By Jordan Burke
Nov. 24 (Bloomberg) -- Valero Energy Corp., the largest U.S. oil refiner, plans to start maintenance today at its Corpus Christi, Texas, plant.
The company will perform maintenance on Complex 4 at the refinery through Dec. 31, according to a state regulatory filing.
The refinery can process about 146,000 barrels per day, according to Energy Department data.
To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.
By Ayesha Daya and Alexander Kwiatkowski
Nov. 24 (Bloomberg) -- The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, may decide to cut output when it meets in Cairo later this week, Libya’s top oil official Shokri Ghanem said.
“It is too early to say how much needs to be cut,” Ghanem said in an interview from Tripoli today. “I don’t want to start throwing numbers out without consulting my colleagues. We want a consensus.”
OPEC’s decision to trim output by 1.5 million barrels a day at a meeting in Vienna last month failed to stem the decline in crude prices as the global economic slump crimps fuel demand. Prices have since tumbled more than 22 percent to a three-year low, raising speculation the group will reduce production again.
Shipping data released last week indicate the group will cut oil supplies by 3.8 percent this month as it implements its Oct. 24 resolution. The group’s 13 members supplied 30.98 million barrels a day this month, compared with 32.2 million a day in October, according to Geneva-based consultant PetroLogistics Ltd.
The reduction failed to stop the rout in oil markets. Crude futures fell to the lowest since May 2005 on Nov. 21 on signs of lower oil consumption in Europe, Asia and the U.S. The International Energy Agency, the Energy Department and OPEC have slashed demand projections this month because of the deteriorating economic outlook.
Estimated Oversupply
Slowing global demand has left a 1 million barrel-a-day oversupply that needs to be removed by year-end, Venezuela’s Oil Minister Rafael Ramirez said yesterday. Crude prices are down 66 percent from a record $147.27 a barrel on July 11.
OPEC, which supplies of more than 40 percent of the world’s oil, will discuss compliance with a previous cut at the Nov. 29 meeting in Cairo, according to Ghanem.
“We won’t have production data yet, but at least we can consult with each other. It does not mean we can’t take a decision,” he said.
OPEC’s main goal is to stabilize the market, Ghanem said.
“We are worried about the direction of prices -- we need to see if the oil price is falling because liquidity is leaving the market or if there is too much oil in the market,” he said in the interview.
As well as this week’s meeting in Cairo, OPEC is due to hold another summit in Algeria on Dec. 17 after its decision last month to slash production by 1.5 million barrels a day failed to stop oil prices crashing to below $50 a barrel.
Crude oil for January delivery traded for $49.85 a barrel on the New York Mercantile Exchange at 10:44 a.m. London time.
To contact the reporter on this story: Ayesha Daya in Dubai adaya1@bloomberg.netAlexander Kwiatkowski in London at akwiatkowsk2@bloomberg.net
By Emma O'Brien
Nov. 24 (Bloomberg) -- Russia's central bank retreated in its defense of the ruble, allowing it to depreciate after draining nearly a quarter of the nation's foreign reserves in less than four months in an effort to stem the currency's decline.
The ruble fell as much as 0.8 percent against the dollar and 1.3 percent versus the euro as crude oil, Russia's main export, traded around $45 a barrel, 68 percent below a July record. Bank Rossii widened the band against which it manages the ruble by 30 kopeks (1 U.S. cent), or 1 percent, at each end, according to two bank officials who declined to be identified.
``The central bank is tweaking the pressure cooker to let a little steam out,'' said Chris Weafer, chief strategist in Moscow at UralSib Financial Corp.
Russia's international reserves, the world's largest after China's and Japan's, fell by $144.6 billion since the beginning of August as the central bank struggled to contain its worst financial crisis since 1998. The ruble slumped 15 percent against the dollar since July 31 and 5.5 percent versus the basket.
The currency fell to 27.5548 per dollar as of 3:54 p.m. in Moscow, from 27.5090 last week. Against the euro, it weakened to 35.1014, from 34.6270.
The declines left the ruble 0.7 percent weaker at 30.9350 against the central bank's dollar-euro basket, falling through the 30.70 level considered the weak end of the range. The basket, which consists of about 55 percent dollars and the rest euros, is used by policy makers to limit the effect of currency swings on Russian exporters.
`Ruble Weaker'
The ruble will weaken 13 percent by the end of 2009 as declining oil prices erode Russia's $91.2 billion current-account surplus, according to the median estimate of 16 economists surveyed by Bloomberg last week. Urals crude, Russia's main export blend, fell 1.7 percent to $44.63 a barrel today, below the $70 average that Finance Minister Alexei Kudrin says is needed to balance the budget next year.
``They're not sure about the oil forecasts and so they prefer to see the ruble weaker in the current circumstances,'' said Evgeniy Nadorshin, a senior economist in Moscow at Trust Investment Bank.
Bank Rossii expanded the trading band on Nov. 11, also by 30 kopeks. The weakest end of the band is now 31 versus the basket, according to Martin Blum, head of emerging-markets economics and currency strategy in Vienna at UniCredit SpA.
`Substantial Widening'
Investors withdrew more than $180 billion from Russia since the start of August, BNP Paribas SA said, as the country fought an internationally condemned war with neighboring Georgia and the seizure in credit markets intensified. The dollar-denominated RTS Index is headed for its worst year since 1998 and the 30-year government bond yield more than doubled.
The ruble may have a ``certain tendency toward weakening,'' Bank Rossii Chairman Sergey Ignatiev said Nov. 10 in Moscow. Prime Minister Vladimir Putin told members of his United Russia Party last week there won't be any ``sharp changes'' in the ruble rate.
``The government is still hoping for a rise in the price of oil,'' said UralSib's Weafer. ``If that doesn't happen then we should expect a more substantial widening of the basket in two or three weeks.''
A decline in reserves to below $400 billion may be a trigger, he added. The ruble may be allowed to depreciate about 1 percent every two weeks, ``more smoothly and rapidly than we expected,'' Rory MacFarquhar, an economist in Moscow at Goldman Sachs Group Inc., wrote in a client report today. Goldman predicts the currency may be 18 percent weaker by August.
Slowing Growth
About 80 percent of the ``pressure'' on the ruble now is coming from Russian citizens converting their rubles into foreign currency, according to Basil Issa, an emerging-markets analyst in London at BNP. When Russia defaulted on $40 billion of debt in 1998, it was forced to devalue the ruble, which slumped as much as 71 percent against the dollar that year. Russia's reserves were $18.4 billion prior to the default.
Russia's economic growth may slow to 2 percent next year, Arkady Dvorkovich, President Dmitry Medvedev's economics adviser, said last week. The Economy Ministry predicts growth of 7.3 percent in 2008 and the rate has averaged 7 percent over the past nine years.
The Micex Index of 30 stocks climbed 9.6 percent today, its first advance in four days, led by utility shares such as OAO RusHydro. The government may allow RusHydro to raise electricity prices more than any other power generator because of its investment program, Vedomosti reported today.
To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net
By Anchalee Worrachate
Nov. 24 (Bloomberg) -- U.K. gilts declined and the pound fell against the euro and the yen on speculation the government will have to increase borrowing to a record as a looming recession chokes tax revenue.
Ten-year gilts snapped four days of gains and the cost of hedging against losses on government bonds rose to a record before Chancellor of the Exchequer Alistair Darling presents a pre-budget report to Parliament today, in which he will outline the government’s spending plans. Britain will sell 138.1 billion pounds ($207 billion) of gilts this fiscal year, an all-time high, according to the median forecast of 11 U.K. primary dealer banks surveyed by Bloomberg.
“Spending will need to rise massively while revenue is falling,” said Marc Ostwald, a fixed-income strategist at Monument Securities in London. “We are going to have a colossal amount of gilt issuance.
The yield on the 10-year note climbed five basis points to 3.90 percent as of 11.42 a.m. in London. The price of the 5 percent security due June 2018 fell 0.37, or 3.70 pounds per 1,000 pound ($1,501) face amount, to 108.63. The two-year yield rose four basis points to 2.00 percent. Yields move inversely to bond prices.
The pound dropped to 84.52 pence per euro, from 84.37 pence last week. It also fell to 143 yen from 143.17 yen. The currency traded at $1.4978 from $1.4925. Sterling lost 34 percent against the dollar since June.
‘Short the Pound’
Investors should sell the pound against the Swiss franc because financial markets “remain in deep recession mode,” JPMorgan Chase & Co. said in a report.
“Stay long the creditor currencies and short the debtor currencies,” analysts led by Jan Loeys, global head of market strategy, wrote in the report received late on Nov. 21. “So, long Japanese yen against the dollar and the euro, and short the pound against the Swiss franc.” A short position is a bet that a currency will fall.
The amount of gilts sold this year may be more than double last year’s issuance and up from the 80 billion pounds the government estimated in March, according to Bloomberg’s survey.
Credit-default swaps showed the cost of hedging against losses on British government bonds rose to an all-time high, with five-year contracts rising four basis points to 87.5, according to CMA Datavision prices.
Rate-Cut Speculation
Further declines in gilts may be limited by speculation the Bank of England will accelerate interest-rate cuts amid signs of a deepening global recession. The two-year yield fell below 2 percent on Nov. 20 for the first time in at least 16 years.
U.K. gilts outperformed U.S. Treasuries this quarter, handing investors a 0.23 percent gain. U.S. government bonds lost 0.15 percent during the same period, according to Merrill Lynch & Co.’s U.S. Master and U.K. Gilts indexes.
“We are likely to have a big rise in gilt supply,” said Matteo Regesta, a fixed-income strategist at BNP Paribas SA in London. “But I think the market will be able to absorb it. Bonds should continue to be underpinned by flight to quality as the world is still grappling with the crisis.”
The Bank of England cut its key interest rate by a greater- than-expected 150 basis points on Nov. 6 to contain the fallout from the global turmoil.
Policy makers will lower the rate a further 75 basis points at the next meeting, according to a Credit Suisse Group AG index of probability based on overnight index-swap rates.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net;
By Jamie McGee
Nov. 24 (Bloomberg) -- Brazil’s real rose the most in more than a month after the U.S. government guaranteed aid for Citigroup Inc., boosting stocks in Europe and U.S. equity-index futures and signaling a growing appetite for higher-yielding assets.
The real gained 4.2 percent to 2.3630 per U.S. dollar at 8:39 a.m. New York time, from 2.4613 on Nov. 21. It gained 5.2 percent on Oct. 23. The currency has weakened 9 percent this month.
“With the bailout of Citigroup, that should bring back some risk appetite,” said Bartosz Pawlowski, an emerging-markets currency strategist in London at TD Securities Ltd. “Investors are becoming more and more convinced maybe the sell-off in Brazil has gone a bit too far.”
Futures on the Standard & Poor’s 500 Index rose 2.6 percent. The UBS Bloomberg Constant Maturity Commodity Index gained 3 percent. Nearly two-thirds of Brazil’s exports are commodities.
Citigroup, facing the threat of a breakup or sale, received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets and a $20 billion cash injection from the Treasury Department.
To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
By Thomas Kutty Abraham
Nov. 24 (Bloomberg) -- Sterlite Industries (India) Ltd. expects to lose 23,000 metric tons of copper production for a month after damage to a cooling tower shut its southern Indian smelter, the nation’s biggest, said a company executive.
The company’s sole 400,000-ton smelter in Tuticorin will be closed for about a month, the official, who requested not to be identified, said in telephone interview today.
The main cooling tower was damaged Nov. 19 and the company is making efforts to “rectify” the damage, Sterlite, a unit of London-listed Vedanta Resources Plc, said in a statement to the Bombay Stock Exchange earlier today.
Copper futures trading in New York are down by almost half this year as the world economy slipped into a recession. World copper output exceeded usage by 75,000 tons in the first eight months, compared with 22,000 tons a year ago, the International Copper Study Group said Nov. 21.
Sterlite is examining if it needs to declare a force majeure, a legal clause that will allow it to miss deliveries to customers because the equipment failure will cut output, the official said. The Mumbai-based company may not take delivery of “some” copper concentrate because of the shutdown, the official said.
The company buys 1.3 million tons of concentrate a year, of which 75 percent comes from long-term contracts, according to a presentation on its Web site.
Copper concentrate is a semi-processed form of copper ore used as a feedstock by smelters.
Copper for three-month delivery fell as much as 2.8 percent to $3,440 a ton on the London Metal Exchange today and traded at $3,475 at 12:09 p.m. Mumbai time. The metal is headed for the first annual drop since 2001.
Sterlite shares declined as much as 5.8 percent to 205.25 in Mumbai trading and were at 208.55 rupees at 12:42 p.m. local time. The stock has tumbled 79 percent since January, exceeding the 56 percent drop in the benchmark Bombay Sensitive Stock Index.
To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.
By Nicholas Larkin
Nov. 24 (Bloomberg) -- Gold increased to a five-week high in London as German business confidence slumped and the dollar weakened, increasing the precious metal's appeal as a haven.
Germany's Ifo institute said today its business climate index dropped in November to the lowest since February 1993, a bigger drop than economists expected, while the dollar fell for the first time in three days against six major currencies. Gold, which generally moves in the opposite direction to the dollar, rose 7.9 percent last week, the biggest advance since Sept. 19.
``Short-term investors, such as hedge funds, may be coming back into the market after last week's gain,'' Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin, said by phone. The German data ``won't do much for confidence.''
Gold for immediate delivery rose as much as $22.13, or 2.8 percent, to $822.53 an ounce and traded at $815.35 as of 12:48 p.m. in London. It earlier fell as much as 1.7 percent. December futures were $24.30, or 3.1 percent, higher at $816.10 in electronic trading on the Comex division of the New York Mercantile Exchange.
The metal climbed to $816.75 in the morning ``fixing'' in London used by some mining companies to sell production, from $774.50 at the previous afternoon fixing. That's the highest level since Oct. 16.
European stocks climbed after Citigroup Inc. received a government guarantee on $306 billion of assets to stabilize the bank after its shares plunged 60 percent last week. The bank will also get a $20 billion cash injection from the U.S. Treasury, adding to the $25 billion it received last month under the Troubled Asset Relief Program.
Recession in Britain
U.K. Prime Minister Gordon Brown will cut taxes and increase spending in a stimulus package that economists expect to total more than 15 billion pounds ($22 billion) as Britain slides into its first recession in 17 years.
The ICE futures exchange's U.S. Dollar Index lost 1.5 percent. Crude oil climbed as much as 4.3 percent to $52.09 a barrel in New York, raising bullion's appeal as an inflation hedge.
Gold has slipped 21 percent in London since reaching a record $1,032.70 an ounce in March as investors liquidated their commodity holdings to raise cash amidst the global credit crisis. ING Groep NV cut its 2009 gold forecast by 19 percent to $750 an ounce, in said in a Nov. 21 report. Platinum, silver and palladium estimates were also lowered.
``Credit markets thawing further could support precious metal investment sentiment, especially at current prices,'' Manqoba Madinane, a commodity analyst at Standard Bank Group Ltd. in Johannesburg, wrote in a note today.
Gold Survey
Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, increased by more than 3 metric tons to 755.06 tons as of Nov. 21, according to data on the company's Web site. Switzerland's Zuercher Kantonalbank said gold holdings rose to a record 3.018 million ounces last week.
Eighteen of 40 traders, investors and analysts surveyed from Mumbai to Chicago on Nov. 20-21 advised selling gold this week. Seventeen said buy and five were neutral. A decline this week would be the first in four.
Among other metals for immediate delivery in London, silver gained 2.6 percent to $9.925 an ounce. Platinum rose $27.50, or 3.3 percent, to $854 an ounce and palladium was $9, or 4.9 percent, higher at $194.50 an ounce.
To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net
By Grant Smith
Nov. 24 (Bloomberg) -- Crude oil, copper and corn gained as a government rescue of Citigroup Inc. shored up global investor confidence and a weaker U.S. dollar enhanced the appeal of commodities invesments.
Oil rose above $52, following European equities and U.S. stock index futures higher, after the government guaranteed $306 billion of Citigroup assets. The U.S. currency dropped versus the euro and yen, making dollar-denominated commodities more attractive to foreign buyers. The S&P GCSI Index of raw materials remains 58 percent below its July record.
“The decline in commodities prices has been exaggerated and I think we are in the process of bottoming out,” said Eugen Weinberg, a Commerzbank AG analyst in Frankfurt. “With prices failing to cover operating costs, we’ll see production cuts not just in oil but other raw materials, which will aid a recovery.”
Crude oil for January delivery advanced as much as $2.16, or 4.3 percent, to $52.09 a barrel on the New York Mercantile Exchange. It traded for $51.24 at 1:24 p.m. London time.
Copper for delivery in three months gained as much as 7.6 percent to $3,810 a metric ton on the London Metal Exchange, the largest intraday gain since Nov. 10. The contract was at $3,765 a ton as of 1:24 p.m. local time.
Demand for industrial metals may be boosted by plans for a second Chinese stimulus package announced this weekend. The National Development and Reform Commission, the nation’s top economic planning agency, proposed tax cuts, salary increases and larger housing subsidies.
Corn and soybeans advanced for the first time in five days. Corn for December delivery rose as much as 2.8 percent to $3.48 a bushel in electronic trading on the Chicago Board of Trade.
OPEC Meeting
Oil ministers from the 13-nation Organization of Petroleum Exporting Countries group meet in Cairo on Nov. 29. Slowing global demand has left a 1 million-barrel-a-day oversupply that needs to be removed by year-end, Venezuela’s Oil Minister Rafael Ramirez said yesterday.
“We are worried about the direction of prices,” Shokri Ghanem, Libya’s top oil official, said in an interview from Tripoli. “We need to see if the oil price is falling because liquidity is leaving the market or if there is too much oil in the market.”
Brent crude oil for January settlement was at $50.50 a barrel, up $1.31, on London’s ICE Futures Europe exchange at 1:25 p.m. London time.
“Oil is following the equity move, and also the euro- dollar again,” said Gerrit Zambo, an oil trader at BayernLB in Munich. “When we broke through $50, a critical point, there wasn’t much further downside.”
Ghanem said that it’s too early to say how much supply needs to be cut when OPEC meets at the end of the week.
The benchmark crude price used by OPEC, derived from the cost of oil produced by each of its 13 members, fell to its lowest since February 2005 on Nov. 21. This so-called OPEC basket declined $1.50 to $42.56 a barrel, the group said in an e-mail today.
Europe’s Dow Jones Stoxx 600 Index added 3.7 percent to 188.95 at 10:25 a.m. in London as all 19 industry groups increased except for auto-related shares. Futures on the Standard & Poor’s 500 Index added 1.9 percent.
The dollar weakened 1.2 percent to $1.2690 per euro as of 12:06 p.m. London time from $1.2540 on Nov. 21.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net
By Sarah Jones
Nov. 24 (Bloomberg) -- European stocks and U.S. index futures rallied after Citigroup Inc. received a government guarantee on $306 billion of assets to help shore up investor confidence.
Deutsche Bank AG and Credit Suisse Group AG gained more than 5 percent as the U.S. government also said it will inject $20 billion into Citigroup, whose shares lost 60 percent last week. Citigroup jumped 51 percent today. Commodity producers followed metals prices higher, while oil companies climbed after trading at their cheapest on record.
Europe's Dow Jones Stoxx 600 Index added 3.3 percent to 188.15 at 1:49 p.m. in London as all 19 industry groups increased except for auto-related shares. Futures on the Standard & Poor's 500 Index added 2.6 percent.
``Citigroup is just too big to fail,'' said Roger Kunz, head of investment strategy at Clariden Leu AG in Zurich, which manages the equivalent of about $120 billion. ``On the one hand it's good news as it brings some stabilization, another major player will be rescued. On the other hand, it shows confidence is not returning'' to the market.
The MSCI Asia Pacific excluding Japan Index lost 0.3 percent, as Suncorp-Metway Ltd., Australia's third-largest insurer, raised its forecast for bad loans. Japan was shut for a holiday.
National benchmark indexes gained in all 18 western European markets. The U.K.'s FTSE 100 rose 4.7 percent as Royal Dutch Shell Plc and BHP Billiton Ltd. climbed. Germany's DAX added 3.5 percent, with Hypo Real Estate Holding AG jumping on a government debt guarantee. France's CAC 40 increased 4.3 percent.
The Stoxx 600 has fallen 48 percent this year after credit losses and writedowns topped $967 billion and countries from the U.K. to Germany and the U.S. slipped into recession.
Economic Team
U.S. President-elect Barack Obama will today unveil an economic team that will likely push for an unprecedented government role in reviving growth. New York Federal Reserve Bank President Timothy Geithner is set to be nominated as Treasury secretary, former Treasury chief Lawrence Summers will be White House economic director, and Peter Orszag, head of the Congressional Budget Office, will be in charge of assembling Obama's budget, aides said.
Citigroup climbed 51 percent to $5.90 in pre-market trading. The bank will have troubled mortgages and other assets guaranteed by the government and will receive a cash infusion from the Treasury Department's $700 billion Troubled Asset Relief Program.
In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.
The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and restore economic growth.
Deutsche Bank
Deutsche Bank, Germany's largest bank, rose 9 percent to 20.485 euros. Credit Suisse, Switzerland's second-biggest bank, gained 5.3 percent to 26.22 francs.
``The only good news is bailout news,'' said Felix Riley, head of binaries, a type of spread-betting, at ChoiceOdds in London. ``The Treasury's quasi-nationalization of Citigroup is music to the market's ears.''
The cost of protecting corporate bonds from default fell around the world. Credit-default swaps on the Markit iTraxx Crossover index of 50 companies with mostly high-risk, high- yield credit ratings dropped 21 basis points to 892, according to JPMorgan Chase & Co. prices.
Contracts on Citigroup tumbled 245 basis points to 255, Phoenix Partners Group prices show.
Debt Guarantee
Hypo Real Estate advanced 15 percent to 2.47 euros after the property lender received a 20 billion-euro ($25 billion) debt guarantee from the government's rescue fund.
The German Financial Markets Stabilization Fund granted the lender a ``framework guarantee to strengthen the group's liquidity,'' Hypo Real Estate said in a statement on Nov. 21.
UBS AG, which has lost $48.6 billion in the subprime mortgage market, rose 9.8 percent to 12.46 francs. The Swiss government is willing to assist the country's biggest bank with more capital if financial markets don't calm down, SonntagsZeitung reported, citing Federal Banking Commission Director Daniel Zuberbuehler in an interview.
Barclays Plc rallied 9.1 percent to 145.3 pence as the lender won shareholder support to raise 7 billion pounds ($10.5 billion) without surrendering control of its dividends and lending, Chairman Marcus Agius said.
The bank, the second largest in the U.K., got the required majority in a preliminary count and will get most of the money from groups in the Persian Gulf, Agius told Barclays shareholders today in London.
Commodities Rally
BHP Billiton, the world's largest mining company, jumped 10 percent to 880.5 pence. Anglo American Plc, the fourth-biggest diversified mining company, rallied 9.6 percent to 1,241 pence. Copper, nickel, tin and zinc gained in London.
Shell, Europe's largest oil company, rose 7.8 percent to 1,579 pence as crude oil rallied. BP Plc, Europe's second-biggest oil company, increased 5.8 percent to 489 pence. Total SA, the region's third-largest, increased 7.3 percent to 39.42 euros.
The Dow Jones Stoxx Oil & Gas Index was valued at 4.9 times reported earnings of the companies in the index at the close last week, the lowest since records began in 1998.
Crude for January delivery rose as much as $2.16, or 4.3 percent, to $52.09 a barrel in New York.
Roche Holding AG climbed 3.5 percent to 155.8 francs after the drugmaker said new clinical trial data on the Avastin cancer drug showed the medicine helped women with breast cancer live longer without their disease progressing than chemotherapy alone.
Raising Capital
Standard Chartered Plc fell 5.1 percent to 720.5 pence after the third-largest U.K. bank announced plans to raise 1.8 billion pounds ($2.7 billion) in a rights offer to bolster its finances as the global economic recession deepens.
The London-based bank is offering 30 new shares for 91 already held to existing shareholders at 390 pence each, or a 48.7 percent discount to the last closing price.
Shares of Anheuser-Busch InBev fell 3.4 percent to 19.90 euros after the brewer, created by a $52 billion transaction that was completed last week, said it will raise as much as 6.36 billion euros in a rights offering of new shares.
Anheuser-Busch InBev will sell as many as 986.1 million new shares at 6.45 euros apiece.
Acciona SA, the Madrid-based builder that last year teamed up to buy control of power company Endesa SA, jumped 11 percent to 71.80 euros after UBS recommended the stock, saying it offered ``deep value'' after declines this year. The stock dropped 70 percent in 2008 through last week.
Acciona's share price at the moment assigns no value to its option to sell the 25 percent stake in Endesa or its 1.2 billion-euro pipeline of wind energy projects, Ignacio Carvajal Cebrian and Ignacio Sanz, UBS analysts, wrote in a report. They upgraded the stock to ``buy'' from ``neutral.''
Sanofi-Aventis SA, France's largest drugmaker, rallied 8.3 percent to 42.01 euros after Morgan Stanley analysts raised the rating on the stock to ``overweight'' from ``equal weight.''
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
By Glen Carey and Laura Cochrane
Nov. 24 (Bloomberg) -- Dubai stocks fell the most in a week as a takeover of the emirate’s biggest mortgage lenders by neighboring Abu Dhabi signaled a worsening crisis in financing real-estate debt.
Emaar Properties PJSC, the Middle East’s largest real- estate developer, dropped 9.5 percent, extending its slump this year to 83 percent. The Dubai Financial Market General Index retreated for a third day, falling 5.3 percent to 1,814.90, sending the measure 69 percent lower in 2008.
Abu Dhabi, backed by the largest sovereign wealth fund, is taking over Amlak Finance PJSC and Tamweel PJSC with backing from the United Arab Emirates government, as the credit squeeze and lower oil ends Dubai’s boom that drove development of the world’s tallest tower and man-made palm-tree shaped islands.
“This confirms western investors’ concerns about the deep downturn expected in the Dubai real-estate and property markets in the next two to three years,” said Luis Costa, emerging- market strategist at Commerzbank AG in London. “It’s not Armageddon for the Dubai real-estate market, it just needs to come back to basics.”
Real Estate Bank, the Abu Dhabi-based lender that will take over Amlak and Tamweel, will be combined with Emirates Industrial Bank in a new entity called Emirates Development Bank, WAM reported today.
Tumbling shares cut Amlak’s market value by 80 percent this year to 1.53 billion dirhams ($417 million), while Tamweel has lost 86 percent at 990 million dirhams. Both shares were suspended for a second day, pending the announcement of merger details.
Property Prices
Dubai’s residential property prices surged fourfold in the last five years, spurred by record oil prices and borrowing. The market is reversing as the global seizure in credit markets pushes banks to restrict mortgage lending and developers to scale back projects, according to HSBC Holdings Plc.
Dubai and Abu Dhabi property prices dropped for the first time in the month to October, according to HSBC. Lower oil prices have reduced revenues in the region that produces almost a fifth of the world’s oil and weakening demand for real-estate projects. Crude traded at $52.09 a barrel on the New York Mercantile Exchange.
“When oil was coming down from $120 a barrel, people didn’t really notice,” Ali Khan, head of equity trading at Dubai’s Arqaam Capital Ltd., said in a telephone interview. “When prices started to approach $60, and fell below that level, we started to see actual projects getting delayed.”
Emaar’s Slide
Governments in the region have used their oil wealth to support local stock markets. Oman started a 150 million-rial ($390 million) fund, while Kuwait’s cabinet agreed to form an investment fund, KUNA reported Nov. 18. The Qatar Investment Authority said it would contribute to the capital of Qatari banks.
Emaar dropped to 2.47 dirhams from 2.73 dirhams. The Dubai- based developer’s chairman Mohammed Ali Alabbar said today he would “welcome” a merger with Nakheel PJSC, the real-estate developer building palm tree-shaped islands off Dubai’s coast, if the chance arose.
“You will see more consolidation among third-party developers, who are facing lending difficulties,” Alabbar said.
First Gulf Bank PJSC, Dubai’s third-largest commercial bank by market value, declined 9.2 percent to 10.35 dirhams.
The Abu Dhabi Securities Exchange General Index lost 3.4 percent. The Kuwait Stock Exchange Index dropped 1.9 percent.
Abu Dhabi-based Sorouh Real Estate Co., the U.A.E.’s second-largest property developer by market value, lost 4.6 percent to 2.93 dirhams.
The Bahrain All Share Index retreated 3.3 percent. Oman’s Muscat Securities Market 30 Index fell 0.3 percent and Qatar’s DSM 20 Index declined 1.3 percent.
Saudi Arabia’s Tadawul gained 6.2 percent to 4,529.19 after dropping 18 percent in the previous four days. Saudi Telecom Co., the Arab world’s biggest phone company, gained 7.9 percent to 45.2 riyals. The company was rated “buy” in new coverage at Citigroup Inc.
To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.netLaura Cochrane in London at lcochrane3@bloomberg.net
By Sarah Jones
Nov. 24 (Bloomberg) -- European stocks and U.S. index futures rallied after Citigroup Inc. received a government guarantee on $306 billion of assets to help shore up investor confidence.
Deutsche Bank AG and Credit Suisse Group AG gained more than 5 percent as the U.S. government also said it will inject $20 billion into Citigroup, whose shares lost 60 percent last week. Citigroup jumped 51 percent today. Commodity producers followed metals prices higher, while oil companies climbed after trading at their cheapest on record.
Europe's Dow Jones Stoxx 600 Index added 3.3 percent to 188.15 at 1:49 p.m. in London as all 19 industry groups increased except for auto-related shares. Futures on the Standard & Poor's 500 Index added 2.6 percent.
``Citigroup is just too big to fail,'' said Roger Kunz, head of investment strategy at Clariden Leu AG in Zurich, which manages the equivalent of about $120 billion. ``On the one hand it's good news as it brings some stabilization, another major player will be rescued. On the other hand, it shows confidence is not returning'' to the market.
The MSCI Asia Pacific excluding Japan Index lost 0.3 percent, as Suncorp-Metway Ltd., Australia's third-largest insurer, raised its forecast for bad loans. Japan was shut for a holiday.
National benchmark indexes gained in all 18 western European markets. The U.K.'s FTSE 100 rose 4.7 percent as Royal Dutch Shell Plc and BHP Billiton Ltd. climbed. Germany's DAX added 3.5 percent, with Hypo Real Estate Holding AG jumping on a government debt guarantee. France's CAC 40 increased 4.3 percent.
The Stoxx 600 has fallen 48 percent this year after credit losses and writedowns topped $967 billion and countries from the U.K. to Germany and the U.S. slipped into recession.
Economic Team
U.S. President-elect Barack Obama will today unveil an economic team that will likely push for an unprecedented government role in reviving growth. New York Federal Reserve Bank President Timothy Geithner is set to be nominated as Treasury secretary, former Treasury chief Lawrence Summers will be White House economic director, and Peter Orszag, head of the Congressional Budget Office, will be in charge of assembling Obama's budget, aides said.
Citigroup climbed 51 percent to $5.90 in pre-market trading. The bank will have troubled mortgages and other assets guaranteed by the government and will receive a cash infusion from the Treasury Department's $700 billion Troubled Asset Relief Program.
In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.
The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and restore economic growth.
Deutsche Bank
Deutsche Bank, Germany's largest bank, rose 9 percent to 20.485 euros. Credit Suisse, Switzerland's second-biggest bank, gained 5.3 percent to 26.22 francs.
``The only good news is bailout news,'' said Felix Riley, head of binaries, a type of spread-betting, at ChoiceOdds in London. ``The Treasury's quasi-nationalization of Citigroup is music to the market's ears.''
The cost of protecting corporate bonds from default fell around the world. Credit-default swaps on the Markit iTraxx Crossover index of 50 companies with mostly high-risk, high- yield credit ratings dropped 21 basis points to 892, according to JPMorgan Chase & Co. prices.
Contracts on Citigroup tumbled 245 basis points to 255, Phoenix Partners Group prices show.
Debt Guarantee
Hypo Real Estate advanced 15 percent to 2.47 euros after the property lender received a 20 billion-euro ($25 billion) debt guarantee from the government's rescue fund.
The German Financial Markets Stabilization Fund granted the lender a ``framework guarantee to strengthen the group's liquidity,'' Hypo Real Estate said in a statement on Nov. 21.
UBS AG, which has lost $48.6 billion in the subprime mortgage market, rose 9.8 percent to 12.46 francs. The Swiss government is willing to assist the country's biggest bank with more capital if financial markets don't calm down, SonntagsZeitung reported, citing Federal Banking Commission Director Daniel Zuberbuehler in an interview.
Barclays Plc rallied 9.1 percent to 145.3 pence as the lender won shareholder support to raise 7 billion pounds ($10.5 billion) without surrendering control of its dividends and lending, Chairman Marcus Agius said.
The bank, the second largest in the U.K., got the required majority in a preliminary count and will get most of the money from groups in the Persian Gulf, Agius told Barclays shareholders today in London.
Commodities Rally
BHP Billiton, the world's largest mining company, jumped 10 percent to 880.5 pence. Anglo American Plc, the fourth-biggest diversified mining company, rallied 9.6 percent to 1,241 pence. Copper, nickel, tin and zinc gained in London.
Shell, Europe's largest oil company, rose 7.8 percent to 1,579 pence as crude oil rallied. BP Plc, Europe's second-biggest oil company, increased 5.8 percent to 489 pence. Total SA, the region's third-largest, increased 7.3 percent to 39.42 euros.
The Dow Jones Stoxx Oil & Gas Index was valued at 4.9 times reported earnings of the companies in the index at the close last week, the lowest since records began in 1998.
Crude for January delivery rose as much as $2.16, or 4.3 percent, to $52.09 a barrel in New York.
Roche Holding AG climbed 3.5 percent to 155.8 francs after the drugmaker said new clinical trial data on the Avastin cancer drug showed the medicine helped women with breast cancer live longer without their disease progressing than chemotherapy alone.
Raising Capital
Standard Chartered Plc fell 5.1 percent to 720.5 pence after the third-largest U.K. bank announced plans to raise 1.8 billion pounds ($2.7 billion) in a rights offer to bolster its finances as the global economic recession deepens.
The London-based bank is offering 30 new shares for 91 already held to existing shareholders at 390 pence each, or a 48.7 percent discount to the last closing price.
Shares of Anheuser-Busch InBev fell 3.4 percent to 19.90 euros after the brewer, created by a $52 billion transaction that was completed last week, said it will raise as much as 6.36 billion euros in a rights offering of new shares.
Anheuser-Busch InBev will sell as many as 986.1 million new shares at 6.45 euros apiece.
Acciona SA, the Madrid-based builder that last year teamed up to buy control of power company Endesa SA, jumped 11 percent to 71.80 euros after UBS recommended the stock, saying it offered ``deep value'' after declines this year. The stock dropped 70 percent in 2008 through last week.
Acciona's share price at the moment assigns no value to its option to sell the 25 percent stake in Endesa or its 1.2 billion-euro pipeline of wind energy projects, Ignacio Carvajal Cebrian and Ignacio Sanz, UBS analysts, wrote in a report. They upgraded the stock to ``buy'' from ``neutral.''
Sanofi-Aventis SA, France's largest drugmaker, rallied 8.3 percent to 42.01 euros after Morgan Stanley analysts raised the rating on the stock to ``overweight'' from ``equal weight.''
To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.
By Paulo Winterstein
Nov. 24 (Bloomberg) -- The following companies are having unusual price changes in Brazil trading. Stock symbols are in parentheses, and share prices are as of 8:30 a.m. New York time. Preferred shares are usually the most-traded class of stock.
The Bovespa index jumped 5.3 percent to 32,897.06.
ALL America Latina Logistica SA (ALLL11 BS) rose 6.4 percent to 9.15 reais, the most in six days. Latin America’s biggest railroad operator was rated “buy” in resumed coverage at Raymond James & Associates Inc. on the outlook for “strong” earnings growth from its 2006 acquisitions and from the company’s increasing productivity, Eduardo Puzziello wrote in a note.
Cosan SA Industria & Comercio (CSAN3 BS) gained 7.6 percent to 9.90 reais. Sugar climbed the most in almost three weeks, adding 2.4 percent. Sao Martinho SA (SMTO3 BS), Brazil’s second- biggest publicly traded sugar and ethanol producer after Cosan, rose 5.8 percent to 9.12 reais.
Lojas Renner SA (LREN3 BS) rose 6.9 percent to 13.20 reais, paring the previous trading day’s loss of 12 percent. Aberdeen Asset Management Plc increased its stake in Renner, Brazil’s biggest publicly traded clothing retailer, during the past two months. The Aberdeen, Scotland-based money manager said it raised its stake to about 18.2 million voting shares, or 15 percent of the company’s capital stock, from 11 percent in September.
MMX Mineracao & Metalicos (MMXM3 BS) jumped 10 percent to 3.31 reais, the most in two weeks for the mining company owned by Brazilian billionaire Eike Batista. Metal prices surged on the London Metals Exchange on speculation prices will rebound as demand gains and output drops for metals such as copper. Cia. Vale do Rio Doce (VALE5 BS) the world’s biggest iron-ore producer, rose 5.6 percent.
Randon Participacoes SA (RAPT4 BS) gained 7 percent to 6.58 reais, the most in almost three weeks. Brazil’s biggest auto- parts maker will likely beat its own forecast for 19 percent revenue growth in 2008, Fator Corretora analyst Jacqueline Lison wrote in a Nov. 21 note. October net revenue climbed 33 percent from the previous year to 321.1 million reais ($129.7 million), beating estimates by Lison, who reiterated her “buy” rating.
Telemar Norte Leste SA (TMAR5 BS) rose 3.3 percent to 51.15 reais, the first gain in four days. The Brazilian phone company that agreed to buy rival Brasil Telecom Participacoes SA (BRTP4 BS) said Nov. 21 that it filed a request with the country’s telecommunications regulator to approve the takeover. Brasil Telecom Participacoes rose 5.1 percent, while operating unit Brasil Telecom SA (BRTO4 BS) jumped 10 percent to 13.59 reais.
To contact the reporter on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net.
By Elizabeth Campbell and Whitney Kisling
Nov. 24 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading today. Stock symbols are in parentheses, and share prices are as of 8 a.m. in New York, unless otherwise specified.
Berkshire Hathaway Inc. (BRK/A): The company controlled by billionaire Warren Buffett may rise as much as 20 percent next year if the U.S. stock market rallies, Barron’s reported, without citing anyone. Berkshire’s Class A shares rose $12,500 to $90,000 in regular trading on Nov. 21.
Citigroup Inc. (C US) rallied 55 percent to $5.86. The fifth-largest U.S. bank by market value received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets to stabilize the company as it faced the threat of a breakup or sale.
Other financial shares climbed. Bank of America Corp. (BAC US) added 7.5 percent to $12.33. Merrill Lynch & Co. (MER US) gained 8.5 percent to $9.05. Morgan Stanley (MS US) increased 7.5 percent to $10.80. JPMorgan Chase & Co. (JPM US) advanced 3 percent to $23.40. UBS AG (UBS US) rose 9.2 percent to $10.32.
Cooper Industries Ltd. (CBE US): The maker of Crescent wrenches said fourth-quarter profit will be lower than its previous forecast because of “deteriorating business conditions” from the “unprecedented credit crisis.” The stock rose 5.8 percent to $24.13 in regular trading on Nov. 21.
Eli Lilly & Co. (LLY US): The pharmaceutical company lost a bid at Ontario’s highest court to limit potential damages in a lawsuit filed by patients who claimed they developed diabetes after using Lilly’s Zyprexa schizophrenia drug. The stock rose 1.7 percent to $30.43 in regular trading on Nov. 21.
Foot Locker Inc. (FL US): The owner of the shoe store chain had its debt rating cut to BB- from BB by Standard & Poor’s, which said a further downgrade may be possible. The stock tumbled 28 percent to $5.49 in regular trading on Nov. 21.
Omrix Biopharmaceuticals Inc. (OMRI US) gained 16 percent to $24.55. The maker of bleeding-control products agreed to be acquired by Johnson & Johnson (JNJ US) for $25 a share, or $438 million.
Marsh & McLennan Cos. (MMC US) fell 1.2 percent to $23.64. The second-largest insurance broker cleared the way to raise $500 million selling shares to fund acquisitions of other companies or securities, according to a regulatory filing.
SAIC Inc. (SAI US): The defense contractor specializing in computer services was cut to “underweight” from “neutral” at JPMorgan Chase & Co., which said the company faces uncertainty about government spending. The shares added 4.3 percent to $18.09 in regular trading on Nov. 21.
Target Corp. (TGT US) rose 3 cents to $28. The second- largest U.S. discount chain said it has decided not to further pursue proposals for its real estate by Pershing Square Capital Management LP.
To contact the reporter on this story: Elizabeth Campbell in New York at ecampbell11@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net
By Michael Patterson
Nov. 24 (Bloomberg) -- U.S. stock-index futures climbed after the government said it will guarantee $306 billion of troubled Citigroup Inc. assets and Democratic lawmakers pledged to pass an economic stimulus package by January.
Citigroup jumped 59 percent after the Treasury Department also agreed to inject $20 billion into the bank. JPMorgan Chase & Co. added 4.7 percent and Bank of America Corp. rose 6.5 percent as the guarantee eased concern that a flight of depositors might destabilize Citigroup, which has $2 trillion of assets. Intel Corp. and Alcoa Inc. climbed after Senator Charles Schumer said the stimulus plan may approach $700 billion.
Futures on the Standard & Poor’s 500 Index expiring in December added 2.6 percent to 812.6 at 9:08 a.m. in New York, signaling the index may extend its rebound from an 11-year low last week. Dow Jones Industrial Average futures climbed 1.4 percent to 8,150 and Nasdaq-100 Index futures rose 2.2 percent to 1,114.5. Europe’s Dow Jones Stoxx 600 Index increased 3.5 percent, while the MSCI Asia Pacific Index slipped 0.5 percent.
“Action clearly had to be taken to address the capital position of Citigroup,” Bob Parker, vice chairman of Credit Suisse Asset Management, which oversees about $600 billion, said in an interview with Bloomberg Radio from London. “For the whole system, it’s going to be a very slow, long, drawn out process, but I am encouraged. I’m assuming that there is going to be a very major, $500 billion plus, fiscal expansion plan announced in January.”
Citigroup Rallies
The S&P 500 rallied 6.3 percent on Nov. 21, paring a third straight weekly decline, after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner as Treasury secretary. The index has tumbled 46 percent this year after almost $1 trillion of financial-company losses caused corporate profits to fall for five straight quarters. Concern Citigroup may need a government rescue sent bank stocks down 24 percent last week, the steepest slide in at least 19 years.
Citigroup climbed $2.23 to $6 today. The cash injection from the Treasury adds to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.
The Treasury, Fed and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial- market stability and help restore economic growth.
‘Main Focus’
“With Citigroup hanging in the low single digits, the market was calling for either a breakup or some kind of resolution,” said Jack Ablin, who helps manage about $60 billion as chief investment officer of Harris Private Bank in Chicago. “This is going to be the main focus of market activity. It should be good news.”
The Financial Select Sector SPDR Fund, an exchange traded fund of financial stocks known by its XLF ticker symbol, advanced 5.2 percent to $10.18. JPMorgan added $1.06 to $23.78 and Bank of America increased 74 cents to $12.21.
Congress will send President-elect Barack Obama an economic stimulus package the day he takes office Jan. 20, Democratic lawmakers said. Senator Schumer of New York said on ABC’s “This Week” program that the package will be between $500 billion and $700 billion. House Majority Leader Steny Hoyer of Maryland said on “Fox News Sunday” that he believed the Inauguration Day goal would be met. He declined to put a price tag on the bill.
Intel, the world’s largest semiconductor maker, gained 1.4 percent to $13.30. Alcoa, the biggest U.S. aluminum producer, increased 3.4 percent to $8.73.
Energy Shares Rise
Energy companies climbed as oil rallied above $51 a barrel in New York on a retreat in the U.S. currency.
Exxon Mobil Corp., the country’s largest oil company, advanced 1 percent to $76.55. Chevron Corp., the second-biggest, rose 1.2 percent to $71.34.
U.S. home resales dropped in October at the fastest pace in 13 months, signaling a deepening housing recession going into 2009, economists said before a private report today.
Purchases of existing homes probably fell 3.5 percent last month to a 5 million annual pace, the biggest monthly drop since September 2007, according to the median estimate of economists surveyed by Bloomberg News. The National Association of Realtors’ resales report is due at 10 a.m. in Washington.
General Motors Corp., the automaker in danger of running out of cash this year, will seek to negotiate a cut in debt levels and new union work rules to help boost its chances of winning federal loans, people familiar with the plan said. Directors are scheduled to meet by phone today, Nov. 26 and Nov. 28, and then gather Nov. 30 and Dec. 1 to review the plan, the people said. The shares gained 15 cents to $3.21.
Investors are paying $9.24 per dollar of operating profit forecast in 2009 for S&P 500 companies, half the two-decade median of $18.10, data compiled by Bloomberg show. Stock valuations suggest S&P 500 profits may decrease as much as 42 percent next year amid forecasts for the worst recession in more than two decades.
To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.
By Dan Wilchins and Jonathan Stempel
NEW YORK (Reuters) - The U.S. government has bailed out Citigroup Inc, agreeing to shoulder most of the potential losses on $306 billion of high risk assets and inject $20 billion of new capital, in its biggest rescue of a bank yet.
Citigroup's rescue marks the latest government effort to contain a widening financial meltdown that has caused the disappearance or bankruptcies of companies including Bear Stearns Cos, Lehman Brothers Holdings Inc and Washington Mutual Inc.
The government's $20 billion of new capital comes on top of $25 billion it had put into the second-largest U.S. bank by assets, and it will receive preferred shares with an 8 percent dividend in return.
Citigroup received the latest infusion after its shares plunged 60 percent last week to $3.77, amid worry it lacked enough capital to survive. The bank estimated $40 billion of capital benefits, partially from the government guarantee.
In return for the bailout, Citigroup's dividend will be essentially wiped out. The bank cannot pay out more than 1 cent per share per quarter over the next three years without government consent. The quarterly dividend is now 16 cents.
"It looks enormous in size and scope," said Tony Morriss, senior currency strategist at ANZ Bank in Sydney. "Does this mean support for other financial institutions will be this big? Does this mean there will be more problems around calculation of so-called toxic assets?"
Citigroup has the farthest international reach of any U.S. bank, with operations in more than 100 countries. The bank was widely perceived to be too big to be allowed to fail, because any collapse could cause financial havoc around the globe.
"To stabilize the equity, we had to put behind us the issue of Citigroup's ability to withstand whatever would come," Chief Financial Officer Gary Crittenden said in an interview.
The New York-based bank will try to modify troubled mortgages in the $306 billion portfolio as the government tries to keep homeowners out of foreclosure.
Chief Executive Vikram Pandit and other top management will keep their jobs despite the intervention, but the government will have the final say on executive pay packages. More details on compensation may come next week, government officials said.
Not all investors were pleased. "You're seeing an inept management team being rewarded by the U.S. government," said William Smith, chief executive of Smith Asset Management in New York, which owns Citigroup stock.
SPREADING THE EXPOSURE
If it works, the package may become a template for other U.S. banks expected to face growing losses as the economy sinks into recession. Credit losses once concentrated in mortgages are already bleeding into other areas such as credit cards and commercial real estate.
The rescue further magnifies the U.S. government's burden, following bailouts of American International Group Inc, Bear, Fannie Mae and Freddie Mac, and the injection of hundreds of billions of dollars into banks and other financial institutions.
Well over $1 trillion of taxpayer money is at risk, and the Big Three automakers in Detroit are seeking billions more to avoid possible bankruptcy.
The administration of President-elect Barack Obama may also propose a $500 billion to $700 billion economic stimulus.
Asian stock markets trimmed earlier losses in Monday trading following the Citigroup announcement, while several European stock indexes rose. Dow Jones industrial average futures were down 21 points at 8,021, while Standard & Poor's 500 futures were up 2.9 points at 794.80.
Citigroup agreed to absorb the first $29 billion of losses on the $306 billion portfolio, plus 10 percent of additional losses, for a maximum total exposure of $56.7 billion.
The Treasury Department could end up absorbing $5 billion of losses, the Federal Deposit Insurance Corp $10 billion, and the Federal Reserve the rest.
The Treasury Department will get $24 billion of preferred shares, and the FDIC $3 billion. Of the combined amount, $7 billion constitutes a fee for the government guarantees. The government will also get warrants to buy $2.7 billion of common stock, comprising about 254 million shares at $10.61 each.
Citigroup estimated the injection will give it a Tier-1 capital ratio of 14.8 percent, more than twice what the government requires. The bank said it will also get increased access to the Fed's discount window, adding liquidity.
The Fed, the Treasury Department and the FDIC called the actions "necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy."
The government announced the package less than a week after Pandit set plans to reduce Citigroup's workforce to 300,000 by early next year from 375,000 at the end of 2007.
HIT HARD
Earlier this month, U.S. Treasury Secretary Henry Paulson said the $700 billion industry rescue package would instead be used as a means to provide direct capital injections to banks.
That decision hurt Citigroup hard, and the bank's problems were compounded by the tens of billions of dollars of assets that it decided to buy back or move onto its balance sheet.
Citigroup's market value on Friday was just $20.5 billion, down from more than $270 billion two years ago -- and even below the $25 billion initial capital injection.
"In the near term it reduces systemic risk, but it does raise questions about what it means for the industry longer-term," said David Forrester, foreign exchange strategist at Barclays Capital in Singapore.
On Nov 12, analysts at CreditSights Inc said capital at Bank of America Corp and Wells Fargo & Co could "fall short of the comfort zone" in a very severe recession.
Bank of America is buying Merrill Lynch & Co and in July bought troubled mortgage lender Countrywide Financial Corp, and Wells Fargo is buying Wachovia Corp. Merrill and Wachovia have had significant losses tied to mortgages.
Citigroup's agreement recalls JPMorgan Chase & Co's purchase of Bear and Switzerland's rescue package for UBS AG and Citigroup's own bid for Wachovia, with government backing to absorb some of a bank's losses. Wells Fargo outbid Citigroup for Wachovia, and did not seek government backing.
In Europe, Citi's shares soared on the news of the rescue. In Frankfurt, the bank's shares were up 41.89 percent at 4.2 euros at 0819 GMT.
(Additional reporting by Glenn Somerville in Washington)
(Reporting by Dan Wilchins and Jonathan Stempel; Editing by Jean Yoon and Rupert Winchester)
Posts
All Comments
