By Masaki Kondo
Sept. 14 (Bloomberg) -- Asahi Glass Co. will trim production in North America by 25 percent in October as car sales slow, the Nikkei newspaper reported.
Asahi Glass, which earlier cut North American output by 10 percent, plans to hold production at the lower level through the end of this year, Nikkei reported today, without saying where it obtained the information. The company has plants in Kentucky and Ohio with capacity to turn out glass for 4 million cars annually, the newspaper said.
Tokyo-based Asahi Glass sells two-thirds of its auto glass made in North America to Japanese car manufacturers, with the rest going to U.S. automakers including General Motors Corp., the report said.
A telephone call to Asahi Glass wasn't answered.
To contact the reporters on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net
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Sunday, September 14, 2008
Indian Police Question Suspects in Delhi Blasts, Put Toll at 20
By Jay Shankar and Pratik Parija
Sept. 14 (Bloomberg) -- Indian police are questioning several people suspected of involvement in yesterday's blasts in the capital New Delhi that killed at least 20 and injured 98, the worst terrorist attack in the country since 50 were killed in the city of Ahmedabad in July.
``We have some vital clues and hope to solve the case very soon,'' police spokesman Rajan Bhagat said in a telephone interview from New Delhi. ``The police are questioning several suspects and no arrests have been made so far.''
Indian Mujahideen, which had claimed responsibility for recent terrorist attacks in the states of Gujarat and Rajasthan, said it was behind the blasts, Press Trust of India said.
The police also defused three bombs late yesterday, Bhagat said. ``Two bombs were defused in the Connaught Place area and another one near India Gate.''
The attacks take the toll of people killed in India in terrorist attacks in the past year to more than 200. Terrorists have placed bombs on bicycles, under theater seats and near markets, timing them to go off during the evening rush hour.
Home MinisterShivraj Patil, who said the five blasts took place within 45 minutes, starting at about 6 p.m., condemned the attacks. ``I am confident that security agencies will soon be able to get to the bottom of these incidents and the culprits brought to book.''
Two of the blasts took place in the central Connaught Place area and two at a market in the upscale Greater Kailash area, Delhi Police chief Y.S. Dadwal said. One blast took place at Ghaffar Market in the Karol Bagh area, he said.
Debris, Blood
One of the blast sites in the Connaught Place area, outside the Barakhamba Road Delhi Metro Rail Corp. station entrance, was strewn with debris from the blast minutes after a bomb went off in or near a dustbin. Pools of blood could also be seen.
The attacks come about three years after 59 people were killed and 224 injured in New Delhi when three explosions took place in two crowded markets and on a public bus. The blasts of Oct. 29, 2005, took place as people shopped for the main Hindu festival of Diwali and the Muslim festival of Eid.
Yesterday's bomb attack happened at a time when India is preparing for next month's festival season, which includes Diwali, the country's biggest, and mid-way through the Muslim holy month of Ramadan, which started at the beginning of September.
President Pratibha Patil, Prime MinisterManmohan Singh and Sonia Gandhi, president of the ruling Congress party, all condemned the attacks.
U.S. Ambassador to India David C. Mulford extended his government's sympathies to the victims and their families.
Foreign Hand
The government has previously blamed terrorist attacks on organizations linked to foreign powers, without offering evidence or making arrests. Local media often blame the attacks on groups backed by Pakistan or Bangladesh, without identifying the security officials who provided the information.
Sixteen bombs exploded in Ahmedabad within 20 minutes late on July 26, a day after seven bombs tore through India's technology hub of Bangalore, killing two. At least 20 devices hidden in cars and garbage cans were discovered and defused in the Gujarat city of Surat, days after the Ahmedabad blasts.
Indian Mujahideen had claimed responsibility for the Ahmedabad and Jaipur blasts and threatened more attacks. The group has claimed previously that the attack was in revenge for violence in Gujarat between Hindus and Muslims in 2002, in which almost 2,000 people were killed.
To contact the reporters on this story: Jay Shankar in Bangalore at jshankar1@bloomberg.netPratik Parija in New Delhi at pparija@bloomberg.net.
Read more...
Sept. 14 (Bloomberg) -- Indian police are questioning several people suspected of involvement in yesterday's blasts in the capital New Delhi that killed at least 20 and injured 98, the worst terrorist attack in the country since 50 were killed in the city of Ahmedabad in July.
``We have some vital clues and hope to solve the case very soon,'' police spokesman Rajan Bhagat said in a telephone interview from New Delhi. ``The police are questioning several suspects and no arrests have been made so far.''
Indian Mujahideen, which had claimed responsibility for recent terrorist attacks in the states of Gujarat and Rajasthan, said it was behind the blasts, Press Trust of India said.
The police also defused three bombs late yesterday, Bhagat said. ``Two bombs were defused in the Connaught Place area and another one near India Gate.''
The attacks take the toll of people killed in India in terrorist attacks in the past year to more than 200. Terrorists have placed bombs on bicycles, under theater seats and near markets, timing them to go off during the evening rush hour.
Home MinisterShivraj Patil, who said the five blasts took place within 45 minutes, starting at about 6 p.m., condemned the attacks. ``I am confident that security agencies will soon be able to get to the bottom of these incidents and the culprits brought to book.''
Two of the blasts took place in the central Connaught Place area and two at a market in the upscale Greater Kailash area, Delhi Police chief Y.S. Dadwal said. One blast took place at Ghaffar Market in the Karol Bagh area, he said.
Debris, Blood
One of the blast sites in the Connaught Place area, outside the Barakhamba Road Delhi Metro Rail Corp. station entrance, was strewn with debris from the blast minutes after a bomb went off in or near a dustbin. Pools of blood could also be seen.
The attacks come about three years after 59 people were killed and 224 injured in New Delhi when three explosions took place in two crowded markets and on a public bus. The blasts of Oct. 29, 2005, took place as people shopped for the main Hindu festival of Diwali and the Muslim festival of Eid.
Yesterday's bomb attack happened at a time when India is preparing for next month's festival season, which includes Diwali, the country's biggest, and mid-way through the Muslim holy month of Ramadan, which started at the beginning of September.
President Pratibha Patil, Prime MinisterManmohan Singh and Sonia Gandhi, president of the ruling Congress party, all condemned the attacks.
U.S. Ambassador to India David C. Mulford extended his government's sympathies to the victims and their families.
Foreign Hand
The government has previously blamed terrorist attacks on organizations linked to foreign powers, without offering evidence or making arrests. Local media often blame the attacks on groups backed by Pakistan or Bangladesh, without identifying the security officials who provided the information.
Sixteen bombs exploded in Ahmedabad within 20 minutes late on July 26, a day after seven bombs tore through India's technology hub of Bangalore, killing two. At least 20 devices hidden in cars and garbage cans were discovered and defused in the Gujarat city of Surat, days after the Ahmedabad blasts.
Indian Mujahideen had claimed responsibility for the Ahmedabad and Jaipur blasts and threatened more attacks. The group has claimed previously that the attack was in revenge for violence in Gujarat between Hindus and Muslims in 2002, in which almost 2,000 people were killed.
To contact the reporters on this story: Jay Shankar in Bangalore at jshankar1@bloomberg.netPratik Parija in New Delhi at pparija@bloomberg.net.
Read more...
China Approves Anti-Monopoly Working Rules, Xinhua Reports
Sept. 14 (Bloomberg) -- China's anti-monopoly agency, led by Vice Premier Wang Qishan, approved working rules for the newly established government body at its first meeting recently, the official Xinhua News Agency reported.
The China Anti-Monopoly Commission plans to issue appraisal reports on overall competitive conditions, publish guidelines and standards for various industries, and establish a database to reflect the state of different markets, the report said.
China's anti-monopoly law took effect on Aug. 1.
For Related News: Top currency news: TOP FRX News on China's currency: NSE YUAN IN HEADLINE Stories on China economy: NSE CHINA ECONOMY IN WIRE: BN
Read more...
The China Anti-Monopoly Commission plans to issue appraisal reports on overall competitive conditions, publish guidelines and standards for various industries, and establish a database to reflect the state of different markets, the report said.
China's anti-monopoly law took effect on Aug. 1.
For Related News: Top currency news: TOP FRX
Read more...
All Nippon Cancels Flights on Check-in System Problem
By Masaki Kondo
Sept. 14 (Bloomberg) -- All Nippon Airways Co., Japan's second-largest carrier, canceled 33 domestic flights because of a malfunction of its automated check-in system.
About 4,300 passengers were affected as of 1:30 p.m., the Tokyo-based airline said in a faxed statement.
``Some of our check-in terminals aren't working,'' said Kunio Shibata, a spokesman for All Nippon. ``We're investigating and don't have any details yet.''
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
Read more...
Sept. 14 (Bloomberg) -- All Nippon Airways Co., Japan's second-largest carrier, canceled 33 domestic flights because of a malfunction of its automated check-in system.
About 4,300 passengers were affected as of 1:30 p.m., the Tokyo-based airline said in a faxed statement.
``Some of our check-in terminals aren't working,'' said Kunio Shibata, a spokesman for All Nippon. ``We're investigating and don't have any details yet.''
To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.
Read more...
Origin Energy to Release Report Used to Defend Hostile BG Bid
By Robert Fenner
Sept. 14 (Bloomberg) -- Origin Energy Ltd., Australia's biggest producer of coal-seam gas, will release the full report it used to defend against BG Group Plc's lapsed A$13.5 billion ($10.9 billion) hostile takeover offer.
The report, which Origin commissioned from Grant Samuel & Associates Pty, valued the Sydney-based company at between A$28.55 and A$30.71 a share. Reading, England-based BG had offered A$15.37 a share. Origin shares closed Friday at A$17.01.
``The valuation is quite consistent with our own internal view,'' Origin Chief Executive Officer Grant King told the Australian Broadcasting Corp. ``Therefore, from a management perspective that's what we think the company is worth.''
BG, the U.K.'s third-biggest oil and gas company, let its offer lapse last week after the Australian company attracted an investment of as much as $8 billion from ConocoPhillips for a liquefied natural gas joint venture.
The agreement for Houston-based ConocoPhillips to acquire a 50 percent stake in Origin's coal-seam gas unit needs approval from Australia's Foreign Investment Review Board and may be completed in late October, Origin said Sept. 8.
Grant Samuel valued Origin's coal-seam gas unit alone at between A$18.70 and A$19.49 a share, more than BG offered for all of the company, which is also Australia's second-biggest electricity and gas retailer.
ConocoPhillips, the second-biggest U.S. oil refiner, will make an initial $5 billion payment to buy into the venture, which will process coal-seam gas into LNG for export to Asia.
The venture plans to initially build two liquefied natural gas production units, each with a capacity of 3.5 million metric tons a year, with deliveries scheduled to start by 2014.
No decision has been made on where to put the plant, and Origin may pool its facilities with other LNG exporters into a joint site, King said today.
``There clearly will be economics of co-operation there,'' King said.
To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net
Read more...
Sept. 14 (Bloomberg) -- Origin Energy Ltd., Australia's biggest producer of coal-seam gas, will release the full report it used to defend against BG Group Plc's lapsed A$13.5 billion ($10.9 billion) hostile takeover offer.
The report, which Origin commissioned from Grant Samuel & Associates Pty, valued the Sydney-based company at between A$28.55 and A$30.71 a share. Reading, England-based BG had offered A$15.37 a share. Origin shares closed Friday at A$17.01.
``The valuation is quite consistent with our own internal view,'' Origin Chief Executive Officer Grant King told the Australian Broadcasting Corp. ``Therefore, from a management perspective that's what we think the company is worth.''
BG, the U.K.'s third-biggest oil and gas company, let its offer lapse last week after the Australian company attracted an investment of as much as $8 billion from ConocoPhillips for a liquefied natural gas joint venture.
The agreement for Houston-based ConocoPhillips to acquire a 50 percent stake in Origin's coal-seam gas unit needs approval from Australia's Foreign Investment Review Board and may be completed in late October, Origin said Sept. 8.
Grant Samuel valued Origin's coal-seam gas unit alone at between A$18.70 and A$19.49 a share, more than BG offered for all of the company, which is also Australia's second-biggest electricity and gas retailer.
ConocoPhillips, the second-biggest U.S. oil refiner, will make an initial $5 billion payment to buy into the venture, which will process coal-seam gas into LNG for export to Asia.
The venture plans to initially build two liquefied natural gas production units, each with a capacity of 3.5 million metric tons a year, with deliveries scheduled to start by 2014.
No decision has been made on where to put the plant, and Origin may pool its facilities with other LNG exporters into a joint site, King said today.
``There clearly will be economics of co-operation there,'' King said.
To contact the reporter on this story: Robert Fenner in Melbourne rfenner@bloomberg.net
Read more...
Barclays Considers Bid for Lehman as Government Seeks Solution
By Ben Livesey and Yalman Onaran
Sept. 14 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, moved closer to making a bid for Lehman Brothers Holdings Inc. as the U.S. government raced to find a solution for the faltering investment bank, two people familiar with the situation said.
Barclays's takeover approach depends on whether losses from Lehman's mortgage-related holdings can be sealed off, said the people, who declined to be identified because no formal offer has been made. Bank of America Corp., the biggest U.S. consumer bank, also is among the potential bidders for New York-based Lehman, which has lost 94 percent of its market value this year after record losses from investments tied to mortgages.
``The solution is to force the merger of Lehman now, this weekend, with a big commercial bank,'' said Richard Bove, a Lutz, Florida-based analyst at Ladenburg Thalmann & Co.
Lehman, led by Chief Executive Officer Richard Fuld, may be forced to liquidate unless buyers step up for all or part of the 158-year-old company, U.S. Treasury Secretary Henry Paulson and New York Federal Reserve Bank President Timothy Geithner told the heads of Wall Street's biggest firms at a meeting Sept. 12. Paulson has said he's reluctant to use government money to rescue Lehman. Talks with the banks continued yesterday without producing an agreement.
``Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow,'' a New York Fed spokesman said.
Bad Bank
With backing from the company's board, Barclays President Robert Diamond, 57, is leading a team to review Lehman's books and gauge the level of guarantees the bank would need to cover potential losses, the people said. Peter Truell, a Barclays spokesman, declined to comment.
``Acquisitions are difficult for Barclays because of capital constraints,'' said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London, who has a ``reduce'' rating on the London-based banks. Barclays raised 4.5 billion pounds ($8 billion) in a share sale in June to shore up capital depleted by credit losses and increase its securities trading and fund management units in the U.S.
Geithner, 47, and Paulson, 62, are pushing Wall Street to contribute money to a so-called bad bank that would assume Lehman's $50 billion of devalued real estate assets. That would make it easier for a buyer to take over the rest of the company while the assets are sold off.
The approach is similar to one Lehman presented to investors last week, which the company said would cost $5 billion to $7 billion.
Echoes of LTCM
Such an arrangement would be reminiscent of 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.
Lehman CEO 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 past week after talks about a cash infusion from Korea Development Bank ended, eroding investor confidence and the company's market value.
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 Credit Suisse Group AG's Brady Dougan were among the CEOs at the meeting with government officials, according to the people, who asked not to be identified because the gathering was private.
HSBC, Goldman
Robert Kelly, CEO of Bank of New York Mellon Corp., Robert Wolf, chairman of UBS AG in the Americas, and Christopher Cox, chairman of the U.S. Securities and Exchange Commission, also participated, the people said, who asked not to be identified because the meeting wasn't public. Bank of America CEO Kenneth Lewis didn't attend because his company is a potential bidder for Lehman, one person said.
Helping lead the discussion was Kendrick Wilson, a former Goldman executive whom Paulson tapped last month as an adviser.
HSBC Holdings Plc, Europe's largest bank by market value, is also considering a bid for Lehman, the Wall Street Journal reported yesterday, without saying where it got the information. Goldman, the largest securities firm, is interested in Lehman's real-estate portfolio, the Journal said.
HSBC spokesman Richard Lindsay said the company doesn't comment on market speculation. Goldman spokesman Lucas van Praag also declined to comment.
Paulson, the former chairman of Goldman, doesn't want to put up money to help fund any Lehman acquisition, a person familiar with his thinking said Sept. 12.
`Mexican Standoff'
Unlike when the Fed committed $29 billion to help JPMorgan take over Bear Stearns Cos. in March, Lehman has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.
Paulson stepped in last week to guarantee the debt and mortgage-backed securities of home-loan financing companies Fannie Mae and Freddie Mac.
If the government's resistance to fund the purchase lowers the price offered for Lehman, Fuld could balk as well, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.
``We might have a Mexican standoff, with two guys holding guns to each others' heads but nobody firing,'' Hintz said.
Lehman hired the New York law firm Weil, Gotshal & Manges LLP to advise the company on a potential bankruptcy filing, the Journal reported yesterday, without saying where it got the information.
AIG, WaMu
The government is pushing for a quick resolution because Paulson is concerned panic may spread to other financial institutions, Ladenburg Thalmann's Bove said. American International Group Inc., the largest U.S. insurer, and Seattle- based lender Washington Mutual Inc. each plummeted in New York trading last week on speculation about their financial health.
AIG may move up plans to raise capital or sell assets after the shares plunged 46 percent, according to a person familiar with the company. WaMu, which fell 36 percent, may sell parts of its nationwide bank-branch network to raise cash, according L. William Seidman, a former chairman of the Federal Deposit Insurance Corp.
A Lehman sale may be possible without government backing, an analysis of Lehman's distressed mortgage assets shows. In a worst-case scenario -- with the assets discounted more deeply than in recent distressed sales -- a buyer could write off almost half of Lehman's mortgage holdings and still have $7 billion of equity left in company, based on figures the investment bank disclosed when it reported third-quarter financial results last week.
`Massive Discount'
``The firm should be worth something even after the troubled assets are taken out at a massive discount because Lehman has a good franchise,'' said Corne Biemans, a Boston- based senior portfolio manager at Fortis Investments, which oversees about $200 billion. ``There are distressed asset buyers who should be interested in this stuff at such serious haircuts.''
Lehman's mortgage-related assets have been marked down to between 29 cents and 85 cents on the dollar. Reducing valuations further to between 5 cents on the dollar for collateralized debt obligations and 35 cents for European mortgages would result in $21 billion of further writedowns. Shareholders' equity was $28 billion at the end of firm's fiscal quarter in August.
To contact the reporters on this story: Ben Livesey in London blivesey@bloomberg.net; Yalman Onaran in New York at yonaran@bloomberg.net.
Read more...
Sept. 14 (Bloomberg) -- Barclays Plc, the U.K.'s third- biggest bank, moved closer to making a bid for Lehman Brothers Holdings Inc. as the U.S. government raced to find a solution for the faltering investment bank, two people familiar with the situation said.
Barclays's takeover approach depends on whether losses from Lehman's mortgage-related holdings can be sealed off, said the people, who declined to be identified because no formal offer has been made. Bank of America Corp., the biggest U.S. consumer bank, also is among the potential bidders for New York-based Lehman, which has lost 94 percent of its market value this year after record losses from investments tied to mortgages.
``The solution is to force the merger of Lehman now, this weekend, with a big commercial bank,'' said Richard Bove, a Lutz, Florida-based analyst at Ladenburg Thalmann & Co.
Lehman, led by Chief Executive Officer Richard Fuld, may be forced to liquidate unless buyers step up for all or part of the 158-year-old company, U.S. Treasury Secretary Henry Paulson and New York Federal Reserve Bank President Timothy Geithner told the heads of Wall Street's biggest firms at a meeting Sept. 12. Paulson has said he's reluctant to use government money to rescue Lehman. Talks with the banks continued yesterday without producing an agreement.
``Senior representatives of major financial institutions reconvened on Saturday with U.S. officials at the New York Fed. Discussions are expected to continue tomorrow,'' a New York Fed spokesman said.
Bad Bank
With backing from the company's board, Barclays President Robert Diamond, 57, is leading a team to review Lehman's books and gauge the level of guarantees the bank would need to cover potential losses, the people said. Peter Truell, a Barclays spokesman, declined to comment.
``Acquisitions are difficult for Barclays because of capital constraints,'' said Simon Willis, an analyst at NCB Stockbrokers Ltd. in London, who has a ``reduce'' rating on the London-based banks. Barclays raised 4.5 billion pounds ($8 billion) in a share sale in June to shore up capital depleted by credit losses and increase its securities trading and fund management units in the U.S.
Geithner, 47, and Paulson, 62, are pushing Wall Street to contribute money to a so-called bad bank that would assume Lehman's $50 billion of devalued real estate assets. That would make it easier for a buyer to take over the rest of the company while the assets are sold off.
The approach is similar to one Lehman presented to investors last week, which the company said would cost $5 billion to $7 billion.
Echoes of LTCM
Such an arrangement would be reminiscent of 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.
Lehman CEO 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 past week after talks about a cash infusion from Korea Development Bank ended, eroding investor confidence and the company's market value.
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 Credit Suisse Group AG's Brady Dougan were among the CEOs at the meeting with government officials, according to the people, who asked not to be identified because the gathering was private.
HSBC, Goldman
Robert Kelly, CEO of Bank of New York Mellon Corp., Robert Wolf, chairman of UBS AG in the Americas, and Christopher Cox, chairman of the U.S. Securities and Exchange Commission, also participated, the people said, who asked not to be identified because the meeting wasn't public. Bank of America CEO Kenneth Lewis didn't attend because his company is a potential bidder for Lehman, one person said.
Helping lead the discussion was Kendrick Wilson, a former Goldman executive whom Paulson tapped last month as an adviser.
HSBC Holdings Plc, Europe's largest bank by market value, is also considering a bid for Lehman, the Wall Street Journal reported yesterday, without saying where it got the information. Goldman, the largest securities firm, is interested in Lehman's real-estate portfolio, the Journal said.
HSBC spokesman Richard Lindsay said the company doesn't comment on market speculation. Goldman spokesman Lucas van Praag also declined to comment.
Paulson, the former chairman of Goldman, doesn't want to put up money to help fund any Lehman acquisition, a person familiar with his thinking said Sept. 12.
`Mexican Standoff'
Unlike when the Fed committed $29 billion to help JPMorgan take over Bear Stearns Cos. in March, Lehman has access to a lending facility for brokers that would permit an orderly process for unwinding the firm, the person said.
Paulson stepped in last week to guarantee the debt and mortgage-backed securities of home-loan financing companies Fannie Mae and Freddie Mac.
If the government's resistance to fund the purchase lowers the price offered for Lehman, Fuld could balk as well, said Brad Hintz, an analyst at Sanford C. Bernstein & Co.
``We might have a Mexican standoff, with two guys holding guns to each others' heads but nobody firing,'' Hintz said.
Lehman hired the New York law firm Weil, Gotshal & Manges LLP to advise the company on a potential bankruptcy filing, the Journal reported yesterday, without saying where it got the information.
AIG, WaMu
The government is pushing for a quick resolution because Paulson is concerned panic may spread to other financial institutions, Ladenburg Thalmann's Bove said. American International Group Inc., the largest U.S. insurer, and Seattle- based lender Washington Mutual Inc. each plummeted in New York trading last week on speculation about their financial health.
AIG may move up plans to raise capital or sell assets after the shares plunged 46 percent, according to a person familiar with the company. WaMu, which fell 36 percent, may sell parts of its nationwide bank-branch network to raise cash, according L. William Seidman, a former chairman of the Federal Deposit Insurance Corp.
A Lehman sale may be possible without government backing, an analysis of Lehman's distressed mortgage assets shows. In a worst-case scenario -- with the assets discounted more deeply than in recent distressed sales -- a buyer could write off almost half of Lehman's mortgage holdings and still have $7 billion of equity left in company, based on figures the investment bank disclosed when it reported third-quarter financial results last week.
`Massive Discount'
``The firm should be worth something even after the troubled assets are taken out at a massive discount because Lehman has a good franchise,'' said Corne Biemans, a Boston- based senior portfolio manager at Fortis Investments, which oversees about $200 billion. ``There are distressed asset buyers who should be interested in this stuff at such serious haircuts.''
Lehman's mortgage-related assets have been marked down to between 29 cents and 85 cents on the dollar. Reducing valuations further to between 5 cents on the dollar for collateralized debt obligations and 35 cents for European mortgages would result in $21 billion of further writedowns. Shareholders' equity was $28 billion at the end of firm's fiscal quarter in August.
To contact the reporters on this story: Ben Livesey in London blivesey@bloomberg.net; Yalman Onaran in New York at yonaran@bloomberg.net.
Read more...
Gulf Central Bankers May Adopt Monetary Union Draft: Week Ahead
By Matthew Brown
Sept. 14 (Bloomberg) -- Central bank governors of five Gulf states will probably approve a new draft accord for monetary union at a meeting in Jeddah, Saudi Arabia, this week, the latest step toward a single currency for the region.
Gulf finance ministers will discuss the draft at the same meeting, scheduled for Sept. 15 and 16. Heads of state may give final approval at a meeting in Muscat, Oman, before the end of the year, said Salim Al Gudhea, head of the monetary union unit at the Gulf Cooperation Council Secretariat General, in an interview.
Progress toward a single currency eases pressure on Saudi Arabia, the United Arab Emirates, Qatar, Kuwait and Bahrain to revalue their currencies or drop pegs to the dollar after inflation accelerated. The five agreed in 2001 to form a European Union-style monetary union by 2010 to boost regional trade.
Central bankers ``are expected to pass the draft and that is a positive step,'' said Monica Malik, Dubai-based chief economist at EFG-Hermes Holding SAE, Egypt's largest investment bank. This week is ``the easy part. The stages after that will be tricky.''
Contracts to buy dirhams in a year have fallen 3.1 percent since a March 18 high. Saudi riyal forwards dropped 2.2 percent in the same period.
The five states are pushing ahead with monetary union after Oman, the sixth Gulf Arab state, pulled out last year. The agreement allows for the creation of a monetary council, a precursor to the Gulf central bank, the location of which will be decided at the meeting this week.
`Difficult Bit'
The council will be responsible for deciding the level at which the Gulf currency is pegged to the dollar, aligning interest rates, monetary tools and goals.
``Technical issues won't be tackled until the monetary council is set up, and that may be a long way into 2009, depending on how quickly it is ratified by national parliaments,'' said Malik. ``That's going to be the difficult bit and is likely to result in much-greater delays.''
The central bank governors will also vote on whether to create the monetary council after three or five countries have ratified the agreement, Naser Al-Kaud, deputy assistant general for economic affairs at the GCC Secretariat, said by phone yesterday.
``We are suggesting it; I am not sure if they will agree,'' said Al-Kaud. ``It may help start the council sooner.''
Last week, the seven Persian Gulf benchmarks tracked by Bloomberg declined last week. The Dubai Financial Market General Index slumped 9.2 percent. Oman's Muscat Securities Market 30 Index declined 7 percent and Saudi Arabia's Tadawul All-Share Index fell 4.4 percent.
Tamweel PJSC, the U.A.E.'s second-biggest mortgage lender by market value, tumbled 14 percent following the arrest of the company's deputy chief executive officer.
To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net
Read more...
Sept. 14 (Bloomberg) -- Central bank governors of five Gulf states will probably approve a new draft accord for monetary union at a meeting in Jeddah, Saudi Arabia, this week, the latest step toward a single currency for the region.
Gulf finance ministers will discuss the draft at the same meeting, scheduled for Sept. 15 and 16. Heads of state may give final approval at a meeting in Muscat, Oman, before the end of the year, said Salim Al Gudhea, head of the monetary union unit at the Gulf Cooperation Council Secretariat General, in an interview.
Progress toward a single currency eases pressure on Saudi Arabia, the United Arab Emirates, Qatar, Kuwait and Bahrain to revalue their currencies or drop pegs to the dollar after inflation accelerated. The five agreed in 2001 to form a European Union-style monetary union by 2010 to boost regional trade.
Central bankers ``are expected to pass the draft and that is a positive step,'' said Monica Malik, Dubai-based chief economist at EFG-Hermes Holding SAE, Egypt's largest investment bank. This week is ``the easy part. The stages after that will be tricky.''
Contracts to buy dirhams in a year have fallen 3.1 percent since a March 18 high. Saudi riyal forwards dropped 2.2 percent in the same period.
The five states are pushing ahead with monetary union after Oman, the sixth Gulf Arab state, pulled out last year. The agreement allows for the creation of a monetary council, a precursor to the Gulf central bank, the location of which will be decided at the meeting this week.
`Difficult Bit'
The council will be responsible for deciding the level at which the Gulf currency is pegged to the dollar, aligning interest rates, monetary tools and goals.
``Technical issues won't be tackled until the monetary council is set up, and that may be a long way into 2009, depending on how quickly it is ratified by national parliaments,'' said Malik. ``That's going to be the difficult bit and is likely to result in much-greater delays.''
The central bank governors will also vote on whether to create the monetary council after three or five countries have ratified the agreement, Naser Al-Kaud, deputy assistant general for economic affairs at the GCC Secretariat, said by phone yesterday.
``We are suggesting it; I am not sure if they will agree,'' said Al-Kaud. ``It may help start the council sooner.''
Last week, the seven Persian Gulf benchmarks tracked by Bloomberg declined last week. The Dubai Financial Market General Index slumped 9.2 percent. Oman's Muscat Securities Market 30 Index declined 7 percent and Saudi Arabia's Tadawul All-Share Index fell 4.4 percent.
Tamweel PJSC, the U.A.E.'s second-biggest mortgage lender by market value, tumbled 14 percent following the arrest of the company's deputy chief executive officer.
To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net
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Saturday, September 13, 2008
Ike Forces Shutdown of 19% of U.S. Refining Capacity
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.
Read more...
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.
Read more...
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
Read more...
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.
Read more...
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.
Read more...
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
Read more...
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
Read more...
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.
Read more...
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
Read more...
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.
Read more...
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.
Read more...
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
Read more...
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
Read more...
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
Read more...
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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Friday, September 12, 2008
U.S. Retail Sales Flag as Support from Tax Rebates Wane
| Daily Forex Fundamentals | Written by RBC Financial Group | Sep 12 08 14:15 GMT | | |
| Retail sales were much weaker than expected in August, dropping -0.3% compared to expectations of an increase of 0.2%. The growth rate was expected to stay in positive territory largely on the basis of earlier indications of a rebound in auto sales, which did, in fact, rise 1.9% in August. However, this was more than offset by the sizeable, and unexpected, drop of 0.7% in the ex auto component. The bad news contained in this morning's report was further exacerbated by the sizeable downward revision to growth in retail sales in July to a drop of 0.5% from the previously reported drop of 0.1%. However, the lion's share of the revision was concentrated in the motor vehicle component, with growth in sales excluding autos revised down only slightly to 0.3% from 0.4% previously. Some weakness in the ex auto component had been anticipated with falling gasoline prices expected to send service station receipts down in the month. The service station component was reported this morning to be down 2.5% in August. However, what was of greater downward surprise was the broad-based weakness in a number of other components, led by drops in building materials and garden equipment stores (down 2.2%), department stores (down 1.5%) and electronic and appliance stores (down 1.3%). The disappointing retail sales numbers are flagging a fairly significant slowing in consumer spending in the third quarter and may even result in growth in this expenditure area turning slightly negative after the annualized 1.7% gain in the second quarter. With support from the tax rebates waning, the impact of declining employment and falling net worth are likely starting to have the more dominant impact on household spending. One recent development that will help temper the dampening impact on spending going forward are the recent declines in energy prices that allow more disposable income outside of energy purchases. However, today's report makes clear the continuing downside risks to growth coming from this key expenditure area of the economy. This is expected to keep the Fed on the sidelines near-term, maintaining Fed funds at a still stimulative 2.00% through the remainder of this year and during the first half of 2009. RBC Financial Group The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities. | |
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