Financial Teasers 1 April 08

Top Stories

UBS writes down $19 billion, plans capital-raising effort
UBS reported a $19 billion write-down on losses related to U.S. real estate, resulting in a net loss of more than $12 billion in the first quarter. Now, the Swiss bank plans to raise $15 billion through a rights issue of shares. Chairman Marcel Ospel will not seek re-election and is expected to be succeeded by Peter Kurer, who is currently the general counsel and a board member of UBS. ClipSyndicate/Bloomberg (01 Apr.) , International Herald Tribune/Reuters (01 Apr.)

IBM suspended from bidding for U.S. government contracts
The U.S. Environmental Protection Agency is investigating International Business Machines Corp. and has suspended IBM from seeking new contracts with all government agencies. The EPA is looking into whether IBM violated the government's ethical-bidding provisions on a bid submitted to the EPA two years ago. Reuters (31 Mar.)

Some U.S. farmers plan to switch from corn to soybeans
American farmers said they plan to significantly reduce the number of acres in which they plant corn and boost their soybean crops, according to a new government report. Doing so would likely alleviate worldwide shortages of cooking oil, which have driven up prices and adversely impacted poor countries. However, a smaller corn harvest would likely result in a boost in prices for meat in the U.S., as most corn is used to feed animals. International Herald Tribune/Reuters (01 Apr.)
N.Y. activist hedge fund Pardus halts investor redemptions
Pardus Capital Management LP, a New York-based activist hedge fund, is indefinitely suspending investor redemptions, according to a Wall Street Journal report. Meanwhile, the value of many of the hedge fund's holdings are dropping. Pardus is working to get several of the companies in which it owns stock to make changes. For example, the hedge fund has been trying to get Delta Air Lines and United Airlines parent UAL Corp. to merge. CNNMoney.com/Thomson Financial (01 Apr.)

Northern Rock's plan to repay government includes staff cuts
In its effort to repay £23 billion of the £24 billion it owes the U.K. government by the end of next year, Northern Rock plans to slash its staff by a third, reduce its balance book by half and drop 60% of its mortgage holders. Although it may raise the hopes of U.K. Chancellor Alistair Darling, Executive Chairman Ron Sandler's ambitious plan depends on the condition of the housing market and predicts losses for the next three years. Financial Times (31 Mar.)

Thousands of workers walk off job at Nike contract plant
Thousands of Vietnamese workers at the Taiwanese-owned Ching Luh plant that makes shoes for Nike walked off the job on Monday. The workers are demanding a 20% increase in their pay as consumer prices are soaring, officials said. The average monthly salary for the workers is $59. Google/Associated Press (01 Apr.)

Market Activity

Asian markets end mixed with Tokyo up, Shanghai down
Asian markets closed mixed today, with Japan, Hong Kong and New Zealand up and China, Indonesia and Taiwan down. The Nikkei 225 Average and Hong Kong's Hang Seng Index each gained 1.3% while the Korean Composite Index inched up 0.3% and New Zealand's NZX-50 advanced 1.8%. Meanwhile, Shanghai's Composite Index dropped 3%, Indonesia's Jakarta Composite fell 2.3% and the Weighted Price Index of the Taiwan Stock Exchange slid 0.6%. MarketWatch (01 Apr.)

Lehman to raise $3 billion to quiet talk of instability
Lehman Brothers Holdings plans to raise $3 billion through a convertible preferred share offering to put an end to questions about the bank's balance sheet. Demand for the offering appears strong. Several large institutional investors have already agreed to purchase at least $2.5 billion of it. Bloomberg (01 Apr.) , CNBC (31 Mar.) , Reuters (31 Mar.)

Issuance of equity-linked bonds plummets in first quarter
Issuance of equity-linked bonds survived the first part of the credit crunch, but the number of deals issued in the first quarter dropped 50% compared with the fourth quarter of last year, according to Dealogic. "Issuance has been hit in the past four to six weeks as sentiment has worsened among the hedge fund community, the traditional buyers of this kind of paper in Europe," said Rossitza Haritova, European convertibles analyst with Nomura. Financial Times (01 Apr.)

Criticism of cholesterol drugs hits shares of Schering, Merck
Shares of Schering-Plough Corp. plunged nearly 26%, while shares of Merck & Co. dropped about 15% after a panel of doctors recommended patients try older cholesterol drugs rather than Vytorin and Zetia. "Everyone is going to be watching [prescription] trends," said David Heupel, a portfolio manager with Thrivent Investment Management. "For the next month if not longer, it's all going to be about how quickly Vytorin and Zetia ... decline." Reuters (31 Mar.)

Economics

Reserve Bank of Australia holds interest rates at 7.25%
The Reserve Bank of Australia may raise interest rates in the near future, depending on upcoming inflation data, but for now the central bank has left rates at 7.25%, a 12-year high. Analysts expected RBA to hold interest rates steady as it needs more time to assess the effects of previous rate increases. ClipSyndicate/Bloomberg (31 Mar.) , The Sydney Morning Herald (01 Apr.)

Confidence among Japanese manufacturers continues to drop
A survey by the Bank of Japan shows the confidence of the country's large manufacturers has declined to a four-year low and the outlook for the next quarter is even more bleak. The data reinforce speculation that Japan's central bank may reduce interest rates this year. "The BOJ faces a difficult situation, with a growth slowdown coming at a time when consumer prices are rising," said Joseph Kraft of Dresdner Kleinwort. International Herald Tribune/Reuters (01 Apr.)

Geopolitical/Regulatory

Paulson plan seen as victory for investment banks
More than a year ago, Wall Street executives were expressing their concern about overregulation and the threat of excessive litigation as it was hindering America's ability to compete in the global financial stage. They urged Washington to ease up, and although they didn't get their wish then, they may get it now. The proposal from Treasury Secretary Henry Paulson may deliver streamlined regulation to Wall Street investment banks. The New York Times (registration required) (01 Apr.)

King warns of "radical change" in banking rules
Bank of England Governor Mervyn King said Monday that banks will likely face tougher rules following the credit crisis. In a speech to the Bank of Israel in Jerusalem, King said financial regulators and central banks are considering significant changes for Wall Street and the City. Telegraph (London) (01 Apr.)

Financial Stability Forum considers unorthodox strategies
At a meeting of the Financial Stability Forum, which is coordinating the global response to turmoil in the markets, participants discussed strategies to ease the credit crisis. The ideas include temporarily suspending capital requirements, purchasing mortgage-backed securities with public funds and recapitalizing the banks with taxpayer money. Financial Times (31 Mar.)

Gross expects increased regulation of investment banks
Bill Gross, manager of Pimco Total Return, said JPMorgan Chase's government-backed acquisition of Bear Stearns and the Federal Reserve's decision to allow investment banks to borrow from its discount window will result in increased regulation of Wall Street banks. The tougher regulations will cut into the profits of the investment banks, Gross said. FinancialWeek (31 Mar.)

FSA offers warnings about "green" market risks
The Financial Services Authority has issued a 37-page study about risks associated with the emissions-trading market. The risks include insufficient data, false claims about the green credentials of emissions-trading firms and investors being sold products that are not suitable for the market. Telegraph (London) (01 Apr.)

Financial Products

Merrill launches indexes tied to carbon-emissions markets
Merrill Lynch has developed a series of indexes that track the value of carbon-emissions credits, according to the firm's head of global commodities research, Francisco Blanch. The indexes are designed as investment vehicles and Merrill would like to see them used in exchange-traded notes or funds. CNNMoney.com/Investor's Business Daily (31 Mar.)

Ethics

French regulator to proceed with charges in EADS case
The Autorite des Marches Financiers, France's stock market regulator, said its investigation of insider trading at EADS, the parent of Airbus, will lead to charges. The regulator said it will notify those involved in the case and will "immediately" transfer the investigation to the prosecutors' office in Paris. Google/The Press Association (01 Apr.)