Tuesday, March 31, 2009

Today's Headlines


- Stocks in the U.S. and Europe rose, extending the biggest monthly rally for global equities since 2003, as banks surged after a gauge of their health reached the best level in a month. Citigroup Inc., Bank of America Corp., HSBC Holdings Plc and Banco Santander SA gained at least 5 percent after the TED spread, the difference between what lenders and the Treasury pay to borrow for three months, fell to 0.99 percentage point. Alcoa Inc., the largest U.S. aluminum producer, jumped 11 percent on takeover speculation. The Standard & Poor’s 500 Index has surged 19 percent since March 9, the biggest 16-day rally since 1982, according to the firm’s index analyst Howard Silverblatt.

- Banks may report first-quarter earnings that are better than the “quite miserable” fourth quarter, reflecting gains in home sales, said John Dugan, U.S. Comptroller of the Currency. “We have seen some glimmers of hope in the economy, recently, as home sales have picked up and some banks have pointed to a better first quarter than the quite miserable fourth quarter of last year,” Dugan said today at an American Bankers Association conference in Washington.

- Apollo Global Management LLC, the private-equity firm run by Leon Black, and Colony Capital LLC may start funds to participate in the Obama administration’s program to buy distressed mortgage debt from U.S. banks. The firms are among buyout groups that are considering raising as much as $1 billion each to invest in government- backed deals, said people familiar with the matter who asked not to be identified because the discussions are private. Apollo and Colony may reduce their usual fees to lure investors who might otherwise be wary of betting on a recovery in real estate markets, the people said.

- French President Nicolas Sarkozy will walk out of this week’s Group of 20 summit if his push for stricter international financial regulation flops, Finance Minister Christine Lagarde told the British Broadcasting Corp. Sarkozy will refuse to sign any statement if he feels “the deliverables are not there,” Lagarde said in the interview. “I think he is very determined.” “It’s a bomb shell to be honest,” said Philip Whyte, senior research fellow at the London-based Center for European Reform. “If such a high-profile leader would walk out the summit, it likely would be seen as very negative on the stocks and bond markets. It would highlight the disunity among the leaders when the times require a show of unity, concrete actions and stabilization.” Failure to find an international consensus would deal a blow to the April 2 summit in London that aims to find ways to end the global recession and avoid a repeat of the financial crisis that caused it. France has resisted U.S. calls to boost fiscal stimulus while pushing for crackdowns on tax havens, executive compensation and hedge funds.

- The German economy will contract 5.3 percent this year, the Organization for Economic Cooperation and Development said, urging Chancellor Angela Merkel to adopt more measures to combat the recession. While Europe’s biggest economy will see “slow” recovery next year, growing 0.2 percent, the jobless rate will jump to 11.6 percent from 8.9 percent in 2009, the Paris-based OECD said today in an e-mailed report. The fiscal deficit will widen to 6.8 percent of gross domestic product from 4.5 percent, it said. “Given the rapid deterioration in activity, further stimulus measures are needed and should be implemented quickly,” the OECD said.

- Cerberus Capital Management LP, the $27 billion investment firm founded by billionaire Stephen Feinberg, may use stakes in a new fund to pay investors seeking withdrawals from a hedge fund after redemptions surged. Setting up a so-called special purpose vehicle to meet redemption requests from Cerberus Partners LP, which capped withdrawals in December after its assets slumped, is one option being considered by the New York-based firm, according to a March 27 letter to investors. The company may also pay withdrawals in cash within the one-year suspension period. Cerberus, founded by former Drexel Burnham Lambert Inc. banker Feinberg in 1992, limited withdrawals from the hedge fund after it lost 16 percent in the year through November. The fund fell 3 percent to $1.99 billion in the first two months of 2009, according to the letter, a copy of which was obtained by Bloomberg. The surge in withdrawals and the creation of the new fund may result in investors waiting years to get their money.

- Bank of America Corp.(BAC), Wells Fargo & Co.(WFC) and BB&T Corp.(BBT) are all expected to turn higher operating profits than earlier estimated on the banks’ mortgage and trading businesses, Friedman, Billings, Ramsey Group Inc. said. Bank of America’s estimate for operating earnings was raised to 10 cents a share from a loss of 50 by Paul Miller, an analyst with FBR. The Charlotte, North Carolina-based bank should benefit from its mortgage and capital markets trading business, Miller said in a research note to investors today. Wells Fargo’s operating earnings were raised to 25 cents a share from 5 cents, which “reflects stronger mortgage banking income.”

- Mark Carhart and Raymond Iwanowski, co-heads of Goldman Sachs Group Inc.’s quantitative investment- management group and Global Alpha hedge fund, retired. The pair left the New York-based firm today along with senior portfolio manager Giorgio De Santis. Andrea Raphael, a spokeswoman at Goldman Sachs, confirmed the departures and declined to comment further.

- US steel prices fell 5.6% in March as demand for the metal continues to weaken, Purchasing Magazine said. The average price of hot-tolled steel sheet, the benchmark product used in cars and appliances, dropped to $471 a ton from $499 in February, the magazine said today.

- Commodities headed for a third quarterly drop, the longest losing streak since 2001, as demand for raw materials from crude oil to nickel shrank and producers failed to cut output fast enough. The Reuters/Jefferies CRB Index of 19 commodities fell 5.8 percent this quarter, adding to a 50 percent drop in the second half of 2008. Natural gas, nickel and wheat led the declines, overwhelming advances in gasoline, copper and hogs. The contraction in global oil consumption this year will be the first since the early 1980s and the steepest since the mid- 1970s, according to Nobuo Tanaka, executive director of the International Energy Agency. The Paris-based adviser to 28 nations has cut its 2009 demand forecast seven times. An earlier rebound above $50 a barrel was “not sustainable because near-term fundamentals are still very bearish, and the focus is about to switch back to the global recession, weak demand and still-high stocks,” said Mike Wittner, head of oil- market research at Societe Generale SA in London. Copper demand will drop 9.2 percent in 2009, leaving a supply surplus this year and next, according to Macquarie Group Ltd. Copper has advanced 31 percent this year, buoyed by China adding to state reserves and dwindling supplies of scrap, used to make about 40 percent of the world’s refined metal. Aluminum production will outpace demand through 2012, while zinc and lead won’t move back into a shortfall until 2011, Macquarie estimates. Nickel will fare worse, remaining in surplus until at least 2012, the bank forecast. Money into commodity exchange-traded products will likely reach $19 billion this quarter, $4 billion more than for all of 2008, Barclays Capital estimates.

- China’s 4 trillion yuan ($585 billion) fiscal stimulus spending won’t create enough jobs, making unemployment the nation’s “most pressing issue,” the Asian Development Bank said. “Investment projects in the stimulus package will generate jobs, but not enough to absorb the growing labor surplus,” the ADB said. “Infrastructure projects are generally less labor- intensive than export-oriented manufacturing.” The ADB cut its forecast for China’s economic growth this year to 7 percent from 9.5 percent in a report released in Hong Kong today.

- North Korea’s government vowed to wage war against Japan if Japanese defense forces try to shoot down a missile that the communist nation says will carry a communications satellite. “Should Japan dare recklessly to intercept the DPRK’s satellite, its army will consider this as the start of Japan’s war of reinvasion more than six decades after the Second World War,” the official Korean Central News Agency said today in an e-mailed statement.

- Crude oil is set to drop to $28 a barrel in New York in the second quarter, according to technical analysis by Societe Generale SA. “The market can continue to bounce, but in the next month the bear-trend will resume,” Aymes said in a telephone interview from London yesterday.

Wall Street Journal:

- Eli Lilly & Co.(LLY) Chief Executive John Lechleiter said the drug maker is looking for acquisitions of as much as $15 billion now that it has digested ImClone Systems. "I got hungry again about three weeks after ImClone got closed" in late November, Dr. Lechleiter said in an interview. Major drug makers are snapping up large rivals after failing to develop lucrative new drugs to replace their aging blockbusters. Analysts estimate that drugs with $30 billion in sales will go off patent and face competition from cheaper generics in the next several years.

- Iraq has tendered to build 50,000 barrel a day crude oil production facility at one of the world's largest oil fields in southern Iraq, according to a document seen by Dow Jones Newswires Tuesday. It said foreign companies bidding for the degassing, dehydration, and desalination plants must submit their offers by April 23. The underdeveloped West Qurna oil field, near Basra has estimated proven reserves of 8.6 billion barrels and is producing 300,000 barrels a day, while its potential production capacity could reach up to 650,000 barrels a day. Earlier this month, Missan Oil Co., also in southern Iraq, issued a tender for building a similar facility at the giant Halfaya oil field. The two giant oil fields are part of a "crush plan" recently adopted by the Iraqi government to increase the country's production by 500,000 barrels a day within two years. Iraq, in desperate need of cash to rebuild its infrastructure, is seeking to boost oil production and renew an industry that has been hobbled by years of war, sanctions, underinvestment and violence. Iraq, with oil reserves exceeding 115 billion barrels, the world's third largest, produces only 2.4 million barrels a day.

- On Monday, the markets started to question whether International Business Machines and Sun Microsystems will really get a deal done. It was on March 19 that The Wall Street Journal reported that IBM was in talks to acquire Sun Micro. But it wasn’t until Monday that stock prices of the two companies really started to diverge, a sign perhaps that traders suddenly believed the deal could be endangered.

- Genentech Inc. (DNA) officials on Tuesday said they are "confident" that data the company submitted to federal regulators are sufficient to support approving Avastin to treat an aggressive type of brain cancer. Genentech made its pitch to support expanding approval of Avastin, already approved to treat advanced breast, lung and colorectal cancers, in patients with glioblastoma multiforme before a U.S. Food and Drug Administration-sponsored panel of medical experts.

- MySpace plans to announce that it has struck a deal with IAC/InterActiveCorp's(IAC) CitySearch to collaborate on local online business advertising, among other initiatives, according to people familiar with the matter.


- GM Chief Financial Officer Ray Young told me in a phone discussion Tuesday that the previous offers extended to the company’s union and bondholders are no longer valid. They are going to get new offers, and they will be harsher, per order of the White House. He went on to say that the White House did not give the company a new specific set of terms, but that the administration’s new goal is a “maximum conversion of debt to equity.” In other words, instead of giving the UAW and bondholders cash or new debt, they should be forced to take as much stock as possible.

- Warren Buffett's official biographer calls Byron Trott a "perfect candidate" to eventually take over at Berkshire Hathaway, now that Buffett’s favorite investment banker has left Goldman Sachs.

- Monthly sales reports due out from more than 50 retailers this week should show signs of stabilization in the sector, said Dana Telsey, Telsey Advisory Group chief research officer. “I think we’re going to hear from some of the companies a little bit about sales stabilization,” said Telsey. “We’re finally seeing inventory levels come down so much that you can’t have sales continue to weaken at the dramatic pace that they had been.”

- Poll: Is Obama’s tactic of strong-arming business good for the economy?

- Should a bridge that would connect two campuses at Microsoft's headquarters be funded with $11 million from the federal stimulus package? Critics of using stimulus money for the bridge say it would give the software giant a break on a pet project. They also say it serves as a warning sign of how some stimulus money is not being used to finance new projects but is being diverted to public works already under way.

CBS News:

- The top Taliban commander in Pakistan promised an assault on Washington "soon" - one he says will "amaze" the world. "Soon we will launch an attack in Washington that will amaze everyone in the world," Baitullah Mehsud told The Associated Press by phone. Mehsud also claimed responsibility for Monday's attack on a police academy outside the eastern Pakistani city of Lahore, saying it was in retaliation for U.S. missile strikes against militants along the Afghan border.


- The FBI and federal prosecutors are reportedly closing in on the AIG executive whose suspect investments cost the insurance giant hundreds of billions of dollars. The government is investigating whether or not 54-year old Brooklyn-native Joseph Cassano committed criminal fraud in virtually bankrupting the company. "He almost single-handedly is responsible for bringing AIG down and by reference the economy of this country," said Rep. Jackie Speier (D-Ca.) Cassano, who lives in London, made more than $300 million running the infamous Financial Products Division of AIG where he, with about a dozen others, committed AIG to insure what turned out to be more than a trillion dollars worth of junk quality loans held by banks. "He is the golden boy of the casino," said Rep. Speier. "They basically took peoples' hard earned money and threw it away, gambled it and lost everything. And he must be held accountable for the fraud, for the dereliction of his duty, and for the havoc that he's wrought on America."

The Detroit News:

- Michigan State's entry into the NCAA Final Four has sent ticket prices soaring on the resale market. After MSU's pivotal victory against Louisville on Sunday, tickets to Saturday's semifinal game at Ford Field against Connecticut fetched as much as $2,500 each on StubHub.com, an online ticket marketplace. On eBay, a seller hoping to profit from the post-game frenzy posted tickets for $1,750 a pair.

- The Chevrolet Volt will not save General Motors Corp., the U.S. government said Monday in its Viability Summary of GM. "While the Volt holds promise, it will likely be too expensive to be commercially successful in the short-term," the report said. The electric car "is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable."

CEP News:

- U.S. retailers saw a rebound in weekly chain store sales for the week ending March 28, according to a survey from ICSC that showed more spending compared to the previous week. ICSC and Goldman Sachs reported that U.S. chain store sales increased 1.1% on a weekly basis following a 0.4% contraction previously. On an annual basis, sales were down 0.2% compared to the previous week's 1.4% contraction. "This solid weekly increase is a good omen for the retail sector and economy -though demand improvement has a long road back," said Michael P. Niemira chief economist at the ICSC.

Washington Post:

- After ousting General Motors' chief executive, President Obama warned Monday that bankruptcy may be unavoidable for two American automotive giants. The administration's display of authority sent U.S. stocks tumbling and raised questions about whether the government would take similar steps against top executives at U.S. banks that are also receiving government bailout funds.

- Morgan Stanley (MS) is close to raising $6 billion for a new global property fund, falling short of its earlier target of $10 billion, sources with direct knowledge of the plan said.

- China Investment Corp (CIC), the country's $200 billion sovereign wealth fund, has committed $800 million in a new $6 billion global real estate fund to be managed by Wall Street bank Morgan Stanley (MS), according to a person who has direct knowledge of the deal.

- The euro zone will sink deep into recession this year with inflation below one percent this year and next, the OECD forecast on Tuesday, as it called for more European Central Bank rate cuts and quantitative easing. The Organization for Economic Cooperation and Development said the euro zone economy would shrink 4.1 percent this year and a further 0.3 percent in 2010 -- the most pessimistic outlook of all institutional forecasters so far.


- The number of anti-Semitic incidences in Europe through the first three months of this calendar year exceeds the total number of such occurrences from all of 2008, according to a report issued by the European Jewish Congress.

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