Thursday, December 20, 2007

Bond Insurers in trouble

The ratings outlook for MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, was lowered to negative by Standard & Poor's, raising the specter of more writedowns for the companies' investment-bank clients. S&P also cut its A rating on ACA Financial Guaranty Corp. to CCC, suggesting potential default.

Troubled bond insurer ACA Capital Holdings has reached a last-minute deal with its counterparty banks, including Canadian Imperial Bank of Commerce, to starve off a potential slide into insolvency, according to people familiar with the matter.

The three-month euro interbank offered rate, or Euribor, dropped a third straight day, by 2 basis points to 4.79 percent, the European Banking Federation said today. It reached a seven- year high this month. The one-month rate for dollars fell 4 basis points to 4.9 percent, the lowest since Nov. 28. It touched a 2 ½-month high of 5.25 percent on Dec. 4.

Standard & Poor's reduced its ratings on about $7 billion of Alt-A mortgage securities, citing a sustained surge in delinquencies during the past five months. The lowered bonds represent about 1 percent of the $694 billion of securities backed by Alt-A mortgages created in 2005 and 2006. "It's not just a subprime problem,'' Joshua Rosner, managing director at New York-based research firm Graham Fisher & Co., said in a telephone interview today.

SunTrust Banks Inc., the seventh- largest U.S. lender, said it will buy $1.4 billion of securities from two of its money-market funds to protect investors from possible losses.

Natixis SA, France's fourth-largest bank by market value, plans to reorganize its corporate- and investment-banking division after writedowns and trading losses related to the subprime collapse cut third-quarter earnings.

Royal Bank of Scotland (RBS) has agreed to buy a 19.9% stake in Chinese bank Suzhou Trust, according to a source at the Wall Street Journal.

Fed's $20 billion auction on Wednesday drew a yield of 4.65%, which is slightly below the discount rate that currently stands at 4.75%. The stock and Treasury markets' response has been limited.

European Central Bank President Jean-Claude Trichet, who is trying to stave off both inflation and a credit squeeze at the same time, may soon have to choose sides. "The bank can't have it both ways,'' said Kevin Gaynor, head of economics and interest-rate strategy at RBS in London.

Oracle Corp posted a 35 percent rise in quarterly profit on strong new software sales, beating expectations at a time when investors are wary that growth in technology spending may be slowing.

Nike said on Wednesday that quarterly profit jumped 10 percent, topping Wall Street estimates, on strong international demand and higher margins, sending shares up 2 percent in after-hours trade.

Merger volume hit a record $1.57 trillion in the United States in 2007, according to research firm Thomson Financial, despite a sharp decline in dealmaking at mid-year when credit markets tightened and mergers became more costly to finance. Globally, mergers totaled a record $4.38 trillion in 2007, up 21 percent from 2006, while U.S. volume rose 5.5 percent to $1.57 trillion.

The U.S. administration declined on Wednesday to cite China for manipulating its currency for unfair trade advantages.

The average farmland price in Iowa has jumped 22% from last year due to rising biofuel demand, according to a new survey.

The benchmark one-year lending rate will increase by 0.18 percentage point to a nine-year high of 7.47 percent, starting tomorrow, the People's Bank of China said today on its Web site.

As was widely expected, the Bank of Japan unanimously decided to leave rates steady at 0.50 percent, as they lowered their assessment of the economy and forecasted that growth will “slow for the time being.”

SECO revised their 2007 GDP forecast for Switzerland to 2.8 percent from 2.6 percent in October. Unsurprisingly, exports pushed the revision higher as the trade surplus widened to a record of 1.89 billions francs in November. Employment conditions also helped propel the GDP outlook higher as labor markets remain tight.

German consumer confidence held surprisingly strong at the end of the year, as GfK's index for January rose to 4.5 from an upwardly revised 4.4. A breakdown of the index for December isn't quite as rosy, as the economic outlook and income expectations deteriorated further as they've done throughout the year.

The U.K. economy expanded faster than economists forecast in the third quarter, driven by the strongest consumer spending in more than a year. Gross domestic product increased 3.3 percent in the three months through September from a year earlier.

Copper advanced for a second day in London on speculation economic growth in China will spur demand from the world's biggest buyer of the metal. Aluminum, nickel and zinc declined, erasing earlier gains.

Bear Stearns Posts $854 Million Loss After Writing Down Subprime Mortgages. The loss was almost four times wider than the average estimate of $1.82 a share from 14 analysts surveyed by Bloomberg. Bear Stearns said it would take a $1.9 billion writedown on subprime mortgages, more than the $1.2 billion the firm forecast last month.

Brazilian consumer prices rose in the month through mid-December at their fastest pace in two years, driving inflation up toward the central bank's annual target. Consumer prices, as measured by the government's benchmark IPCA-15 index, jumped more than threefold to 0.70 percent in the month through mid-December from 0.23 percent in mid-November.

Holiday Sales in U.S. Fall for Third Week After Winter Storms. Sales in the seven days through Dec. 15 fell 0.4 percent from a year earlier, following declines of 2.7 percent and 4.4 percent the previous two weeks, Chicago-based ShopperTrak RCT Corp. said yesterday.

The U.S. Environmental Protection Agency said California can't regulate automotive carbon emissions because an energy bill signed by President George W. Bush already achieves greenhouse gas reductions through new mileage standards.

Japan (+0.01%) and Hong Kong (-0.05%) were flat Thursday, while China's Shanghai composite forged ahead by +2.06%. Stocks in Japan fell in late trading, giving back early gains, as traders quickly took profits in a light-volume trading session. Banks, including Mitsubishi UFJ (MTU +2.2%) rose after they said they will not contribute to a U.S.-led subprime rescue fund. Chinese's stocks were lead by the resource sector; shares in coal companies jumped on news mainland utilities will have to pay more for thermal coal in the coming year.
European stocks gained for the first time in four days, as investors speculated that concern world economies will stagnate was exaggerated. U.S. index futures rose. Markets in Europe inched up in early Thursday trading. London's FTSE (+0.66%) lead the way. The French CAC (+0.56%) and German Dax (+0.35%) were also up as of 7:12 a.m. ET. Energy shares were up on rising crude prices (RDS.A +0.8%), (BP +0.3%). Banks RBS (RBS) and HSBC (HBC) were up 0.9% and 0.8%. Volatile Northern Rock was down 3.4%.

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