsides into 2009.''
Wholesale Inflation
A central bank report on Sept. 10 showed Japan's wholesale inflation rate slowed for the first time in 11 months. Prices companies pay for energy and raw materials rose 7.2 percent from a year earlier after gaining 7.3 percent in July, the bank said. From July, producer prices fell 0.1 percent, the first drop since September 2007.
The central bank will probably leave interest rates unchanged at 0.5 percent this year, according to a Bloomberg News survey of economists and analysts. The estimate puts a heavier weighting on more recent forecasts.
Bonds also declined this week on concern Japan's next premier will increase government spending by issuing additional debt to help finance economic stimulus packages.
Taro Aso, who said spending more to save an economy on the verge of a recession should be the government's top priority, is a front runner to become Japan's prime minister.
``The possibility of Aso winning is high,'' said Kazuya Seki, a deputy general manager at Chuo Mitsui Trust and Banking Co., a unit of Japan's seventh-largest publicly traded bank by assets. Investors are ``conscious of an expansion in fiscal deficit and bonds are not easily bought.''
Aso said last month that the government should consider postponing its goal of balancing the budget by 2011 because the economy is probably in a recession. Japan already has 778 trillion yen ($7.23 trillion) of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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Sept. 13 (Bloomberg) -- Japanese government bonds fell for a second week as the country's equities advanced, reducing demand for the relative safety of debt.
Ten-year yields climbed to a one-month high after the U.S. government took over mortgage finance firms Fannie Mae and Freddie Mac. Lehman Brothers Holdings Inc. said it was seeking a buyer after reporting a record loss, sending the Nikkei 225 Stock Average higher yesterday for the first time in four days.
``The equity market was so bullish and the bond market was so bearish with the Fannie and Freddie news,'' said Yuuki Sakurai, general manager of financial and investment planning in Tokyo at Fukoku Mutual Life Insurance Co., which manages the equivalent of $54 billion in assets. ``The effect of the Lehman talks is optimistic,'' which weighs on government bonds, he said.
The yield on the 1.5 percent bond due September 2018 added 9 basis points this week to 1.525 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price lost 0.785 yen to 99.783 yen. A basis point is 0.01 percentage point.
Ten-year bond futures for December delivery yesterday were little changed at 137.35 as of the afternoon close at the Tokyo Stock Exchange and the Nikkei 225 gained 0.9 percent.
Treasury Secretary Henry Paulson on Sept. 7 placed Fannie and Freddie in a government-operated conservatorship. The Treasury will provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and buy mortgage-backed debt in the open market.
Ten-year bonds slumped the following day, pushing yields up to 1.55 percent, the highest since Aug. 6.
Inverse Correlation
``The inverse correlation is getting back between Japanese equities and bonds,'' said Keiko Onogi, a debt strategist at Daiwa Securities SMBC Co., one of the 26 primary dealers that are required to bid at auctions, in Tokyo.
Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.87 with the Nikkei 225 this month, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.
The bonds have handed investors a return of about 1 percent this quarter through Sept. 11, the least among Group of Seven nations, according to indexes compiled by Merrill Lynch & Co. The Nikkei has lost 10 percent in the same period.
Lehman Sale
Lehman Brothers entered into talks with potential buyers of the securities firm after Moody's Investors Service said the company must find a ``stronger financial partner'' and the shares plummeted. Bank of America Corp. is among the possible buyers, the Wall Street Journal said, citing unidentified people. Spokesmen for Lehman and Bank of America declined to comment.
The decline in bonds was limited after the Japanese government yesterday revised down second-quarter figures for gross domestic product.
The downward revision boosted speculation the Bank of Japan may be more inclined to cut interest rates as inflation ebbs, according to Calyon Securities. The economy shrank an annualized 3 percent, compared with a contraction of 2.4 percent originally announced on Aug. 13, the Cabinet Office said yesterday.
``Growth in July to September is expected to be another weak one as both domestic and external demand may remain rather weak,'' which supports bonds, said Susumu Kato, chief economist in Tokyo at Calyon Securities, also a primary dealer. There will be growing pressures for ``the BOJ to cut interest rates when core CPI inflation subsides into 2009.''
Wholesale Inflation
A central bank report on Sept. 10 showed Japan's wholesale inflation rate slowed for the first time in 11 months. Prices companies pay for energy and raw materials rose 7.2 percent from a year earlier after gaining 7.3 percent in July, the bank said. From July, producer prices fell 0.1 percent, the first drop since September 2007.
The central bank will probably leave interest rates unchanged at 0.5 percent this year, according to a Bloomberg News survey of economists and analysts. The estimate puts a heavier weighting on more recent forecasts.
Bonds also declined this week on concern Japan's next premier will increase government spending by issuing additional debt to help finance economic stimulus packages.
Taro Aso, who said spending more to save an economy on the verge of a recession should be the government's top priority, is a front runner to become Japan's prime minister.
``The possibility of Aso winning is high,'' said Kazuya Seki, a deputy general manager at Chuo Mitsui Trust and Banking Co., a unit of Japan's seventh-largest publicly traded bank by assets. Investors are ``conscious of an expansion in fiscal deficit and bonds are not easily bought.''
Aso said last month that the government should consider postponing its goal of balancing the budget by 2011 because the economy is probably in a recession. Japan already has 778 trillion yen ($7.23 trillion) of outstanding debt, which at 147 percent of gross domestic product is the largest among industrialized nations.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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European Bank to Boost Investments in Mongolia by Almost 50%
By Hanny Wan
Sept. 13 (Bloomberg) -- The European Bank for Reconstruction and Development plans to boost investment in Mongolia by almost 50 percent this year, in industries ranging from retail to mining.
The bank will increase spending in the Asian nation to 50 million euros ($70 million) this year, and forecasts another gain to 100 million euros in 2009, John Chomel-Doe, the bank's director for Mongolia, said on Sept. 10 in Ulan Bator.
``This is a good demonstration of the potential Mongolia has for private-sector investments,'' Chomel-Doe said during the Euromoney Mongolia Investment Forum.
Foreign investment in Mongolia reached $500 million last year, of which 67 percent went to mining and 22 percent to food, according to the World Bank. Between 2005 and 2007, total foreign direct investment was $1.2 billion, equal to the total over the 14 years from 1990 to 2004, the World Bank said.
The European Bank has to date invested in Mongolian businesses that include a supermarket chain, a bank, a drilling company, a coal mine and a fruit-juice producer, Chomel-Doe said, declining to identify the companies.
The bank started investing in Mongolia last year, with 33 million euros, he said. The institution, known as the EBRD, is owned by 61 countries, including the U.K., Germany, Australia and Mongolia, and two intergovernmental institutions, the European Community and the European Investment Bank, the EBRD's Web site shows.
Growth Sectors
Mongolia's ``growth sectors'' include retail distribution, beverages, real estate, tourism, textiles and mining, Chomel-Doe said. Cement, renewable energy and financial industries are also likely to generate high growth, he said, adding that ``many of them are in our pipeline.'' The bank is seeking to increase investment in Mongolia because the nation has an active democracy, he said.
Other positive factors include a fully privatized banking sector, ``one of the best tax regimes for business and individuals,'' a free press and a private sector that accounts for 80 percent of the country's economy, he said.
To contact the reporters on this story: Hanny Wan in Ulan Bator at hwan3@bloomberg.net
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Sept. 13 (Bloomberg) -- The European Bank for Reconstruction and Development plans to boost investment in Mongolia by almost 50 percent this year, in industries ranging from retail to mining.
The bank will increase spending in the Asian nation to 50 million euros ($70 million) this year, and forecasts another gain to 100 million euros in 2009, John Chomel-Doe, the bank's director for Mongolia, said on Sept. 10 in Ulan Bator.
``This is a good demonstration of the potential Mongolia has for private-sector investments,'' Chomel-Doe said during the Euromoney Mongolia Investment Forum.
Foreign investment in Mongolia reached $500 million last year, of which 67 percent went to mining and 22 percent to food, according to the World Bank. Between 2005 and 2007, total foreign direct investment was $1.2 billion, equal to the total over the 14 years from 1990 to 2004, the World Bank said.
The European Bank has to date invested in Mongolian businesses that include a supermarket chain, a bank, a drilling company, a coal mine and a fruit-juice producer, Chomel-Doe said, declining to identify the companies.
The bank started investing in Mongolia last year, with 33 million euros, he said. The institution, known as the EBRD, is owned by 61 countries, including the U.K., Germany, Australia and Mongolia, and two intergovernmental institutions, the European Community and the European Investment Bank, the EBRD's Web site shows.
Growth Sectors
Mongolia's ``growth sectors'' include retail distribution, beverages, real estate, tourism, textiles and mining, Chomel-Doe said. Cement, renewable energy and financial industries are also likely to generate high growth, he said, adding that ``many of them are in our pipeline.'' The bank is seeking to increase investment in Mongolia because the nation has an active democracy, he said.
Other positive factors include a fully privatized banking sector, ``one of the best tax regimes for business and individuals,'' a free press and a private sector that accounts for 80 percent of the country's economy, he said.
To contact the reporters on this story: Hanny Wan in Ulan Bator at hwan3@bloomberg.net
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Ike Forces Shutdown of 19% of Refining Capacity, Limiting Fuel
By Jordan Burke
Sept. 13 (Bloomberg) -- Hurricane Ike, which will make landfall along the U.S. Gulf Coast today, caused more than 19 percent of the nations refining capacity to close and may limit fuel deliveries across the country.
At least 13 refineries in Texas were shutting down as Ike approached. Gulf Coast refineries and ports are the source of about 50 percent of the fuel and crude used in the eastern half of the U.S. Plants operated by Exxon Mobil Corp., Valero Energy Corp., ConocoPhillips and Royal Dutch Shell Plc were affected.
Gasoline shortages may occur across the southern U.S. up to Washington because of the closures caused by Hurricane Gustav and now Ike, Kevin Kolevar, assistant secretary for electricity delivery and energy reliability at the U.S. Department of Energy, said on a conference call.
``We expect to see constrained supplies of refined products,'' he said. ``The administration will utilize every tool at our disposal to lessen the likelihood of limited fuel supplies,'' including tapping the Strategic Petroleum Reserve.
Ike bore down on the coast with winds increasing in strength to 110 miles (175 kilometers) an hour. Coastal areas faced a storm surge as high as 25 feet, the National Hurricane Center in Miami said on its Web site.
The storm idled about 98 percent of oil production and 94 percent of natural-gas output in the Gulf of Mexico, the U.S. Minerals Management Service said yesterday. Gulf fields produce 1.3 million barrels oil a day, about a quarter of U.S. output, and 7.4 billion cubic feet of gas, 14 percent of the total, government data show.
Refinery Issue
``This is more of a refinery issue than an oil and gas issue,'' said Jim Rouiller, senior energy meteorologist at Planalytics Inc. in Wayne, Pennsylvania. ``A storm as massive as Ike has the capacity to generate massive storm surge.''
Gasoline for October delivery rose 2.08 cents, or 0.8 percent, to settle at $2.7696 a gallon yesterday on the New York Mercantile Exchange as the refineries closed. Prices rose 3.1 percent this week.
Chevron Corp., the second-largest U.S. energy company, urged U.S. consumers outside the Gulf Coast region to conserve gasoline and other fuels to help avert shortages.
The company, in a statement on its Web site, said it's concerned about ``the potential impact of Hurricane Ike and the additional pressure it could have on an already stressed petroleum-distribution system.''
Baytown Closure
Exxon Mobil is shutting its Baytown, Texas, refinery, the biggest in the U.S, with processing capacity of 590,500 barrels of oil a day, and its Beaumont plant, which can process 363,100 barrels a day, according to the Energy Department. Exxon is the world's largest oil company.
Valero, the largest U.S. refiner, closed three Texas oil refineries with a combined capacity of 589,000 barrels a day. They are the 294,000-barrel-a-day Port Arthur refinery, a Texas City plant with a capacity of 210,000 barrels and a Houston facility that can process 85,000 barrels, spokesman Bill Day said in an e-mail.
Earlier today, Valero closed 64 company-operated retail stories out of almost 200 in the Houston region, Day said.
Motiva Enterprises LLC, a joint venture of Royal Dutch Shell Plc and Saudi Arabia's state oil company, started shutting down its 300,000-barrel-a-day plant in Port Arthur, Shell said on its Web site. Shell is also closing its Deer Park plant, which can process 340,000 barrels per day.
Motiva's Beaumont, Pasadena and North Houston terminals are also closed and refined product supplies at those terminals remain at ``safety levels,'' Shell said in a statement. Tank drivers earlier picked up their last loads and are making final deliveries in the region to refuel Shell-branded stations before Hurricane Ike makes landfall.
Corpus Christi
Citgo Petroleum Corp., owned by Venezuela's state oil company, declined to comment on the status of its refineries in Corpus Christi, Texas, and Lake Charles, Louisiana.
``We do not comment on operations,'' spokeswoman Shawn Trahan said in an e-mail.
Planalytics' Rouiller said Ike is similar to Hurricane Alicia in 1983.
``It took them over a year to get their feet on the ground again,'' he said. ``The refineries were down for months. Basically, the whole infrastructure around the Houston metropolitan area was devastated.''
Gasoline supplies across the southern and eastern U.S. may be disrupted by the storm, Rouiller said.
``We could have this capability lost for a long period of time,'' he said.
Houston Port
The U.S. Coast Guard closed the port of Houston, the nation's largest petroleum port. The Louisiana Offshore Oil Port, the biggest U.S. oil-import terminal, stopped unloading vessels.
BP is closing its 475,000-barrel-a-day Texas City, Texas, refinery. ConocoPhillips, the second-largest U.S. refiner, said its 260,000 barrel-a-day refinery in Sweeny, Texas, is closing. LyondellBasell Industries is shutting its 299,300-barrel-a-day Houston Refining LP plant.
Conoco's Pasadena, Texas, refined products terminal and Clifton Ridge Marine terminal near Lake Charles also closed earlier today, and all company-operated pipelines in the region are shut down.
LyondellBasell Industries is shutting its 299,300-barrel-a- day Houston Refining LP plant.
Marathon Oil Corp., the fourth-largest U.S. oil company, began to shut its Texas City refinery, which can process about 81,500 barrels of oil a day.
Port Arthur
Total SA, Europe's third-largest oil company, is shutting down its Port Arthur refinery, which can process about 240,000 barrels a day.
``Ike is headed into the heart of the refining industry,'' Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas, said in an interview. ``The damage is likely to come in flooding, a lack of power for an extended period of time.''
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
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Sept. 13 (Bloomberg) -- Hurricane Ike, which will make landfall along the U.S. Gulf Coast today, caused more than 19 percent of the nations refining capacity to close and may limit fuel deliveries across the country.
At least 13 refineries in Texas were shutting down as Ike approached. Gulf Coast refineries and ports are the source of about 50 percent of the fuel and crude used in the eastern half of the U.S. Plants operated by Exxon Mobil Corp., Valero Energy Corp., ConocoPhillips and Royal Dutch Shell Plc were affected.
Gasoline shortages may occur across the southern U.S. up to Washington because of the closures caused by Hurricane Gustav and now Ike, Kevin Kolevar, assistant secretary for electricity delivery and energy reliability at the U.S. Department of Energy, said on a conference call.
``We expect to see constrained supplies of refined products,'' he said. ``The administration will utilize every tool at our disposal to lessen the likelihood of limited fuel supplies,'' including tapping the Strategic Petroleum Reserve.
Ike bore down on the coast with winds increasing in strength to 110 miles (175 kilometers) an hour. Coastal areas faced a storm surge as high as 25 feet, the National Hurricane Center in Miami said on its Web site.
The storm idled about 98 percent of oil production and 94 percent of natural-gas output in the Gulf of Mexico, the U.S. Minerals Management Service said yesterday. Gulf fields produce 1.3 million barrels oil a day, about a quarter of U.S. output, and 7.4 billion cubic feet of gas, 14 percent of the total, government data show.
Refinery Issue
``This is more of a refinery issue than an oil and gas issue,'' said Jim Rouiller, senior energy meteorologist at Planalytics Inc. in Wayne, Pennsylvania. ``A storm as massive as Ike has the capacity to generate massive storm surge.''
Gasoline for October delivery rose 2.08 cents, or 0.8 percent, to settle at $2.7696 a gallon yesterday on the New York Mercantile Exchange as the refineries closed. Prices rose 3.1 percent this week.
Chevron Corp., the second-largest U.S. energy company, urged U.S. consumers outside the Gulf Coast region to conserve gasoline and other fuels to help avert shortages.
The company, in a statement on its Web site, said it's concerned about ``the potential impact of Hurricane Ike and the additional pressure it could have on an already stressed petroleum-distribution system.''
Baytown Closure
Exxon Mobil is shutting its Baytown, Texas, refinery, the biggest in the U.S, with processing capacity of 590,500 barrels of oil a day, and its Beaumont plant, which can process 363,100 barrels a day, according to the Energy Department. Exxon is the world's largest oil company.
Valero, the largest U.S. refiner, closed three Texas oil refineries with a combined capacity of 589,000 barrels a day. They are the 294,000-barrel-a-day Port Arthur refinery, a Texas City plant with a capacity of 210,000 barrels and a Houston facility that can process 85,000 barrels, spokesman Bill Day said in an e-mail.
Earlier today, Valero closed 64 company-operated retail stories out of almost 200 in the Houston region, Day said.
Motiva Enterprises LLC, a joint venture of Royal Dutch Shell Plc and Saudi Arabia's state oil company, started shutting down its 300,000-barrel-a-day plant in Port Arthur, Shell said on its Web site. Shell is also closing its Deer Park plant, which can process 340,000 barrels per day.
Motiva's Beaumont, Pasadena and North Houston terminals are also closed and refined product supplies at those terminals remain at ``safety levels,'' Shell said in a statement. Tank drivers earlier picked up their last loads and are making final deliveries in the region to refuel Shell-branded stations before Hurricane Ike makes landfall.
Corpus Christi
Citgo Petroleum Corp., owned by Venezuela's state oil company, declined to comment on the status of its refineries in Corpus Christi, Texas, and Lake Charles, Louisiana.
``We do not comment on operations,'' spokeswoman Shawn Trahan said in an e-mail.
Planalytics' Rouiller said Ike is similar to Hurricane Alicia in 1983.
``It took them over a year to get their feet on the ground again,'' he said. ``The refineries were down for months. Basically, the whole infrastructure around the Houston metropolitan area was devastated.''
Gasoline supplies across the southern and eastern U.S. may be disrupted by the storm, Rouiller said.
``We could have this capability lost for a long period of time,'' he said.
Houston Port
The U.S. Coast Guard closed the port of Houston, the nation's largest petroleum port. The Louisiana Offshore Oil Port, the biggest U.S. oil-import terminal, stopped unloading vessels.
BP is closing its 475,000-barrel-a-day Texas City, Texas, refinery. ConocoPhillips, the second-largest U.S. refiner, said its 260,000 barrel-a-day refinery in Sweeny, Texas, is closing. LyondellBasell Industries is shutting its 299,300-barrel-a-day Houston Refining LP plant.
Conoco's Pasadena, Texas, refined products terminal and Clifton Ridge Marine terminal near Lake Charles also closed earlier today, and all company-operated pipelines in the region are shut down.
LyondellBasell Industries is shutting its 299,300-barrel-a- day Houston Refining LP plant.
Marathon Oil Corp., the fourth-largest U.S. oil company, began to shut its Texas City refinery, which can process about 81,500 barrels of oil a day.
Port Arthur
Total SA, Europe's third-largest oil company, is shutting down its Port Arthur refinery, which can process about 240,000 barrels a day.
``Ike is headed into the heart of the refining industry,'' Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University in Dallas, said in an interview. ``The damage is likely to come in flooding, a lack of power for an extended period of time.''
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
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Asia Stocks Fall for Second Week, Led by Commodities Producers
By Chua Kong Ho
Sept. 13 (Bloomberg) -- Asian stocks fell for a second week, led by commodity producers on concern slowing global growth will curb demand, overshadowing a rally by financial companies after Fannie Mae and Freddie Mac were seized by the U.S. government.
Cnooc Ltd., China's largest offshore oil producer, slumped 10 percent as crude extended its retreat. China Mobile Ltd. dropped 7 percent after a report outlined measures by the government to reduce its dominance. Banks surged, led by Mitsubishi UFJ Financial Group Inc., after the U.S. government took over the nation's two largest mortgage companies, boosting confidence in financial markets.
``This is not a good time to make new investments in risky assets like stocks,'' said Hiroshi Morikawa, senior strategist at Japan's MU Investments Co., which manages about $14 billion. ``I will keep my money in cash or bonds because of the uncertainties in the global economy.''
The MSCI Asia Pacific Index dropped 0.6 percent to 116.19, a second straight weekly decline. All but one of the 10 industry groups retreated, led by energy and utility companies. A measure of financial stocks gained 4 percent.
The broader regional gauge has dropped 26 percent this year as a global economic slowdown and more than $500 billion in writedowns and credit losses at the world's largest financial companies hurt profit.
Japan's Nikkei 225 Stock Average was little changed for the week, while Hong Kong's Hang Seng Index slid 2.9 percent.
Fannie, Freddie
Asian stocks surged on Monday after the U.S. government took over Fannie Mae and Freddie Mac, shoring up confidence in global financial markets. Speculation that embattled U.S. investment bank Lehman Brothers Holdings Inc. may find a buyer boosted confidence more bank failures can be avoided.
Mitsubishi UFJ, Japan's largest publicly traded bank, advanced 11 percent to 858 yen, paring its decline this year to 18 percent. Sumitomo Mitsui Financial Group Inc. jumped 17 percent to 686,000 yen. Australia & New Zealand Banking Group Ltd., the fourth-largest Australian bank by value, rose 6.1 percent to A$17.25.
``It draws a line under the recent problems,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``It's very positive for the banking sector in particular, which has been beaten down quite badly.''
A measure of 46 companies in MSCI's Asia Pacific Energy Index retreated 5 percent this week, led by PT Bumi Resources, Asia's biggest thermal coal exporter, with a 19 percent slump to 3,600 rupiah.
Commodities Drop
Asia's benchmark coal price at Australia's Newcastle port, the world's largest coal-export harbor, had sunk 17 percent as of Sept. 5 from the record on July 4, according to the globalCOAL NEWC Index. Crude oil fell 4.8 percent, a second weekly decline.
Cnooc fell 10 percent to HK$9.37. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, slid 6 percent to A$52.61.
Among other commodity producers, PT Astra Agro Lestari, Indonesia's biggest publicly listed plantation company, plunged 21 percent to 12,750 rupiah this week as palm oil futures dropped 3.6 percent in Kuala Lumpur. Zijin Mining Corp., China's biggest gold miner by value, declined 19 percent to HK$3.52 as bullion fell to its lowest in almost eleven months.
``Many funds that specialize in mining and commodity stocks are going bankrupt in the U.S.,'' said Ahmad Fuad Rahmany, chairman of Indonesia's Capital Market and Financial Supervisory Institutions Agency. ``So they are selling some of their shares, including here.''
China Mobile
China Mobile, the world's biggest wireless carrier by users, dropped 7 percent to HK$76.30, the lowest since June 15, 2007. The Nanfang Daily reported on Sept. 11 that the Chinese government will allow China Mobile users in Tianjin and Shenzhen to keep their phone numbers starting next month, when switching to rival service providers. Users moving to China Mobile would have to change numbers.
Belle International Holdings Ltd., China's biggest retailer of women's shoes, slumped 25 percent to HK$5.70, after brokerages including UBS AG cut their price estimates on weaker sales prospects. Hidili Industry International Development Co., southwestern China's largest producer of coking coal, tumbled 25 percent to HK$5.39, on concern prices of the fuel will decline as mines reopen amid weak demand from steelmakers.
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
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Sept. 13 (Bloomberg) -- Asian stocks fell for a second week, led by commodity producers on concern slowing global growth will curb demand, overshadowing a rally by financial companies after Fannie Mae and Freddie Mac were seized by the U.S. government.
Cnooc Ltd., China's largest offshore oil producer, slumped 10 percent as crude extended its retreat. China Mobile Ltd. dropped 7 percent after a report outlined measures by the government to reduce its dominance. Banks surged, led by Mitsubishi UFJ Financial Group Inc., after the U.S. government took over the nation's two largest mortgage companies, boosting confidence in financial markets.
``This is not a good time to make new investments in risky assets like stocks,'' said Hiroshi Morikawa, senior strategist at Japan's MU Investments Co., which manages about $14 billion. ``I will keep my money in cash or bonds because of the uncertainties in the global economy.''
The MSCI Asia Pacific Index dropped 0.6 percent to 116.19, a second straight weekly decline. All but one of the 10 industry groups retreated, led by energy and utility companies. A measure of financial stocks gained 4 percent.
The broader regional gauge has dropped 26 percent this year as a global economic slowdown and more than $500 billion in writedowns and credit losses at the world's largest financial companies hurt profit.
Japan's Nikkei 225 Stock Average was little changed for the week, while Hong Kong's Hang Seng Index slid 2.9 percent.
Fannie, Freddie
Asian stocks surged on Monday after the U.S. government took over Fannie Mae and Freddie Mac, shoring up confidence in global financial markets. Speculation that embattled U.S. investment bank Lehman Brothers Holdings Inc. may find a buyer boosted confidence more bank failures can be avoided.
Mitsubishi UFJ, Japan's largest publicly traded bank, advanced 11 percent to 858 yen, paring its decline this year to 18 percent. Sumitomo Mitsui Financial Group Inc. jumped 17 percent to 686,000 yen. Australia & New Zealand Banking Group Ltd., the fourth-largest Australian bank by value, rose 6.1 percent to A$17.25.
``It draws a line under the recent problems,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``It's very positive for the banking sector in particular, which has been beaten down quite badly.''
A measure of 46 companies in MSCI's Asia Pacific Energy Index retreated 5 percent this week, led by PT Bumi Resources, Asia's biggest thermal coal exporter, with a 19 percent slump to 3,600 rupiah.
Commodities Drop
Asia's benchmark coal price at Australia's Newcastle port, the world's largest coal-export harbor, had sunk 17 percent as of Sept. 5 from the record on July 4, according to the globalCOAL NEWC Index. Crude oil fell 4.8 percent, a second weekly decline.
Cnooc fell 10 percent to HK$9.37. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, slid 6 percent to A$52.61.
Among other commodity producers, PT Astra Agro Lestari, Indonesia's biggest publicly listed plantation company, plunged 21 percent to 12,750 rupiah this week as palm oil futures dropped 3.6 percent in Kuala Lumpur. Zijin Mining Corp., China's biggest gold miner by value, declined 19 percent to HK$3.52 as bullion fell to its lowest in almost eleven months.
``Many funds that specialize in mining and commodity stocks are going bankrupt in the U.S.,'' said Ahmad Fuad Rahmany, chairman of Indonesia's Capital Market and Financial Supervisory Institutions Agency. ``So they are selling some of their shares, including here.''
China Mobile
China Mobile, the world's biggest wireless carrier by users, dropped 7 percent to HK$76.30, the lowest since June 15, 2007. The Nanfang Daily reported on Sept. 11 that the Chinese government will allow China Mobile users in Tianjin and Shenzhen to keep their phone numbers starting next month, when switching to rival service providers. Users moving to China Mobile would have to change numbers.
Belle International Holdings Ltd., China's biggest retailer of women's shoes, slumped 25 percent to HK$5.70, after brokerages including UBS AG cut their price estimates on weaker sales prospects. Hidili Industry International Development Co., southwestern China's largest producer of coking coal, tumbled 25 percent to HK$5.39, on concern prices of the fuel will decline as mines reopen amid weak demand from steelmakers.
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net
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China May Loosen Lending Restrictions After Inflation Slows
By Kevin Hamlin
Sept. 13 (Bloomberg) -- China's central bank may cut the amount of cash it requires lenders to set aside as reserves as inflation slows and economic growth weakens.
Inflation was the weakest in 14 months in August, export growth cooled and industrial output grew by the least in six years, according to data released this week.
The government has already restrained gains by the yuan and loosened limits on the amount of money that banks can lend. Policy makers want to protect jobs and prevent a slump in the world's fourth-biggest economy after four quarters of slowing growth and as the outlook for exports dims, according to economists at JPMorgan Chase & Co., Societe Generale SA and Standard Chartered Bank Plc.
``The government is now likely to heed the calls of the struggling export sector for more substantive monetary-policy easing,'' said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong. ``We will have an easing in the reserve requirement ratio and potentially even reductions in lending rates.''
The central bank pushed the reserve requirement to a record 17.5 percent in June. A cut, which would be the first since 1999, may come in the first quarter of next year, with the ratio dropping to 12 percent by the end of 2009, according to Maguire.
JPMorgan expects a cut in the fourth quarter, with the requirement falling to 15 percent during next year. Standard Chartered predicts one reduction this quarter and another in the first three months of 2009.
Industrial Production
Industrial production grew last month at the slowest pace since August 2002 on weaker export demand, power shortages and factory shutdowns to reduce pollution for the Olympics.
Inflation slowed to 4.9 percent, drawing closer to the central bank's 4.8 percent target for the year and giving policy makers more room to stimulate growth. The reason was smaller gains in food prices.
Export growth has slowed as the U.S. housing recession and international credit crunch undermine demand. For the first eight months, gains cooled to 22.4 percent from 27.8 percent a year earlier.
China's economy expanded 10.1 percent in the second quarter from a year earlier. That's still the fastest pace among the world's 20 biggest economies.
Signs of softness in the economy have coincided with weakness in asset markets. The CSI 300 Index of stocks has fallen 61 percent this year. The property market could be headed for a ``meltdown'' as home prices and sales decline, Morgan Stanley said yesterday.
`Policy Turnaround'
``The question about a policy turnaround is when, not whether,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``We expect the authorities to abandon the tightening policy bias before the end of the year.''
His reasons were ``stable'' inflation, slowing economic growth and a weakening housing market. Huang didn't have an estimate for the reserve requirement or interest rates.
The key one-year lending rate may be cut once in the fourth quarter and twice in the first quarter of 2009, falling from 7.47 percent to 6.66 percent, said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong.
In a survey yesterday, he was the only one of seven economists to predict a rate cut this year or in the first quarter of 2009.
The central bank has reined in the yuan's appreciation against the dollar this quarter to 0.2 percent after a 6.7 percent increase in the first half. A stronger currency hurts exporters by making their products more expensive.
China's policy makers have already loosened loan quotas -- restrictions on how much banks can lend -- and raised export-tax rebates for garments and textiles.
Infrastructure spending is a possible tool for stimulating economic growth. Officials are working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts, according to economists and reports in domestic news media.
To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net
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Sept. 13 (Bloomberg) -- China's central bank may cut the amount of cash it requires lenders to set aside as reserves as inflation slows and economic growth weakens.
Inflation was the weakest in 14 months in August, export growth cooled and industrial output grew by the least in six years, according to data released this week.
The government has already restrained gains by the yuan and loosened limits on the amount of money that banks can lend. Policy makers want to protect jobs and prevent a slump in the world's fourth-biggest economy after four quarters of slowing growth and as the outlook for exports dims, according to economists at JPMorgan Chase & Co., Societe Generale SA and Standard Chartered Bank Plc.
``The government is now likely to heed the calls of the struggling export sector for more substantive monetary-policy easing,'' said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong. ``We will have an easing in the reserve requirement ratio and potentially even reductions in lending rates.''
The central bank pushed the reserve requirement to a record 17.5 percent in June. A cut, which would be the first since 1999, may come in the first quarter of next year, with the ratio dropping to 12 percent by the end of 2009, according to Maguire.
JPMorgan expects a cut in the fourth quarter, with the requirement falling to 15 percent during next year. Standard Chartered predicts one reduction this quarter and another in the first three months of 2009.
Industrial Production
Industrial production grew last month at the slowest pace since August 2002 on weaker export demand, power shortages and factory shutdowns to reduce pollution for the Olympics.
Inflation slowed to 4.9 percent, drawing closer to the central bank's 4.8 percent target for the year and giving policy makers more room to stimulate growth. The reason was smaller gains in food prices.
Export growth has slowed as the U.S. housing recession and international credit crunch undermine demand. For the first eight months, gains cooled to 22.4 percent from 27.8 percent a year earlier.
China's economy expanded 10.1 percent in the second quarter from a year earlier. That's still the fastest pace among the world's 20 biggest economies.
Signs of softness in the economy have coincided with weakness in asset markets. The CSI 300 Index of stocks has fallen 61 percent this year. The property market could be headed for a ``meltdown'' as home prices and sales decline, Morgan Stanley said yesterday.
`Policy Turnaround'
``The question about a policy turnaround is when, not whether,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong. ``We expect the authorities to abandon the tightening policy bias before the end of the year.''
His reasons were ``stable'' inflation, slowing economic growth and a weakening housing market. Huang didn't have an estimate for the reserve requirement or interest rates.
The key one-year lending rate may be cut once in the fourth quarter and twice in the first quarter of 2009, falling from 7.47 percent to 6.66 percent, said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong.
In a survey yesterday, he was the only one of seven economists to predict a rate cut this year or in the first quarter of 2009.
The central bank has reined in the yuan's appreciation against the dollar this quarter to 0.2 percent after a 6.7 percent increase in the first half. A stronger currency hurts exporters by making their products more expensive.
China's policy makers have already loosened loan quotas -- restrictions on how much banks can lend -- and raised export-tax rebates for garments and textiles.
Infrastructure spending is a possible tool for stimulating economic growth. Officials are working on a plan for as much as 400 billion yuan ($58 billion) of spending and tax cuts, according to economists and reports in domestic news media.
To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net
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Asian Currencies Post Weekly Decline as Investors Sell Equities
By Aaron Pan and Bob Chen
Sept. 13 (Bloomberg) -- Asian currencies posted a weekly decline, led by Taiwan's dollar and Indonesia's rupiah, as overseas investors pulled funds out of the region's stocks.
Six of the 10 most-traded currencies in Asia outside of Japan fell this week as funds abroad sold more shares than they bought in Taiwan, the Philippines and Thailand. The MSCI Asia- Pacific Index of shares declined for a second week. Investors pared holdings of riskier assets as shares in Lehman Brothers Holdings Inc. slid on concern that the securities firm will fail to find buyers and raise capital.
``There's a lot of uncertainty weighing on the regional currencies right now,'' said David Cohen, director of Asian forecasting at Action Economics in Singapore. ``Volatility will likely continue for the near term. The equity markets everywhere are getting clobbered, so investors are shifting away from emerging markets.''
Taiwan's currency fell 0.5 percent this week to NT$32.041 as of the 4 p.m. close in Taipei, according to Taipei Forex Inc. The currency declined for an eighth week, the longest losing streak since October 2005. Indonesia's rupiah fell 0.6 percent this week to 9,435.
The Taiwan dollar traded near a seven-month low on speculation the Central Bank of the Republic of China (Taiwan) will cut borrowing costs. The central bank may lower interest rates at its next policy meeting on Sept. 25 to help revive the economy, the Economic Daily News reported yesterday, without identifying its sources.
Asian currencies also weakened as the dollar rose to the strongest in a year against the euro on evidence the economic slump that began in the U.S. has spread to the rest of the world.
Net Sellers
Overseas investors were net sellers of Taiwan's stocks for nine of the last 11 trading days, selling NT$82.8 billion ($2.58 billion) more than they bought during that period as the Taiex index declined 11.7 percent.
The Taiwan dollar is ``relatively stable,'' the central bank said on Sept. 11 for the fifth time since Aug. 8.
The Philippine peso declined for a seventh week against the U.S. dollar, its longest losing streak since June.
The peso dropped to the lowest level in a year as foreign funds sold Philippine shares every day this month. Fund managers sold $397.2 million more Philippine bonds and stocks than they bought for the first seven months of the year, compared with $3.6 billion in net purchases in the same period a year earlier, data from the central bank showed.
`Reducing Exposures'
``The peso's decline is driven by investors reducing their exposures in emerging markets including the Philippines,'' said Antonio Espedido, treasurer at China Banking Corp. in Manila.
The local currency fell 0.1 percent in the week to 46.895 per dollar, according to Tullett Prebon Plc. The peso traded near the lowest level since Sept. 12, 2007.
The Thai baht had its eighth weekly decline on concerns that the political impasse will drag on, deterring overseas investors.
The currency dropped to its lowest level in more than a year after lawmakers postponed a vote yesterday to select a new prime minister after lawmakers boycotted the session to prevent the re-election of Samak Sundaravej, who was ordered to step down this week for hosting a television cooking show.
Some members of Samak's People Power Party, which heads the ruling coalition, and its partners have said they want a less controversial figure to help end the dispute.
Passed a Point
``The political situation has passed a point of easy resolution,'' said Richard Yetsenga, a currency strategist at HSBC Holdings Plc in Hong Kong. ``Dollar-baht will continue to grind higher.''
The baht slipped 0.2 percent this week to 34.67, according to data compiled by Bloomberg. It dropped to 34.86 to the dollar yesterday, its lowest level since Aug. 23, 2007, when it traded at 35.79. The baht will drop to 36 by year-end, Yetsenga said.
South Korea's won rose for the first week in seven as stock gains and intervention signs outweighed speculation that overseas investors will dump the nation's assets.
Kospi Jumps
Traders are ``on the lookout'' for officials to act in the currency market, said Park June Geun, a dealer with BNP Paribas SA in Seoul, after the delay of a $1 billion government-debt sale added to concerns the nation is heading for a repeat of the 1997 financial crisis. The Kospi index jumped 2.4 percent, completing its first weekly gain in a month, after U.S. stocks advanced a day earlier on a decline in oil prices.
``A bullish stock market is fueling some optimism foreign investors could stop offloading their holdings,'' said Chun Chong Woo, an economist with Standard Chartered First Bank Korea Ltd. in Seoul. ``Falling oil prices and growing chances for a U.S. rate cut may overshadow news of delay in bond issuance.''
The won rose 0.8 percent this week to 1,109.05 per dollar, according to Seoul Money Brokerage Services Ltd.
Elsewhere in the week, the Malaysian ringgit rose 0.5 percent to 3.4435 and the Singapore dollar gained 0.2 percent to S$1.4356. Vietnam's dong gained 0.1 percent to 16,580.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.
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Sept. 13 (Bloomberg) -- Asian currencies posted a weekly decline, led by Taiwan's dollar and Indonesia's rupiah, as overseas investors pulled funds out of the region's stocks.
Six of the 10 most-traded currencies in Asia outside of Japan fell this week as funds abroad sold more shares than they bought in Taiwan, the Philippines and Thailand. The MSCI Asia- Pacific Index of shares declined for a second week. Investors pared holdings of riskier assets as shares in Lehman Brothers Holdings Inc. slid on concern that the securities firm will fail to find buyers and raise capital.
``There's a lot of uncertainty weighing on the regional currencies right now,'' said David Cohen, director of Asian forecasting at Action Economics in Singapore. ``Volatility will likely continue for the near term. The equity markets everywhere are getting clobbered, so investors are shifting away from emerging markets.''
Taiwan's currency fell 0.5 percent this week to NT$32.041 as of the 4 p.m. close in Taipei, according to Taipei Forex Inc. The currency declined for an eighth week, the longest losing streak since October 2005. Indonesia's rupiah fell 0.6 percent this week to 9,435.
The Taiwan dollar traded near a seven-month low on speculation the Central Bank of the Republic of China (Taiwan) will cut borrowing costs. The central bank may lower interest rates at its next policy meeting on Sept. 25 to help revive the economy, the Economic Daily News reported yesterday, without identifying its sources.
Asian currencies also weakened as the dollar rose to the strongest in a year against the euro on evidence the economic slump that began in the U.S. has spread to the rest of the world.
Net Sellers
Overseas investors were net sellers of Taiwan's stocks for nine of the last 11 trading days, selling NT$82.8 billion ($2.58 billion) more than they bought during that period as the Taiex index declined 11.7 percent.
The Taiwan dollar is ``relatively stable,'' the central bank said on Sept. 11 for the fifth time since Aug. 8.
The Philippine peso declined for a seventh week against the U.S. dollar, its longest losing streak since June.
The peso dropped to the lowest level in a year as foreign funds sold Philippine shares every day this month. Fund managers sold $397.2 million more Philippine bonds and stocks than they bought for the first seven months of the year, compared with $3.6 billion in net purchases in the same period a year earlier, data from the central bank showed.
`Reducing Exposures'
``The peso's decline is driven by investors reducing their exposures in emerging markets including the Philippines,'' said Antonio Espedido, treasurer at China Banking Corp. in Manila.
The local currency fell 0.1 percent in the week to 46.895 per dollar, according to Tullett Prebon Plc. The peso traded near the lowest level since Sept. 12, 2007.
The Thai baht had its eighth weekly decline on concerns that the political impasse will drag on, deterring overseas investors.
The currency dropped to its lowest level in more than a year after lawmakers postponed a vote yesterday to select a new prime minister after lawmakers boycotted the session to prevent the re-election of Samak Sundaravej, who was ordered to step down this week for hosting a television cooking show.
Some members of Samak's People Power Party, which heads the ruling coalition, and its partners have said they want a less controversial figure to help end the dispute.
Passed a Point
``The political situation has passed a point of easy resolution,'' said Richard Yetsenga, a currency strategist at HSBC Holdings Plc in Hong Kong. ``Dollar-baht will continue to grind higher.''
The baht slipped 0.2 percent this week to 34.67, according to data compiled by Bloomberg. It dropped to 34.86 to the dollar yesterday, its lowest level since Aug. 23, 2007, when it traded at 35.79. The baht will drop to 36 by year-end, Yetsenga said.
South Korea's won rose for the first week in seven as stock gains and intervention signs outweighed speculation that overseas investors will dump the nation's assets.
Kospi Jumps
Traders are ``on the lookout'' for officials to act in the currency market, said Park June Geun, a dealer with BNP Paribas SA in Seoul, after the delay of a $1 billion government-debt sale added to concerns the nation is heading for a repeat of the 1997 financial crisis. The Kospi index jumped 2.4 percent, completing its first weekly gain in a month, after U.S. stocks advanced a day earlier on a decline in oil prices.
``A bullish stock market is fueling some optimism foreign investors could stop offloading their holdings,'' said Chun Chong Woo, an economist with Standard Chartered First Bank Korea Ltd. in Seoul. ``Falling oil prices and growing chances for a U.S. rate cut may overshadow news of delay in bond issuance.''
The won rose 0.8 percent this week to 1,109.05 per dollar, according to Seoul Money Brokerage Services Ltd.
Elsewhere in the week, the Malaysian ringgit rose 0.5 percent to 3.4435 and the Singapore dollar gained 0.2 percent to S$1.4356. Vietnam's dong gained 0.1 percent to 16,580.
To contact the reporters on this story: Aaron Pan in Hong Kong at apan8@bloomberg.net; Bob Chen in Hong Kong at bchen45@bloomberg.net.
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