North Korea Breaks Off Nuclear Accord as Food Aid Halted

By Sangwon Yoon and Nicole Gaouette - Apr 19, 2012 3:25 AM GMT+0700

North Korea broke off an agreement to halt testing of nuclear devices and long-range missiles after the U.S. canceled food assistance to the totalitarian regime in response to its botched rocket launch last week.

North Korea is now “free” to take “necessary retaliatory measures” after the U.S. withdrew its offer of 240,000 tons of food, the Foreign Ministry said in a statement today carried by the official Korean Central News Agency. U.S. lawmakers responded to the statements and the launch, denouncing what they called the “wicked” regime as well as “insane” diplomatic engagement efforts by successive U.S. presidents.

Enlarge image

North Korean leader Kim Jong-Un. Photographer: Ed Jones/AFP/Getty Images

Play Video

April 16 (Bloomberg) -- Jasper Kim, founder and chief executive officer of Asia-Pacific Global Research Group, talks about North Korea's third-generation dictator Kim Jong Un and the nation's failed rocket launch. North Korea won’t be bullied by its nuclear-armed enemies, Kim Jong Un said in his first public address at a military parade yesterday as South Korea warned that his regime may conduct an atomic test. Jasper Kim speaks from Seoul with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

There now will be a “period where the U.S. and North Korea exchange criticisms and shift blame on the other,” said Yang Moo Jin, a professor at the University of North Korean Studies in Seoul. “Depending on China’s role in that process, this could turn to dialogue or additional provocation by North Korea.”

The North said it’s prepared to wage a “holy war” against South Korean President Lee Myung Bak’s government and would take “special action” against targets that could include central Seoul, an unidentified spokesman of the supreme command of the Korean People’s Army said in a separate statement carried by KCNA. The regime often issues statements threatening war.

In Washington, a congressional hearing elicited denunciations from lawmakers, who said the regime abused food aid it was given in the past. Communist North Korea has chronic food shortages, with millions of children suffering stunted growth while limited supplies go to the nation’s military and political elite.

Nuclear Test

Regional specialists testifying before the House Foreign Affairs Committee said further North Korean provocation is likely, either another missile test or the first underground nuclear test since May 2009. A South Korean intelligence report warned a week ago that recent activity at the North’s Punggye-ri nuclear testing site is consistent with preparations for previous atomic device detonations.

“Historical patterns would suggest they will do a nuclear test,” said Michael Green, a senior adviser at the Center for Strategic and International Studies and a former National Security Council official. He said the North Koreans may test a uranium-fueled device for the first time, after past plutonium- fueled blasts in 2006 and 2009.

Food Aid

Frederick Fleitz, managing editor of the Langley Intelligence Group Network and a former CIA analyst, said he thought chances of a nuclear test soon are “50-50.”

“I think there will be a nuclear test when North Korea is technically ready and prepared to endure the enormous amount of isolation,” Fleitz said.

Lawmakers criticized both the regime and the policies of U.S. administrations, particularly in sending food aid. The Obama administration, attempting to avoid a repeat of past difficulties with aid diverted by the regime, had insisted on measures to ensure that food reached ordinary Koreans.

The U.S. pressed unsuccessfully for North Korea to cancel the launch of a rocket -- which disintegrated minutes after liftoff April 13 -- saying it would nullify the Feb. 29 accord to provide food following the suspension of nuclear and missile tests.

“It just seems like our government, not just Democrats, but Republicans as well, we reached out trying to negotiate with these guys,” said Representative Dan Burton, an Indiana Republican. “I don’t see where we’ve gained a thing.”

‘Serious Violation’

North Korea’s foreign ministry said the U.S. was abusing the United Nations Security Council by “imposing its brigandish demand,” a reference to the 15-member body’s censure issued this week. U.S. Ambassador Susan Rice is the council president this month.

The Security Council’s April 16 statement called the launch a “serious violation” of existing resolutions that ban North Korea from using its ballistic missile technology. The council also said it would update its list of sanctioned goods.

The UN body moved more quickly than in the past to censure North Korea, and China’s approval signals that the North’s only ally “might be taking a firmer stance against the North,” Yang said. China is a permanent veto-wielding member of Security Council.

Kim Jong Un, who took power in December following the death of his father Kim Jong Il, used his first public speech on April 15 to say the world can’t threaten or blackmail North Korea’s “undefeated” 1.2 million-strong military.

Two UN resolutions are already in place after North Korea detonated atomic devices in 2006 and 2009. The measures call for stepped-up inspection of suspect air and sea cargo and seek to block funding for nuclear, missile and proliferation work.

To contact the reporters on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net; Nicole Gaouette in Washington at ngaouette@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

Read more...

Citigroup’s Pandit Lists Greenwich Home at $4.3 Million

By Oshrat Carmiel - Apr 19, 2012 12:28 AM GMT+0700

Vikram Pandit, the chief executive officer of Citigroup Inc. (C), put his home in Greenwich, Connecticut, on the market for $4.3 million, about 5 percent more than he paid for it almost 11 years ago.

The six-bedroom, six-bathroom house on Pecksland Road was put up for sale on April 4, according to property listing records. The 5,623-square-foot (522-square-meter) colonial, built in 1939, sits on 2.37 acres (0.96 hectares) that include an in-ground pool, gardens and “rolling grounds.”

Enlarge image

Vikram Pandit, CEO of CitiGroup, in New York. Photographer: Mark Lennihan/AP Photo

“Traditional elegance at its best,” reads the listing by Debby Gardiner, a broker with Sotheby’s International Realty in Greenwich. “This timeless residence includes a wood-paneled library, updated eat-in kitchen with adjacent family room, lower level playroom and two-car garage.”

Shannon Bell, a spokeswoman for New York-based Citigroup, didn’t immediately respond to a telephone message and e-mail. Gardiner said by phone that she couldn’t immediately comment. The listing was reported this week by the Real Estalker blog.

Pandit, 55, bought the home in June 2001 for $4.1 million, according to the Greenwich assessor’s office, which estimated its market value at $3.2 million in October 2010. The property’s annual tax bill, on which Pandit is current, is $22,887, according to the town’s tax collector’s office.

Falling Prices

The median sales price of a home in Greenwich, which lies about 30 miles (48 kilometers) northeast of midtown Manhattan, fell 32 percent in the first quarter from a year earlier to $1.33 million, according to data compiled by agent John Cooke of Prudential Connecticut Realty. Much of the sales activity was for houses less than $2 million, the data show.

Two homes priced between between $4 million and $4.9 million changed hands in the quarter, compared with seven a year ago.

Through the end of March, there were 38 homes listed for sale between $4 million and $5 million, according to data compiled by Mark Pruner, a Greenwich-based agent with Prudential Connecticut Realty and author of the real estate blog Greenwichstreets.com. That’s about a two-year supply of inventory in that price range, he said.

“It’s a good time to put it on because we do have a lot of people who are looking to spend their bonus at this time of year,” Pruner said. “However, most of the activity by the people with the bonuses has been in the $1.5 to $3 million range.”

Citigroup, the third-biggest U.S. bank, gave Pandit $14.9 million in total compensation for 2011, including $1.67 million in salary and a $5.33 million cash bonus, according to regulatory filings. The lender’s shareholders yesterday rejected an executive pay plan in a non-binding vote amid criticism it let the CEO collect rewards too easily.

Pandit lists the Citigroup building at 399 Park Ave. in New York as his primary mailing address for all Greenwich tax bills and municipal correspondence, a sign that he doesn’t reside full time at the Connecticut home, according to the assessor’s office. Pandit also owns a co-operative apartment on Manhattan’s Upper West Side, which he bought from the estate of late actor Tony Randall in 2007 for $17.9 million, city property records show.

To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Read more...

U.S. Wireless Seen Contracting After IPhone Binge: Tech

By Scott Moritz - Apr 19, 2012 4:53 AM GMT+0700

The U.S. wireless market, long the fastest-growing sector in the telecommunications industry, looks like it’s headed for a wall.

Sales of wireless contracts, the most lucrative segment of the business because it locks in monthly payments over long periods, may have shrunk for the first time ever in the first quarter. One big reason for the sharp reversal: Soaring iPhone sales in late 2011 may have satiated consumers’ appetites for wireless plans.

Enlarge image

An Apple Inc. iPhone in San Francisco. Photographer: David Paul Morris/Bloomberg

Enlarge image

To offer the iPhone, carriers already pay Apple about $600 per phone and then collect $199 from retail customers, subsidizing the difference with revenue from monthly service charges. Photographer: David Paul Morris/Bloomberg

A decline would mark a turning point for the previously rapid-growth business, leaving carriers such as AT&T Inc. (T), Verizon Wireless and Sprint Nextel Corp. fighting over a shrinking pool of customers. A slowdown also forces device manufacturers such as Apple Inc. (AAPL) and Samsung Electronics Co. (005930) to battle more intensely for customers.

“The huge fourth quarter fueled by the iPhone took all the air out of the first quarter,” said Philip Cusick, a JPMorgan Chase & Co. analyst in New York. “It’s a saturated market.”

U.S. wireless carriers shed a combined 20,000 contract customers in the first quarter, Cusick estimated.

The decline forces carriers to seek revenue gains at the expense of weaker players, said Chetan Sharma of Chetan Sharma Consulting in Issaquah, Washington. That may mean increasing promotional activity by carriers who already are selling smartphones at a loss to lure users into two-year contracts, a practice that has reduced profit margins.

To offer the iPhone, for instance, carriers already pay Apple about $600 per phone and then collect $199 from retail customers, subsidizing the difference with revenue from monthly service charges.

These subsidies have narrowed wireless operating income margins at AT&T to 15.2 percent in the fourth quarter, down from 30 percent in the first quarter of 2010.

‘Milestone’

“This is a milestone,” Sharma said. “What you’ll see in a saturated market are the forces of consolidation and price pressure. Margins in the U.S. have already been shrinking at a faster rate than any other time in the wireless industry.”

AT&T, Verizon Wireless and Sprint representatives declined to comment.

Tom Seitz, a Jefferies & Co. analyst in New York, also has factored in a possibility that the contract-user number dropped in the first quarter.

“The industry is maturing,” Seitz said. “Given that the pie isn’t growing rapidly any longer, it’s now a game of share- shifting.”

IPhone Surge

Within the industry, AT&T and Verizon Wireless probably kept winning users from smaller rivals T-Mobile USA and Sprint Nextel Corp. (S), Cusick and Seitz said. T-Mobile probably lost 600,000 contract customers and Sprint 125,000 last quarter, Cusick said. Verizon Wireless added 500,000 contract users and AT&T gained 225,000 such customers, Cusick estimates.

The potential first-quarter drop follows exceptionally strong gains in the previous period, when holiday sales of Apple Inc.’s new iPhone 4S boosted subscriber numbers. The first quarter also is traditionally the slowest sales period for the industry, and contract-subscriber growth may resume after that, Cusick and Seitz predict.

Some analysts say the market may have avoided a contraction in the first quarter. James Ratcliffe of Barclays Capital Inc. estimates that the big four carriers -- Verizon Wireless, AT&T, Sprint and T-Mobile USA -- added 380,000 contract customers collectively.

Sprint, based in Overland Park, Kansas, fell 3.5 percent to $2.52 at the close in New York, and AT&T lost 0.5 percent to $30.75. Verizon Communications Inc. (VZ), which owns Verizon Wireless with Vodafone Group Plc (VOD), retreated 0.2 percent to $37.66. T- Mobile is a unit of Deutsche Telekom AG. (DTE)

Market Penetration

Gains in the prepaid market -- a smaller, faster-growing part of the mobile-phone business -- means the wireless industry as a whole kept adding users in the first quarter. Still, in that market, which includes carriers MetroPCS Communications Inc. (PCS) and Leap Wireless International Inc. (LEAP), the growth also is slowing, Seitz and Cusick said.

The number of new prepaid customers added by the industry in the first quarter was an estimated 2.5 million, an 18 percent decline from the year-earlier growth rate, according to Cusick.

“If you take out every kid under 10 and every adult over 80, you have a market with 125 percent penetration,” Seitz said. “It’s no surprise the industry is maturing.”

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net

Read more...

Billionaire Eskenazis Risk Default As Argentina Takes YPF

By Rodrigo Orihuela and Heather Walsh - Apr 19, 2012 12:37 AM GMT+0700

Argentina’s billionaire Eskenazi family risks default on more than $2 billion of debt after the government seized control of oil company YPF SA (YPF) and said dividends would probably be reinvested in the company.

The family’s Petersen Group, which has 25 percent of YPF, owes Spanish partner Repsol YPF SA (YPFD) 1.45 billion euros ($1.9 billion) after it bought a stake in YPF, the Madrid-based company said April 16. The Eskenazis counted on YPF dividend payments of as much as 90 percent of profit to repay Repsol and about $680 million of loans with banks including Citigroup Inc. (C)

Enlarge image

The Repsol YPF SA oil refinery in Plaza Huincul in the Patagonian province of Neuquen, Argentina. Photographer: Diego Giudice/Bloomberg

Cristina Fernandez de Kirchner, president of Argentina. Photographer: Diego Giudice/Bloomberg

Petersen didn’t respond to telephone and email requests for comment. Danielle Romero-Apsilos, a Citigroup spokeswoman in New York, declined to comment.

“Should the Argentine government cut the dividend at YPF (which is the most likely scenario), the Petersen Group would default on its loans,” Exane BNP Paribas analysts Alexandre Marie and Charles Riou said in a note to clients yesterday. “A dividend payout of less than 90 percent triggers a default.”

YPF’s 2011 profit will not be used to pay dividends this year and will probably be re-invested, Deputy Economy Minister Axel Kicillof said yesterday in a congressional hearing.

President Cristina Fernandez de Kirchner ousted Sebastian Eskenazi as the head of Buenos Aires-based YPF April 16, appointing Planning Minister Julio de Vido to run the company and announcing plans to seize a 51 percent stake in YPF from Repsol. The expropriation follows the takeovers of airline Aerolineas Argentinas SA and a $24 billion pension fund by Kirchner since she took office in 2007.

‘In the Same Boat’

“Those that aren’t expropriated are more nailed than those who were,” Antonio Brufau, chief executive officer of Repsol, said yesterday at a news conference in Madrid, referring to Fernandez’s decision not to target the Petersen stake. “We’re all in the same boat. The Eskenazis are enormously worried.”

“Petersen had used YPF dividends to pay interest on the loans,” Borja Monforte, an analyst with Fitch Ratings, said in a telephone interview yesterday from Barcelona, Spain. “With the government taking control, it seems unlikely that Petersen will be able to use those dividends to pay back the Repsol debt.”

The family, which made its fortune in banking and construction, bought 15 percent of YPF from Repsol in 2008 in a deal backed by then-president Nestor Kirchner, the late husband of Fernandez. The acquisition was financed with a syndicated bank loan and a seller’s note from Repsol. The Eskenazis bought an additional 10 percent of YPF in 2011 with two similar loans.

The four loans covered the full value of the acquisitions.

Collateral

Petersen’s 25 percent stake in YPF is pledged as collateral to the loans, Exane’s Marie and Riou said in their note. The stake would be divided between the debt holders if Petersen defaults, leaving 22 percent of YPF to the lending banks and 3 percent to Repsol, according to the report.

Petersen’s main stakeholders are Enrique Eskenazi and his sons Sebastian and Matias, who all helped manage YPF. The Group also owns four closely held banks in Argentina.

YPF’s market value more than halved to $7.7 billion from a high this year of about $16.2 billion on Jan. 23, according to data compiled by Bloomberg. The Eskenazis stake plunged to a value of about $1.92 billion, based on yesterday’s close.

Bank of America

Bank of America Merrill Lynch cut its 52-week target price for YPF’s American depositary receipts to $7.15 from $33 and reduced its rating to underperform from neutral after news of the takeover. Trading of the ADRs have been halted since April 16 in New York when they were trading at $19.50.

Spain vowed to retaliate against Argentine exporters and energy supplies as Repsol demanded $10.5 billion in compensation and vowed to use all legal means to win full payment.

Repsol declined 6.1 percent to 15.40 euros at 5:40 p.m. in Madrid, after dropping as much as 9 percent yesterday.

Kristian Rix, a spokesman for Repsol, declined to comment.

“People are not only taking out the market value of YPF but they’re also assuming they don’t get that repaid from Petersen,” Andrea Williams, who manages the 1 billion-pound ($1.6 billion) European equities fund at Royal London Asset Management and owns Repsol, said yesterday by telephone.

The seizure of the stake comes after more than two months of government pressure on YPF because of slumping production. The country could double output within a decade after the discovery of shale oil fields in the south that will cost $25 billion a year to develop and that will require YPF to find partners to help share costs.

Cash For Exploration

The government’s requests for YPF to increase investments included asking in March that the company use its cash to invest in exploration and production instead of paying semi-annual dividends.

The government’s representative on the board, Roberto Baratta, voted against paying dividends in 2011 and this year. Instead of paying dividends, YPF’s board proposed issuing new shares.

To contact the reporters on this story: Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net; Heather Walsh in Bogota at hlwalsh@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

Read more...

Bank of America Faces Bad Home-Equity Loans: Mortgages

By Kathleen M. Howley and Dakin Campbell - Apr 19, 2012 3:21 AM GMT+0700

Bank of America Corp., whose home- equity mortgage portfolio exceeds its stock market value, probably will say about $2 billion of junior loans are bad assets tomorrow even as some borrowers are still paying on time.

That’s what Barclays Capital estimates the bank will report in its first-quarter results, following decisions by JPMorgan Chase & Co., Wells Fargo & Co. (WFC) and Citigroup Inc. (C) to reclassify $4.1 billion of junior liens as nonperforming.

Enlarge image

Bank of America mortgage services representatives during the Help for Homeowners Community Event on Feb. 22, 2012 in Miami. Photographer: Joe Raedle/Getty Images

Enlarge image

Bank of America Corp. in Charlotte. Photographer: Davis Turner/Bloomberg

Enlarge image

Bank of America, which has the biggest home-equity portfolio in the U.S., may post a 6.9 percent decline in first-quarter adjusted profit to $1.62 billion tomorrow, according to analysts surveyed by Bloomberg. Photographer: Victor J. Blue/Bloomberg

Regulators are pressing for the change on concern that falling home prices have wiped out collateral on many second mortgages, leaving them as unsecured debt. About 20 percent of the nation’s $845 billion of home-equity loans exceed the value of the properties when combined with primary mortgages, according to CoreLogic Inc., and about 36 percent of Bank of America’s were at least partly “underwater” at the end of last year, according to regulatory filings.

“The reclassification may change the way the investors look at the company but as far as the vulnerability it does nothing to take that away,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee $1 billion of assets and who’s bet on a decline in the shares of Bank of America in the past. “This is something they have very much tried to keep under wraps.”

Almost a quarter of homes in the U.S. were worth less than the mortgages against them, according to CoreLogic, the data firm based in Santa Ana, California. About 4.4 million had home- equity mortgages, the firm said.

Stripping Value

Banks have been carrying some high-risk junior mortgages on their balance sheets at full value even after a rout in home prices stripped almost $7 trillion from property values, according to the Federal Reserve and other bank regulators. Executives including Bank of America Chief Executive Officer Brian T. Moynihan and Wells Fargo CEO John Stumpf have said borrowers tend to keep paying as long as they are able, even if home prices decline.

The risk for lenders is that if the borrower does default and the property is auctioned, a junior loan stands behind the primary mortgage for repayment. Typically, the second-lien holder suffers a total loss.

Investors are “trying to find the canary in the coal mine,” said Chris Gamaitoni, a mortgage and banking analyst at Washington-based Compass Point Research and Trading LLC. “Bank of America is certainly the most worrisome.”

Quarterly Report

Bank of America, which has the biggest home-equity portfolio in the U.S., may post a 6.9 percent decline in first- quarter adjusted profit to $1.62 billion tomorrow, according to analysts surveyed by Bloomberg. The Charlotte, North Carolina- based company had been the nation’s largest mortgage lender after buying Countrywide Financial Corp. and had a portfolio of $136.7 billion in home-equity loans at the end of last year, according to a company filing.

The lender was unchanged at $8.92 at 4:15 p.m. in New York trading. It’s gained 60 percent this year boosting the market capitalization to about $95.7 billion.

About 22 percent of the bank’s home-equity loans were actually senior liens at the end of last year, according to a company filing. That compares with about 28 percent at New York- based JPMorgan (JPM) and 20 percent at San Francisco-based Wells Fargo. The figures at all three banks exclude impaired loans picked up in acquisitions.

Potential Impact

Bank of America has identified $4.7 billion of home-equity loans that stand behind a delinquent first, according to a year- end filing, and the total reclassified as nonperformers may be higher than Barclays’s estimate, according to Brian Foran, a New York-based analyst at Nomura Holdings Inc. Citigroup moved about 2 percent of its home-equity portfolio, the smallest of the four lenders. At that rate, Bank of America would reclassify about $2.73 billion.

“I would expect BofA to be in the same ballpark and maybe slightly higher,” Foran said. “Given that they had identified and disclosed these loans ahead of time my guess is they will do the same as the others. The only question mark hanging over this issue: is it the last step, or the first step?”

The three companies collectively hold 40 percent of the nation’s home-equity loans, according to Fitch Ratings. Wells Fargo, the biggest U.S. mortgage lender, and JPMorgan, the biggest bank by assets, had already set aside reserves for the loans they reclassified as nonperforming, so there was no impact on reported profit, the banks said last week.

Still, the changes at the two banks “surprised and spooked investors, despite not having an earnings impact,” wrote Barclays analysts led by Jason Goldberg in a research note.

‘No Teeth’

The Fed’s directive, which reiterated rules in force since at least 2006, isn’t enough to mitigate the risk junior loans pose to the banking system, said Rebel Cole, a former Federal Reserve economist and now a finance professor at DePaul University in Chicago.

“The guidance has absolutely no teeth,” Cole said. “The regulators could simply say, ‘We know at least 25 percent of first mortgages are under water, therefore, at least 25 percent of your second liens are uncollateralized and have to be classified as substandard or doubtful.’”

The risk of home-equity loan defaults will increase if real estate prices continue to decline, analysts and economists said. Home values have tumbled by a third since reaching a peak in mid-2006, according to the S&P/Case-Shiller home price index. Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago, estimates home prices will retreat another 3.9 percent this year, which would strip $706 billion from home values.

Default Rates

Fitch estimates 20 of the largest U.S. banks, including units owned by foreign lenders, may face another $110 billion in junior-loan losses under a stressed scenario, according to a Feb. 27 report that cited third-quarter 2011 figures. Bank of America leads the group with $29.1 billion in potential losses, Fitch said.

While equity loans carry a higher risk if they default, delinquencies are lower. In the fourth quarter, 4.08 percent of home-equity loans were missing payments, according to the American Bankers Association in Washington. That compares with 7.58 percent for first-lien mortgages, according to the Mortgage Bankers Association in Washington.

Some of the difference is because of the way banks book second liens. Non-performing home-equity loans typically are written off in six months. That compares to an average two-year period from delinquency to a foreclosure sale on a primary mortgage. Also, home-equity payments are smaller, meaning homeowners are likely to keep paying after a default on their primary mortgage -- at least for awhile.

‘Pretty Obvious’

“When we analyzed it, it was pretty obvious it was just a timing difference,” JPMorgan CEO Jamie Dimon said. “In almost all cases when the first went delinquent, the second eventually went delinquent. And in all cases where the first went into foreclosure, the second was a loss, basically a total loss.”

Jerry Dubrowski, a Bank of America spokesman, declined to comment, as did Wells Fargo’s Mary Eshet and Citigroup’s Mark Rodgers. Amy Bonitatibus, a JPMorgan spokeswoman, declined to comment beyond Dimon’s remarks.

“We’re seeing the lingering effects of the housing market bust,” Swonk said in an interview. Guidance from regulators “is the reality of making sure banks are sound and secure while we work through the ripple effects of the financial crisis.”

To contact the reporters on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net; Dakin Campbell in New York at dcampbell27@bloomberg.net.

To contact the editor responsible for this story: Rob Urban at robprag@bloomberg.net

Read more...

U.S. Stocks Decline as Intel, IBM Tumble After Results

By Rita Nazareth - Apr 19, 2012 4:06 AM GMT+0700

U.S. stocks fell, after the biggest advance in more than a month for the Standard & Poor’s 500 Index, as Intel (INTC) Corp. and International Business Machines Corp. drove a slump in technology shares after reporting results.

Intel and IBM (IBM) dropped at least 1.8 percent amid the slowest sales growth since 2009. Berkshire Hathaway Inc. (BRK/A) Class A shares slid 1.3 percent as Warren Buffett was diagnosed with stage 1 prostate cancer. Genworth Financial Inc. tumbled 24 percent after delaying plans for a public offering of its Australian unit backing home loans after “elevated” losses in the nation. Qualcomm Inc. (QCOM), the largest maker of mobile-phone chips, sank 3.5 percent at 5:03 p.m. New York time on disappointing forecasts.

Play Video

April 18 (Bloomberg) -- Bob Rice, managing partner at Tangent Capital Partners LLC, talks about the outlook for U.S. technology stocks and his investment strategy. Stocks fell in the U.S., after the biggest advance in more than a month for the Standard & Poor’s 500 Index, as Intel Corp. and International Business Machines Corp. drove a slump in technology shares after reporting results. Rice speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

The S&P 500 fell 0.4 percent to 1,385.14 at 4 p.m. New York time. The Dow Jones Industrial Average slid 82.79 points, or 0.6 percent, to 13,032.75. The Russell 2000 Index (RTY) dropped 0.9 percent to 803.32. About 5.9 billion shares changed hands on U.S. exchanges, or 12 percent below the three-month average.

“Profits are lukewarm,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees about $40 billion. “You get disappointments from some bellwether technology companies at a time when the market has had such a good run. We’re not bearish, but if we’re going to add to positions, we need a pullback.”

Stocks fell as Intel forecast gross margin that was lower than some analysts predicted and IBM’s sales missed forecasts. The S&P 500 had risen 11 percent in 2012 through yesterday on better-than-estimated economic and corporate data. Equities also dropped as Bank of England policy makers said inflation may be higher than forecast. Spain will auction 3.3 percent two-year notes and 5.85 percent 10-year debt tomorrow.

‘Fragile’

BlackRock Inc. (BLK)’s Laurence D. Fink, who has been advising investors to put more money in stocks, said clients are still overwhelmed by fear as global markets remain “fragile” despite the first-quarter rally. Fink said investors remain pessimistic and customers removed money from active equity products while turning to passive investments such as exchange-traded funds.

“The fears of the investor still are more overwhelming than the hope for a better future,” Fink, chairman and chief executive officer of New York-based BlackRock, said today during a conference call with investors and analysts. “Despite the rally in global equities from its lows, I would still qualify the market to be quite fragile.”

Nine out of 10 groups in the S&P 500 (SPX) retreated today as financial and technology shares had the biggest losses. Both groups are still up more than 17 percent this year, for the biggest gains in the benchmark index.

Intel, IBM

Intel slumped 1.8 percent to $27.95, while IBM retreated 3.5 percent to $200.13. IBM’s revenue climbed 0.3 percent to $24.7 billion in the period, while Intel sales rose 0.5 percent to $12.9 billion. That was the smallest increase for either company since the third quarter of 2009, when the U.S. economy was just emerging from recession. Even so, Intel predicted a pickup in sales for the current quarter.

The two technology giants are seeking growth in emerging markets while coping with a slowdown triggered by the European debt crisis. The personal-computer market, which contracted in the U.S. last year for the first time since 2001, also is hurting demand for Intel’s processors. IBM, meanwhile, is more focused on expanding earnings per share, rather than pursuing less-profitable orders.

“All else being equal, you’d rather see top-line growth,” said Toni Sacconaghi, an analyst at Sanford C. Bernstein & Co. in New York. Still, he said, most investors are looking more closely at profit than sales. “IBM has conditioned investors to focus on EPS growth. That’s how it provides guidance.”

Not Life Threatening

Berkshire Hathaway Class A shares lost 1.3 percent to $119,750 even after Buffett said his condition is “not remotely life threatening.” The 81-year-old billionaire will begin a two-month treatment of daily radiation in July, he said.

“I feel great -- as if I were in my normal excellent health -- and my energy level is 100 percent,” Buffett said in the letter yesterday. “I will let shareholders know immediately should my health situation change. Eventually, of course, it will; but I believe that day is a long way off.”

Genworth Financial Inc. tumbled 24 percent, the most since 2008, to $5.87. The IPO (GNW) is now planned for early 2013, after the company previously targeted the offering for the second quarter of this year, the insurer said. Genworth has said it plans to sell as much as 40 percent of the unit.

Apple (AAPL) Inc. fell 0.2 percent to $608.34, after swinging between gains to losses during the day. Goldman Sachs Group Inc. said investors should buy Apple shares, which fell as much as 8.8 percent in the past week, amid a “very big year” for the world’s biggest company by market value.

Qualcomm’s Results

After the close of regular trading, two other technology giants reported results. Qualcomm sank 3.5 percent to $64.64 in extended trading. The largest maker of mobile-phone chips projected third-quarter sales and profit that fell short of some analysts’ estimates. EBay Inc. (EBAY) surged 6.5 percent to $38.20 at 5:03 p.m. New York time as sales and profit topped analysts’ forecasts.

Yahoo! Inc. (YHOO) advanced 3.2 percent to $15.49 as first-quarter sales topped estimates, fueling optimism that a turnaround effort by Chief Executive Officer Scott Thompson may take hold.

Halliburton Co. (HAL) added 4.6 percent to $34.17. The world’s largest provider of hydraulic fracturing services said first- quarter profit increased as rising crude prices drove producers to expand drilling in North America.

Catalyst Health Solutions Inc. (CHSI) surged 34 percent to $85.23. SXC Health Solutions Corp. (SXC) agreed to buy the company in a cash and stock transaction valued at $4.4 billion to stay competitive as larger pharmacy benefits managers join forces. SXC Health jumped 11 percent to $89.36.

Catch a Break

Consumers may catch a break from higher food prices at U.S. supermarkets, said Charles Grom, an analyst at Deutsche Bank AG. Consumer prices for groceries and producer prices for processed foods are rising more slowly this year, according to data compiled by the Labor Department.

The pace of price increases slowed in March by the most since July 2009, according to both indicators. Food bought at stores cost 3.6 percent more than a year earlier. The rate was 0.9 percentage point lower than in February. Processed-food prices last month rose 4.3 percent, a decline of 1.6 point.

“Food inflation should continue to slow,” he wrote, because increases last year were unusually steep. Prices for food that’s eaten at home peaked at a 6.2 percent growth rate last September. The pace was the fastest since December 2008.

Sales growth may suffer at Wal-Mart Stores Inc. (WMT), the world’s largest retailer, and the Safeway Inc. (SWY) and Supervalu Inc. supermarket chains as they struggle to raise prices, Grom wrote. The New York-based analyst has sell ratings on Wal-Mart and Safeway and a hold rating on Supervalu.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Read more...