Financial Teasers 10 April 08

Top Stories

Yahoo, Microsoft collect allies in takeover battle
Source: CNBCYahoo is lining up partners to defend against a threatened takeover by Micrsoft. Yahoo will begin running Google's search ads alongside some of Yahoo's search results. Yahoo also may be close to a deal with Time Warner's AOL. Time Warner is considering folding its AOL unit into Yahoo, giving Yahoo cash to buy back its own shares. Meanwhile Microsoft was reported to be talking to News Corp. about a joint bid for Yahoo. CNBC (09 Apr.) , The Mercury News (San Jose, Calif.) (09 Apr.)

Volcker says credit crisis rooted in easy U.S. spending
Former Federal Reserve Chairman Paul Volcker said spendthrift Americans can blame themselves for the country's economic upheaval. "Financial crises do not happen in a vacuum and the current U.S. banking debacle is linked to imbalances in an economy that favored spending at the expense of saving," Volcker said Wednesday at a conference in New York. Forbes (10 Apr.)

Investor Wilbur Ross shopping for deals among banks, thrifts
A billionaire who made his fortune buying battered companies in the steel, coal and textile industries now is turning to banks and thrifts for bargains. "I believe the next phase of the cycle will be the failure of depositary institutions," Wilbur Ross said. Big banks can attract cash from sovereign wealth funds when they need more capital, but smaller and regional banks may not have that option, Ross said. Reuters (10 Apr.)

RWE offers up to £11 billion for British Energy
German utility company RWE offered up to £11 billion for British Energy, the U.K.'s nuclear operator. The power company would earmark its £4 billion share of the sale to a fund for the cleanup of nuclear reactor sites. British Energy is still considering whether to sell to one bidder or a consortium. Financial Times (09 Apr.)

Gazprom, Eni discuss gas pipeline from Libya to Europe
Russia's Gazprom and Eni of Italy are discussing a partnership to pipe natural gas from Libya across the Mediterranean to Southern Europe. The deal would increase Europe's dependence on Russia's state-controlled gas company. "Europe is sleeping as Gazprom makes every effort to become a global player and increase its grip on Europe," said Igor Tomberg, an energy expert at the Institute of World Economy and International Relations in Moscow. International Herald Tribune (09 Apr.)

Venezuelan oil minister says tax applies to all exporters
Venezuela plans to collect its planned windfall oil tax from all exporting private companies, including joint ventures formed with the national oil company, the country's oil minister said. The tax will bring in several billion dollars a year, Oil Minister Rafael Ramirez said. The government last week announced the new tax will take 50% of oil revenues above $70 per barrel and 60% of revenues above $100 per barrel. Reuters (09 Apr.)

IMF says commodities should keep Africa from slump
Africa should be able to avoid the global economic slowdown as an unceasing demand for commodities keep exports from the world's poorest continent flowing, the International Monetary Fund said. Africa's economy will probably expand 6.3% this year and 6.4% in 2009, compared with 6.2% last year, the IMF said in its World Economic Outlook report Thursday. In January, the IMF predicted Africa would expand by 7% this year. Bloomberg (09 Apr.)

Market Activity

Asian markets mixed; Seoul, Hong Kong rise from early lows
Asian stock markets were mixed Thursday, with declines recorded in Tokyo, Australia, New Zealand and Singapore. South Korea's Kospi rebounded from early declines after the country's central bank left a key interest rate unchanged at 5%. MarketWatch (10 Apr.)

Banks to use exotic derivative to hedge counterparty risk
Counterparty risk has become a huge issue in the massive over-the-counter derivatives market, prompting banks to develop a weapon against the risk. Risk managers will soon be able to use a revamped version of the so-called contingent credit default swaps to hedge exposure to other market participants. Financial Times (09 Apr.)

Economics

BoE faces tough call on interest rates, ECB likely to hold steady

Economists are urging the Bank of England to cut interest rates by at least a quarter point, citing falling housing prices, the dismal growth forecast and increased rates from mortgage lenders. But the bank's Monetary Policy Committee is also seeing the price of Brent crude soar to more than $109 a barrel and a strong performance from the manufacturing sector. Still, most forecasters expect the committee to cut the rate to 5% while a survey of economists expects the ECB to hold rates steady. ClipSyndicate/Bloomberg (10 Apr.) , Telegraph (London) (10 Apr.) , Bloomberg (10 Apr.)

IMF warns of 25% chance of global recession
The International Monetary Fund cut its forecast for growth in Western economies and said there is a one-in-four chance of worldwide recession. The IMF also warned that while the euro is overvalued, the Chinese renminbi and Japanese yen are undervalued. The fund said the UK will probably grow by about 1.6% in 2008 and 2009, much less than predicted by Chancellor Alistair Darling. Telegraph (London) (10 Apr.) , The Scotsman (Edinburgh) (10 Apr.)

Yuan rises to new mark against dollar
China's currency rose Thursday to trade at less than 7 yuan to the dollar, the first time the yuan has reached that mark since China unpegged it from the dollar in 2005. The yuan has gained 4.47% this year. People's Daily (China) (10 Apr.)

Dollar may emerge stronger after U.S. recession
If historical trends hold, a U.S. recession will signal the dollar's recovery from its long slide. In four of the past five recessions going back to the early 1970s, the dollar went higher after the downturn ended than it had been four months before it began. Some experts think the dollar will begin climbing in this year's second half, while others say it will be no sooner than the end of the year. Reuters (09 Apr.)

China's trade surplus down 10% in first quarter
The spreading economic slowdown has cut global consumer demand, shrinking China's quarterly trade surplus for the first time in more than three years. The trade surplus narrowed to about $41.6 billion in the three months to March 31 from a year earlier, Bloomberg News reported. Foreign direct investment almost doubled to $27.4 billion from a year earlier, the Ministry of Commerce said. Bloomberg (10 Apr.)

Geopolitical/Regulatory

Banks promise new rules to avert next credit crisis
The Institute of International Finance, representing hundreds of the world's largest financial companies, publicly acknowledged that banks made mistakes in the lead-up to the credit crisis and promised new rules to prevent a repeat. "We want to demonstrate we can do a better job within the industry," said Josef Ackermann, chief executive of Deutsche Bank and chairman of the institute's board. ClipSyndicate/Bloomberg (09 Apr.) , Financial Times (10 Apr.) , International Herald Tribune (09 Apr.)

New Bank of Japan head brings Chicago School mindset
The compromise candidate just confirmed as the Bank of Japan's new governor brings with him a free-market outlook gained from his education at the University of Chicago. Masaaki Shirakawa is believed to be resistant to the interest rate cuts some say are necessary. Goldman Sachs Group Inc. and Morgan Stanley say Japan is already in recession. Bloomberg (10 Apr.)

Nepal goes to polls day after violence kills at least 8
Polls in Nepal opened Thursday for an election seen as the best way to bring Maoist guerrillas into a parliamentary democracy. At least eight people were killed in three incidents in the tense western hill region. Nepal's 17.6 million voters will choose a special assembly that will rewrite the constitution and govern the nation in the meantime. International Herald Tribune (10 Apr.)

Financial Products

Deutsche Bank opens funds after spike in food prices
Deutsche Bank has launched two funds in Singapore that give retail investors a chance to profit from the rising cost of food. The DB Platinum Agriculture Funds (one in euro, the other in dollars) track the bank's own agriculture index, which invests in futures contracts. The funds drew $750 million in three weeks. Financial News Online (10 Apr.)

Ethics

Accounting rules "irretrievably broken"
A report by members of the Financial Accounting Standards Board and the International Accounting Standards Board concludes that the accounting rules for banks' off-balance-sheet interests must be overhauled. "Completing a final standard by mid-2011 will be extremely difficult, perhaps impossible," the report says. Financial Times (09 Apr.)

U.S. prosecutors show corporations leniency
Under the Bush administration, the Justice Department -- once the prosecutor of corporate giants like accounting firm Arthur Andersen -- has turned to agreements that avoid court. Justice has entered so-called deferred prosecution agreements with more than 50 companies suspected of wrongdoing over the last three years. Some legal experts think the policy shift has led companies to test the limits of corporate anti-fraud laws. International Herald Tribune (09 Apr.)