Recovery may take longer than usual: Greenspan

(Reuters) - Economic growth has stalled and recovery may take longer than usual, former Federal Reserve chairman Alan Greenspan said on Monday.

"As of right now, U.S. economic growth is at zero," Greenspan said at an investment conference in Jeddah, Saudi Arabia's second-largest city. "We are at stall speed."

"Recovery might take longer to emerge than it usually does," he added.

The longer growth stays at zero, the more likely the world's largest economy would start to contract, he said, adding that globalization of trade could ease some shocks.

"Growing globalization of trade and the economy would facilitate the absorption of shocks in the U.S.," he said.

In updated economic forecasts released last week, the U.S. central bank lowered its outlook for 2008 growth by a half percentage point to between 1.3 percent and 2 percent, citing the prolonged housing slump and bottlenecks in credit markets.

 

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Visa sets possible record $18.8 billion IPO

(Reuters) - Visa Inc, the world's largest credit-card network, on Monday said it may raise up to $18.8 billion in its eagerly awaited public sale of shares, which could make it the largest initial public offering ever.

The company filed with the U.S. Securities and Exchange Commission to sell 406 million Class A shares at $37 to $42 each, resulting in proceeds of $15 billion to $17.1 billion. It said it might sell another 40.6 million shares to meet demand, boosting the potential size of the IPO to $18.8 billion.

A successful IPO would surpass the $10.6 billion offering in 2000 by AT&T Wireless Group.

San Francisco-based Visa plans to list its shares on the New York Stock Exchange under the symbol "V."

The timing of Visa's offering is risky, as worries that the U.S. economy might be entering a recession have chilled investor demand for stocks and IPOs.

But shares of smaller rival MasterCard Inc (MA.N: Quote, Profile, Research) have more than quintupled since that card network went public in a $2.4 billion IPO in May 2006.

"MasterCard has been an explosive stock, and investors may hope Visa will be the same," said Steve Roukis, a managing director at Matrix Asset Advisors Inc in New York, which invests $1.7 billion.

Visa intends to set aside $3 billion of net proceeds to cover a wide variety of antitrust and other litigation.

 

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Ambac Rises on $3 Billion Rescue to Avert Downgrade

 (Bloomberg) -- Ambac Financial Group Inc. rose to the highest in two weeks on investor expectations the bond insurer may be rescued from crippling credit-rating downgrades by getting $3 billion in new capital.

Ambac, the second-biggest bond insurer after MBIA Inc., may announce an agreement this week, according to a person with knowledge of the discussions who declined to be named because the details aren't complete. The New York-based company plans to raise $2.5 billion by selling stock at a discount to existing shareholders and $500 million from issuing debt, the Wall Street Journal reported today, citing people familiar with the matter.

``Maybe we'll see light at the end of the tunnel soon,'' said Geraud Charpin, head of European credit strategy at UBS in London. ``That would be good news for banks.''

Citigroup Inc. and seven other banks are working with Ambac to prevent rating cuts that would throw doubt on the credit quality of the $553 billion of municipal and asset-backed securities it guarantees. Banks stand to lose as much as $70 billion from any downgrades to Ambac, MBIA Inc. and FGIC Corp., Oppenheimer & Co. analysts estimated. Ambac rose as much as 6 percent before the official start of trading in New York.

The stock was 69 cents higher at $11.40 at 7:35 a.m., the highest since Feb. 11. Ambac jumped 16 percent in New York Stock Exchange trading on Feb. 22 after CNBC Television said banks and Ambac were preparing a deal.

Ambac spokeswoman Vandana Sharma didn't return a voicemail and e-mail seeking comment before office hours today.

Bank Talks

Rating companies are demanding bond insurers add more capital or face downgrades because of losses on subprime- mortgage securities they guaranteed. Moody's Investors Service indicated it will decide whether to cut Ambac and Armonk, New York-based MBIA by the end of the month. A downgrade of all the firms would cast doubt on $2.4 trillion of securities they back.

New York Insurance Superintendent Eric Dinallo last month arranged a meeting with banks to help avoid a downgrade of the bond insurers. Dinallo told a congressional hearing this month that the companies may be forced to separate their municipal insurance business from their asset-backed guarantees.

``Ambac was among the neediest cases, so if they can pull it off, there's hope for the others,'' said Jim Reid, credit strategist at Deutsche Bank AG in London.

CDO Losses

Banks face losses from any rating cuts because they bought bond insurance to hedge the risks of collateralized debt obligations and other asset-backed securities that are now tumbling in value. CDOs package pools of securities then split them into pieces with different ratings.

UBS AG, Royal Bank of Scotland Group Plc, Wachovia Corp., Barclays Plc, Societe Generale SA, BNP Paribas SA and Dresdner Bank AG were also involved in the group discussing a rescue, said the person.

Dresdner, the German banking arm of Allianz SE, will contribute a ``small'' investment of ``two-digit million euros,'' Stefan Jentzsch, head of the Dresdner Kleinwort investment-banking unit, said at a press conference in Frankfurt today.

``We have long been waiting for banks to pay up,'' Philip Gisdakis, a Munich-based credit analyst at UniCredit SpA, Italy's biggest bank, wrote in a note to investors today. A ``solution without their participation would lead to large losses for them.''

Spokespeople for Citigroup, UBS, Wachovia and BNP declined to comment on the rescue plans. Spokespeople for RBS, Barclays and Societe Generale didn't immediately return e-mails or calls seeking comment.

FGIC Split

FGIC, which lost its top rating at Moody's last week, asked to be split into two separate businesses, one that insures municipal bonds and another for asset-backed securities. That would help protect municipal bonds from losses on the asset- backed debt.

Channel Reinsurance Ltd., a reinsurer for MBIA, had its top Aaa credit rating cut by Moody's on Feb. 22 because of a slump in the value of residential mortgage securities.

The rating was cut three levels to Aa3 with a negative outlook, Moody's said in a statement. Channel Re provides more than half the reinsurance bought by MBIA, according to MBIA filings. MBIA said last week all bond insurers must eventually divide their businesses.

 

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SocGen in record loss, may take new writedowns

(Reuters) - Societe Generale (SOGN.PA: Quote, Profile, Research) confirmed a record fourth-quarter loss of 3.35 billion euros ($4.93 billion) after absorbing a huge rogue trading scandal that has made France's second-biggest listed bank a potential takeover target.

The loss coincided with an internal report acknowledging that better systems might have prevented the costly stock market gambles it blames on junior trader Jerome Kerviel.

SocGen, like many of the world's top banks, has also been hit by losses related to a global credit crunch and the bank warned it may make further writedowns in the future.

Executive Chairman Daniel Bouton told Reuters the 144-year-old firm was determined to ride out the storm as an independent bank, despite reports of a potential bid from long-time suitor and arch-rival BNP Paribas (BNPP.PA: Quote, Profile, Research).

"I am completely determined to continue with our strategy because, even taking into account our very bad year in 2007 due to the financial crisis and this fraud, it's this strategy which creates and will create the most value for shareholders," Bouton said in an interview. "This is my opinion, and it's one that's backed by the board."

SocGen's fourth-quarter net loss compared with a 1.18 billion euro profit a year earlier and a fourth-quarter profit of 1.0 billion euros unveiled by rival BNP Paribas, although BNP Paribas' results were down from the year before.

SocGen cut its 2007 dividend to 0.90 euro from 5.20 euros.

 

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Oil seen heading higher after topping $100

(Reuters) - Rampant oil prices are likely to continue to rise for a while yet as supply worries and investor demand for commodities outweigh concerns of economic slowdown.

Crude hit a record high of $101.32 on Wednesday and was trading at $98.64 at 9:45 a.m. EST on Thursday.

The price has climbed from below $50 at the start of 2007 and below $20 in early 2002.

"From here, we think that the next stage may well be a period of consolidation in the high $90s, and that could include increasingly frequent moves above $100," said Paul Horsnell of Barclays Capital.

Prices have risen in part because of expectations that the Organization of the Petroleum Exporting Countries, rather than increase oil output, will maintain or even cut supply at a meeting on March 5.

OPEC argues that factors beyond its control, such as speculation, are boosting prices. One OPEC minister made clear on Thursday that oil's push into triple digits would not bounce the group into changing supplies.

"We will not just react to $100 oil," Qatar's oil minister, Abdullah al-Attiyah, told Reuters by telephone. "OPEC will move when it sees physical demand for its oil."

 

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Dresdner Rescues $19 Billion SIV, Follows Citigroup

 (Bloomberg) -- Dresdner Bank AG, Germany's third- largest bank, agreed to rescue its $18.8 billion structured investment vehicle, joining Citigroup Inc. and HSBC Holdings Plc in bailing out funds crippled by the collapse of the subprime mortgage market.

Dresdner, a unit of Munich-based Allianz SE, will provide a credit line to enable the K2 fund to repay all of its senior debt, spokesman Ulrich Porwollik in Frankfurt said in a telephone interview. Dresdner will cut the size of the fund, which has been reduced from $31.2 billion since July, according to an e-mailed statement.

The bank is the last of the world's biggest financial institutions to put capital at risk salvaging a SIV from the seven-month freeze in credit markets. Banks including Citigroup, HSBC, Bank of Montreal and WestLB AG have disclosed plans to support their SIVs with $140 billion of assets.

``This is a potential threat to Dresdner Bank,'' said Thilo Mueller, managing director of MB Fund Advisory in Frankfurt. ``There is little liquidity for some of these assets and with comparative assets continuing to fall, you need to book further writedowns.''

SIVs, which use short-term borrowing to buy higher-yielding assets, have shrunk by $100 billion from $400 billion since August, according to Moody's Investors Service.

Exit Plan

``Allianz plans to exit K2 and the SIV business in general,'' Chief Financial Officer Helmut Perlet said today in an interview. ``The SIV business has no future.''

The fund, which Allianz expects will be wound down by year- end, is unlikely to cause a ``major negative hit'' if the assets are taken on to Dresdner's books because the company has the ``financial strength to sit out parts of the valuation declines,'' Perlet said.

Allianz's banking division, which is mostly Dresdner, wrote down more than 1.3 billion euros ($1.9 billion) on structured investment products, contributing to a 52 percent decline in fourth-quarter profit announced today. Europe's biggest insurer earned 665 million euros, missing the 729 million-euro median estimate of 12 analysts surveyed by Bloomberg.

Allianz, which has fallen 19 percent this year, rose 1.91 euros, or 1.61 percent, to 120.27 euros at 4:25 p.m. in Frankfurt trading.

No Subprime

K2, named after the world's second-highest mountain in the Himalayas, was started in 1999 by Paul Clarke and Alan Harley, who previously helped manage Europe's first SIVs at Citigroup.

The fund has no ``direct exposure'' to securities backed by subprime or midprime debt, the mortgages made to U.S. homeowners with poor or limited credit histories. K2 also doesn't contain collateralized debt obligations based on asset-backed notes, the statement said. CDOs are securities packaged from mortgage bonds and other assets.

One of the SIV's three portfolios has entered a ``restricted operating period,'' a rule designed to protect senior investors that prevents it making payments to lower- ranking bondholders. The credit line from Dresdner may enable K2 to end the restriction, K2 said in a separate statement today.

``Such an outcome, however, cannot be assured,'' the statement said. K2 didn't disclose the size of the portfolio.

SIV Defaults

The SIV bailouts avert the risk of forced sales of assets by the funds. Concern that fire sales by SIVs would further roil credit markets prompted U.S. Treasury Secretary Henry Paulson to begin talks on setting up an $80 billion rescue fund last year. Citigroup and JPMorgan Chase & Co. in New York and Charlotte, North Carolina-based Bank of America Corp. abandoned the so- called SuperSIV after banks began rescuing their own funds, led by London-based HSBC.

More than $20 billion of SIVs have defaulted after being forced to start winding down since August, including funds set up by New York-based Ceres Capital Partners LLC and Cheyne Capital Management (UK) LLP in London.

Whistlejacket Capital Ltd., set up by Standard Chartered Plc, may default today after the company's receiver, Deloitte & Touche LLP, froze debts last week. The London-based bank abandoned a rescue plan for SIV yesterday, prompting Moody's to downgrade Whistlejacket's senior debt rating by three steps to B2, five levels below investment grade.

``It's a positive signal that Dresdner is willing to step in and support its SIV, but the story is far from resolved as we saw with Standard Chartered's Whistlejacket SIV,'' said Henry Tabe, an analyst at Moody's in London. Moody's rates K2's senior debt at Aaa.

 

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Philadelphia Fed February Factory Index Falls to -24

(Bloomberg) -- Manufacturing in the Philadelphia region unexpectedly contracted the most since February 2001, the eve of the last recession, as measures of new orders and shipments reflected weakening demand.

The Federal Reserve Bank of Philadelphia's general economic index declined to a minus 24 from minus 20.9 in January, the bank said today. Readings less than zero signal contraction. The Philadelphia Fed's general economic index averaged 5.1 in 2007.

A two-year housing slump, exacerbated by tighter credit conditions, is spilling over to other industries, pushing the economy to the brink of recession. The Fed, after cutting interest rates at the fastest pace since 1990 last month, has said it is ready to move in a ``timely'' manner to avert a downturn.

``The Philadelphia Fed survey is sending clear signals that the U.S. economy is heading for a recession,'' said Lena Komileva, chief economist at Tullett Prebon in London, who forecast a minus 25 reading. ``The speed and magnitude of the recent decline in the series signals a very sharp deterioration.''

Economists had forecast the Philadelphia manufacturing index would rise to minus 10.0, according to the median of 54 estimates in a Bloomberg News survey. Projections ranged from 0 to minus 25.0.

New Orders

The Philadelphia Fed's measure of new orders rose to minus 10.9 from minus 15.2 the prior month, and a measure of shipments fell to minus 12.2 from minus 2.3 the prior month.

A gauge of unfilled orders dropped to minus 10.9 from minus 6.2, while the index of inventories declined to minus 13 from minus 11.7 the prior month.

The employment index gained to 2.5 from minus 1.5 a month earlier, the Philadelphia Fed said. An index of prices paid dropped to 46.6 from 49.8, while a gauge of prices received weakened to 24.3 from 32.

The report provides one of the month's earliest clues to the state of manufacturing nationwide. Similar data from the New York Fed released last week showed manufacturing contracted in the New York region in February for the first time in almost three years.

The Philadelphia Fed region, which comprises eastern Pennsylvania, southern New Jersey and Delaware, is more vulnerable to the auto slump and less exposed to financial services and trade than the New York region, economists said.

Nationwide Measure

Nationwide, manufacturing grew in January after contracting in December by the most in almost five years, according to a Feb. 1 survey from the Institute for Supply Management. The ISM survey on manufacturing in February is due out March 3.

The index measuring the manufacturing outlook for six months from now fell to minus 16.9 from 5.2, today's report showed.

The Fed's January rate cuts came as rising subprime defaults led to a global tightening of credit standards and declines in equity prices. Investors are betting on a half-point rate reduction, to 2.5 percent, at the March 18 Fed meeting.

The U.S. economy will probably grow at a 0.5 percent pace in the first quarter and a 1 percent rate in the following three months, according to the median forecast in a Bloomberg survey of economists taken the first week of February. Economists surveyed said a recession this year was an even bet.

 

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KKR Financial Delays Repayments, Starts Negotiations

(Bloomberg) -- KKR Financial Holdings LLC, Kohlberg Kravis Roberts & Co.'s only publicly traded fixed-income fund, delayed repaying debt a second time in six months after failing to find buyers for commercial paper backed by mortgages.

Lenders to the fund agreed to the delay as KKR Financial seeks to restructure, the San Francisco-based company said yesterday in a regulatory filing. KKR Financial, whose stock has fallen 50 percent in the past year, didn't say how much debt is affected.

The announcement rekindled concerns that the decline in the market for short-term asset-backed debt, which totaled $1.2 trillion in August, will accelerate after a rebound early last month. Assets fell to $796 billion in the week ended Feb. 13, the third weekly drop. Standard & Poor's downgraded ratings on notes issued by KKR Pacific Funding Trust last week, citing uncertain pricing on the AAA rated securities that support them.

``The picture is getting worse and worse,'' said Felix Freund, who helps manage the equivalent of $14.7 billion of fixed-income securities at Frankfurt-based Union Investment GmbH. KKR Financial's second repayment extension ``shows there is still a lot of levered investments in the credit market that we can't see.''

About half the debt will be due by March 3 instead of Feb. 15, with the rest owed on March 25, according to the filing.

The talks come less than six months after the fund received a $230 million cash infusion from investors following losses on residential mortgages in the wake of the U.S. subprime crisis. The fund, led by Chief Executive Officer Saturnino Fanlo, raised a further $270 million in a rights offering with some of New York-based KKR's own partners buying shares in it, which had $19 billion of assets at the end of December.

Repricing `Driver'

The deferral drove investors to seek the security of government debt, sending 10-year Japanese bonds to the biggest gain in two weeks while perceived corporate risk in Asia and Europe soared. Contracts on Europe's Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 26.5 basis points to 611.5 today, according to Deutsche Bank AG. A basis point is 0.01 percentage point.

``The driver behind the current repricing is KKR Financial Holdings delaying repayment of CP for the second time,'' analysts led by Mark Harmer, head of credit research at ING Groep NV, said in a note to clients today.

KKR Financial fell 30 cents, or 2.1 percent, to $14.23 at 11:44 a.m. in New York Stock Exchange composite trading. Zoe Watt, a spokeswoman for KKR in London, declined to comment.

IPO

Kohlberg Kravis Roberts, the New York-based investment firm run by Henry Kravis and George Roberts, raised $800 million in KKR Financial's initial public offering in June 2005, selling the shares for $24 apiece. The fund raised money by selling commercial paper to invest in mortgages. It sold almost half of its mortgage loans in August as prices on bonds linked to U.S. home loans started to drop, leaving it with about $5.3 billion of mortgages.

Both Kravis and Roberts sit on KKR Financial's six-member investment committee, alongside KKR Partner Scott Nuttall, KKR Financial's Fanlo and Chief Operating Officer David Netjes.

Kravis and Roberts started the firm with Jerome Kohlberg, their colleague from Bear Stearns Cos., in 1976. Kohlberg left in 1987 and started his own buyout group, Kohlberg & Co. LLC. The private-equity business owns more than 42 companies with more than $180 billion of annual revenue and about 800,000 workers around the world. The firm's investments range from Alliance Boots Ltd. in the U.K. to Texas power producer TXU Corp., now known as Energy Future Holdings Corp.

 

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U.S. Stocks Climb, Erasing Earlier Drop; Hewlett-Packard Gains

 (Bloomberg) -- U.S. stocks rose, led by technology and bank shares, after Hewlett-Packard Co.'s profit topped estimates and investor William Ackman proposed a restructuring of bond insurers in an effort to minimize credit losses.

Hewlett-Packard, the biggest maker of personal computers, climbed the most in two years and helped the Dow Jones Industrial Average erase a 109-point drop. Wells Fargo & Co. and Citigroup Inc. led financial shares to their steepest gain in a week on Ackman's plan. TJX Cos., owner of the T.J. Maxx and Marshalls discount chains, led a rally in retailers after posting profit that topped analysts' estimates.

The Standard & Poor's 500 Index gained 2.41 points, or 0.2 percent, to 1,351.19 at 12:57 p.m. in New York. The Dow Jones Industrial Average rose 12.45, or 0.1 percent, to 12,349.67. The Nasdaq Composite Index increased 6.9, or 0.3 percent, to 2,313.1. About four stocks rose for every three that fell on the New York Stock Exchange.

Stocks dropped earlier in the day on concern competition will reduce profits among wireless networks and faster inflation will keep the Federal Reserve from cutting interest rates.

Hewlett-Packard rose $3.33 to $47.28 First-quarter net income increased 38 percent to $2.13 billion, or 80 cents a share, from $1.55 billion, or 55 cents, a year ago. Excluding expenses for acquisitions, profit was 86 cents a share, five cents more than the average analyst estimate in a Bloomberg survey. The company also raised its annual sales forecast on increasing demand overseas.

Tech Rally

Technology companies in the S&P 500 added 1.3 percent as a group, the steepest advance among 10 industries.

Wells Fargo, the biggest bank on the West coast, climbed 67 cents to $30.53. Citigroup added 39 cents to $25.71.

Ackman distributed a plan to restructure bond insurers that may prevent dividends from being paid to the parent companies and minimize losses for holders of asset-backed securities.

 

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Credit Suisse Writedowns to Cut Profit by $1 Billion

(Bloomberg) -- Credit Suisse Group discovered pricing errors on bonds that will cut first-quarter profit by about $1 billion, prompting the biggest share decline in more than five years.

Switzerland's second-largest bank took $2.85 billion of writedowns on asset-backed securities after an internal review found ``mismarkings'' by a group of traders and credit markets worsened. The Zurich-based bank said in a statement today that it's assessing whether 2007 earnings were also affected.

The announcement comes two days after Qatar said it was buying shares in Credit Suisse and a week after the company reported net writedowns of 2 billion Swiss francs ($1.8 billion) for 2007, a fraction of those disclosed by bigger Swiss competitor UBS AG. Chief Executive Officer Brady Dougan said on Feb. 12 that he was ``more optimistic than many'' about prospects for a debt market recovery.

``I'm speechless,'' said Georg Kanders, an analyst at WestLB in Dusseldorf with a ``buy'' rating on Credit Suisse. ``To announce this just a week after reporting earnings is a major blow. This will again put the whole sector under pressure.''

Credit Suisse fell as much as 10 percent, and was down 4.40 francs, or 7.7 percent, to 52.35 francs by 1:15 p.m. in Swiss trading, cutting the company's market value to 60.8 billion francs. UBS AG, the biggest Swiss bank, dropped 0.8 percent.

`Loss of Confidence'

Credit-default swaps on Credit Suisse's subordinated debt rose to a record, according to Deutsche Bank AG. Credit-default swaps, used to speculate on a company's ability to repay debt, rise as perceptions of credit quality worsen.

Credit Suisse blamed the writedowns on ``significant adverse first quarter 2008 market developments'' and pricing errors ``by a small number of traders'' in the structured credit trading business. The company estimated that it remained profitable so far in the first quarter.

The announcement may raise questions about oversight at the bank less than a month after Societe Generale SA reported the worst trading loss in banking history following unauthorized bets by trader Jerome Kerviel.

``The big question mark is about the bank's control systems,'' said Stefan Raetzer, who helps manage about $28 billion at Allianz Global Investors in Frankfurt. ``The writedown isn't as much of a problem here as the loss of confidence.''

Credit Suisse spokesman Marc Dosch said a ``small number'' of traders had been suspended, declining to provide their names or location. The internal review will be finished before the publication of the annual report, scheduled for March 18, he said. The company will hold a conference call for reporters and analysts at 3 p.m. Zurich time today.

Dougan

The loss is the biggest setback for Dougan, 48, since he took over as CEO from Oswald Gruebel in May after heading the investment bank for three years. Gruebel returned the bank to stable earnings after a decade of management turnover, bungled acquisitions and the first criminal conviction of a bank in Japan. Credit Suisse's writedowns follow about $19 billion in debt and loan markdowns at UBS.

``It unfortunately just reinforces the reputation that the large Swiss banks have generated over the last year for financial ineptitude,'' Peter Thorne, a London-based analyst at Helvea Ltd., said in a note to clients. ``Whilst we had received some assurance that the Credit Suisse balance sheet is not as laden with problem securities as UBS, this disclosure just raises the prospect that they may be simply bad at knowing what problems they do have.''

 

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Banks "quietly" borrow $50 billion from Fed: report

(Reuters) - Banks in the United States have been quietly borrowing "massive amounts" from the U.S. Federal Reserve in recent weeks, using a new measure the Fed introduced two months ago to help ease the credit crunch, according to a report on the web site of The Financial Times.

The newspaper said the use of the Fed's Term Auction Facility (TAF), which allows banks to borrow at relatively attractive rates against a wide range of their assets, saw borrowing of nearly $50 billion of one-month funds from the Fed by mid-February.

 

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Fed's Stern says rate cuts should protect economy

(Reuters) - The Federal Reserve's interest rate cuts are appropriate to restore stability in financial markets and prevent damage to the broader economy, Minneapolis Fed President Gary Stern said on Tuesday.

"Against the backdrop of the financial shocks that have beset the economy and their implications for the outlook, the reduction in the funds rate target appears wholly appropriate," he said in remarks prepared for delivery to the Financial Planning Association of Minnesota.

The Fed is responsible for restoring financial stability and protecting the broad economy from damage, Stern said.

"Policy is now better positioned to attain these objectives than formerly," he added.

Stern said the current situation is reminiscent of the early 1990s, when the economy faced "headwinds" after the 1990-91 recession, particularly tighter credit and a real estate bust.

 

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Northern Rock a lingering risk to Brown's future

(Reuters) - Nationalizing ailing Northern Rock bank may be the best option left to British Prime Minister Gordon Brown, but lingering doubts over its future risk chipping away at public confidence in the run up to the next election.

Hopes for a fast Northern Rock turnaround are hostage to financial markets stabilizing, a buoyant housing market returning and approval for nationalization from the European Union that does not result in a breakup and big job losses.

Brown has staked his credibility on protecting Britain from the fallout of the global credit crisis. But with the economy and the housing market slowing, he will be in the firing line if things get worse and the public looks for someone to blame.

And if those with Northern Rock mortgages get houses repossessed in a downturn, the chances are high that newspapers hostile to the ruling Labour government will use their headlines to attack Brown's policies.

So just as the Iraq war and a scandal over political party funding dogged former Prime Minister Tony Blair until he finally threw in the towel last year, so Northern Rock risks becoming a millstone for Brown.

"It was interesting that Brown was saying the test for the government is economic stability as there are no guarantees it would pass that test given the turmoil could still pass through to the economy," said Philip Shaw, chief economist at banking group Investec.

 

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Qatar Buys Credit Suisse Shares, Prime Minister Says

(Bloomberg) -- Qatar is buying shares in Credit Suisse Group and plans to spend as much as $15 billion on European and U.S. bank stocks over the next year, the Gulf state's prime minister said in an interview.

``We have a relation with Credit Suisse and we bought some of the stock from the market, actually, but I cannot say what percentage because still we are in the process,'' Sheikh Hamad bin Jasim bin Jaber al-Thani, who is also chief executive officer of the Qatar Investment Authority, said in an interview late yesterday in Doha.

Persian Gulf sovereign wealth funds, whose coffers are swelling from near-record oil prices, and counterparts in Asia have been snapping up stakes in banks battered by U.S. subprime mortgage losses. Citigroup Inc. received $14.5 billion from investors including Singapore and Kuwait since mid-December.

``Subprime losses are clearly not confined to U.S. banks and European banks are seeking funding,'' Giyas Gokkent, head of research at National Bank of Abu Dhabi PJSC, said in a phone interview today. ``Gulf funds have surpluses to spend and are looking for long-term appreciation. If investments help develop their domestic financial markets too, so much the better.''

Bruno Daher, Credit Suisse's Dubai-based co-CEO for the Middle East, declined to comment when contacted on his mobile phone today, as did Zurich-based spokesman Marc Dosch. Credit Suisse jumped 1.60 Swiss francs, or 2.9 percent, to 56.60 francs ($51.33) at 1:13 p.m. in Swiss trading.

Buying Stakes

Credit Suisse said on Feb. 12 that fourth-quarter profit fell 72 percent after 1.3 billion francs of writedowns on debt and leveraged loans. The stock has fallen 31 percent since Oct. 10. Brady Dougan, CEO of Switzerland's second-biggest bank, scaled back risky investments before the debt-market slump that forced UBS AG, Switzerland's biggest bank, to report $14 billion in writedowns.

In the past six months, sovereign wealth funds made investments in Citigroup, Merrill Lynch & Co., Morgan Stanley and UBS, which is seeking shareholder approval to raise 13 billion Swiss francs from Singapore and an unidentified Middle Eastern investor through a sale of bonds convertible into shares.

Qatar's decision to buy Credit Suisse stock in the open market ``makes all the difference'' to investor confidence in the bank, according to Christof Reichmuth, CEO of Luzern-based Private Bank Reichmuth & Co.

`Sign of Strength'

``They are not selling equity or mandatory convertible bonds to boost their capital like UBS did,'' he said. ``Even though 2008 won't be a great year for Credit Suisse either, this should be read as a sign of strength rather than weakness.''

Wall Street banks have raised at least $59 billion, mostly from investors in the Middle East and Asia. Citigroup was propped up in November by a $7.5 billion investment from the Abu Dhabi Investment Authority, the world's richest sovereign fund, after losing almost half its market value.

State-managed funds in countries including Kuwait, Abu Dhabi and South Korea have ballooned to $3.2 trillion in assets. Fueled by record oil prices and rising currency reserves, sovereign fund assets may gain fourfold to $12 trillion by 2015, equal to the capitalization of the Standard & Poor's 500 Index, according to Morgan Stanley estimates.

First European Bank

Credit Suisse in March 2006 became the first European bank to get a license for the Qatar Financial Centre, a self-regulated business park designed to attract lenders to the Gulf state as part of a plan to diversify the economy away from oil and gas. The Swiss bank ``has had a long-standing relationship with Qatar,'' Joachim Straehle, head of private banking for Asia, the Middle East and Russia, said at the time.

When the Qatar Investment Authority sought to buy U.K. supermarket chain J Sainsbury Plc last year, Credit Suisse was among three European banks that agreed to underwrite $19 billion of loans to help pay for the buyout. Qatar in November abandoned the bid, citing ``deterioration'' in credit markets and demands by J Sainsbury's pension fund.

The Qatar Investment Authority is the largest shareholder in J Sainsbury, with a 25 percent stake, data compiled by Bloomberg show. The authority is the second-biggest investor in French publisher Lagardere SCA, and owns shares in Middle Eastern banks including Beirut-based BLC Bank SAL and Jordan's Housing Bank for Trade & Finance. It also bought a $205 million stake in Industrial & Commercial Bank of China Ltd. before the Beijing- based lender's 2006 initial share sale, according to a prospectus published at the time. The authority doesn't disclose holdings beyond regulatory requirements.

The Kuwait Investment Authority, which manages an estimated $250 billion for the Gulf state, is keen to buy into European financial companies ``if we are invited,'' Managing Director Bader al-Saad said last month.

 

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U.S. January Import Prices Rise More Than Forecast

(Bloomberg) -- Prices of goods imported into the U.S. rose more than forecast in January, pushing the increase for the last 12 months to a record, led by rising costs for energy products and food.

The 1.7 percent increase in the import price index followed a revised 0.2 percent decrease the prior month, the Labor Department reported today in Washington. Prices excluding petroleum rose 0.6 percent.

Higher import costs, sustained over several months, may increase the chances U.S. companies will try to follow their foreign competitors in increasing prices. Still, Federal Reserve policy makers remain focused on risks to growth and are prepared to lower interest rates further, Chairman Ben S. Bernanke told U.S. lawmakers yesterday.

``Growth is still the biggest worry, but inflation concerns are alive,'' said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. ``The Fed will be cutting interest rates.''

Import prices were forecast to rise 0.5 percent, according to the median estimate of 52 economists in a Bloomberg News survey, after being previously reported as unchanged in December. Forecasts ranged from a gain of 2 percent to a drop of 1 percent.

Treasury Yields

Treasury securities, which rose earlier today, stayed higher after the figures. Ten-year note yields were at 3.76 percent at 8:38 a.m. in New York, from 3.82 percent late yesterday.

Compared with a year earlier, prices of imported goods increased 13.7 percent, the biggest jump since record-keeping began in 1982. That followed a 10.4 percent year-over-year increase in the prior month. Excluding petroleum, prices rose 3.6 percent in the 12 months to January.

The import-price index is the first of three monthly price gauges from the Labor Department. The government is scheduled to release its measure of consumer prices on Feb. 20 and wholesale prices on Feb. 26. Both reports are forecast to show that excluding fuel costs, price pressures were contained.

Fed officials have trimmed forecasts for growth after the U.S. lost jobs in January and consumer spending slowed because of falling home and stock values and rising energy costs. The central bank will cut rates a further half-point by March 18 after 2.25 percentage points of reductions since September, futures trading shows.

Bernanke Message

``The outlook for the economy has worsened in recent months, and the downside risks to growth have increased,'' Bernanke told the Senate Banking Committee in Washington yesterday. ``To date, inflation expectations appear to have remained reasonably well anchored.''

The price of imported petroleum and petroleum products rose 5.5 percent after a decline of 1.9 percent the prior month. Prices were 67 percent higher than at the same time a year earlier.

Crude oil prices, which reached $100 a barrel on Jan. 2 on the New York Mercantile Exchange, the highest since trading began in 1983, have retreated in recent weeks.

Excluding all fuels, including natural gas, import prices rose 0.7 percent for the month and were up 3.3 percent for the 12-month period.

Food and beverage imports were 3.1 percent more expensive, the biggest gain since March 2005. Costs of imported industrial supplies rose 4 percent and were up 37 percent from a year earlier, the biggest year-over-year increase since March 2000.

Dollar Falls

The dollar, which weakened nearly 8 percent since the beginning of 2007 against a trade-weighted basket of currencies of major U.S. trading partners, also is making imports more expensive.

The cost of imported capital goods fell 0.2 percent, the first decrease in nine months, today's report showed. Prices of imported automobiles, parts and engines were unchanged and costs for imported consumer goods excluding autos rose 0.3 percent.

Some companies are getting hurt even after attempts to recover costs. Kraft Foods Inc., the world's second-largest foodmaker, last month said its fourth-quarter profit fell, in part because price increases on cheese didn't cover dairy expenses that surged 50 percent from the year-earlier quarter.

Others have gained some success. Tiremakers including Bridgestone Corp., the world's biggest, have boosted prices to counter higher costs of rubber and synthetic alternatives made from petroleum.

 

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Comcast, Pressured by Holders, Sets Buyback, Dividend

(Bloomberg) -- Comcast Corp., the cable-TV operator pressured to boost investor returns, said it will buy back $6.9 billion of its stock over two years and pay its first dividend in almost a decade, sending the shares up the most in five years.

Fourth-quarter net income rose 54 percent to $602 million, or 20 cents a share, from $390 million, or 13 cents, a year earlier, Philadelphia-based Comcast said today in a statement. Profit beat the 17-cent average of 17 analysts' estimates compiled by Bloomberg. Sales gained 14 percent to $8.01 billion.

The buyback and annual dividend of 25 cents followed criticism from investors including Chieftain Capital Management Inc., who said Comcast's acquisitions and capital spending were excessive. Last month, Chieftain called for Comcast to reward shareholders and oust Chief Executive Officer Brian Roberts.

``Investors had been looking for a return of cash,'' Sanford C. Bernstein & Co. analyst Craig Moffett said in an interview on Bloomberg Radio. ``That signals confidence from the management that they really do believe that capital intensity is going to fall. We got that this morning in a big share repurchase.''

Moffett, based in New York, rates the stock ``outperform.''

Comcast rose $1.26, or 7.1 percent, to $19.07 at 9:32 a.m. New York time in Nasdaq Stock Market trading, after gaining as much as 7.2 percent, its biggest rise since October 2002. The stock had declined 35 percent in the past year before today.

The company may increase its dividend ``over time,'' co- Chief Financial Officer Michael Angelakis said on a conference call.

 

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Coca-Cola profit rises sharply

(Reuters) - Coca-Cola Co (KO.N: Quote, Profile, Research), the world's largest maker of soft drinks, reported higher-than-expected quarterly profit on Wednesday, helped by higher sales, acquisitions and foreign exchange rates.

Coca-Cola said fourth-quarter net income was $1.21 billion, or 52 cents per share, compared with $678 million, or 29 cents per share, a year ago.

Excluding charges, Coke earned 58 cents per share, topping analysts' average estimate of 55 cents, according to Reuters Estimates.

Net operating revenue rose to $7.33 billion from $5.93 billion a year ago, helped by a 6 percent increase in sales of drink concentrate, the company's main business.

Currency exchange rates boosted revenue 8 percentage points, since the weak dollar versus foreign currencies increases the value of international sales when they are converted to U.S. dollars for inclusion on the company's income statement.

Unit case volume rose 5 percent in the quarter, supported by acquisitions.

Coke, which owns about 35 percent of its bottler Coca-Cola Enterprises Inc (CCE.N: Quote, Profile, Research), saw its year-ago profit impacted by an asset write-down the bottler took related to its North American franchise license.

 

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MGIC Loses $1.47 Billion in Quarter, Seeking Capital

(Bloomberg) -- MGIC Investment Corp., the largest U.S. mortgage insurer, fell the most in a month after posting a record quarterly loss of $1.47 billion and said it hired an adviser to raise capital.

MGIC's fourth-quarter net loss was $18.17 a share, compared with a profit of $122 million, or $1.47, a year earlier, the Milwaukee-based company said in a statement today. Excluding investment losses, the insurer lost $18.09 a share, worse than the $8.13 average loss estimate of seven analysts compiled by Bloomberg.

Claims costs, including additions to reserves, surged sevenfold to $1.35 billion, compared with a Jan. 22 company forecast of as much as $1.3 billion. MGIC set aside money for losses on loans that served as collateral for Wall Street securitizations, whose performance ``deteriorated materially.''

``Higher loss severities and higher delinquencies had a material impact,'' Curt Culver, MGIC's chief executive officer, said in the statement. While the company expects to remain unprofitable this year, Culver said MGIC has adequate capital to meet its claim obligations.

MGIC fell $2.03, or 14 percent, to $12.15 at 10:10 a.m. in New York Stock Exchange composite trading. Earlier in the session the company fell as much as 16 percent.

Foreclosure Rates

U.S. foreclosure rates have risen to their highest since at least World War II, and defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, according to the Mortgage Insurance Companies of America trade group. Foreclosure rates rose 75 percent in 2007, according to Irvine, California-based RealtyTrac Inc. Mortgage insurers reimburse lenders when borrowers don't repay their debts.

Borrowers who couldn't make higher monthly payments after introductory rates expired propelled a jump in third-quarter claims, leading MGIC and smaller rivals PMI Group Inc. and Radian Group Inc. to report their first money-losing quarters as publicly traded companies.

Payments on about $460 billion of adjustable-rate mortgages are scheduled to be repriced this year, with an additional $420 billion expected for 2011, according to New York-based analysts at Citigroup Inc.

 

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U.S. Economy: January Retail Sales Unexpectedly Rise

(Bloomberg) -- Retail sales in the U.S. unexpectedly rose in January, easing concern that the world's largest economy has already slipped into a recession.

The 0.3 percent increase was led by spending on autos, clothes and gasoline, the Commerce Department said today in Washington. The figure followed a 0.4 percent decrease the previous month. Purchases excluding automobiles and gasoline were unchanged.

``Today's report will diminish recession anxieties, but it doesn't dispel them altogether,'' said Richard DeKaser, chief economist at National City Corp. in Cleveland, who accurately forecast the sales gain. Federal Reserve Bank of St. Louis President William Poole said yesterday ``the best bet'' is the U.S. will avoid a recession.

Demand from consumers, whose spending accounts for about 70 percent of the economy, will probably wane in coming months, forcing the Fed to lower interest rates further, economists said. Macy's Inc., Target Corp. and Limited Brands Inc. said last week that sales at stores open more than a year declined in January. Macy's cut 2,300 jobs.

Treasury securities dropped after the report, with 10-year note yields rising to 3.70 percent at 10:22 a.m. in New York, from 3.66 percent late yesterday. The Standard & Poor's 500 Index added 0.6 percent to 1,356.24. At the same time, the S&P Retailing Index, which includes Home Depot Inc. and Best Buy Co., retreated 0.4 percent.

Inventories Increase

A separate report showed declining sales at U.S. businesses in December led to the biggest increase in inventories of unsold goods in a year and a half.

The 0.6 percent gain in inventories, the highest since July 2006, followed a 0.4 percent rise in November, the Commerce Department said today in Washington. Sales declined 0.5 percent, the steepest since January 2007, after a 1.4 percent gain the prior month.

Retail sales were projected to fall 0.3 percent after an originally reported 0.4 percent drop the prior month, according to the median estimate in a Bloomberg News survey of economists.

Threats to Spending

The worst housing slump in a quarter century and shrinking access to credit threatens to hurt spending this quarter. The economy lost 17,000 jobs in January, the first drop in more than four years. The Standard & Poor's 500 Index has fallen three consecutive months, the longest losing streak since 2003, eroding households' investment portfolios.

Consumers are increasingly limiting expenses to those they can't avoid. The amount Americans must spend each month on debt service, housing, medical costs, and food and energy bills rose to 66.9 percent of their total spending in December, the highest since records began in 1980, according to Bloomberg figures.

``Food prices have been rising and gasoline prices have been rising and so we got a little boost to overall sales there,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who forecast retail sales would advance 0.2 percent. ``There's evidence here that the slump in the housing market is affecting spending.''

Excluding automobiles, purchases gained 0.3 percent after a 0.3 percent decline in December.

Car Dealers

Sales at automobile dealerships and parts stores rose 0.6 percent after a decline of 1.1 percent in December, the Commerce Department said.

That contrasts with industry figures that showed cars and light trucks sold last month at a 15.2 million annual pace, down 6.7 percent from December. Auto industry sales this year are forecast to drop to the lowest level since 1998.

``There is still a lot of concern about consumers,'' said David Wyss, chief economist at Standard & Poor's in New York, said in an interview with Bloomberg Radio. ``Car sales did really badly during the month. People are going to continue to worry about this and darn well ought to continue to worry.''

Filling station sales rose 2 percent in January after remaining unchanged the prior month, today's report showed. Regular gasoline reached as high as $3.11 a gallon in early January, about 11 cents more than the average for the prior month, according to AAA. Excluding gas, retail sales rose 0.1 percent.

Sales also rose at clothing retailers, which posted a 1.4 percent increase, and grocery and beverage stores, which gained 0.6 percent. Purchases at non-store retailers, which include online and catalog sales, rose 0.5 percent.

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Adcock boss suspended

(Fin24) - Consumer goods giant Tiger Brands says it will be extending its independent investigation into collusion allegations in its healthcaredivision into all its businesses.

"We will extend this investigation into every single business that we areinvolved in," Tiger Brands' non-executivechairperson Lex van Vught said ina statement.

"We are determined to find and root out any anti-competitive
or collusive practices," he said.

Also, the managing executive of Adcock Ingram Critical Care, Arthur Barnett,has been suspended by the board pending the conclusion of the independentinvestigation.

Van Vught said the company was "devastated" at the allegations.
 

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AIG Credit-Default Swap Losses Won't Be `Material'

(Bloomberg) -- American International Group Inc., the world's largest insurer by assets, said ``over time'' it may recoup losses in assets that declined by $4.88 billion in value in October and November.

Any losses by the unit that issues so-called credit-default swaps won't be material to AIG, the firm said today in a statement. AIG rebounded in New York trading after falling the most in two decades yesterday on disclosure that writedowns from the contracts, sold to protect fixed-income investors, were four times bigger than a previous estimate.

Chief Executive Officer Martin Sullivan, who manages units that originate, insure and invest in subprime mortgages or securities, assured investors in December that writedowns tied to the U.S. housing market were ``manageable.'' The company, based in New York, has said it doesn't expect to sell mortgage- related investments at a loss when markets are weak.

While AIG ``may have illustrated questionable judgment'' in its accounting lapse, it ``does not necessarily increase the probability of real economic impairment'' on assets held to maturity, said Mark Lane, analyst at William Blair & Co. in Chicago, today in a research note. He rates the company ``outperform.''

AIG advanced $1.45, or 3.2 percent, to $46.19 at 12:48 p.m. in New York Stock Exchange composite trading. The company has lost about 33 percent in the past 12 months, trailing the 5.7 percent decline of the Standard & Poor's 500 Index.

`Solid Upside'

``For patient investors willing to ride out near-term volatility, we see solid upside in the stock,'' said Morgan Stanley analyst Nigel Dally in a note to investors today. He rates the company ``overweight.''

The insurer's financial products unit issues contracts that promise to reimburse investors for losses tied to $505.5 billion of securities as of Nov. 25, including corporate debt, European mortgages and collateralized debt obligations, which bundle together loans.

AIG's independent auditor PricewaterhouseCoopers LLP found a ``material weakness'' in the company's accounting for the contracts, AIG said yesterday, and the insurer didn't know what they were worth at the end of 2007.

 

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U.S. Stocks Rise After Buffett Offers to Help Bond Insurers

(Bloomberg) -- U.S. stocks rose for a second day, led by financial shares, on expectations Warren Buffett, the world's No. 1 investor, will help calm credit markets by offering to shore up bond insurers' finances.

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the three largest U.S. banks, climbed after Buffett said he's willing to take on $800 billion in municipal bond obligations in an interview with CNBC. Monsanto Co., the world's biggest seed producer, advanced for a third day on an increased profit forecast.

The Standard & Poor's 500 Index added 13.99 points, or 1 percent, to 1,353.12 at 12:29 p.m. in New York. The Dow Jones Industrial Average advanced 162.99, or 1.3 percent, to 12,403. The Nasdaq Composite Index climbed 15.24, or 0.7 percent, to 2,335.3. More than three stocks rose for every one that fell on the New York Stock Exchange. Shares in Europe and Asia also gained.

``It's another potential solution to some of the credit problems,'' Mark Bronzo, who helps manage $11 billion at Security Global Investors in Irvington, New York, said of Buffett's offer. ``That's why the markets are responding well.''

Concern that bond insurers don't have enough money to pay claims on the $2.4 trillion in assets they guarantee has contributed to a 7.4 percent drop in S&P 500 financial shares in 2008. MBIA Inc., the largest bond insurer, lost 80 percent of its value in the last year before today, and smaller rival Ambac Financial Group Inc. slumped 88 percent, on concern that the companies will lose their AAA credit ratings.

Buffett's Offer

Citigroup added 73 cents to $26.54. Bank of America rallied 66 cents to $42.80. JPMorgan climbed 46 cents to $43.81. Bear Stearns Cos., the fifth-biggest U.S. securities firm, increased 49 cents to $80.25.

Buffett said he offered to take on the municipal-bond liabilities of MBIA, Ambac Financial and FGIC Corp. Buffett's Berkshire Hathaway Inc. would provide so-called reinsurance for the debt, he said in an interview with CNBC television.

One company turned down the offer and the two others haven't responded, Buffett, chairman of Berkshire Hathaway Inc., told CNBC.

MBIA slipped 79 cents to $12.79. Ambac lost 29 cents to $10.19. Buffett's offer doesn't include the insurers' subprime- related obligations.

'Project Lifeline'

Financial shares also climbed on plans to help delinquent homeowners avoid foreclosure. Bank of America, Citigroup and four other U.S. lenders announced a plan to offer a 30-day freeze on home foreclosures while loan modifications are considered. Treasury Secretary Henry Paulson and U.S. Housing and Urban Development Secretary Alphonso Jackson said today at a news conference in Washington that ``Project Lifeline'' would help stabilize communities disrupted by mortgage defaults.

Monsanto rallied $3.27, or 2.9 percent, to $117.30 after raising its 2008 profit forecast on higher demand for weed killer and genetically modified corn and soybeans. Profit in the year ending Aug. 31 will increase to $2.70 to $2.80 a share, 20 cents above the range of a Jan. 3 forecast.

Schlumberger Ltd. advanced $2.57 to $83.06 after Bear Stearns raised its recommendation on the world's largest oilfield-services provider to ``outperform'' from ``peer perform,'' saying the company's offshore drilling and exploration make it ``well positioned for the next phase of the oilfield service business cycle.''

Schering-Plough

Schering-Plough Corp. gained $1.16 to $21.78. The maker of Vytorin and Zetia cholesterol pills reported fourth-quarter profit, excluding some items, of 52 cents a share, beating the 27-cent average estimate of 17 analysts surveyed by Bloomberg.

General Motors Corp., the world's largest automaker, gained after reporting an adjusted fourth-quarter profit, not counting costs and gains the company considers one-time items, of 8 cents a share. On that basis, analysts estimated a loss of 64 cents. GM's net loss in the quarter was $722 million.

The Russell 2000 Index, a benchmark for companies with a median market value of $589 million, gained 9.80, or 1.4 percent, to 709.55, led by GMH Communities Trust. The provider of housing to students and the military surged the most since its initial public offering in 2004 after agreeing to be bought in two transactions for a total of $787 million. GMH added $3.13, or 56 percent, to $8.72.

NxStage Medical Inc. fell the most since its 2005 initial public offering, dropping $3.30, or 26 percent, to $9.45. The maker of portable dialysis systems said it expects a loss of as much as $1.52 a share in 2008, wider than the $1.06 loss estimated by analysts in a Bloomberg survey.

World Wrestling Entertainment

World Wrestling Entertainment Inc. climbed $1.16, or 7.6 percent, to $16.47. The producer of television's ``WWE Friday Night SmackDown'' reported fourth-quarter revenue and profit that was higher than the average analyst estimate as video sales and ticket prices increased.

 

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Platinum leaps over $1 900

(Fin24) - Platinum cleared the $1 900 an
ounce mark on Monday for the first time in its history as concerns of further supply disruptions due to power shortages continued to plague the market.

The precious white metal gained $27 to trade at $1 917.50 an ounce by 13:45 after hitting $1 890 in late after-market trade on Friday.

Additionally, Eskom's prediction that power supply problems were likely to continue for several weeks made "further gains seem inevitable with the metal potentially testing $2 000/oz in the not too distant future," said James Moore of TheBullionDesk.

South Africa's ongoing electricity concerns have already seen several precious metals producers warn that their output would drop in 2008, as Eskom restricted mines operating in the country to a power supply that equated to 90% of their average requirements.

 

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G7 discussed joint action to calm financial markets

(Reuters) - Finance leaders from the Group of Seven industrialized nations discussed collective action to calm markets if price moves become irrational, Eurogroup Chairman Jean-Claude Juncker was quoted as saying on Monday.

Juncker, who chairs the Eurogroup -- the monthly meetings of euro zone finance ministers and the European Central Bank -- told the Luxemburger Wort newspaper in an interview that turbulence on financial markets could continue for months.

"We are not yet at the end of the market crisis," Juncker was quoted as saying.

"The corrections will drag on for a few weeks, months. We have agreed in Tokyo that if there are irrational price movements in the markets, we will collectively take suitable measures to calm the financial markets," he said.

Asked what form such collective action may take, he said:

"Whoever has a strategy, should not set it out. Otherwise it will lose its effect if it is explained."

Finance ministers and central bankers from the G7 -- the United States, Canada, Japan, Britain, France, Germany and Italy -- said on Saturday in Tokyo that financial market turmoil was serious and persisting.

 

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Yahoo rejects Microsoft's bid

 (Reuters) - Yahoo Inc (YHOO.O: Quote, Profile, Research) on Monday rejected Microsoft Corp's (MSFT.O: Quote, Profile, Research) unsolicited takeover bid, currently valued at $42 billion, as too low, saying its board had unanimously concluded it was not in the best interests of shareholders.

In a statement, Yahoo said the offer "substantially undervalues" the company.

Microsoft made the half-stock, half-cash offer on February 1. It was originally worth $44.6 billion or $31 per share -- a 62 percent premium to Yahoo's stock price. Since then, Microsoft shares have fallen and the deal is now worth $41.8 billion.

 

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Wall Street Shareholders Suffer Losses Partners Never Imagined

(Bloomberg) -- Less than a decade after Wall Street's last major partnership went public, stockholders are paying the price for bankrolling the industry's expanding risk appetite.

Four of the five biggest U.S. securities firms lost about $83 billion of market value last year, almost 90 percent of their net income since 1999, data compiled by Bloomberg show. That cut the annual average return for Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos. during those nine years to 9.7 percent from 16.8 percent.

The private partnerships that once dominated Wall Street guarded their capital, used less leverage and limited their risk to trading blocks of stock for clients and shares of companies in mergers, said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs Group Inc. Since raising money from the public, many of the biggest firms have abandoned that caution.

``If you're betting with other peoples' money, you're more willing to take risk than if it's your own,'' said Anson Beard, 71, who retired from Morgan Stanley in 1994 after 17 years at the New York-based company, where he ran the equities division and helped with the initial public offering in 1986. ``You think differently if you're paid in cash and not in ownership. It's heads you win, tails you don't lose.''

Shareholders, stung by the securities industry's losses last year on subprime mortgage-backed bonds and leveraged loans, may be in for more pain.

Shrinking Fees

Morgan Stanley, Merrill, Lehman and Bear Stearns have lost between 3 percent and 19 percent of their value this year in New York Stock Exchange trading on concern that they may be forced to take more writedowns if bond insurers like MBIA Inc. and Ambac Financial Group Inc. are stripped of their top credit ratings. Revenue from structured credit and leveraged finance has dropped and demand for takeover advice and underwriting may dwindle as the U.S. economy slows, analysts say.

Even Goldman has faltered. New York-based Goldman, which went public in May 1999, evaded last year's market losses and reaped record earnings. This year, the biggest and most profitable securities firm has lost 13 percent in NYSE trading, while analysts predict earnings will drop as equity stakes in companies such as Beijing-based Industrial & Commercial Bank of China Ltd. lose value and investment-banking fees decline.

Merrill, which went public in 1971, outperformed the Standard & Poor's 500 Index in just five of the past 10 years. The largest U.S. brokerage paid more to employees last year than it collected in revenue. Morgan Stanley, public since 1986, beat the index in four of the past 10 years. Both New York-based companies diluted investors' stock last year when they sold stakes to foreign governments to shore up capital.

Other People's Money

``Shareholders share in the downside and not necessarily in the upside, that's the whole story,'' said John Gutfreund, 78, who ran Salomon Brothers in the 1980s when it was renowned for the size of its trading bets. ``It's OPM: Other People's Money.''

To be sure, the firms have been good investments over a longer period. Merrill rose at an average annual rate of 14.7 percent, including dividends, from 1980 through the end of 2007, according to data compiled by Bloomberg. Bear Stearns returned an average 15.2 percent since the end of 1985 and Lehman's average annual gain was 25.5 percent since it became a separately listed company at the end of 1994.

While none of the companies are more than one-third owned by employees today, senior executives typically receive at least half their pay in shares. At Merrill, top managers get 60 percent of their compensation in stock; they're required to keep three quarters of it each year and are prohibited from hedging it, according to the brokerage's proxy statement.

 

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Credit Suisse Topples UBS, Dodges `Subprime Bullet'

(Bloomberg) -- Credit Suisse Group is earning more than UBS AG for the first time in almost a decade after Chief Executive Officer Brady Dougan avoided the writedowns that forced his rival to report the biggest-ever quarterly loss by a bank.

Credit Suisse may report tomorrow that net income fell 69 percent in the fourth quarter to 1.43 billion Swiss francs ($1.29 billion), according to the median estimate of 11 analysts surveyed by Bloomberg. UBS, which marked down $14 billion on securities infected by U.S. subprime mortgages, gives details of its 12.5 billion-franc quarterly loss on Feb. 14.

Dougan, a former derivatives trader who became Credit Suisse's CEO in May after making investment banking the company's most profitable unit, scaled back debt holdings before the slump led to more than $145 billion in writedowns and loan losses at the world's biggest banks. By contrast, Marcel Rohner was named UBS's CEO in July after three quarters of declining earnings, the collapse of a hedge fund and the ouster of his predecessor.

``Credit Suisse is clearly the better positioned of the two,'' said Florian Esterer, who helps oversee $56 billion at Swisscanto Asset Management in Zurich, where both companies are based. ``There are still some tough times ahead for UBS.''

UBS, the world's biggest wealth manager, said Jan. 30 it had a net loss of 4.4 billion francs in 2007, the first time it earned less than Credit Suisse since being created in a merger in 1998. Credit Suisse, which posted losses in 2001 and 2002, had an 8.65 billion-franc profit last year, analysts estimate.

Wall Street Losses

Credit Suisse earned about 1 billion francs in the fourth quarter and 8.2 billion francs in 2007, Sonntag newspaper said Feb. 10, citing an unidentified ``reliable source.'' Credit Suisse spokesman Marc Dosch declined to comment on the report.

Like New York-based Merrill Lynch & Co., Citigroup Inc. and Morgan Stanley, which also reported record losses in Wall Street's worst ever quarter, UBS has turned to sovereign funds to shore up its finances. The Swiss bank will seek shareholders' approval on Feb. 27 to sell 13 billion francs in bonds that will convert to shares to investors in Singapore and the Middle East.

Credit Suisse fell 0.1 percent to 57 francs at 11:04 a.m. in Zurich trading, and UBS declined 1.7 percent to 40.3 francs. UBS has dropped 50 percent in the past year, making it the fourth-worst performer in the 60-member Bloomberg Europe Banks and Financial Services Index. Credit Suisse is down 36 percent.

UBS is rated ``sell'' by 11 of 41 analysts tracked by Bloomberg, a rating awarded by six of 37 analysts covering Credit Suisse.

`Dodged the Bullet'

``I think Credit Suisse will have dodged the subprime bullet,'' said Dieter Buchholz, who helps manage $107 billion at AIG Private Bank in Zurich, including Credit Suisse shares. Chairman Walter Kielholz has signaled the bank probably won't have large charges in the quarter.

Credit Suisse's results may be more similar to those of Frankfurt-based Deutsche Bank AG than UBS, Buchholz said. Germany's biggest bank said last week it avoided writedowns from the subprime market and reported a 44 million-euro ($64 million) markdown on leveraged loans.

Managers at Credit Suisse's SPS mortgage-servicing unit alerted the executive board more than a year ago to concerns about subprime assets. By the end of 2006, the company had originated about 40 percent fewer subprime mortgages than in 2005, according to Dougan.

``The hardest thing in all of these is not just seeing the issue but taking action,'' Dougan, 48, told business leaders in Zurich on Feb. 5. ``It's always very difficult to say no.''

 

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CDO Losses Driving Credit-Default Swaps to Record, Analysts Say

(Bloomberg) -- Banks are driving the cost of protecting corporate bonds from default to the highest on record as they seek to hedge against losses on collateralized debt obligations, according to traders of credit-default swaps.

Contracts on the benchmark Markit iTraxx Crossover Index soared 17 basis points to 547 at 12:50 p.m. in London, according to JPMorgan Chase & Co. The Markit iTraxx Asia Ex-Japan Series 8 Index soared the most in one day, rising 15 basis points to an all-time high of 144.5, according to BNP Paribas SA. The Markit CDX North America Investment Grade Index rose 2.5 basis points to 132.25, Deutsche Bank AG prices show.

``Banks have taken losses, spreads are going wider and they are just cutting positions,'' said Andrea Cicione, a senior credit strategist at BNP Paribas in London. ``Lenders are probably reducing risk positions in a deteriorating credit environment by unwinding CDOs.''

Banks are facing mounting writedowns on CDOs, securities that package credit-default swaps, bonds or loans, as the fallout from the collapse of U.S. subprime mortgages spreads across financial markets. The Group of Seven estimates banks worldwide will suffer writedowns of $400 billion on home loans, German Finance Minister Peer Steinbrueck said at a weekend meeting of officials and central bankers in Tokyo.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates worsening perceptions of credit quality; a decline, the opposite.

CDO Downgrades

Fitch Ratings may downgrade the $220 billion of CDOs it assesses that are based on corporate securities because of rising losses, the New York-based company said last week. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions of as much as five steps, the company said.

Ratings firms are responding to criticism that they failed to react quickly enough as increasing defaults on subprime mortgages caused a plunge in the value of CDOs. Fitch, a unit of Fimalac SA in Paris, lowered $67 billion of mortgage-linked CDOs in November, slashing some top-rated debt to speculative grade, or junk.

LevX Index

Falling prices for leveraged loans may be forcing banks to unwind collateralized loan obligations. UBS AG and Wachovia Corp. are trying to sell $700 million in loans because of the unwinding of their so-called market value CLOs, which package the debt and are based on the net value of the underlying loans, the Wall Street Journal reported.

The Markit iTraxx LevX Senior Index of credit-default swaps on 26 European loans fell to a record of 90.625, according to Bear Stearns Cos. A level below 100 indicates loans are worth less than face value.

The value of the most-traded U.S. leveraged loans plunged to a record low amid reports of forced CLO sales, according to Standard & Poor's.

In the European credit-default swaps market, contracts on Carlsberg A/S in Copenhagen, the largest Nordic brewer, jumped 22 basis points to 157, according to CMA Datavision in London. The company is buying brewer Scottish & Newcastle Plc with Heineken NV.

 

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PepsiCo 4th-quarter profit falls

(Reuters) - PepsiCo Inc (PEP.N: Quote, Profile, Research) reported lower quarterly profit on Thursday, hurt by a higher tax rate and a decline in sales volume of carbonated soft drinks.

The company, which makes Pepsi Cola, Frito Lay snacks and Quaker oatmeal, said net income for the fourth quarter ended on December 29 was $1.26 billion, or 77 cents per share, compared with $1.83 billion, or $1.09 per share, a year earlier.

Excluding restructuring charges and tax items, the company earned 80 cents per share.

Last month Pepsi Bottling Group Inc (PBG.N: Quote, Profile, Research), the world's largest bottler of Pepsi drinks, reported flat sales volume in the United States and weaker sales of refrigerated drinks, sold at convenience stores and gas stations.

 

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Children's Place ex-CEO says could bid for company

(Reuters) - Children's Place Retail Stores Inc (PLCE.O: Quote, Profile, Research) former Chief Executive Ezra Dabah said on Thursday he was confident he could make a bid to buy the company for $24 a share, sending its shares up 18 percent in pre-market trading.

The $24 price would represent a 35 percent premium to the closing price of Children's Place shares on Wednesday. Dabah said he had received interest from private equity firm Golden Gate Capital to be a participant in the deal.

Dabah, who said in a filing to the Securities and Exchange Commission that he owns 17.2 percent of the children's clothing retailer's shares, resigned as CEO last September after an internal probe found he did not comply with the company's securities-trading policies.

The SEC filing comes the same day that Children's Place said its sales at stores open at least a year rose a better-than-expected 6 percent in January.

Wall Street on average had been expecting a same-store sales gain of 2.5 percent, according to Reuters Estimates.

Same-store sales rose 9 percent at the Children's Place brand and 2 percent at the company's Disney Store chain.

Children's Place also said it has been notified by Nasdaq that its stock was subject to delisting because of its failure to hold its fiscal 2006 annual meeting by February 3.

Last September, the company said its board was evaluating strategic options -- including a potential reorganization or an outright sale.

 

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Dec pending home sales fell 1.5 percent: Realtors

(Reuters) - Pending sales of previously owned homes fell a steeper-than-expected 1.5 percent in December, pointing to more dreary conditions for the beleaguered housing market, a real estate trade group report on Thursday showed.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in December, dropped to 85.9 from 87.2. Economists were expecting pending home sales -- which are a key gauge of future home sales activity -- to fall 1.0 percent.

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Pending Sales of Existing U.S. Homes Fell 1.5% in December

(Bloomberg) -- The number of Americans signing contracts to buy previously owned homes fell in December for a second straight month, signaling the worst housing slump in 25 years will persist well into 2008.

The National Association of Realtors' index of signed purchase agreements decreased 1.5 percent to 85.9, the group said today. The drop follows a revised 3 percent decline for November that was larger than previously reported.

Today's report reinforces concern that the housing recession will linger as foreclosures add to a glut of unsold homes. The housing slump is weighing on the job market and consumer spending, putting pressure on Federal Reserve policy makers to lowering interest rates further to keep the economy out of a recession.

``The housing outlook has deteriorated significantly and I don't see a bottom on sales and starts until the middle of the year at the earliest,'' Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, said before the report. ``And our outlook on home prices has gotten worse.''

Economists had forecast the index would fall 1 percent, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from a drop of 3 percent to an increase of 1.8 percent.

Compared with a year earlier, the measure was down 24.2 percent.

Forecast Lowered

The Realtors lowered their forecast for existing-home sales in 2008 to 5.38 million from a January forecast of 5.7 million. Last year, 5.65 million homes were sold. Purchases of new homes will decline to 637,000 from 774,000, the group said today.

Pending resales fell in three of four regions. Purchases decreased 3.1 percent in the West, 3 percent in the South and 1.7 percent in the Northeast. They rose 3.4 percent in the Midwest.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The Realtors reported Jan. 24 that existing-home purchases, which are compiled from closings, fell 2.2 percent in December, more than economists had forecast.

New-Home Sales

Another leading indicator of the housing market, new-home sales, fell in December to a 12-year low, according to Commerce Department statistics. New home sales also are recorded when a contract is signed.

Homebuilder Pulte Homes Inc. said Jan. 30 that it had its fifth consecutive quarterly loss in the fourth quarter because of falling sales. Chief Executive Officer Richard Dugas forecast there will be a net loss from continuing operations, excluding potential land charges and tax benefits, this quarter.

``Sales levels are still depressed as compared to prior periods,'' even though the company has lowered prices, Dugas said on a conference call on Jan. 31.

Builders have little incentive to start new projects until they see inventories of unsold homes coming down. Both new and existing homes had a 9.6 months supply on the market in December.

 

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Trichet Sees `Unusually High Uncertainty' on Growth

(Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled that risks to euro-region economic growth are increasing, prompting investors to raise bets on interest-rate cuts.

``As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. ``We will continue to monitor very closely all developments over the coming weeks.''

The ECB has kept borrowing costs at a six-year high, declining to follow counterparts in the U.S. and Great Britain by cutting borrowing costs as it seeks to contain inflation in the 15 euro nations. Investors predict that a slowing economy will prompt the ECB to reduce its key interest rate.

``There is a greater acknowledgment that risks to growth are on the downside,'' said David Owen, chief European economist at Dresdner Kleinwort in London. ``The ECB's not going to cut in next couple of months, but it is starting to prepare the markets for rate reductions.''

The euro weakened 0.8 percent to $1.4521 at 3:21 p.m. in Frankfurt and the yield on 10-year German bunds fell 5 basis points to 3.85 percent.

Growth Forecasts

The ECB on Dec. 6 projected the euro-region economy to expand about 2 percent this year after 2.6 percent in 2007. Trichet said today that latest data confirmed the bank's assessment that ``risks surrounding the economic outlook lie on the downside.''

The International Monetary Fund on Jan. 29 cut its 2008 euro-region growth estimate by half a point to 1.6 percent, saying that ``no one is going to be exempt from some slowdown.'' The Washington-based fund also trimmed its growth estimates for the U.S. and Japan, the world's two largest economies.

Stock markets have dropped this year on concern the U.S. economy is sliding into a recession, curbing earnings growth. Germany's benchmark DAX Index has lost 16 percent this year and the Dow Jones Stoxx 600 Index 12 percent.

The Bank of England today cut interest rates for the second time in three months, lowering the benchmark by a quarter point to 5.25 percent. The Fed last month lowered its rate by 1.25 percentage points in two reductions to 3 percent.

 

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Biogen Fourth-Quarter Net Rises 85 Percent on Tysabri

 (Bloomberg) -- Biogen Idec Inc., the world's largest maker of multiple sclerosis drugs, said fourth-quarter profit rose 85 percent on sales of its fastest-growing product, the MS medicine Tysabri.

Net income rose to $201.2 million, or 67 cents a share, from $108.6 million, or 32 cents, a year earlier, the Cambridge, Massachusetts-based company said today in a statement. Profit excluding certain costs beat analysts' estimates by 9 cents a share.

Revenue rose 26 percent from a year earlier to $893 million as worldwide sales of Tysabri quadrupled. Biogen said it expects 100,000 patients will be taking Tysabri by the end of 2010, which could mean $2.8 billion in annual sales at current prices, according to analysts. The MS drug was cleared in the U.S. last month for an expanded use, Crohn's disease, an inflammation of the intestines.

``It was a very good quarter, they deserve credit,'' said Michael King, an analyst with Rodman & Renshaw in New York, in a telephone interview today.

Biogen fell $2.77 cents, or 4.4 percent, to $60.52 yesterday in Nasdaq Stock Market composite trading. The stock has gained 23.7 percent in the 12 months before today.

Tysabri generated $129 million in worldwide sales in the quarter, up from $30 million a year earlier. Worldwide sales are split with Biogen's partner, Irish drugmaker Elan Corp. Biogen recorded $90 million of the Tysabri sales in the fourth quarter, the company said. About 21,000 patients worldwide were taking the drug at the end of December.

Reintroduced

Biogen and Elan pulled the drug from the market in February 2005 after two patients developed rare, fatal brain infections. A month later, the companies disclosed a third case of the disorder, progressive multifocal leukoencephalopathy. The drug was reintroduced in July 2006 after the U.S. Food and Drug Administration decided the benefits for slowing MS relapses outweighed the risk.

In December, Biogen lost more than $5 billion in market value when it abandoned a plan to sell the company, saying it didn't receive any offers. Billionaire investor Carl Icahn criticized the process last week as ``flawed,'' and nominated three people to the company's 12-member board.

Biogen reiterated its forecast annual revenue growth of 15 to 20 percent in 2008, driven by increasing prescriptions of Tysabri. Profit excluding certain costs will be $3.20 to $3.35 a share, said Chief Executive Officer James Mullen, at an investor conference in San Francisco Jan. 7.

 

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U.S. Stock Futures Rise on Productivity Report, Disney Earnings

(Bloomberg) -- U.S. stock futures rose, pointing to a rebound from the market's biggest drop in 11 months, after worker productivity grew more than forecast and earnings at Walt Disney Co. and JDS Uniphase Corp. topped analysts' estimates.

Walt Disney, the second-largest U.S. media company, gained on higher revenue from cable networks and theme parks. JDS Uniphase rallied after the maker of telecommunications testing equipment said it isn't being affected by the slowdown in the U.S. economy. Newmont Mining Corp. led metal producers higher as BHP Billiton Ltd. raised its bid for Rio Tinto Group.

``Disney and Uniphase have shown that companies are still capable of good results, despite recent carnage in the markets,'' said Jonathan Monk, a fund manager at Aerion Fund Management in London, who helps oversee about $23 billion.

Standard & Poor's 500 Index futures expiring in March climbed 4.2 to 1,347.4 at 8:48 a.m. in New York. Dow Jones Industrial Average futures gained 32 to 12,352. Nasdaq-100 Index futures increased 6 to 1,791. European and Asian stocks fell.

Fourth-quarter earnings have declined 23 percent on average at the 316 companies in the S&P 500 that reported results so far, according to data compiled by Bloomberg. Excluding financial companies, profit growth averaged 18 percent.

Productivity, a measure of employee efficiency, rose at an annual rate of 1.8 percent in the fourth quarter, the Labor Department said. Economists in a Bloomberg News survey projected a 0.5 percent gain. A gauge of labor costs climbed less than forecast.

Disney, JDS Uniphase

Walt Disney jumped $1.78 to $31.85. Net income in the first quarter was 63 cents a share, beating the 52 cent average estimate of 19 analysts compiled by Bloomberg. Sales rose 9.1 percent to $10.45 billion, surpassing the $10.1 billion average estimate.

JDS Uniphase increased $2.14 to $12.30. Profit for the first quarter, excluding costs such as stock-based compensation, was 22 cents a share, exceeding the 11 cent average estimate of analysts in a Bloomberg survey.

Newmont, Barrick Gold Corp., Freeport-McMoRan Copper & Gold Inc. and Goldcorp Inc. gained after Australia's BHP Billiton, the world's largest miner, raised its hostile bid for the U.K.'s Rio Tinto Group to $147 billion. Aluminum Corp. of China, China's biggest aluminum company, and Alcoa Inc. last week bought a stake in Rio to block the takeover attempt, which was announced in November.

Newmont climbed 90 cents to $50.38. Barrick rose 65 cents to $48.38. Goldcorp added 83 cents to $35.43. Freeport-McMoRan advanced $1.09, or 1.3 percent, to $87.

 

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Recovery for SIVs unlikely given Basel II rules-panel

(Reuters) - The troubled market for so-called structured investment vehicles (SIVs) is effectively dead and likely to stay that way given new international rules for matching banks' reserves to their risks, panelists at a bond industry conference said on Tuesday.

The new Basel II international accord, to be applied to U.S. banks with total assets of $250 billion or more, is likely to make investing through off-balance sheet SIVs less attractive for banks, which are the main sponsors of such vehicles, speakers at the American Securitization Forum conference in Las Vegas said.

SIVs are specialized funds that raise cash by issuing short-term debt and invest the proceeds in longer-dated and higher-yielding assets, including U.S. mortgages. The funds pocket the difference between what they make on their investments and the interest they pay out to investors.

The vehicles have been unable to fund themselves normally for many months amid the U.S. credit crisis and the market value of their investment portfolios has plummeted, prompting ratings downgrades and mass restructuring efforts.

But the market for SIVs may have eventually contracted anyway given the onset of Basel II, which has been seen as offering a way for banks to lower their capital reserves by linking reserve requirements to the credit quality of investments.

 

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