Wednesday, January 30, 2008

Big write down at UBS

UBS warned in a surprise update Wednesday that it will post steep net losses as an additional $14 billion in subprime-related write-downs in the fourth-quarter.

BNP Paribas, France's largest bank, reported a 42 percent decline in fourth-quarter profit following 589 million euros ($871 million) of costs linked to the global credit market slump.

Further Fed cuts would probably reduce scheduled increases through 2010 in subprime borrowers' payments to 8 percent on average, or $182. During August, Libor levels pointed to increases of 33 percent on average.

In its latest forecast, the IMF said U.S. economic growth will slow to 1.5% in 2008 from 2.2% last year. Largely as a result, the IMF expects world-wide growth to decline to 4.1% this year from 4.9% in 2007.

IMF said the credit crisis was entering a new phase, in which strains in the interbank money market had eased but “credit concerns now extend beyond the subprime sector”, with calls for recapitalisation of the bond insurers.

Banks may have to post additional writedowns of as much as $70 billion if credit ratings for bond insurers are downgraded, according to Oppenheimer & Co.'s Meredith Whitney.

Kaupthing Bank, Iceland's biggest bank, canceled the 3 billion-euro purchase of Dutch investment bank NIBC Holding NV because of "instability in the financial markets.''

"The ECB will adopt a wait-and-see attitude,'' Bofinger, a member of German Chancellor Angela Merkel's panel of economic advisers, said in an interview. "The only chance for the ECB to lower rates is more rate reductions in the U.S. and a strong increase in the euro.''

Mervyn King was appointed to serve a second term as governor of the Bank of England, overcoming criticism.

Yahoo Inc posted a drop in quarterly profit on Tuesday and forecast 2008 revenue below Wall Street forecasts as it cuts jobs and invests to shore up its Web advertising business.

About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million.

Merrill Lynch will no longer underwrite collateralized debt obligations or other structured credit products, new Chief Executive Officer John Thain said.

Lehman Brothers boosted the dividend on its stock by 13 percent.

MS reclassified $7 billion of assets as Level 3 from Level 2, meaning they are more difficult to value.

Troubles among U.S. bond insurers are forcing regulators to rethink a 1998 loophole that let an industry expand into the complex and now costly world of derivatives.

The number of insolvencies among Spanish companies rose by 15% in 2007 from the year-earlier period, the result of increased pain in construction and real estate sector, to 1,015, levels not seen since 2002.

Boeing lowered its sales forecast because of 787 Dreamliner delays and shares fell in early trading.

Thomas Cook, Europe's second- biggest tour operator, reported a 27 percent gain in annual profit and said summer vacation bookings have been unhurt by slower consumer spending.

Lazard said fourth-quarter earnings rose 43 percent. Lazard completed $164 billion of takeovers in the quarter, more than double the $71.6 billion of the same period in 2006.

Munich Re, the world's second-biggest reinsurer, said 2007 profit rose 11 percent to a record on the absence of costly hurricanes and a tax gain, allowing it to raise the dividend.

JB Hunt Transport reported fourth quarter revenue rose 11% from year ago levels. The stock jumped 6.1% in after-hours trading.

U.S. oil demand in November rose 0.2%, or 39,000 barrels a day, from a year earlier, to 20.708 million barrels a day. The new figures are down 0.9% from an earlier estimate from the EIA, which had indicated a 1.1% rise in oil demand from a year ago.

Companies in the U.S. added 130,000 jobs this month, compared with 37,000 in December, ADP Employer Services said today.

Economic growth slowed to an annual rate of 0.6 percent in October through December, half the rate forecast, in the first of three readings.

Industrial production in Japan was weaker than expected during December, as output rose 1.4 percent from the month prior after falling 1.6 percent

European retail sales declined for the fourth straight month, as the index held below the 50 boom/bust level at 48.1. The reduction in consumer spending, which accounts for 60% of the region’s GDP, could easily take a toll on expansion.

Copper jumped the most in three weeks as rallying equity markets and the prospect of lower borrowing costs eased concern that a U.S. economic slowdown will curb metals demand.

The KOF Swiss leading indicator fell more than expected to a two-year low of 1.70 in January, as signs continue to confirm that expansion in the country peaked in 2007.

Asian stocks fell, led by South Korean shipbuilders and Japanese power producers, on concern slowing global growth and rising fuel costs will erode earnings. Japan's Nikkei 225 Stock Average dropped 1 percent to 13,345.03. Hong Kong's Hang Seng Index slumped 2.6 percent. All other Asian benchmarks retreated apart from the Philippines, Thailand and Vietnam. Indonesia was little changed.
European stocks fell after BNP Paribas SA's earnings missed analyst estimates and Goldman Sachs Group Inc. slashed profit forecasts for the region's carmakers. National benchmarks fell in 11 of 18 markets in western Europe. France's CAC 40 dropped 1.4 percent, while the U.K.'s FTSE 100 lost 0.6 percent. Germany's DAX slipped 0.2 percent.

U.S. overnight and premarket:

Tuesday, January 29, 2008

Home price index posts record drop

Home prices in 10 major metropolitan areas fell by a record 8.4 percent in the year through November.
The decline topped the 6.7 percent annual drop for October, according to the S&P/Case-Shiller Home Price Indices.

CFC posted a $422 million fourth-quarter loss on Tuesday, hurt by mounting defaults in a sinking housing market.

American Express on Monday said fourth-quarter profit dropped 10 percent, and its revenue missed analyst forecasts as customers defaulted more often. Results for the fourth quarter included a $438 million charge, or $274 million after taxes, to boost reserves for soured U.S. credit card loans.

Spanish banks are issuing mortgage securities and asset-backed bonds on a massive scale to park at the European Central Bank, using them as collateral to raise money at favourable rates from the official credit window in Frankfurt.

The reason this crunch will be so much worse, Stephen Roach said, is that the chunk of the economy which is shuddering to a halt - homebuilding and housing dependent consumption - is six times bigger than the spending on IT, which triggered the last one.

Mr. Bush acknowledged that "we can all see that growth is slowing." He emphasized the benefits of a recent fiscal-stimulus deal with lawmakers to help fight off recession, terming it "a good agreement that will keep our economy growing,"

U.S. Treasury Assistant Secretary Anthony Ryan said on Monday there were signs that market liquidity was starting to return.

Regulators are talking to banks about providing back-up credit lines for the bond insurers. They are also speaking with other parties, including Wilbur Ross and Warren Buffett, about providing fresh equity capital.

JPMorgan disclosed on Monday that it has raised its stake in bond insurer AMBAC to 7.7 percent from 5.4 percent.

"The Fed is going to have to keep slashing rates, probably below inflation,'' said Robert Shiller who co-founded an index of house prices. "We are starting to see a change in consumer psychology.'' Skewing incentives toward spending, away from saving, typically lead to asset bubbles.

Global growth may decelerate close to the 3 percent pace economists deem a worldwide recession, from a 4.7 percent rate in 2007.

Emerging equity markets may fall another 12 percent from current levels because of the worsening outlook for earnings, according to UBS AG strategist Oussama Himani.

Goldman Sachs and Morgan Stanley said they are responding to requests from regulators for information related to subprime-mortgage securities.

Prime Minister Gordon Brown will seek support from France, Germany and Italy for rules that would force banks to increase the transparency of their operations.

The European Commission may "slightly'' lower its forecast for economic growth this year when it issues new projections next month, commission President Jose Barroso said.

California Governor Arnold Schwarzenegger's $15 billion plan to provide health insurance for everyone in the most populous U.S. state was rejected by a Senate committee on concerns it would cost too much.

3M Co. said fourth-quarter profit fell 28 percent as consumer spending slowed and price discounts cut revenue from optical film.

Dow Chemical Profit Tops Estimates on Price Increases. "For 2008, there is some uncertainty in the economic outlook for the United States." The company will eliminate about 1,000 jobs to save about $180 million in annual costs.

Tousa Inc., the Florida homebuilder that lost 98 percent of its market value in the past year, sought bankruptcy protection from creditors.

Travelers Cos., the second-largest U.S. business insurer, said profit fell 11 percent in the last quarter of 2007 and forecast lower earnings this year. The company's board approved an additional $5 billion for share repurchases and reported fourth-quarter operating income of $1.63 a share, beating the $1.61 average estimate.

VMware reported fourth-quarter sales that missed analysts' estimates as competition increased. The shares fell 26 percent.

Corning Inc. said Monday its fourth-quarter profit rose 11 percent, beating Wall Street expectations, on heavy demand for auto pollution filters and glass used in flat-screen televisions and computers.

Sumitomo Mitsui Financial third-quarter profit fell after Japan's second-largest bank by market value wrote down the value of U.S. mortgage investments by more than it predicted two months ago and as provisions for bad loans surged.

Nondefense capital goods orders excluding aircraft, a proxy for business investment, rose a much greater than-expected 4.4 percent. It was the first rise in that category since September.

Consumer confidence in France dropped to a record low in January as accelerating inflation squeezed purchasing power.

U.K. CBI Retail Sales Index Fell to 14-Month Low in January. Sales were still better than retailers expected, the CBI reported today. The index for expectations came in at minus 5 for January in last month's survey and rose to 10 for February.

Japan's unemployment rate stayed at 3.8 percent in December, the government statistics bureau said today. The ratio of jobs available to each applicant fell to a two-year low of 0.98.

The Swiss trade balance unexpectedly fell to a two year low, as the surplus narrowed in December to 0.1981 billion francs from 1.810 the month prior. Conditions in the Swiss economy remain fairly resilient as the UBS Consumption Indicator is still well above its average of 1.50.

The Euro-zone current account showed a 0.7 billion surplus, which was greater than expected but down from November, which was revised higher from 1.3 billion to 3.1 billion. An increase in the services surplus keep the current account from approaching a deficit.

Iran and Switzerland are expected to sign a natural-gas agreement "soon,'' Iran's foreign minister, Manouchehr Mottaki, said in Tehran today.

"Because of these unanticipated and extraordinarily high corn and soybean meal costs, we have no choice but to raise prices substantially," Tyson boss Bond said.

Stocks rose in Europe and Asia, led by industrial and mining shares, as investors speculated lower U.S. borrowing costs will spur economic growth and JPMorgan Chase & Co. recommended European equities. France's CAC 40 gained 1.4 percent and the U.K.'s FTSE 100 rose 1 percent. Germany's DAX advanced 1 percent. Japan's Nikkei 225 Stock Average added 3 percent, the biggest advance among benchmarks tracked by Bloomberg worldwide. Hong Kong's Hang Seng Index gained 1 percent.

U.S. overnight and premarket:

Monday, January 28, 2008

Alliance Data buyout falls apart

Alliance Data Systems said its $6.6 billion takeover by Blackstone Group LP won't get approval by the U.S. Comptroller of the Currency. The shares dropped 44 percent to $36.50.

Analysts slashed their outlooks for financial results for S&P 500 companies, now expecting earnings growth to fall 17.6 percent in the fourth quarter, down from a decline of 10.9 percent expected in the week-prior survey.

S&P 500 Earnings Scorecard: 73% Have Met Or Exceeded Expectations To Date

Fannie Mae and Freddie Mac fall to session lows on Friday as Reuters reports that Fannie's mortgage delinquencies rose to 0.90% in Nov. from 0.83% in Oct, its mortgage investment portfolio rose by an annualized 3.3 percent in December to $724.0 billion.

Goldman Sachs announced on Friday plans to sack about 5 percent of its global workforce in coming months after its annual staff evaluation.

Credit Suisse said on Friday it was cutting about 500 jobs across the investment banking division.

"The real indicator of how the economy will impact the MBA job market will come next fall, when these firms decide how many offers to give to their summer interns."

Banks will need at least $22 billion if bonds covered by insurers led by MBIA Inc. and Ambac Assurance Corp. are cut one level from AAA, and six times more for downgrades by four steps according to Barclays Capital.

Fortis climbed 6 percent to 14.06 euros. Belgium's biggest financial-services company said yesterday it meets capital and solvency requirements even when its holdings in subprime collateralized debt obligations are valued under "very stringent scenarios.'' Fortis applied its standard model for valuing impairments.

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

Bankers meeting at the Swiss ski resort of Davos said there are increasing risks of a global recession, while manufacturers countered that they have yet to feel it in their business.

A key element of the stimulus package aimed at jump-starting the ailing U.S. housing market may have the unintended consequence of raising mortgage rates, said analysts studying the plan.

Maker of touch-screen user interfaces Synaptics posted second-quarter earnings above Wall Street expectations, but forecast third-quarter revenue below analysts' estimates. Shares plunge.

Investors shift bets to oil slide. The outstanding number of put options for June 2008 at $80 a barrel have jumped by a factor of four in the past two and half months to more than 47,000 contracts.

Demand for municipal bonds faltered last week on concerns that high floating rates on some insured tax-exempt bonds would squeeze profits for structured trusts at banks and hedge funds.

After the best annual start for Treasuries since 1998, investors are betting the highest-rated mortgage and corporate bonds will outperform as the Federal Reserve cuts interest rates.

Sales of bonds backed by Spanish mortgages will slow from a record in 2007 as the country's 10- year real-estate boom ends, according to Moody's Investors Service.

SLM secured $31 billion in financing from banks including Bank of America and JPMorgan Chase, replacing an expiring line of credit from investors who abandoned a buyout bid last year.

Verizon said fourth-quarter profit rose 3.9 percent as wireless and television subscriptions increased.

Tyson Foods, the world's largest meat processor, said first-quarter profit plunged 40 percent as the loss on beef widened and feed costs surged. Tyson withdrew its earnings forecast, citing rising grain costs.

Banco Bradesco SA, Brazil's second- biggest non-state bank, said profit in the fourth quarter rose 29 percent on higher lending.

McDonalds said fourth-quarter profit rose 2.6 percent. Shares fell in early trading after it posted the slowest U.S. same-store sales growth in almost five years.

Loewe AG, the German television maker partly owned by Sharp Corp., said 2007 profit rose 60 percent on sales of wide-screen products.

SocGen accused of smokescreen after loss. The timing of the bank’s decision to close positions relating to Mr Kerviel’s trading and the manner it executed these trades itself provoked the losses, said Lawyers for Jérôme Kerviel.

Up to 10 European hedge funds have suspended redemptions after investors clamoured for their cash when the managers made severe losses.

The effects of the U.S. housing downturn and troubles in the subprime mortgage market will cure themselves and the job is "half-done already", JP Morgan Chase Chief Executive Jamie Dimon said.

U.K. Hometrack House Prices Fall for a Fourth Month.The average cost of a home in England and Wales fell by 0.3 percent, the same rate as in December.

Conditions in the New Zealand services sector deteriorated in December, as the Performance of Services index plummeted to a reading of 53.9 from 62.6.

Money supply growth in the Euro-zone surged in December, as the three-month average jumped 12.1 percent from a year ago - the fastest pace since record-keeping began in 1981 - suggesting that inflation pressures in the region remain strong. On the other hand, the annual rate slowed more than expected to 11.5 percent from 12.3 percent during the month prior.

Stocks retreated in Europe and Asia, led by commodity producers and banks, on growing concern the global economy is slowing. Barclays Plc and Royal Bank of Scotland Group Plc declined in London as Dresdner Kleinwort predicted more writedowns, while Mitsubishi UFJ Financial Group Inc. slid in Tokyo after Goldman, Sachs & Co. said Japan is probably in a recession. Japan's Nikkei 225 Stock Average lost 4 percent. China's CSI 300 Index slumped 6.8 percent, while Hong Kong's Hang Seng Index plunged 4.3 percent. National benchmarks declined in all of the 18 western European markets. France's CAC 40 slid 1.3 percent. The U.K.'s FTSE 100 sank 2.1 percent, and Germany's DAX retreated 1 percent.

U.S. overnight and premarket:

Friday, January 25, 2008

Private equity looks at bond insurers

Shares of Ambac Financial rose 15.1 percent in extended trade on Thursday after newspaper reported that billionaire investor Wilbur Ross is in talks to take over the bond insurer.

New York's top insurance regulator said Thursday that it will take time to implement a series of measures to prop up the bond insurance industry and that his agency won't comment on widely reported details of the plan.

The risk of European companies defaulting headed for the biggest weekly decline in almost two months amid speculation bond insurer Ambac Financial Group Inc. will be bought by billionaire Wilbur Ross.

Shares of bond insurers reversed course and fell sharply Thursday after Fitch Ratings cut the financial strength rating of Security Capital Assurance Ltd. to "A" from "AAA", after it scrapped plans to try and raise $2 billion in fresh capital.

China's insurers risk "massive'' redemptions and liquidity difficulties should markets slump, the industry regulator said. "Insurers' share prices are extremely sensitive in the short term to their equity investment results''.

The Federal Reserve was unaware of a scandal involving a rogue trader at France's Societe Generale. Policy-makers remain comfortable with their decision to cut rates aggressively.

Congressional leaders announced a deal with the White House Thursday on an economic stimulus package that would give most tax filers refunds of $600 to $1,200, and more if they have children.

Nancy Pelosi said a federal stimulus package for the economy may include a provision for a one-year increase to $729,750 from $417,000 in the size of mortgages that government-sponsored enterprises Fannie Mae and Freddie Mac may buy.

The United States is at the edge of a recession, with the odds at 50 percent or possibly higher, former Federal Reserve Chairman Alan Greenspan said on Thursday.

The United States is sliding towards a dangerous 1930s-style "liquidity trap" that cannot easily be stopped by drastic cuts in interest rates, Nobel economist Joseph Stiglitz has warned.

The world's financial institutions will have to write down a further $300bn (£152bn) of US sub-prime losses before the crisis is over, according to a study by consulting firm Oliver Wyman.

Deutsche Bank AG's co-head of investment banking Anshu Jain said financial turmoil may last another six months as banks remain reluctant to lend and economic growth slows.

The Federal Reserve kicked into high gear a rush by homeowners across the country to refinance their mortgages at today's lower rates. Thirty-year fixed-rate mortgages now carry an average interest rate of 5.57 percent, down from 5.75 percent last week and from 6.32 percent a year ago.

Bank of England rate setter Andrew Sentance said UK interest rates may be restrictive but that markets need to factor in the threat of rising inflation.

Canadian Central Bank has lowered down considerably its expectations of economic growth as well as the and the inflation pressures for this year. Canadian economy will grow 1.8% in 2008 and 2.8% in 2009, and both core and total CPI inflation decreasing to levels below 1.5%. by the middle of 2008 to grow around 2% in 2009.

Microsoft signaled confidence to a rattled stock market by raising its full-year earnings outlook above Wall Street targets and reporting a 79 percent rise in quarterly profit on Thursday. "These numbers tell me that Microsoft is seeing strength in the pipeline."

Caterpillar Inc., the world's largest maker of bulldozers and excavators, said fourth-quarter earnings rose 11 percent as demand increased from outside the U.S., where recession is "a definite threat.''

Harley-Davidson said fourth-quarter profit fell 26 percent capping its first annual earnings decline since 1993. For the first quarter, shipments will be 68,000 to 72,000 motorcycles, up from 67,761 a year earlier, Harley said.

Imperial Tobacco plans to bid 910 million euros ($1.3 billion) for full control of Compania de Distribucion Integral Logista SA, Spain's largest cigarette distributor.

L'Oreal SA, the world's biggest cosmetics maker, climbed for a second day in Paris trading after the company reported an increase in fourth-quarter revenue, prompting some analysts to raise their recommendations.

IKB Deutsche Industriebank AG, the German bank bailed out after investing in U.S. subprime loans, rose the most in 12 years in Frankfurt trading on speculation Deutsche Postbank AG may buy the lender.

Deutsche Post rose as much as 5.9 percent in German trading after Financial Times Deutschland said it may sell the unprofitable U.S. package and express-delivery unit to FedEx.

Eurohypo AG, Germany's biggest mortgage bank, booked further writedowns in the fourth quarter and forecast a "significant'' decline in new business because of the U.S. subprime mortgage crash. The market for commercial mortgage-backed securities may reopen in the second half.

South Korea's economy expanded faster than economists forecast in the fourth quarter, driven by the biggest increase in exports in four years and a pickup in business investment. Growth accelerated to 1.5 percent from the third quarter.

Consumer prices in Japan surged 0.8 percent in December from the year prior – the fastest rate in more than nine years – as rising oil and other commodity prices are passed through from producers.

German import prices, an early indicator of inflation pressure in the economy, rose the most in over a year in December, led by the cost of food. The price of imported goods gained 3.7 percent from a year earlier after increasing 3.5 percent in November.

German consumer confidence went little changed in February, as the GfK index held at a nearly two-year low of 4.5. It appears that resilient labor market conditions are helping to offset worries about mounting inflation and deterioration in the financial markets

The BOC’s core CPI measure fell more than expected in December at a rate of 0.3 percent, dragging the annual rate down to a two year low of 1.5 percent and indicating that the central bank may consider cutting rates at their next meeting in March.

Asian stocks rose, driving the region's benchmark to its biggest gain in almost a decade, after South Korea's economy expanded faster than estimated and the U.S. moved closer to approving tax rebates. The MSCI's Asian index climbed 4.5 percent to 145.73 at 7:25 p.m. in Tokyo, its steepest gain since Oct. 16, 1998, and adding to a two-day, 5.6 percent advance. Hong Kong's Hang Seng Index surged 6.7 percent, the region's biggest increase. Japan's Nikkei 225 Stock Average added 4.1 percent to 13,629.16, the biggest advance since March 2002. Europe's Dow Jones Stoxx 600 Index added 1.2 percent. France's CAC 40 also gained 1 percent. The U.K.'s FTSE 100 jumped 0.8 percent, and Germany's DAX advanced 1.8 percent.

U.S. overnight and premarket:

Thursday, January 24, 2008

Another attack on another central bank

The prudent investor submits:
Rising tensions in the Eurozone banking system begin to show in the balance sheet of the ECB. Checking the latest weekly financial statement of the ECB one notes shifts in the asset positions that may indicate that the ECB is taking on more subprime collateral that would not be accepted in the regular repos.

This results in a dramatic explosion of the total volume of the balance sheet which blew up by more than 30% since Dec 30, 2005 and now stands at €1.35 trillion. It is interesting to see that the Eurozone economy, limping along with economic growth rates in the 2% area, needs 16% more ECB credit every year since 2006. Is real inflation closer to 14%?

My worries focus on "other assets" (Pos. 9.) This trash can has ballooned by 128% from €145 billion to €332 billion since the end of 2005. The position other assets is a collective item...... Again, that can be any kind of paper debt, valued at the discretion of the ECB. For my part, I feel uncomfortable with this long term trend in declining asset quality that may show that the banking system may be broken beyond repair. Is this the beginning of the end of the Euro? I am tempted to take bets.

I like the part with ''is real inflation closer to 14%?". It sure feels like it on both sides of the Atlantic.
latest weekly financial statement of the ECB

Charting jobs back to 1949

UofM professor Mark Perry writes: "In all of the 10 past recessions, the peak unemployment rate was always above the average rate of 5.6%,"
Morgan Stanley's Richard Berner forecasts an early 09 unemployment peak at 5.7%.

Doubts cast on Fed rate cut

Societe Generale uncovered a $7.14 billion fraud, one of history's biggest, by a single futures trader who orchestrated a series of bogus transactions that spiraled out of control amid roiling markets this week, the French bank said Thursday.

New York State's insurance regulators met yesterday with U.S. banks to discuss raising new capital for bond insurers, said a department spokesman. Insurers MBIA Inc. gained 33 percent in New York trading and Ambac Financial Group Inc. soared 72 percent. The infusion may be as much as $15 billion, the Financial Times reported.

The risk of companies defaulting fell after New York regulators urged Wall Street firms to bail out bond insurers. Credit-default swaps on the Markit CDX North America Investment-Grade Index dropped 1.5 basis points to 107.5. In Europe, the benchmark Markit iTraxx Crossover Index fell 33 basis points to 450 and in Tokyo the Markit iTraxx Japan index declined 8 to 67.

Massachusetts' top securities regulator on Wednesday said he issued subpoenas to a pair of municipal bond insurers, seeking information on how much the firms disclosed to cities and towns about their exposure to mortgage-related investments that have recently plunged in value.

Reactions to the US Federal Reserve’s dramatic 0.75 percentage point cut in interest rates ranged from hostile to lukewarm as policymakers, businessmen and economists gathered at the World Economic Forum on Wednesday.

ECB's Weber Dismisses Bets on Interest-Rate Cuts as "wishful thinking.''. "We have a positive economic outlook and as long as that doesn't change I would say that rates are still on the accommodative side and in no way restrictive.''

Norway's central bank kept its key interest rate on hold at 5.25 pct, as expected, in a decision economists said recognised that the oil-producing nation's economy remains very strong despite growing indications of a global economic slowdown.

Interest rate cuts in the United States will make it more difficult for the Chinese government to achieve its economic aims, a People's Bank of China official said yesterday.

Leaders of world finance told the holders of $2.5 trillion in sovereign wealth funds that they need to reveal more about their activities or risk further antagonizing American politicians.

Bank of America (BAC 39.13, +1.74) declared a regular quarterly dividend on common stock of $0.64, unchanged from the company's last dividend. That leaves its yield at an attractive 6.5%.

Bank of America Corp., the nation's second-largest bank, plans to raise $6 billion by selling preferred shares.

Banco Bilbao, Spain's second-biggest bank, said fourth-quarter profit increased almost fivefold on higher lending revenue in its home market and Mexico after the company took one-time charges a year earlier. BBVA also said it will propose a 15 percent dividend increase.

Barclays investment banking arm will "invest and grow'' this year and sees the U.S. as an "opportunity,'' President Robert Diamond said. He declined to comment on whether Barclays Capital incurred further losses on its credit-related assets last year.

Allianz said it reached its full-year profit target of 8 billion euros ($11.7 billion) for 2007 as its insurance units helped cushion writedowns at its banking division. Allianz's banking unit had an operating loss of 450 million euros in the fourth quarter amid writedowns of 900 million euros on structured products.

The announcement of Whitman's departure came as eBay reported a 53 percent gain in fourth-quarter profits due to a strong holiday season. It beat Wall Street's expectations, though its future guidance was tepid.

Capital One profit down 42 percent. The quarterly provision for loan losses rose to $1.9 billion, covering $1.3 billion in write offs and an increase to reserves of $650 million.

Sovereign Bancorp, the second-largest U.S. savings and loan, on Wednesday posted a $1.6 billion quarterly loss and canceled its dividend following a larger-than-expected write-down for consumer credit losses and a 2006 bank acquisition. Sovereign wrote down $1.58 billion of goodwill.

Centro Properties Group CEO ruled out a fire sale of assets as he seeks to persuade banks to refinance A$3.9 billion ($3.4 billion) owed by the Australian owner of 700 U.S. malls.

Enron Corp. creditors could see their original payout more than quadruple to as much as $31 billion after a trial against Citigroup.

Lennar Corp., the biggest U.S. homebuilder, reported the largest quarterly loss in its history as the deteriorating housing market led to a $1.86 billion writedown for land and falling property values.

Interest rate cuts won't necessarily translate into lower mortgage costs for some 2 million Americans with risky subprime home loans. "Home prices, at best, are going to level off. So long as home prices are not rising, the reset problem exists."

Student lending company Sallie Mae posted a fourth-quarter loss on Wednesday, citing higher provisions for loan losses due to the weakening credit markets.

The deficit for the current budget year will jump to about $250 billion, the Congressional Budget Office estimated Wednesday, citing the weakening economy. And that figure does not reflect at least $100 billion in additional red ink from an upcoming deficit-financed economic stimulus measure.

AT&T Inc., the biggest U.S. phone company, said fourth-quarter profit jumped 62 percent on savings from its $86 billion BellSouth Corp. acquisition and sales of wireless handsets such as the iPhone. AT&T reiterated its 2008 sales forecast.

Hershey said fourth-quarter profit plunged 65 percent on higher dairy costs and a decline in market share. The maker of Hershey chocolate bars unexpectedly forecast that earnings in 2008 will fall.

Pernod Ricard SA, the world's second- largest liquor company, raised its annual profit forecast after stronger demand for spirits in Asia, Latin America and France helped second-quarter sales to beat analysts' estimates.

Nintendo increased third-quarter profit 63 percent and raised its annual revenue forecast after the console outsold Sony's PlayStation 3 and Microsoft's Xbox 360.

Nokia said fourth-quarter profit rose 44 percent, exceeding analysts' estimates, as it took market share from Motorola Inc. and shipments climbed to a record.

Fiat, Italy's largest manufacturer, boosted fourth-quarter profit 26 percent as it grabbed a greater share of the European car market and sold more trucks and tractors. The shares rose the most in six years.

Deutsche Telekom AG's Hamid Akhavan, who heads the T-Mobile International unit, hasn't seen signs of a "significant'' slowdown for the U.S. wireless division and said the dollar's drop is a "bigger worry.''

TUI AG, Europe's largest travel company, rose the most in 10 months in Frankfurt trading after the company said it expects continuing earnings growth at its tourism division until 2010 and the board approved a dividend payment.

People with blocked heart arteries are less likely to die or have a heart attack if treated with bypass surgery rather than drug-coated stents, a study of patients across New York found.

The number of U.S. workers applying for jobless benefits fell unexpectedly last week to the lowest level in four months.

German business confidence unexpectedly rose in January from a two-year low. The Munich-based Ifo research institute said its business- climate index increased to 103.4 from 103 in December.

U.K. mortgage approvals dropped an annual 38 percent to the lowest in at least a decade in December as banks curbed lending. "Housing market activity is now being substantially undermined by both stretched affordability and tightening lending practices.''

Brazilian consumer prices rose 0.7 percent in the month through mid-January, the same amount as the month earlier period the government said.

Brazil's unemployment rate fell to 7.4 percent in December, the national statistics agency said, better than ecpected.

Copper gained the most in two weeks in London and nickel rose for the first day this week as China's economic growth supports demand for industrial metals.

Gold surged 2 percent to trade above $900 on Thursday and platinum hit a historic high on dollar weakness.

A cargo train arrived in Hamburg on a trial run from Beijing after making the trans-Siberian journey in 15 days, half the time it would take to transport goods by sea.

Stocks rallied in Asia and Europe as talks to bail out bond insurers, rising profits at Nokia Oyj and China's economic growth boosted expectations that equity markets will weather a slowdown. U.S. index futures gained. France's CAC 40 rallied 4.3 percent. The U.K.'s FTSE 100 jumped 4.1 percent, and Germany's DAX advanced 5.5 percent. Japan's Nikkei 225 Stock Average added 2.1 percent, as did South Korea's Kospi index gained 2.1 percent. China's CSI 300 rose 1.1 percent.

U.S. overnight and premarket:

Wednesday, January 23, 2008

The Fed did panic

The FED did not panic writes one business blog:
Let us scotch one foolish and dangerous notion already gaining
acceptance. Those who accuse the Fed of acting out of panic in slashing rates 75 basis points on Wednesday do not grasp the seriousness of the situation.
The move was imperative to prevent a grave financial crisis spiraling into disaster. The threat of a melt-down in the $2.4 trillion market for US municipal bonds had suddenly moved from possible to imminent. No monetary authority could ignore such risks.

I have two questions for this kind of reasoning. First, how can a rate cut prevent an imminent crises in monline insurers? Making the cost of money cheaper does by no means implicate it gets where it is most needed. To the contrary if history has told us one thing it is that cheap money leads to accesses that eventually have to be deflated again. Second, why then slash rates? The answer is very simple: panic and overreaction. The Federal Reserve panicked in an attempt to halt a plunge in the stock market. While they were partially successful they could not prevent a further decline in the markets. According to billionaire investor George Soros "Central banks have lost control". Only today after the government announced a plan to inject liquidity into monoline insurers did the markets rebound.

Fed rate cut: panic or control?

(to see the video click here)

The markets seem to agree.

Central Banks divided

European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation even after stock markets plunged and the U.S. Federal Reserve cut interest rates to avert a recession.

Central banks shouldn't use monetary policy to stimulate economies systematically and thereby risk compromising price stability, Juergen Stark, member of the European Central Bank's executive board, said Tuesday.

The Bank of England's governor Mervyn King gave a clear hint that UK interest rates will be reduced in February, but provided no steers that he will match the aggressive posture of the US Federal Reserve in the months to come.

BoE governer King predicted the series of billion-dollar write-downs at Western banks would continue, along with more lending curbs.

The Federal Reserve chairman, who normally tries to avoid reacting directly to financial markets, saw global markets in free fall, and yesterday abruptly orchestrated the single deepest cut in the Fed's main interest-rate target in more than two decades.

The federal funds rate should reach 2.0% by year-end, said HSBC economist Ian Morris, who cut his target to from 3% Tuesday on the rising risk of a long recession.

Republican presidential contender Mitt Romney said on Tuesday U.S. markets were distressed and raised the possibility of a solvency crisis at U.S. banks.

MBIA and Ambac Financial Group, the biggest bond insurers, are likely to be bailed out to avert worsening credit-market turmoil, according to analysts at UniCredit SpA."A kind of bailout supported by monetary authorities or governments is the only chance for the industry to survive.''

The largest U.S. housing finance companies, Freddie Mac and Fannie Mae, may report $16 billion in write-downs for the fourth quarter due to the falling value of their subprime mortgage investments, according to Credit Suisse analysts.

The financial turmoil is like an elephant in a dark room. One view is that this crisis is a product of a fundamentally defective financial system.

Recession across the world's biggest economies is the main concern of chief executive officers gathering today in the Swiss ski resort of Davos.

Top-rated, two-year municipal bonds rose the most in more than three years yesterday, sending the average tax-exempt yield down 16 basis points to 2.66 percent, based on data from Municipal Market Advisors.

The value of Irish pension funds fell 10% in 2008 due to volatility on world stock markets, after decreasing 4% in 2007, Mercer Consulting said Tuesday. This equates to around EUR10 billion being wiped off.

Rosneft, Russia's biggest oil producer, is seeking $2 billion of loans from Deutsche Bank AG and Societe Generale SA to refinance debt used to buy the assets of Yukos. Rosneft may pay interest of 0.95 percentage point above LIBOR.

Lack of demand forced at least five Spanish financial institutions, to cancel mortgage-backed bond sales between August and November, and no bank in the country has done a deal since then, data compiled by Bloomberg show.

Fitch lowered WestLB's individual rating to F from D/E yesterday, saying the lender would've defaulted without rescue measures announced on Monday.

Spanish banks almost tripled borrowings from the European Central Bank to a record 52.3 billion euros between July and December, the biggest increase of any of the 15 member countries. They're now the second-largest users of ECB credit lines after German banks, accounting for 14 percent of borrowing, up from 4 percent in July.

Apple on Tuesday forecast fiscal second-quarter earnings far below Wall Street expectations, sending its shares down about 10 percent AH. IPhone sales were 2.32 million for the quarter.

General Dynamics Corp., the largest maker of armored vehicles for the U.S. military, said fourth- quarter earnings surged 42 percent on higher sales of trucks and troop transports for the war in Iraq.

Coach, the largest U.S. maker of luxury leather handbags, said second-quarter profit rose 11 percent, the smallest gain in at least eight years as sales at its own stores fell. Sales at Coach's North American stores open at least a year fell 1.1 percent, compared with a 21 percent gain a year earlier.

Cie. Financiere Richemont SA, the world's largest jewelry maker, said third-quarter sales growth slowed after wealthy Americans and Japanese bought fewer Cartier necklaces and Piaget watches. Sales rose 8 percent to 1.67 billion euros ($2.4 billion) in the three months through December. That was below the first half's 11 percent gain.

Swiss Reinsurance Co., the world's biggest reinsurer, rose the most in more than four years in Zurich trading after billionaire investor Warren Buffett's Berkshire Hathaway Inc. bought a 3 percent stake.

Prudential Plc, the largest U.K. insurer, rose in London trading following a report that Ping An Insurance (Group) Co. may spend 100 billion yuan ($13.8 billion) to buy a stake.

Voestalpine AG, Austria's biggest steelmaker, gained as much as 5.9 percent after raising its forecast for full-year earnings and saying there were no signs that demand was weakening for its products.

Hochtief AG, Germany's largest construction company, met its full-year target for net income of more than 100 million euros ($146 million) as its U.S. business remained unaffected by the subprime lending crisis.

BASF AG, the world's largest chemicals maker, confirmed its profit forecast for 2007, rejecting market speculation that the company would say earnings didn't meet its projections.

Precision Castparts Corp., which makes metal components for the aerospace and automotive markets, said Tuesday its fiscal 2008 third-quarter profit jumped 55 percent, boosted by strong sales across all major segments. "Right now, we are facing very high levels of demand in all of our major end markets," said Mark Donegan, chairman and chief executive, in a release.

Richard Lambert, the director general of the CBI, predicts a "soft landing" in the UK with some growth this year, despite the recent market turbulence.

Goldman Sachs’ Abby Joseph Cohen chief U.S. portfolio strategist continues to forecast a Dow return of 11% by year-end. She sees the Dow at 14,750 by year-end

The U.K. economy grew at the slowest pace in more than a year during the fourth quarter after a jump in credit costs hampered brokerage and computer services. Gross domestic product increased 0.6 percent.

European Services Expand at Slowest Pace Since 2003. Royal Bank of Scotland Group Plc's preliminary estimate of its services index dropped to 52, the lowest since August 2003, from 53.1 in December.

French consumer spending on manufactured goods climbed more than economists forecast in December as shoppers rushed to buy cars to beat a "green tax'' on high-polluting vehicles that took effect Jan. 1. Spending, which accounts for about 15 percent of the economy, rose 2 percent, the most since August 2006.

The Reserve Bank of Australia's core inflation rate accelerated to a 16-year high of 3.8 percent in Q4, which may only lead the central bank to maintain their hawkish bias even as the US slashes rates in an attempt to stave off a recession.

Billionaire investor George Soros said the fallout from the U.S. subprime crisis will bring about the end of the dollar's status as the world's reserve currency.

Japanese stocks rebounded from the worst two-day drop in 17 years after the U.S. Federal Reserve cut its benchmark interest rate to revive growth in the world's biggest economy. A rout in shares globally wiped out as much as $7.3 trillion in market value this year. The Nikkei average gained 256.01, or 2 percent, to 12,829.06 at the close in Tokyo. Over the previous two sessions, the Nikkei dropped 9.3 percent and the Topix fell 9.1 percent, the biggest two-day decline for both since 1990. Hang Seng: +10.7%. Shanghai: +3.1%. BSE Sensex: +5.2%.
European stocks and U.S. index futures declined after European Central Bank President Jean- Claude Trichet said he's committed to fighting inflation. National benchmarks declined in all 18 markets in western Europe except Luxembourg. The U.K.'s FTSE 100 slipped 2.6 percent. France's CAC 40 lost 3.9 percent. Germany's DAX Index fell 4.3 percent.

U.S. overnight and premarket:

Tuesday, January 22, 2008

Good call on Apple!

Somebody made a pretty good call, buying Apple put options at strikes 110 and 120 on the Jan 2009 expiration. The strikes saw 82000 contracts purchased/sold on Dec 10th last year. The combined value of the contracts was close to $57 million. Apple shares closed that day at $194.5, the new Ipod Touch was just released and the future looked bright with holiday sales just around the corner. Makes one wonder how many insider trades go undetected.

Just in case!

NYSE Dow Circuit Breaker:

John Authers on the Worldwide sell-off

John Authers on the biggest one-day stock-market drop worldwide since the 9/11 attacks
(to see the video click on the link)

The Death of Equities

It sure is not easy to be part of capital markets these days. Weather you are an economist in the forecasting business, or an analyst or investor you have to make decisions that have the potential to be hurtful, particularly for the investor with actually money on the line. All this, of course, on the back of manic-depressive markets, that can prove you wrong faster than you can gobble up an excuse. Market movements according to market research are always unpredictable, but this time around the outlook for capital markets is even more on the balance than in some time in the past. There are those who say the economy is in good health, jobs are plentiful and corporate earnings will continue to grow, and then there are those who predict economic Armageddon and the death of equity prices. The first group, with such knowledgeable economists like Brian Wesbury, point to economic indicators which have not shown the deterioration that is expected by so many, at least not yet. The second group led by Nouriel Roubini is less optimistic in their forecasts. While I hope that the first group is right I can't help but lean toward the second group. Although not clearly seen in my blog I have always maintained a rather cautious if not outright bearish outlook. When the first Bear Stern HFs defaulted on structured credit products back in August I was shocked like anybody else, but I always knew that the authorities would come to the rescue and organize a bail out. Once the FED's powder would be dry I was sure the markets would continue the correction that started in the summer of 2007. I would maintain my bearish outlook when the authorities would show signs of capitulation. While I do think we are not there yet, we have come a long way and the first cracks are opening up. I expect a more dramatic bail out of the bond insures where the government has to take over all the liabilities of the two largest in the country, and more cuts from the Federal Reserve to accommodate short term funding markets. Nevertheless the signs are mounting that the end is neigh.
The FOMC cut rates aggressively today. It remains to be seen if this can turn around the tide. Nevertheless we have already seen how many are potentially swimming naked, and the picture is not pretty. In this volatile times cash is king!

The three pillars of the death of equities:
Federal Reserve cuts rates only by 25bp in its October meeting indicating that inflation is a concern. It shows that the FED is between a "rock and a hard place". They clearly do not want to cut rates in this inflationary environment but they feel obliged to Wall Street.

Fears of a consumer led recession start mounting. Anecdotal evidence from earnings reports and weak holiday sales point towards a weakening consumer, which is one of the reasons for the stock market plunge since the beginning of this year.

Fears of counter party risks emerging. The downgrades of ACA, MBIA and Ambak are cause for serious concern and the other reason for the obliteration of equity prices since the beginning of 2008.

FED emergency rate cut!

The Federal Reserve lowered its benchmark interest rate in an emergency move for the first time since 2001, to 3.5 percent from 4.25 percent.

Politicians are scrambling to offer a stimulus package, and Fed Chairman Ben Bernanke is slashing interest rates. But they may be paving the way for a bigger calamity down the road.

The Bank of Japan kept its benchmark interest rate at 0.5 percent and said economic growth was slower than forecast, stoking speculation borrowing costs may be cut this year.

Dow Jones industrial average futures on Monday dropped 546 points or 4.5 percent. Should the Dow close lower on Tuesday by the amount the futures suggest, it would rank as the fourth-largest point loss ever for the blue-chip index. At the beginning of the week, the S&P 500 was trading at 13.82 times forward earnings, Reuters Estimates said, below a historic average of about 15 percent.

This week could mark the end of the bull market for Wall Street, with U.S. stocks likely to join a global equity market plunge triggered by fears of a U.S. recession.

The U.S. economy may be "one shock'' away from a recession, Lehman Brothers said, pointing to the global slump in equity markets as a possible "tipping point.'' Lehman sees the odds of a recession at 40 percent, rising from a "1-in-3 chance'' at the beginning of the year.

Europe is no longer ruling out a U.S. recession but could weather it, finance ministers from the euro zone said on Monday. "The economic situation in the U.S. is in no way comparable to that in Europe or the euro zone," according to Jean-Claude Juncker.

The European economy may be starting to suffer collateral damage from the U.S. subprime mortgage slump prompting ECB rate cut bets.

Euro Set for Dollar-Like Swoon as Wages Brake Growth. "Investors who are looking for growth are allocating out of the euro,'' Yu said. UBS is the world's largest currency trader after Deutsche Bank AG. "We really don't see value in the euro-zone economy,'' the Zurich-based strategist said.

The head of the International Monetary Fund called the global economic situation "serious" and said markets worldwide had responded skeptically to a U.S. stimulus plan.

Ambac Financial Group Inc., the first bond insurer to be stripped of its AAA credit rating, reported a $3.26 billion quarterly loss and said it is evaluating options with "a number of potential parties.'' The fourth-quarter net loss equated to $31.85 a share.

ACA Capital Holdings Inc., the bond insurer being run by regulators after subprime-mortgage losses, won a month's grace to unwind $60 billion of credit-default swap contracts that it can't pay.

Bank of America Corp., the second- largest U.S. bank, said earnings dropped 95 percent after $5.28 billion of mortgage-related writedowns and higher provisions for future loan losses. Payments more than 60 days due on credit cards climbed to 5.08 percent of outstanding loan balances from 4.86 percent in the third quarter.

Fifth Third Bancorp, Ohio's second- largest lender, said fourth-quarter earnings dropped because of an insurance payout and higher provisions for loan losses. Total non-performing assets more than doubled to $1.1 billion from $455 million at the end of last year's fourth quarter. The provision for loan and lease losses more than doubled to $284 million.

Lone Star Funds, a Dallas-based buyout firm, may buy parts of the distressed German banks WestLB AG and IKB Deutsche Industriebank AG.

The risk of companies defaulting rose to a record on concern credit rating downgrades at bond insurers including Ambac Financial Group Inc. will cause bank losses to surge. Credit-default swaps on the Markit CDX North America Investment-Grade Index rose 12 basis points to 122 at 7:32 a.m. in New York. Credit-default swaps on the Markit iTraxx Europe index of 125 investment-grade companies rose as much as 10.25 basis points to a record 92.5 today.

Standard & Poor's may trim its top ratings on as many as 22 asset- and mortgage-backed securities insured by Ambac Financial Group Inc. as the effect of the bond insurer's downgrade spread to emerging markets.

Turkey's economic expansion will probably remain subdued and the government may be forced to sell bonds more cheaply as fallout from the U.S. subprime crisis spreads to emerging markets, Economy Minister Mehmet Simsek said.

Institutions handling $1.5 trillion, 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.

Hong Kong's Hang Seng Index had its biggest drop in six years on Monday after BNP Paribas said Bank of China Ltd. may write down overseas securities by $4.8 billion because of losses from U.S. subprime mortgages.

X5 Retail Group NV, Russia's largest supermarket company, said fourth-quarter sales rose 57 percent after it added stores and fewer people shopped at open markets.

William Morrison Supermarkets Plc, the smallest of Britain's four main grocery chains, said sales growth accelerated over the Christmas holiday on increased advertising and a wider range of fresh foods.

In der zweiten Jahreshälfte besaßen in Deutschland nur noch 3,8 Millionen Anleger Aktien, das waren 571.000 oder 13,2 Prozent weniger als im Halbjahr zuvor.

Swiss retail sales rose 2.9% in November up from 2.2% from the previous month. Although the number was weaker than the 4.0% that was expected, it still shows robust consumption.

UK manufacturers showed that they are resilient despite the pessimistic outlook that has been prevalent the past few months. The CBI Industrial trends report showed that total orders for January remained unchanged form December at +2. Additionally, it showed signs of continued demand as +11 of the balance of manufacturers reported increasing orders.

Asian stocks plunged for a second day, sending the region's benchmark to its biggest decline since April 1990, on concern the global economy is slowing. Japan's Nikkei 225 Stock Average sank 5.7 percent to 12,573.05. Australia's All Ordinaries Index fell 7.3 percent, the most since October 1989. India's Sensitive Index fell 5 percent, paring an earlier loss of as much as 13 percent. India's Finance Minister P. Chidambaram urged investors to "stay calm'' after the Sensex plunged the most in almost 16 years, triggering a one-hour trading halt. It has now slumped almost 20 percent from its closing peak on Jan. 8.
European stocks failed to sustain gains following emergency interest-rate cuts by U.S. Federal Reserve on concern the reductions may not be enough to thwart recession. National benchmarks retreated in 13 of the 18 markets in western Europe. The U.K.'s FTSE 100 fell 1.1 percent, and France's CAC 40 decreased 1.6 percent. Germany's DAX Index gained 2.7 percent.

U.S. overnight and premarket:

Friday, January 18, 2008

Stimulus plan and IBM earnings outlook lift stocks

U.S. Treasuries fell, with yields climbing from a more than three-year low, as global stocks rose before President George W. Bush announces plans to bolster the economy.

The Bush administration is close to completing an economic-stimulus proposal that economists say may have a modest effect on boosting the economy and averting a recession.

IBM on Thursday raised its 2008 estimates, further boosting a stock that was already buoyed by strong fourth-quarter earnings.

Still bleeding from a costly acquisition, Advanced Micro Devices Inc. accounted in the fourth quarter, for overspending $1.6 billion on a graphics chip-maker -- but it posted a narrower loss than analysts feared on surging sales of microprocessors.

Washington Mutual Inc., the largest U.S. savings and loan, reported its first quarterly loss since 1997 after writing down the value of its home mortgage unit and setting aside $1.5 billion to cover bad loans.

Large regional banks across the U.S. plunged on Thursday after reporting earnings hit by the ever-expanding mortgage industry deterioration.

Merrill Lynch's outlook was put on watch with negative implications by both S&P & Moody's.

The overall volume of commercial paper climbed by $35.5 billion to $1.849 trillion in the week to Wednesday, its third consecutive weekly rise, the Fed reported on its Web site. Asset-backed commercial paper rose by $26.3 billion to $805.0 billion, the central bank said.

MBIA Inc. and Ambac Financial Group Inc., the two biggest bond insurers, have a more than 70 percent chance of going bankrupt, credit-default swaps show...."In this market, a credit downgrade could mean the beginning of that company's eventual collapse,'' said Matt Fabian, an analyst with Municipal Market Advisors in Westport, Connecticut.

The turmoil on Wall Street is beginning to rock a foundation of the financial system: the ability of institutions to make good on their many trades with one another. Today, a struggling bond insurer, ACA Financial Guaranty Corp., will ask its trading partners for more time to repay debt.

Chicago Leads Muni Borrowers; Sales Fall on Insurer Concerns. Sales of long-term municipal debt for the year to date are about 49 percent behind the pace during the same period in 2007.

UBS will shut a U.S. group that makes bets on fixed-income investments as it scales back risk-taking after writing down the value of subprime mortgage investments by $14.7 billion last year. The bank said last week that 2008 will be another "difficult'' year for the financial industry.

New Star Posts Record Drop as Clients Withdraw Funds. The Asset Management Group will post a pretax profit of about 40 million pounds ($78.8 million) in 2008, down from his previous forecast of 99 million pounds. "We said back in September that we didn't like the outlook for 2008, and everything we thought then has been borne out.''

Rams Home Loans Ltd.'s collapse will be repeated by other mortgage lenders in Australia after the cost of funding rose to a record, said John Symond, founder of Aussie Home Loans Ltd.

European banks say they will make it harder for companies and consumers to get loans in the next three months, weakening the case for further interest rate increases.

KfW Group, Germany's state-owned development bank, started the sales process for its stake in IKB Deutsche Industriebank AG, the German bank bailed out after investing in U.S. subprime loans.

Banco Santander SA, Spain's largest bank, said yesterday Spanish mortgage-lending growth may slow to 5 percent this year. A report by the country's mortgage association last week said housing loans grew 17 percent in the year through October, the slowest pace in more than a decade.

General Electric Co. said fourth- quarter profit rose 15 percent, led by higher overseas sales of jet engines, power-plant turbines and locomotives to help compensate for slower U.S. economic growth.

Schlumberger Ltd., the world's largest oilfield-services provider, said fourth-quarter profit rose 22 percent after record crude prices led to an increase in spending on exploration and production.

Metro AG, Germany's largest retailer, rose in Frankfurt trading after agreeing to sell its Extra supermarkets to Rewe Group, reducing debt.

Luminar Group Holdings Plc, the U.K.'s biggest nightclub owner, said second-half sales growth slowed as Britons facing higher household bills spent less on nights out. The shares fell to a five-year low.

Beter Bed Holding NV fell the most in more than seven years in Amsterdam trading after the owner of Europe's largest mattress retailer said full-year profit trailed the company's forecast. Beter Bed said today fourth-quarter sales rose 4 percent to 94 million euros, slowing from a 12 percent increase in the first nine months.

China Life Insurance Co., the country's biggest insurer, said it booked premium income of 196.6 billion yuan ($27.1 billion) in 2007.

ThyssenKrupp AG, Germany's largest steelmaker, rose the most in almost two weeks in Frankfurt trading as first-quarter pretax profit fell less than expected and it forecast a "positive performance'' for the full year.

Copper rose, leading other industrial metals higher, on speculation Chinese wire and pipe manufacturers will replenish stockpiles to ensure output isn't disrupted during the Lunar New Year holiday starting Feb. 6.

U.K. retail sales unexpectedly dropped by the most in 11 months in December as higher borrowing costs and falling house prices curbed consumer spending.

Japanese consumer confidence hit a four-year low in December, according to the Cabinet Office’s most recent survey, as inflation expectations soar and wage growth remains tepid.

Mexico's central bank will probably keep its benchmark lending rate at the highest in almost two years as a slowing U.S. economy and lower-than-forecast industrial production outweigh inflation concerns.

Asian shares rebounded Friday in volatile sessions. The Nikkei closed up 0.56%, almost 500 points above an intraday low. The Hang Seng ended the day up 0.35% after an early 3.9% decline. The Shanghai Composite closed up 28 points or 0.56 percent.
European stocks rose for the first time in four days, led by Rio Tinto Group, on speculation the world's third-largest mining company will get a takeover bid. Markets in Austria, Belgium, Denmark, Finland, Norway, Poland and Sweden have extended their declines from highs reached last year to more than 20 percent, the common definition of a bear market. National benchmarks gained in 10 of the 18 markets in western Europe. The U.K.'s FTSE 100 added 1.3 percent, and France's CAC 40 rose 0.3 percent. Germany's DAX was little changed.

U.S. overnight and premarket: