Excel to Purchase Rival Quintana for $2.45 Billion

(Bloomberg) -- Excel Maritime Carriers Ltd. agreed to buy larger rival Quintana Maritime Ltd. for $2.45 billion, including debt, to become the largest dry-bulk shipper listed in the U.S.

Excel will pay $13 in cash and 0.4084 share for each Quintana share. That equals about $26.48 a share based on yesterday's closing price, Hamilton, Bermuda-based Excel said today in a statement. The price is 57 percent above Quintana's close yesterday.

Quintana in the third-quarter operated 29 ships and is awaiting delivery of eight more over the next two years, which will increase its capacity by 55 percent. Today's purchase will make the combined entity the fourth-largest Panamax-size carrier company in the world, according to Lloyd's Register-Fairplay. Panamax usually haul 75,000-ton cargoes.

``From a strategic standpoint, we like it,'' said Doug Mavrinac, a Houston-based Jeffries & Co. analyst who has a ``buy'' rating on both companies. ``It increases the size of Excel's fleet significantly, lowers its average age, and it increases time-charter coverage, and therefore their cash flow visibility''

Quintana rose $4.78, or 28 percent, to $21.67, at 12:12 p.m. in Nasdaq stock market composite trading. Excel fell $1.20, or 3.6 percent, to $31.80 in New York Stock Exchange composite trading.

 

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Northwest, JetBlue, AirTran Post Losses on Fuel Costs

(Bloomberg) -- Northwest Airlines Corp., JetBlue Airways Corp. and AirTran Holdings Inc. posted fourth-quarter losses as rising fuel costs erased gains from fare increases.

Northwest said its deficit was $8 million after a $267 million year-earlier loss in bankruptcy, while JetBlue's $4 million loss compared with net income of $17 million. AirTran pared its loss to $2.17 million from $3.55 million.

Fuel is ``the principal culprit,'' said Dave Swierenga, president of consulting firm AeroEcon in Round Rock, Texas. ``The softening economy is clearly also having a negative effect.''

Today's results from the three carriers echoed those reported earlier by larger rivals including American Airlines and United Airlines, which also blamed fuel for blunting benefits from higher fourth-quarter ticket prices.

JetBlue jumped as much as 16 percent, leading U.S. airline shares higher, as its loss was narrower than analysts expected. The shares rose 77 cents to $5.71 at 12:19 p.m. New York time in Nasdaq Stock Market composite trading.

Northwest gained 56 cents, or 3.1 percent, to $18.50 in New York Stock Exchange composite trading, while AirTran rose 29 cents, or 3.4 percent, to $8.75.

Northwest, the fifth-largest U.S. airline, and other big carriers raised fares six times last quarter to counter a 43 percent jump in average jet-fuel prices. The major airlines also doubled their fuel surcharges to $40 round trip. The surcharges are supposed to be temporary.

Northwest

Northwest's loss was 3 cents a share, narrower than the loss of 8 cents projected in a Bloomberg survey of nine analysts. Sales at the Eagan, Minnesota-based airline rose 3.9 percent to $3.1 billion.

Northwest said it would have broken even except for a $14 million pretax loss from selling its remaining holdings in commuter carrier Pinnacle Airlines Corp. The quarterly deficit was Northwest's first since leaving bankruptcy in May.

Spending on fuel rose 16 percent to $937 million, making it Northwest's largest cost and helping to boost operating expenses by 4.3 percent. Higher prices were partially offset by a drop in fuel consumption as Northwest retired older, less-efficient planes and reduced mainline capacity by 2.5 percent.

The surge in fuel is spurring calls by investors for airlines to consolidate and pare expenses. Northwest is considering a tie-up with Delta Air Lines Inc., according to Northwest's pilots union. The airlines have declined to comment on any merger talks.

 

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U.S. Stocks Rise After Earnings, Durable Goods Top Forecasts

(Bloomberg) -- U.S. stocks rose for a second day, led by telephone companies and utilities, on better-than- forecast durable goods orders and earnings that topped estimates at two dozen members of the Standard & Poor's 500 Index.

Dow Chemical Co., American Electric Power Co. and Valero Energy Corp. led gains among the 30 companies in the S&P 500 that reported results since markets closed yesterday. Boeing Co. and Caterpillar Inc. climbed after the Commerce Department said orders for U.S. durable goods rose the most since July.

The S&P 500 added 1, or 0.1 percent, to 1,354.97 at 1:06 p.m. in New York. The benchmark for U.S. equities is still down 7.6 percent in 2008 on concern the collapse of the subprime mortgage market will drag the economy into recession. The Dow Jones Industrial Average rose 25.04, or 0.2 percent, to 12,408.93. The Nasdaq Composite Index decreased 6.52, or 0.3 percent, to 2,343.39, dragged down by a 2.1 percent drop in Google Inc.

``When you see a durable goods number like this and then earnings outside of the financial sector doing quite well, people are beginning to realize that perhaps the contagion effect may be somewhat limited,'' said Damon Barglow, who helps oversee $1.9 billion at Eastern Investment Advisors in Boston, in an interview with Bloomberg Radio.

Durable Goods

Index futures doubled their advances after the 5.2 percent gain in durable goods orders last month highlighted how growing overseas demand may spur manufacturing as the U.S. economy slows. The Federal Reserve is to expected to cut interest rates tomorrow in an effort to spur growth.

The S&P 500 has gained 3.5 percent from its 16-month low on January 22 after falling as much as 15 percent from its Oct. 31 record.

Fourth quarter earnings advanced 20 percent on average for the 155 non-financial companies in the S&P 500 that have reported results so far, according to data compiled by Bloomberg. Analysts expect the entire index to post an 18 percent average decline in profit.

Dow Chemical rose 43 cents to $38.02. The maker of 3,200 products ranging from synthetic latex to pesticides posted profit excluding some restructuring costs and other items of 84 cents, topping the 80-cent average estimate of 14 analysts surveyed by Bloomberg.

Valero, American Electric

Valero Energy Corp. climbed $5.22 to $60.12. The largest U.S. refiner posted fourth-quarter profit of $1.02 a share, topping the 59-cent average analysts' estimates compiled by Bloomberg. Earnings were buttressed by a cut in Valero's tax rate and increased use of low-grade crude oil.

Sunoco Inc., the largest oil refiner in the U.S. East, added $2.20 to $63.35. Tesoro Corp., the largest refiner in the U.S. West, gained $2.90 to $41.29. ConocoPhillips, the nation's second-biggest refiner, increased $1.18 to $77.59.

American Electric Power Co. gained 59 cents to $42.82. The biggest U.S. producer of electricity from coal said fourth- quarter profit rose 28 percent on higher power sales and a gain from the sale of a stake in a power plant. Sales rose 10 percent to $3.3 billion on higher utility rates and colder weather that increased use of electricity for heating.

Boeing, the world's second-biggest commercial airplane maker, climbed $2.34, or 3 percent, to $79.94. Caterpillar, the largest maker of bulldozers and excavators, added 72 cents to $68.93.

The dollar strengthened and yields on Treasury notes rose after the durable-goods report. Economists had forecast orders would increase 1.6 percent in December, according to the median of 64 estimates in a Bloomberg News survey.

Eli Lilly & Co. rallied 94 cents to $52.34. Excluding certain items, Lilly earned 90 cents a share, a penny higher than the average estimate of 17 analysts surveyed by Bloomberg.

 

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Goldman, Morgan Stanley probed on subprime

(Reuters) - Investigators are seeking information from Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) and Morgan Stanley (MS.N: Quote, Profile, Research), Wall Street's largest banks by market value, regarding their activities related to subprime mortgages.

In its annual report filed with the U.S. Securities and Exchange Commission, Goldman said it was cooperating with requests from governmental agencies and self-regulatory organizations for information about securitizations, collateralized debt obligations and synthetic products related to subprime mortgages.

Meanwhile, in its annual report filed with the SEC, Morgan Stanley said it was responding to subpoenas and information requests from governments and regulators concerning subprime and non-subprime mortgages.

The SEC filings came on Tuesday.

Morgan Stanley also said it was a defendant in lawsuits over its role as an underwriter of preferred stock offerings for mortgage lenders New Century Financial Corp (NEWCQ.PK: Quote, Profile, Research) and Countrywide Financial Corp (CFC.N: Quote, Profile, Research). New Century is liquidating in bankruptcy, while Countrywide agreed on January 11 to be acquired by Bank of America Corp (BAC.N: Quote, Profile, Research).

Subprime mortgages go to people with poor credit. The U.S. housing crisis has caused dozens of mortgage lenders to go out of the business in the last year, and led to more than $100 billion of write-downs at banks worldwide.

Goldman and Morgan Stanley are among 21 banks sued on January 10 by the city of Cleveland. The city alleges that fee-hungry banks created a foreclosure crisis by offering mortgages that borrowers couldn't afford but which could be packaged into securities that investors could buy.

 

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NY Gov working on fix for bond insurers

(Reuters) - New York Gov. Eliot Spitzer said on Tuesday he was working "extraordinarily hard" to aid troubled bond insurers, adding that he would do what is appropriate for the bond market, and the municipal market in particular.

U.S. states, counties and cities buy insurance from bond guarantors because it makes it easier for the tax-free issuers to sell their debt. The insurance companies guarantee that if there is a default, investors will be paid all the principal and interest they are owed.

But bond insurers' expansion into the now-melting subprime mortgage sector threatens the companies' top "AAA" ratings their business requires.

As a result, tax-free issuers around the nation are increasingly skipping insurance or having to pay unusually high interest rates on some types of short-term notes whose liquidity partly depended on insurance.

New York Insurance Superintendent Eric Dinallo has been trying to help the bond insurers raise capital to strengthen their balance sheets, but has warned this will take time.

The Democratic governor told reporters: "We are deeply immersed in this to do what we think is appropriate for the marketplace and for the bond market and ... for the municipal market in particular."

 

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Wal-Mart cuts prices to lure Super Bowl shoppers

(Reuters) - Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research) said on Tuesday it is cutting prices on thousands of items by 10 percent to 30 percent this week to win sales from cash-strapped shoppers ahead of the Super Bowl.

A Wal-Mart spokeswoman did not have an exact figure on the number of items included in the price cuts but said the world's largest retailer was reducing prices on groceries, popular electronics and other items that shoppers might buy before the Super Bowl football championship game on Sunday.

Wal-Mart typically announces such widespread price cuts during the ultra-competitive holiday shopping season.

But with 2008 U.S. retail sales forecast to rise at the slowest pace in six years, retailers are turning to promotions to lure shoppers into their stores to spend their limited budgets.

Ahead of the Super Bowl weekend, Best Buy Co Inc's (BBY.N: Quote, Profile, Research) Web site is advertising no interest for three years on all Samsung flat panel TVs $999 and up, while in a similar move, Circuit City Stores Inc (CC.N: Quote, Profile, Research) is offering no interest for 36 months on TVs $999 and higher.

Wal-Mart said it is charging no interest for 18 months on purchases of $250 or more with a Wal-Mart credit card.

 

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Global Recession Risk Grows as U.S. `Damage' Spreads

(Bloomberg) -- The U.S. economy may already be in recession; other countries might not be far behind.

Japan, Britain, Spain and Singapore, which together represent about 12 percent of the world economy, are vulnerable as fallout from the U.S. worsens their economic weakness. Even emerging markets, including China, are likely to suffer as exports to the U.S. wane.

The result: Global growth may decelerate close to the 3 percent pace economists deem a worldwide recession, from a 4.7 percent rate in 2007. ``Some form'' of global recession ``is inevitable at some point,'' former Federal Reserve Chairman Alan Greenspan said in a speech in Vancouver last week.

The developing slump puts pressure on central bankers in Japan, the U.K. and the euro region to follow the lead of Fed Chairman Ben S. Bernanke, who last week accelerated interest- rate cuts in the U.S. with an emergency move to lower the benchmark rate by three-quarters of a percentage point. Policy makers may follow that with another cut of as much as half a point after a two-day meeting that starts tomorrow, futures trading indicates.

``The odds are shifting toward a more significant global monetary easing,'' says Richard Berner, co-head of global economics for Morgan Stanley in New York.

Jim O'Neill, chief economist at Goldman Sachs Group Inc. in London, says growth in the first half of 2008 may be the ``weakest since 2002 and maybe even 2001,'' during the last global downturn. ``The economy is slowing everywhere,'' he says.

Stocks Fall

Stocks retreated in Europe and Asia today, led by commodity producers and banks, on growing concern the global economy is slowing and companies may report more losses linked to subprime mortgages. U.S. index futures dropped and Treasury notes rose for a second day.

A worldwide recession doesn't require a global contraction in output, which rarely happens; economists at the International Monetary Fund say it would take a slowdown in global growth to 3 percent or less. By that measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-2002.

The contagion from the U.S., which according to the IMF represents about 21 percent of the global economy, is spreading via multiple channels. Less spending by American consumers and companies reduces demand for imported goods. The meltdown of the U.S. subprime-mortgage market has pushed up credit costs worldwide and forced European and Asian banks to write down billions of dollars in holdings. Tumbling U.S. stock prices are dragging down markets elsewhere.

 

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Gold Rebounds as Dollar Tumbles After Fed's Interest-Rate Cut

(Bloomberg) -- Gold rose after an emergency cut in U.S. borrowing costs reduced the value of the dollar, boosting the appeal of the precious metal as an alternative investment.

The Federal Reserve slashed its benchmark interest rate 0.75 percentage point to 3.5 percent after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Gold rallied 31 percent in 2007 after the Fed cut rates by 1 percentage point, sending the dollar down 9.5 percent against the euro.

``This is a pure dollar play if ever there was one,'' said Jon Nadler, an analyst at Kitco Minerals & Metals Inc. in Montreal.

Gold futures for February delivery climbed $8, or 0.9 percent, to $889.70 an ounce at 11:57 a.m. on the Comex division of the New York Mercantile Exchange. The price earlier fell as low as $849.50.

Gold for immediate delivery rose $24.22, or 2.8 percent, to $889.22. The price fell 2.1 percent yesterday, when the Comex was closed for Martin Luther King Jr. Day.

The rate cut was the biggest single reduction since the Fed began using the benchmark as the principal tool to control monetary policy in 1990. The dollar dropped as much as 1.3 percent against the euro.

``Lower interest rates are very good for gold because the dollar will weaken against other currencies,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York.

Policy makers are scheduled to meet on Jan. 30. Interest- rate futures show a 70 percent chance the Fed will cut the benchmark rate 0.25 percentage point to 3.25 percent at that session, compared with no chance a week ago.

`Total Meltdown'

``At this point, the Fed looks like they're asset- senstive,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``They're going to put liquidity in the market to keep stock prices higher and a total meltdown from happening.''

U.S. stocks tumbled for the fifth session with the Dow Jones Industrial Index plunging as much as 3.8 percent before paring losses. European stocks rose for the first time in six session after the Fed's surprise cut.

``Market participants see weakening economic conditions as the cause of the emergency rate cuts and stronger inflationary pressures as a result,'' said Stuart Flerlage, who helps manage more than $600 million at NuWave Investment Corp. in New York ``This will continue to provide a strong bid for gold.''

 

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ABN Leads Stocks Bears as MFS Sees No Repeat of '03

(Bloomberg) -- The last time the Standard & Poor's 500 Index was at least 10 percent below its previous high, in 2003, the world's biggest stock investors were bullish.

Not this time. Institutions handling $1.5 trillion, including Baring Asset Management's Andrew Cole, ABN Amro Asset Management's Joost van Leenders and MFS Investment Management's James Swanson, are holding or selling. They say stocks are riskier today than they were during that last correction in 2003, even though valuations are half as much.

``It's a much more dangerous game today,'' said Cole, 44, a fund manager who helps invest $48 billion at Baring in London. ``2008 is going to be a year of preservation of capital. We've got a lot of cash and we're not frightened to say so.''

Cole, whose firm favored shares over bonds or cash in 2003, said in an interview he's ``underweight'' equities this year because evidence of a U.S. recession is mounting. January's decline in the S&P 500, the benchmark for American equities, marked the worst start in the index's history.

The Federal Reserve's three interest-rate cuts since September haven't encouraged stock investors about the prospects for the economy. Equities are the cheapest relative to bonds since 1974, and still investors are shifting funds to fixed- income.

Steepest Drop

Stocks got even less expensive as the MSCI World Index dropped 3 percent yesterday, its biggest decline since 2002. The global benchmark slipped 1.1 percent today, its sixth straight decline and the longest stretch of losses since the period ended July 18, 2006.

Benchmark indexes from Hong Kong to London and Brazil retreated yesterday as concern grew that a U.S. recession will weaken global growth. Japan's Nikkei 225 Stock Average dropped today by the most since September 2001, and Australia's All Ordinaries Index tumbled the most since October 1989. In Hong Kong, the Hang Seng Index was headed for its biggest two-day slump in a decade.

Investors pulled money from U.S. stock funds every month between May and November, the longest streak this decade, according to Investment Company Institute, which compiles data from 4,744 equity funds with $6.6 trillion in assets.

Net inflows to fixed-income funds in 2007 were the biggest since the start of the U.S. bull market in 2002, according to data from ICI, the Washington-based trade group for the mutual- fund industry.

``What we've been telling people to do is, `Face reality and take action.''' said David Darst, the New York-based chief investment strategist for Morgan Stanley's private banking unit, which oversees $700 billion.

Recession Forecasts

Last month, Darst recommended clients raise their cash holdings to 16 percent of assets. He told them to move money from equities to hedge funds that use futures to bet on currencies, interest rates and commodities.

ABN Amro Asset's van Leenders, 38, the firm's investment strategist, said he's daunted as earnings fall and predictions from Morgan Stanley, Goldman Sachs Group Inc., and Merrill Lynch & Co. increase investors' conviction that the country is sliding into a recession.

Profit for S&P 500 members may have tumbled an average of 17 percent in the fourth quarter, according to Bloomberg data. The 2.5 percent drop in the third was the first quarterly decline since 2002.

End of Expansion

A jump in the jobless rate in December signaled that the longest expansion in consumer spending on record will end in the first quarter, Goldman said. The number of Americans who fell behind on mortgage payments rose to a 20-year high in the third quarter and home prices probably fell last year for the first time since the Great Depression.

Economic growth will slow to 1.1 percent in the first quarter, according to the median estimate of 65 economists surveyed by Bloomberg. In 2003, the U.S. grew at an annual rate of 2.5 percent while profits rose 17.4 percent a quarter, on average.

A correction is any time a stock index declines 10 percent or more from peak to trough. The latest for the S&P 500 was reached Nov. 26, when it fell 10 percent from its record in October.

Prior to that, the 15 percent drop in the index between November 2002 and March 2003 was the sixth correction in three years. Those were spurred by the collapse of the technology bubble, the terrorist attacks on Sept. 11, 2001, a recession in 2001 and the dissolution of Enron Corp.

`Entering Recession'

The S&P 500 rebounded 39 percent between its 2003 low and the end of the year, marking the beginning of a five-year bull market.

``The macro picture right now is much weaker,'' said van Leenders, whose Amsterdam-based firm has $309 billion in assets. ``Then we were recovering from a recession, now we are entering one.''

ABN Amro Asset lowered its allocation to equities last quarter by raising cash and buying government and investment- grade corporate debt, he said. Swanson, the chief investment strategist at Boston-based MFS, sold a third of the shares he owned at the end of the year to boost his holdings in U.S. government bonds.

The S&P 500 fell 9.8 percent in the first 13 trading days of this year for the worst start since the index's inception in 1957. Stocks will drop further as the economy forces more homeowners into default and banks' losses on investments tied to subprime mortgages double to as much as $200 billion, Swanson said.

Benchmarks Drop

MSCI's world index slid 1.1 percent to 1,380.60 as of 3:03 p.m. in Tokyo, extending its decline from an Oct. 31 record to 18 percent. Japan's Nikkei 225 dropped 5.7 percent, and Australia's S&P/ASX 200 lost 7.1 percent. Hong Kong's Hang Seng plunged as much as 8.2 percent. India's Sensex index tumbled 12 percent when trading resumed after a halt to avoid breaching limits.

Yesterday, London's FTSE 100 Index dropped 5.5 percent for the steepest loss since September 2001. Brazil's Bovespa index plunged 6.6 percent, the biggest retreat in almost a year.

``Everything is being painted with a `dump-it-now' brush,'' Swanson, 58, said in an interview from Omaha, Nebraska. ``Seeing those red numbers on stock after stock after stock, it changes the psychology. It's very easy to give in to the doom of `Man, this is really now a recession and bear market and it's never going to get better.'''

Banks Extend Decline

Banks and brokerages in the S&P 500, last year's worst- performing industry with a 21 percent decline, have dropped another 13 percent in 2008. Telephone companies, energy producers and computer makers have fallen more than 12 percent since the start of this year.

New York-based Merrill, the biggest U.S. brokerage, had a record loss last week after writing down the value of its subprime-infected assets by $16.7 billion.

The stock-market slump hasn't been limited to the U.S. Benchmarks in more than two dozen countries including Japan, Sweden and Peru have plunged at least 20 percent from their peaks in the past six months, marking the start of so-called bear markets. This month alone, global stocks have lost more than $5 trillion in market capitalization, Bloomberg data show.

Stuart Fraser, who helps manage $42 billion at Brewin Dolphin Securities Ltd. in London, said he purchased inflation- linked government debt because ``central banks will be more concerned about rescuing the economy than worrying about inflation.''

Fraser, 61, also bought futures contracts and exchange- traded funds that track wheat and soybean prices. Wheat reached a record $10.095 a bushel in December and has doubled in the past year. Soybeans set an all-time high of $13.415 a bushel this month after surging 78 percent in 2007.

Long Volatility

Ashburton Ltd.'s Peter Lucas bought futures on the so-called VIX, the Chicago Board Options Exchange Volatility Index that tracks the price of S&P 500 options. The gauge of stock market price swings almost doubled in 2007.

``Whatever happens this year, volatility will remain elevated,'' said Lucas, 42, who oversees $1.7 billion as chief investment officer at Ashburton in Jersey, Channel Islands. ``Being long volatility is a smart way of hedging equity risk.''

Relative to earnings, stocks are about half as expensive as they were in 2003. Companies in the S&P 500 are valued at an average 17.5 times reported profit, compared with 33 times at the start of 2003, data compiled by Bloomberg show.

 

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Stock Tumble Drives 43 Benchmarks Into Bear Market

(Bloomberg) -- More than half of the world's biggest stock indexes fell into a bear market as mounting concern about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America.

The MSCI World Index's 3 percent decline yesterday, the steepest since 2002, left benchmarks in France, Mexico, Italy and 35 other countries at least 20 percent below their recent highs. Declines today turned Greece, India, Indonesia, the Philippines, Saudi Arabia, Slovenia, South Korea, Taiwan and Thailand into bear markets as well.

U.S. stocks tumbled for a fifth day, the longest stretch of declines in 11 months, after the Federal Reserve's emergency interest-rate cut failed to persuade investors the economy will avert a recession.

UBS AG and Bank of China Ltd. led financial companies lower since October after banks lost more than $100 billion on credit investments. Bang & Olufsen A/S and Wal-Mart de Mexico SAB were among consumer stocks that tumbled amid signs the world's biggest economy is shrinking. Even with MSCI World valuations at the cheapest since at least 1995, some of the biggest investors say stocks may fall further.

``I'm struggling to find a catalyst that will turn this market around,'' Bob Parker, who helps oversee more than $600 billion at Credit Suisse Asset Management in London, said in a Bloomberg Television interview. ``What we need is evidence that the write-offs in the financial-services sector are behind us, and we are probably only going to get that in the second quarter. Clearly the market situation is fairly ugly at the moment.''

Sept. 11

Europe's Dow Jones Stoxx 600 Index slumped the most since the Sept. 11 terrorist attacks yesterday, sending it into a bear market, commonly defined as a drop of more than 20 percent in a 12-month period. Japan's Nikkei 225 Stock Average tumbled 5.7 percent today, completing its worst two-day drop in 17 years.

The MSCI World Index of 23 developed markets is down 18 percent from its Oct. 31 record. The MSCI gauge of developing nations also reached a bear market yesterday. Declines in Lima- based Cia. Minera Milpo SA and Tainan, Taiwan-based Catcher Technology Co. led this year's 16 percent retreat.

Japan became the first of the world's 10 biggest stock markets in November to enter a bear market since the summer's U.S. subprime-mortgage collapse. China followed later that month before the benchmark CSI 300 Index recovered and rose 162 percent for the year.

Bear Markets

Among 80 equity national equity benchmarks tracked by Bloomberg, indexes in Argentina, Australia, Austria, Belgium, Bulgaria, Chile, Colombia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Italy, Latvia, Lithuania, Luxembourg, Mexico, Namibia, the Netherlands, Norway, Peru, the Philippines, Poland, Portugal, Romania, Saudi Arabia, Singapore, Slovenia, Spain, South Korea, Sweden, Switzerland, Sri Lanka, Taiwan, Thailand, Turkey, Venezuela and Vietnam have also dropped at least 20 percent from recent highs.

The S&P 500 has fallen 11.2 percent so far this year, while declines in the U.K. and Germany yesterday left those countries' benchmark indexes down 12 percent and 16 percent respectively.

``We've seen panic selling,'' said Matthias Jasper, head of equities at WGZ Bank in Dusseldorf, Germany. ``Particularly small investors lost their nerve. These people are selling with conviction.''

The slump has made stocks cheap by historical standards. The 1,953-member MSCI World is now valued at 14 times its companies' profits, the lowest since at least 1995, according to data compiled by Bloomberg. Europe's Stoxx 600 has a price-to-earnings ratio of 10.9, the smallest since at least 2002.

 

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Fed Cuts Rate 0.75 Percentage Point in Emergency Move

(Bloomberg) -- The Federal Reserve cut the benchmark interest rate by three quarters of a percentage point, its first emergency reduction since 2001, after stock markets tumbled from Hong Kong to London amid increasing signs of a U.S. recession.

The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington. Policy makers weren't scheduled to gather until next week. It's the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990.

``Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,'' the Fed said in a statement in Washington. The FOMC took the action ``in view of a weakening of the economic outlook and increasing downside risks to growth.''

Policy makers set aside concerns about inflation to lower borrowing costs for the fourth time since September after the unemployment rate rose, retail sales fell and stocks slumped. Chairman Ben S. Bernanke shifted the Fed's stance to a more aggressive approach in remarks this month citing a need for ``decisive and timely'' action.

The dollar slid and Treasury securities rallied after the announcement. Stocks slumped as some investors questioned whether the Fed would be able to avert a recession, and then recouped more than half the losses. The Standard & Poor's 500 Index fell 0.5 percent to 1,318.28 at 11:15 a.m. in New York, after dropping as much as 3.8 percent earlier.

Bear Market

Yesterday, almost half of the world's biggest stock indexes fell into a bear market as mounting concern about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America.

``The bottom line was that financial conditions were tightening sharply'' and affecting the economic outlook, said former Fed economist Brian Sack, who is now with Macroeconomic Advisers LLC in Washington. ``The view so far has been that they're somewhat behind the curve and needed to adopt a somewhat more aggressive approach.''

The Bank of Canada, in a scheduled meeting, lowered its main interest rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown. The Bank of England said it has no plans to change the date of its next rate decision. The bank's policy makers are due to begin a two-day meeting in London on Feb. 7.

Paulson Reaction

Treasury Secretary Henry Paulson called the Fed's move ``very constructive'' and a ``confidence builder,'' when asked about the Fed decision after a speech in Washington. He also said it was a sign to the rest of the world that the U.S. central bank is ``nimble.''

Paulson, charged by President George W. Bush last week with negotiating a fiscal stimulus plan with lawmakers, said a package ``must be enacted quickly.'' White House spokeswoman Dana Perino told reporters that the administration hasn't ruled out a proposal exceeding $150 billion.

The Fed Board of Governors, in a related move, lowered the so-called discount rate on direct loans to commercial banks by a 0.75 percentage point to 4 percent. The Chicago and Minneapolis district banks had requested the reduction, the Fed said.

``Appreciable downside risks to growth remain,'' the Fed statement said. ``The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.''

Futures Contracts

Traders had anticipated 75 basis points of rate cuts this month, according to futures prices on the Chicago Board of Trade.

The FOMC vote was 8-1, with St. Louis Fed President William Poole preferring to wait until the regularly scheduled meeting. Fed Governor Frederic Mishkin was absent and not voting.

Fed officials met by video conference at about 6 p.m. yesterday, spokeswoman Michelle Smith said. Mishkin was traveling and unable to participate, she said. The voting members were the same as in 2007 because the presidents don't rotate in until the first regular meeting, Smith said.

Today's so-called inter-meeting rate cut is the first since Sept. 17, 2001, when the Fed lowered borrowing costs in the aftermath of the terrorist attacks six days before. That was the third emergency reduction in a year which saw the last U.S. recession.

 

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JSE boosted by US rates cut

(Fin24) - The JSE turned around on Tuesday afternoon and was trading the black after the US Federal Reserve announced
an emergency rate cut of 75 basis points.

The JSE's all share index fell as low as 24 005.35 at one stage this morning, but recovered to 25 213.200 by noon. Shortly after the Fed's announcement it turned around and was last at 265 615.56 - up 192 points from its previous close.
 

The Fed announced an emergency rate cut of 75 basis points to bring the fed fund rate to 3.5%.
 

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Business asked to cut power use

(Fin24) - Eskom has requested that business cut its energy usage by 10% to 15%, the energy supplier said on Monday.

Speaking to reporters after meeting in Midrand with top business leaders about the energy crisis in SA, Eskom CEO Jacob Maroga said "the biggest lever we can pull is reducing demand and the discussion this morning with the key customers is how we can collaborate in reducing demand".

Maroga said "voluntary saving targets" had been discussed with the 131 executives representing 38 companies present at the meeting.

He said Eskom had been talking with business about voluntarily reductions for some time.

"In some cases we've had some support where they've voluntarily reduced where they can"

He said: "We've put to them that where it's possible they can help us in reducing voluntarily.

"The quantum we are looking at is between 10% to 15%."

Maroga said he would aspire to a 20% reduction; "but anything between 10% and 15% is something we need to aspire to in terms of reduction.

"That reduction will relieve and reduce the probability of loadshedding."

 

Read more at Fin24

Iron ore supply deficit seen in 2008: report

(Reuters) - A worldwide iron ore supply deficit of between 20 million and 25 million tonnes is likely in 2008, Credit Suisse forecast in a report on Monday, on the back of high demand from steel mills.

Iron ore miners are earmarking billions of dollars to expand mines, build new ore freighters and automate operations to dig faster and deeper to satisfy steel mills hungry for more ore.

Credit Suisse also said it expects annual term iron ore prices to rise by 55 percent versus a consensus forecast of a 35 percent hike.

Iron ore prices are set annually by the big three mining companies, Vale (VALE5.SA: Quote, Profile, Research)(RIO.N: Quote, Profile, Research), Rio Tinto Ltd./Plc. (RIO.AX: Quote, Profile, Research)(RIO.L: Quote, Profile, Research) and BHP Billiton Ltd./Plc. (BHP.AX: Quote, Profile, Research)(BLT.L: Quote, Profile, Research), after closed negotiations with big steel producers in Europe, Japan and more recently China.

Demand for iron ore has taken off in recent years, led by rising steel production in China, now the world's top importer.

"Despite the expected slowdowns in the U.S. and credit tightening in China, 2008 will look very similar to 2007," Credit Suisse said in a report.

It said 2007 was one of the tightest markets ever for iron ore, leaving some steel makers short of the raw material.

"We are estimating another deficit of about 20 million-25 million tonnes against seaborne trade of about 870 million tonnes," it said.

 

Read more at reuters

U.S. Economy: Inflation Slows, Industrial Production Unchanged

(Bloomberg) -- Consumer prices in the U.S. rose at a slower pace in December and industrial production failed to grow, giving the Federal Reserve the room and reason to cut interest rates at their next meeting on Jan. 30.

The cost of living increased 0.3 percent after a 0.8 percent gain in November, the Labor Department said today in Washington. Output at U.S. factories was unchanged in December as exports helped make up for declines in auto and housing- related production, the Federal Reserve said separately.

Slower growth will make it more difficult for companies to pass on higher costs, suggesting inflation will cool from last year's pace, the fastest in 17 years, economists said. Investors' attention may now shift to Chairman Ben S. Bernanke's testimony on the economy tomorrow at a hearing in Congress.

``With the sluggish growth outlook and rising risk of recession, inflation concerns have receded,'' said Zach Pandl, an economist in New York at Lehman Brothers Holdings Inc., which correctly forecast the increase in prices. ``The Fed is clearly focusing on growth at this point.''

Economists had anticipated a 0.2 percent increase in consumer prices last month, according to the median forecast in a Bloomberg News survey.

Prices excluding food and energy advanced 0.2 percent, after a 0.3 percent increase, matching the median estimate.

Treasury notes were little changed after the consumer price report and later slipped. The yield on the benchmark 10-year note was 3.68 percent at 10:33 a.m. in New York, little changed from late yesterday. Stocks dropped after an Intel Corp. sales forecast spurred concern technology profits will weaken.

Capacity Use

Capacity utilization, which measures the proportion of plants in use, fell to 81.4 percent from 81.6 percent in November, indicating greater slack in the economy, the Fed's report showed. Economists had predicted a 0.2 percent drop in output and a capacity-in-use rate of 81.2 percent.

``There is nothing that would keep the Fed from cutting 50 to 75 basis points later this month,'' based on today's data, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp. in New York.

Traders anticipate the Fed will cut its benchmark rate to 3.75 percent, from 4.25 percent, this month, futures prices show. The chance of a 75 basis-point cut was 42 percent. Policy makers are next scheduled to gather Jan. 29-30. A basis point is 0.01 percentage point.

For all of last year, consumer prices rose 4.1 percent, the most since 1990. The core rate climbed 2.4 percent after a 2.6 percent increase in 2006.

Energy Costs

Energy prices last month rose 0.9 percent, after gaining 5.7 percent the previous month. Fuel costs were up 18 percent in 2007, also the most in 17 years.

Food prices, which account for about one-fifth of the CPI, increased 0.1 percent, the smallest gain of any month in 2007.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

The government yesterday said producer prices unexpectedly eased 0.1 percent at the end of a year that saw the biggest annual jump in more than a quarter century. The cost of imported goods was unchanged in December, a report last week showed.

PPI and CPI have some differences in timing that may cause discrepancies. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.

Rents, which make up almost 40 percent of the core CPI, rose 0.3 percent.

 

Read more at Bloomberg

BEA accepts $8.5 billion Oracle offer

(Reuters) - Oracle Corp (ORCL.O: Quote, Profile, Research) on Wednesday won a three-month-long campaign to buy BEA Systems Inc (BEAS.O: Quote, Profile, Research) by raising its bid for the business software maker by 14 percent to $8.5 billion.

Activist investor Carl Icahn, BEA's largest shareholder with a nearly 13 percent stake, said he supported the deal, one of last year's highest profile corporate takeover battles.

Icahn and BEA's board initially rejected Oracle, saying it undervalued the company, but no other buyers emerged even as BEA's investment bank, Goldman Sachs, solicited bids from other software makers.

The price that BEA finally agreed to, $19.375 per share in cash, represents a compromise between the $17 that Oracle offered in October and the $21 that BEA had demanded.

"It's a fair price. It's a good deal for Oracle. It's a good deal for BEA," said Trip Chowdhry, analyst at Global Equities Research.

Shares of BEA rose 19 percent to $18.59 in morning Nasdaq trade, while Oracle shares were down 2 cents to $21.29.

BEA is a maker of "middleware," which helps business computer systems interact with each other. Oracle could sell its technology alongside its own middleware, database products and business-management software.

 

Read more at Reuters

Shoprite pockets rise in sales

(Fin24) - Pan-African food retailer Shoprite said sales for December 2007 rose by 16.1% when compared with 2006, which analysts have billed as "pleasing".

The 16.1% increase accounted for both inflation and volume
growth; for the same month, same-store sales grew by 11.7%.

Shoprite says that for the six months to end-December, sales rose by 21.8% to R23.3bn, but notes that the increase should be seen against the three-month strike which took place from August to October 2006, as earnings in thatperiod were affected.

It says like-for-like business in the six-month period
grew by 16.5%.

Nedcor Securities retail analyst Syd Vianello says that
while the numbers were good, the market may be a little disappointed and may have expected more growth given increased social grants, higher food inflation and the perception that Shoprite is taking market share away from Pick n Pay.

Room to fall further

Coronation Fund Managers' food retail analyst Quinton Ivan
says high food inflation - especially in staple foods, which comprise a large part of the Shoprite basket - was beneficial for food retailers' numbers because, despite higher prices, sales volumes do not drop as food is a basic commodity.

Ivan says that while Shoprite is on a heavier rating
(trading on an earnings multiple of 19.3) when compared with Spar (17.6) and Pick n Pay (19.2), its earnings have grown at a faster rate.

Ivan's preference in the food-retail space remains Spar.

Ivan was particularly impressed with the 32.5% growth (20.2% on a like-for-like bases) in Shoprite's African operations. As at end-June 2007 (the most recent figures available), Shoprite had 120 stores in 16 African countries.

Negative overall market sentiment, which saw the all-share index down 3.4% by 13:00 - overshadowed the positive trading update, with Shoprite shares falling 5.4% to 3 700c.

Shoprite's fall was in line with that of fellow food
retailers Pick n Pay (down ) and Spar Group (down 3.6% to 5 300c).

Nedcor Securities retail analyst Syd Vianello says that food retail stocks have, until now, held up well due to them being defensive plays.

Vianello says that while the sell-off presented a buying opportunity, there was room for food retailers to fall further relative to apparel retailers, which have been trading at low price levels.
 

Read more at Fin24

Rand on back foot

(Fin24) - The rand remained on the back foot in late trade on Wednesday amid continuing turmoil in global stock markets with a raft of recent US economic data adding to fears of a
recession in the world's biggest economy.

Dealers added that local data indicating a slowdown in retail sales which supports the argument against another South African rate hike later this month had also contributed to the rand's weakness.

By 15:55 the rand was bid at R6.9210 to the dollar from its previous close of R6.8050. It was bid at R10.2638 to the euro from a previous R10.1070 and at R13.6167 against sterling from R13.1853 before.

The euro was bid at $1.4805 from $1.4780 overnight, while gold was quoted at $890.75 a troy ounce from its previous close of $889.10/oz.

 

Read more at Fin24

Bank of America Bags Countrywide

(Businessweek) - The $4 billion acquisition of Countrywide Financial rescues the U.S.'s largest mortgage lender. BofA chief Ken Lewis calls it a "rare opportunity"

 

Every go-go period on Wall Street has a spectacular flame-out that comes to symbolize the excesses of the day, from Sam Insull's Middle West Utilities during the Great Depression to Pets.com in the dot-com era. Now it's Countrywide Financial's (CFC) turn.

Bank of America (BAC) announced Jan. 11 that it is buying Countrywide in a deal that values the nation's largest mortgage broker at just $4 billion, or roughly $6.90 per share. Even that was a bit of a gift for Countrywide investors, who had seen their stock slip to just $5 a share in the past week as the company denied rumors it would seek bankruptcy protection. As recently as January, 2007, Countrywide's shares were selling for $42.

Bank of America Chairman and Chief Executive Kenneth Lewis said he did not plan on having Countrywide Chairman and Chief Executive Angelo Mozilo head the combined operations. "I would want him to stay until the deal gets done and then probably I would guess that he would want to go have some fun," Lewis said in a conference call announcing the deal.

Read more at Businessweek

Movers: IBM, Harman, Sovereign Bancorp, Sears

(Businessweek) - International Business Machines (IBM) announces preliminary fourth quarter EPS from continuing operations of $2.80, vs. $2.26 a year ago, on 10% higher revenues, including 6 points of currency benefit.

Harman International Industries (HAR) now sees non-GAAP 2008 EPS of $3.00-$3.10, before after-tax merger-related costs of $0.13 per share but including impact of the company's ongoing accelerated share repurchase. It says the change in guidance caused by major shift in market for Portable Navigation Devices (PNDs), which experienced significant pricing pressure.

Sovereign Bancorp (SOV) expects to take a combination of charges due to the continued volatility in the financial markets and deterioration in the credit environment; charges are expected to adversely impact its fourth quarter financial results.

Sears Holdings (SHLD) says Sears Domestic's same-store sales declined by 2.8% during the nine-week period ended Jan. 5, while Kmart's same-store sales declined by 4.2%; total domestic same-store sales declined 3.5%. Due to lower sales, gross margin rates, it sees fourth quarter EPS of $2.59-$3.48, vs. $5.33 last year. It sees $5.13-$5.96 fiscal year 2008 EPS. Goldman reportedly downgrades to sell from neutral.

The Financial Times reports that as Merrill Lynch (MER) is seeking about $4 billion in a second capital raising, Kuwait Investment Authority is expected to be a significant investor in this new deal, which could be announced as soon as mid-week, according to people familiar with the matter. Other investors could come from Europe. Separately, WSJ reports the SEC is probing whether several current and former Merrill employees improperly placed trades for the firm's own account ahead of client orders.

Weyerhaeuser (WY) agrees to sell its iLevel European engineered wood products operations to Finnforest of Finland, part of the Metsaliitto Group. Terms of the sale were not disclosed.

Blue Nile (NILE) posts 24% rise in fourth quarter revenue. Anticipates reporting strong profitability for fourth quarter earnings.

Western Alliance Bancorporation (WAL) sees fourth quarter EPS of $0.09. It says decline from third quarter's $0.35 EPS primarily results from increase in loan loss provision expense to $13.9 million.

FTD Group (FTD) sees $0.30 second quarter EPS on $155 million consolidated revenue, vs. year ago's $0.21 EPS on $152 million consolidated revenue.

PeopleSupport (PSPT) receives unsolicited revised proposal from IPVG Corp. and AO Capital Partners Ltd.

Compuware (CPWR) sees lower-than-expected $0.14 third quarter adjusted EPS. It says there was a high ratio of ratable versus up-front recognition for new software licenses in the quarter, and this resulted in lower-than-expected revenue and EPS.

Terex (TEX) agrees to acquire A.S.V. ( ASVI) for about $488 million. Terms: $18 for each ASVI share. Expects transaction to close by end of the first quarter 2008.

Kirby (KEX) expects fourth quarter EPS to exceed $0.62, above the top end of $0.57- $0.62 guidance, substantially above fourth quarter 2006 EPS of $0.44. It cites strength in core businesses.

 

Read more at Businessweek

Malawi tobacco output higher

(Fin24) - Tobacco production in Malawi is expected to rise to 150 million kilograms this season, encouraged by higher prices and good rains, says the Tobacco Association of Malawi (Tama).

Tama president Charles Mwamsambo told Reuters more farmers had signed up to grow tobacco this season because of a number of factors, key among them an anticipated spike in prices that is likely to encourage tobacco growers to lift production.

The expected increase in prices follows a slump in production last year, when growers only managed production of only 140 million kilograms, down from 158 million the previous season.

"There are several factors like the motivation that farmers have from last year's good prices: more buyers on the market and good rains that will result in high production of about 150 million kilograms this growing season," he said.

More farmers

Mwamsambo said Tama had registered 27 000 new farmers this season compared to only 10 000 new growers signed up last year.

Tobacco accounts for over 70% of Malawi's exports and 15% of its gross domestic product, but for the last two years low prices have led to cuts in production.

About 2 million of the country's 13 million people depend on tobacco and related industries for their livelihood.

The biggest auction floors last year saw farmers sell their crop between $1.70 and $1.60 per kg for the first time in several years, after President Bingu wa Mutharika ordered buyers to offer better prices or leave the country.

 

Read more at Fin24

India sweetens Ethopian sugar

(Fin24) - India has agreed to give Ethiopia a $640m credit out of a total $1.3bn needed to boost Ethiopia's sugar production, say officials from the two countries.

Late last year Ethiopia announced plans to increase its annual sugar production to 1.3 million tons by 2011 from a current 300 000 tons.

India's Exim Bank will finance the $640m.

"It is the largest ever line of credit that India has provided to any country so far," Gurjit Singh, the country's ambassador to Ethiopia, said while signing an agreement between India and Ethiopia.

New factory

The remaining $660m will be covered by the Ethiopian government.

The money will mainly go towards erecting a new factory at Tendaho in the country's Afar region, and expansion of Finchaa, one of four existing sugar factories in Ethiopia within the next two years.

"With the completion of Tendaho... and the enhanced production of the existing four sugar factories... annual sugar production is expected reach up to 1.3 million tons within the next two years," Trade and Industry Minister Girma Birru said.

Tendaho will have an annual production capacity of 600 000 tons and will be Ethiopia's largest sugar factory. It will be located in the lower Awash Valley, in the Afar region, along the Addis Ababa-Djibouti highway and railway line.
 

Read more at Fin24

China Mobile Apple talks over

(Fin24) - China Mobile Limited says that it has discontinued talks with Apple over the launch of iPhone handsets in China.

"We have held talks with Apple to launch the iPhone device in China. However, those talks have ended," China Mobile spokesperson Rainie Lei said. She declined to say why the talks ended.

China Mobile Chairperson Wang Jianzhou said in November last year that the two companies had been unable to agree on a revenue-sharing model.

Calls to Cupertino, California-based Apple were not answered today.
 

Read more at Fin24

Metorex plunge may hurt deals

(Fin24) - The share price of Metorex is plunging inexplicably and has fallen 38% from its 12-month high at a time of bullish conditions for two of its main products - copper and gold.

The fall is particularly embarrassing in terms of Metorex's bid to minority shareholders in Copper Resources Corporation (CRC) which has just been extended for the second time to January 18.

CRC owns three copper projects in the Democratic Republic of Congo (DRC) with resources and reserves totalling up to 2.4 million tonnes of contained copper metal.

Metorex bought 38.7% of CRC in July last year plus a 5% stake in its 75% held subsidiary MMK from the Forrest group for R600m. The Metorex share price stood around 2 400c at the time and it subsequently rose to an all-time high of 2 950c.

The CRC share price at the time sat around 87p and, when Metorex pitched its equity offer to the CRC minorities, it also included an alternative cash offer of 125p per CRC share.

But Metorex shares hit 1 725c today before recovering to around 1 830c while CRC shares have risen to around 160p.

Read more at Fin24

Reuters, Thomson expect deal to close in Q2

(Reuters) - News and information groups Reuters Group Plc (RTR.L: Quote, Profile, Research) and Thomson Corp (TOC.TO: Quote, Profile, Research) said they expect Thomson's proposed acquisition of the British group to close early in the second quarter of 2008.

The pair said the U.S. Department of Justice, which had been expected to give its decision on the 8.2 billion pound ($16.1 billion) deal by Tuesday, would now give its ruling around the same time as the European Commission's.

The Commission is set to give its ruling by March 10, and it could then take four to six weeks to secure shareholder approval.

"Thomson and Reuters have had productive discussions with the (United States) Department of Justice and the European Commission," the companies said, adding that they "have a high degree of confidence that the acquisition will receive clearance on an expedited timetable".

 

Read more at Reuters

M&T Bank Q4 profit sinks

(Reuters) - M&T Bank Corp (MTB.N: Quote, Profile, Research), the first large U.S. bank to report fourth-quarter results, said on Monday that profit tumbled 70 percent, hurt by debt write-downs and turmoil in residential real estate markets.

The bank, which counts Warren Buffett's Berkshire Hathaway Inc (BRKa.N: Quote, Profile , Research) (BRKb.N: Quote, Profile, Research) among its largest investors, said net income fell to $64.9 million, or 60 cents per share, from $213.3 million, or $1.88, a year earlier. Operating profit totaled 77 cents per share, the bank said.

Analysts on average expected profit of $1.85 per share, according to Reuters Estimates. Buffalo, New York-based M&T was one of the few large U.S. banks that had not in the last two months specifically cautioned investors how credit and mortgage market turmoil would hurt fourth-quarter results.

M&T shares fell $3.24, or 4.4 percent, to $70.51 in pre-market electronic trading.

The company reduced profit by $78 million, or 71 cents per share, to write down collateralized debt obligations, and by $29 million, or 27 cents per share, for credit losses.

Earnings were also reduced 13 cents per share for M&T's share of antitrust litigation involving credit card network Visa Inc, and 8 cents per share for acquisitions.

M&T Bank said it has $64.9 billion in assets and more than 650 branches in seven mid-Atlantic states and Washington, D.C.

Its results may foreshadow those at other large U.S. banks, most of which are to report by the middle of next week. Nearly all are expected to report lower profits, or losses.

 

Read more at Reuters

Ford sees challenges in first half of 2008

(Reuters) - Ford Motor Co (F.N: Quote, Profile, Research) expects a challenging first half of 2008 for all automakers in the United States with a drop in industrywide retail sales, Ford's North American president said on Monday.

Mark Fields also said he hopes prior Federal Reserve rate cuts would begin to support the economy in the second half of the year, and that the U.S. government would take a look at tax rates as part of an economic stimulus package.

 

Read more at Reuters

 

 

Wall Street's $35 Billion Writedown Puts Squeeze on '08 Profits

Bloomberg) -- Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.

The losses have depleted the banks' capital, forcing New York-based Citigroup and Merrill to seek more than $13 billion from foreign investors, and hobbled their ability to make new loans. Other sources of fees, including credit cards, are also in jeopardy as the U.S. economy slows, said CreditSights Inc. analyst David Hendler, who estimates Citigroup, Bank of America and Merrill won't earn more this year than they did in 2006.

``The banks are already operating like they're in a recession,'' by ratcheting back on trading and lending, said Adam Compton, who helps oversee $150 billion at San Francisco- based RCM Capital, which holds shares of Citigroup, Bank of America and Merrill. ``Everybody has tightened up tremendously.''

Citigroup may report a fourth-quarter loss tomorrow of $4 billion, the first for the largest U.S. bank since its commercial real estate holdings plummeted in value during the early 1990s, according to a survey of 8 analysts by Bloomberg. The company also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.

Merrill, the world's biggest brokerage, probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion loss reported in the third quarter, Stan O'Neal's last as chief executive officer, analysts estimate.

New CEOs

John Thain, O'Neal's replacement, may use the quarter's earnings to write down most remaining investments infected by subprime defaults, said Sandler O'Neill & Partners analyst Jeffrey Harte. Citigroup replaced CEO Charles O. ``Chuck'' Prince III with Vikram Pandit, who turns 51 today, a former investment banker with a Ph.D. in finance who has formed a dedicated task force to mitigate losses in the bank's subprime investments.

Prince, 58, resigned in early November when the bank said it might have $8 billion to $11 billion of subprime writedowns, based on a slide in prices for mortgage-related securities during October.

In a Nov. 15 interview, Thain, 52, said that in many market declines, ``asset prices tend to go much lower than they ultimately are worth, and it takes longer to work out of them than people think.''

Writedown Estimates

The loss at Citigroup may include almost $19 billion of writedowns on holdings of mortgage-related securities known as collateralized debt obligations, according to Goldman Sachs Group Inc. analyst William Tanona. Merrill was battered by $11.5 billion of writedowns, Tanona estimates.

Bank of America's fourth-quarter net income probably fell 79 percent to $1.08 billion, the biggest drop in at least a decade, according to a Bloomberg survey. Sanford C. Bernstein & Co. analyst Howard Mason estimates the bank had $5.5 billion of writedowns on mortgage-related securities.

Earnings per share would be 23 cents, the lowest since the Charlotte, North Carolina-based company was formed from the 1998 merger of BankAmerica and NationsBank, according to analysts' estimates. Citigroup was put together the same year through the combination of Travelers Group Inc. and Citicorp.

Bank of America, the second-biggest U.S. bank, increased its bet on the U.S. housing market last week when it agreed to acquire unprofitable mortgage lender Countrywide Financial Corp. of Calabasas, California, for about $4 billion.

JPMorgan's Outlook

Bank of America, led by 60-year-old CEO Ken Lewis, may face writedowns caused by the declining value of Countrywide's loan portfolio, said Sean Egan, managing director of Egan-Jones Rating Co. in Philadelphia. A 5 percent writedown on the portfolio would be more than $10 billion, or about half of Bank of America's 2006 profit of $21 billion, he said.

Even New York-based JPMorgan Chase & Co., the least damaged by the subprime losses, faces ``a challenging credit environment mired by further asset write-offs'' of $3.4 billion, Tanona wrote in a Dec. 26 report. JPMorgan's fourth-quarter earnings may drop 29 percent to $3.21 billion, the first decline in three years, analysts estimate.

JPMorgan fell 15 percent during the past 12 months in New York Stock Exchange composite trading, compared with Citigroup's 47 percent, Bank of America's 28 percent and Merrill's 43 percent.

Great Depression

Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business.

U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock market crash of October 1929. The industry lost about $500 million in 1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said.

Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bank holiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said.

Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.''

Abu Dhabi

``This is the classic credit crunch,'' Geisst said. ``It might not have gotten to credit cards, it might not have gotten to car loans, but it's coming.''

Citigroup, Bank of America and Merrill probably were profitable in 2007, earning about $23 billion on a combined basis, even after the second-half writedowns, according to Bloomberg data. The banks earned about $50 billion in 2006. They may earn $44.8 billion this year, analyst surveys by Bloomberg show.

Citigroup, which in November had to seek a $7.5 billion capital infusion from the ruling family of oil-rich Middle Eastern emirate Abu Dhabi, may have to cut shareholder dividends to maintain the capital cushion it keeps to absorb loan losses, Tanona wrote in a Dec. 26 note.

Even with the Abu Dhabi investment, Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, may fall to 7 percent by the end of this year, he estimated. While above the 6 percent needed to maintain its ``well-capitalized'' status from federal regulators, the capital ratio is below Citigroup's own target of 7.5 percent.

Fed Data

Bank of America's Tier 1 ratio fell to 8.22 percent in the third quarter, from 8.52 percent in the second quarter and 8.48 percent a year earlier. JPMorgan's ratio was 8.4 percent in the third quarter, down from 8.6 percent a year earlier.

The resulting tightfistedness at the banks may help push the U.S. economy toward recession, RCM's Compton said. In the third quarter, less than a tenth of U.S. bank loan officers witnessed ``substantially'' higher demand for commercial loans, down from more than 50 percent in the second quarter of 2005, CreditSights reported, citing data from the Federal Reserve.

The banks' ``willingness and ability to lend remain the leading issues for the risk and extent to which current turmoil in the financial credit markets spreads to the broader economy,'' wrote Jeffrey Rosenberg, Bank of America's senior debt-investing analyst, in a Dec. 20 report.

Loss Ratios

Profits may suffer as banks set aside higher reserves for bad loans, Sanford Bernstein's Mason wrote in a Dec. 31 report. Bank of America's net loss ratio on commercial loans this year may average 0.7 percent, compared with 0.42 percent in the third quarter and more than triple the rate of the fourth quarter of 2006, Mason estimated. Citigroup's losses on credit-card loans may climb to $7.6 billion this year from $6.4 billion last year and $5.8 billion in 2006.

``A lot of these banks have large consumer portfolios in addition to the subprime side,'' said Malcolm Polley, who helps oversee $1 billion at Stewart Capital Advisors in Pittsburgh, including Bank of America shares. ``As we sink closer to recession, consumer delinquencies are going to tick up.''

U.S. construction loans that were 30 days to 89 days overdue represented 0.7 percent of those outstanding in the third quarter, more than double the rate of a year earlier, according to analysts at Arlington, Virginia-based Friedman, Billings, Ramsey & Co. Delinquent commercial loans climbed to 0.36 percent from 0.3 percent in the same period.

Default Rates

The default rate on U.S. junk-grade corporate loans may reach 2 percent to 3 percent this year, compared with about 0.9 percent in 2007, according to Bank of America's Rosenberg.

``Credit deterioration will continue to pressure industry valuations well into 2008,'' Friedman Billings analysts James Abbott, David Rochester and Scott Cottrell wrote in the Jan. 3 report. ``Even modest upticks in delinquencies can drive lower returns.''

The banks misjudged how bad the home-loan market would get, and they accumulated more than $100 billion of AAA-rated securities they thought were safe. This quarter's writedowns may acknowledge that prices for mortgage bonds and collateralized debt obligations, which repackage assets such as buyout loans and mortgage bonds into new debt with varying risks, probably won't recover anytime soon, RCM's Compton said.

 

Read more at Bloomberg

Natural Gas Windfall Seen in Pricey ICE, Cheap Nymex

(Bloomberg) -- The smartest money in natural gas may get its best trade this year by exploiting the difference between London, where prices are the highest in almost two years, and New York, where the market is cheapest.

Investors should sell natural gas in London and buy contracts in New York for the summer, where prices are ``the lowest in the world,'' Goldman Sachs Group Inc. analysts wrote Jan. 11. The opportunity may become more lucrative because London gas will drop 50 percent to $4.88 per million British thermal units as imports rise and demand slows, said Jason Kenney, an energy analyst at ING Wholesale Banking in Edinburgh.

``Towards the end of the month, gas prices will start to come off,'' said John Fahy, managing director at Eras Ltd. in London, which advises energy producers including the United Arab Emirates. He expects a 50 percent decline in U.K. gas prices, similar to last year.

A drop in London would reduce power costs for consumers across Europe, where natural gas represents about one-third of all energy, estimates BP Plc. It would save money for buyers such as Ineos Group Holdings Plc, the world's third-biggest chemical company, while hurting profit at producers including BP, Exxon Mobil Corp. and Royal Dutch Shell Plc.

U.K. summer natural gas, for delivery in the six months through September this year, fell 1.5 percent to 49.75 pence a therm today, according to broker ICAP Plc. That's equivalent to $9.76 a million British thermal units. A therm is 100,000 Btus.

Exxon, BG

Exxon Mobil and BG Group Plc plan to open two liquefied natural gas terminals in the U.K. capable of increasing the nation's supply 15 percent by the end of the year. Norway's StatoilHydro ASA is working to fix the Kvitebjoern and Ormen Lange gas fields to boost shipments to England.

The end of winter will sap demand. The U.K.'s summer consumption of natural gas bottomed at 169 million cubic meters last year, 61 percent lower than the wintertime peak, data from National Grid Plc show. Average London temperatures of 16.8 degrees Celsius (62.2 Fahrenheit) in June do little to spur need for air conditioning.

Futures traders have wrongly expected London's summertime prices to be higher than New York's before. The last time was in 2002, when gas for June delivery instead plunged 39 percent on the ICE Futures Europe exchange to the equivalent of $1.73 per million British thermal units. Natural gas rose 41 percent to $3.623 on the New York Mercantile Exchange in the same period. A $10 million bet against them made a $4 million profit.

British Benchmark

British prices are the benchmark for Europe, the source of one-third of global gas production for Irving, Texas-based Exxon Mobil, the world's largest oil company, and 30 percent of supplies for The Hague-based Shell, Europe's biggest producer. Lower commodity prices reduce earnings from pumping oil and gas, Exxon's most profitable unit. Exxon made $18.3 billion from exploration and production in the first nine months of 2007, or 63 percent of its total.

Centrica Plc, the U.K.'s biggest energy supplier, benefits when falling gas prices lower the cost of generating power at the Windsor-based company. Winners also include Ineos, of Lyndhurst, England, and the British unit of Terra Industries Inc., a fertilizer maker in Sioux City, Iowa. Gas represents more than half of the raw materials used to make chemicals, according to the American Chemistry Council.

By selling gas in London and buying it in New York, investors can speculate on changes in the value of the two contracts. ICE's natural gas futures for June delivery have never expired at prices above comparable contracts in New York, Bloomberg data show. U.K. contracts, introduced in 1997, are now $1.45 per million British thermal units higher than in New York.

LNG Terminals

U.K. gas is ``overvalued,'' said Sam Shoro, a senior analyst in Sittingbourne, England, at McKinnon and Clarke Ltd., which helps advise energy buyers including Microsoft Corp. As summer approaches, the country will get more gas from Norway and Wales, where the two liquefied natural gas terminals are being completed. The plant from Reading, U.K.-based BG is slated to start imports by June 30, taking in natural gas that's been cooled to a liquid and shipped in tankers.

LNG supplies to the U.S. are declining because Asian and European customers are paying higher prices, according to the U.S. Energy Department. Asian buyers are paying more than $15 per million British thermal units this winter for LNG cargoes, Fahy said.

U.S. LNG imports in December were 0.9 billion cubic feet a day, down 47 percent from 1.7 billion a year earlier, according to Stacy Nieuwoudt, an analyst at Tudor, Pickering, Holt & Co. Securities Inc. of Houston.

 

Read more at Bloomberg

Dollar Falls to Within a Cent of Euro Record on Bets Fed to Cut

(Bloomberg) -- The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.

The dollar extended three weeks of declines as Federal Reserve officials including Chairman Ben S. Bernanke last week signaled they favor greater ``insurance'' against an economic slowdown amid the slump in the housing market. European Central Bank council member Klaus Liebscher today said he sees ``significant'' upside risks to inflation.

``Interest rates in the U.S. are falling below those in Europe,'' said David Watt, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``There are few reasons to buy the dollar.''

The dollar fell to as low as $1.4915 against the euro, the weakest since declining to a record low on Nov. 23 of $1.4967, and traded at $1.4888 as of 9:16 a.m. in New York, from $1.4776 on Jan. 11. It depreciated the most against the yen since Jan. 2, to 107.86 from 108.84. Watt said the dollar could weaken to $1.50 per euro this week.

The U.S. currency may fall to $1.55 per euro by the end of the first quarter, said London-based Bilal Hafeez, global head of currency strategy at Deutsche Bank AG, the world's largest foreign-currency trader. That compares with a median forecast of $1.47, compiled by Bloomberg from reports by 45 strategists and economists. Investment banks including UBS AG, the world's second-biggest currency trader, cut their dollar forecasts last week.

Euro Record

The euro rose to a record against the currencies of the region's 24 biggest trading partners on Jan. 11. It advanced against all but five of the 16 most-active currencies today. The single currency also climbed to a record 76.08 British pence and was recently at 76.06 pence, from 75.52 pence on Jan. 11.

The pound declined against 15 of the 16 major currencies even as a report showed U.K. factories increased prices at the fastest annual pace since 1991 in December. Investors are still betting the Bank of England will cut interest rates again later this year.

The common European currency extended gains against the dollar after rising beyond $1.4825 and $1.4850, where orders to buy the euro were placed, said Lee Wai Tuck, a strategist at Forecast Pte Ltd. in Singapore. Traders sometimes use automatic instructions to limit losses in case bets go the wrong way.

The dollar fell against all of the 16 most-active currencies before a Commerce Department report economists in a Bloomberg News survey say will show retail sales were unchanged in December. The data will be released tomorrow. The currency dropped for a third consecutive day against the Swiss franc and was trading at 1.0927 from 1.1014.

Bank Writedowns

The dollar also declined amid speculation U.S. investment banks will announce writedowns of as much as $25 billion worth of assets this week, strategists at UBS wrote in a note to clients. Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.

The euro has risen 15 percent in the past 12 months against the dollar as the Fed cut borrowing costs three times since Sept. 18 to prevent the worst housing slump in 16 years from dragging the economy into recession.

``We're expecting continued U.S. dollar weakness,'' Tobias Davis, senior foreign-exchange dealer at Custom House Global Foreign Exchange in Sydney, said in an interview with Bloomberg Television. ``It really is a concern that growth is grinding to a halt faster than some people expect.''

Futures Bets

Fed funds futures contracts on the Chicago Board of Trade show 58 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting. The odds have risen from no chance a month ago. The odds of a decrease to 3.5 percent were 44 percent, compared with zero a week ago. The ECB kept its benchmark rate unchanged at 4 percent last week.

The yield spread between German two-year notes and same- maturity Treasuries was 1.1 percentage points, near the widest since November 2002.

The ECB is under pressure to keep interest rates unchanged even as inflation stays above its 2 percent ceiling.

 

Read more at Bloomberg

Euro stocks dive to 13-month low

(Fin24) - European stocks fell to their lowest since December 2006 by midday on Friday, tracking a drop in US futures on renewed worries over the troubled subprime mortgage market, with consumer product shares hurt by brokerage downgrades.

Unilever sank 5% after Morgan Stanley cut its recommendation to "underweight". France's L'Oreal, the world's largest cosmetics group, tumbled 4.8% after Deutsche Bank lowered its rating to "sell", citing mounting pressure on margins from rising commodity prices and risks of a slowdown in consumer spending.

At 1255 GMT, the FTSEurofirst 300 index of top European shares was down 0.5% to 1 429.15, after falling to as low as 1 420.90 - retreating for the sixth time in eight sessions.

After posting a thin 1.6% gain in 2007, its worst annual performance since 2002, the index has already lost 5.1% in 2008, hammered by mounting worries over the prospect of a US recession.

"The market is in the process of pricing in a US recession, turning into bear mode, with more forecast downgrades looming," said Jean-Luc Buchalet, strategist at FactSet in Paris.

"Defensive stocks have been showing some resilience, such as telecoms and pharmaceuticals, while all the other sectors are just sinking," he said.
 

 

Read more at FIN24

Withering food stocks send European shares lower

(Reuters) - European shares ended down on Friday after briefly touching their lowest level since December 2006, led by weaker food and beverage stocks, as concern the U.S. subprime crisis was far from over darkened investors' mood.

Among major movers, Unilever Plc/NV (UNc.AS: Quote, Profile, Research) fell 5 percent following a Morgan Stanley downgrade of the consumer goods giant, dragging down others in the sector.

The DJ Stoxx European food and beverage index fell 3.8 percent, marking its worst sell off since June 2003, with Nestle (NESN.VX: Quote, Profile, Research) declining 4.3 percent, Danone (DANO.PA: Quote, Profile, Research) 3.2 percent lower, and Pernod Ricard ( PERP.PA: Quote, Profile, Research) down 4.1 percent.

The pan-European FTSEurofirst 300 index closed down 0.55 percent at 1,428.89 points, regaining some ground after touching the mark of 1,420.90, its lowest since early December 2006. It closed down 1.9 percent on the week.

"We had a year-end party and now we've got a proper hangover," said Susanne Lahmann, equity strategist at German bank Bremer Landesbank.

 

Read more at Reuters

U.S. Stocks Decline; American Express, Tiffany Fall on Outlooks

(Bloomberg) -- U.S. stocks fell as lower-than- estimated profit forecasts at American Express Co. and Tiffany & Co. heightened concern the economy is shrinking and sent the Standard & Poor's 500 Index to its worst start since 1991.

American Express, the third-largest U.S. credit-card network, fell in New York Stock Exchange trading after its projection for first-quarter earnings trailed analysts' estimates by 3.2 percent. Tiffany, the second-biggest luxury jewelry seller, lost the most in more than three years after holiday sales growth shrank to 8 percent. Countrywide Financial Corp. retreated after Bank of America Corp. agreed to buy the mortgage lender for less than its market value.

The Standard & Poor's 500 Index slipped 9.68, or 0.7 percent, to 1,410.73 as of 12:52 p.m. in New York, extending its decline this year to 3.9 percent. The benchmark for U.S. equities has dropped for three straight weeks, the longest streak since August. The Dow Jones Industrial Average decreased 163.79, or 1.3 percent, to 12,689.3. The Nasdaq Composite Index dropped 28.17, or 1.1 percent, to 2,460.35. About two shares declined for every one that rose on the NYSE.

``There was this perception that the upper-end consumer was resistant to the economy, and that may be starting to roll over,'' said Matthew Kaufler, who helps manage $2.6 billion at Clover Capital Management in Rochester, New York. ``Housing has been in recession, the financial institutions are also feeling it, and now you have signs that the consumer is starting to buckle. We seem to be in a rolling recession.''

 

Read more at Bloomberg

Zapatero seeks to dispel fears over economy

(FT)  - Spain's Socialist prime minister on Wednesday accused his conservative opponents of "unpatriotically" sowing alarm about the economy as he sought to dispel fears that the country was succumbing to the international credit squeeze ahead of a general election in early March.

José Luis Rodríguez Zapatero said he was confident Spain would grow by "at least" 3 per cent in 2008, compared with 3.7 per cent in 2007 and that, with the end of the construction boom, growth would be "more balanced, more productive and more sustainable".

 

Read more at FT.com

 

 

Bank of England holds rates, cut seen in Feb

(Reuters) - The Bank of England left interest rates unchanged on Thursday, following a week of intense speculation over whether it would cut them for a second month running to shore up economic growth.

The Bank held the main rate at 5.5 percent, having lowered it a quarter percentage point in December.

Still, the pause is likely to be short-lived and the Bank is widely tipped to cut rates again in February, when it publishes new growth and inflation forecasts.

The pound rose after the decision while Britain's index of leading shares .FTSE turned negative with retail stocks taking a sharp knock.

Most economists had predicted a no-change verdict but money markets, spooked by signs of a consumer retrenchment, were pricing in a 60 percent chance of a cut.

"We suspect that the deteriorating growth outlook, particularly for the household sector, was balanced by worries on inflation," said James Knightley at ING Bank.

 

Read more at Reuters