Monday, April 14, 2008

Financial Teasers 14 April 08

Top Stories

World leaders seek donations to counter high food prices

World leaders meeting in Washington agreed to support a World Bank "New Deal" to hold down climbing food prices that have led to riots in some poor nations. The call for donors to provide $500 million for short-term food relief came on the final day of the World Bank and International Monetary Fund spring meetings. Financial Times (13 Apr.)

Paulson urges poor countries to avoid food, energy controls: U.S. Treasury Secretary Henry Paulson urged developing countries struggling with soaring food and energy costs not to use price controls or subsidies. Direct government intervention may do more economic harm than good to long-term growth, Paulson said in a speech to the World Bank's development committee in Washington. They "tend to create fiscal burdens and economic distortions while often providing aid to higher-income consumers or commercial interests other than the intended beneficiaries," he said. Bloomberg (13 Apr.)

Wachovia to raise billions to shore up balance sheet

Wachovia, which dived into adjustable-rate mortgages with the acquisition of Golden West Financial Corp., is expected to announce as early as today that it plans to raise several billion dollars in fresh capital from outside investors. It appears likely that Wachovia will receive a cash injection of up to $7 billion, and investors will receive shares priced at a 15% discount to the bank's Friday share price. Financial Times (14 Apr.) , The Wall Street Journal (subscription required) (14 Apr.)

Deutsche Bank, Citigroup have most unsold LBO loans

Banks worldwide hold about $200 billion of unsold leveraged buyout debt. Deutsche Bank, with $55 billion, has the largest share of the debt, followed by Citigroup with $43 billion, according to a BNP Paribas report. Bloomberg (11 Apr.)

World Bank considers super fund plan for Africa

The International Finance Corp., the private-sector lending arm of the World Bank, might encourage sovereign wealth funds to invest in a super fund that would channel money into Africa's emerging markets. IFC Chief Executive Lars Thunell said the proposal is to develop a new asset class, not simply aid. Last week, World Bank President Robert Zoellick asked SWFs to invest 1% of their assets in African equities. Financial Times (13 Apr.) , Bloomberg (12 Apr.)

Individuals see cash frozen in auction-rate securities

Retail investors who thought their money was safe in auction-rate securities have learned their money is stuck since trading in the securities seized up two months ago. Though Wall Street heavyweights and major corporations also have been stung, many of them appear to have bailed out of the market ahead of individuals. Institutional investors held just 30% of all auction-rate securities issues at the end of last year, down from about 80% two years earlier. The New York Times (13 Apr.)

Property prices falling in more of the world's boom areas

The bursting U.S. housing bubble is mirrored in dropping real estate prices in Ireland, Spain, the Baltic states and parts of India. Experts predict that some countries, like Ireland, will face an even tougher adjustment than the U.S., with the possibility of a wholesale collapse of the property market. International Herald Tribune (14 Apr.)

Delta, Northwest to pursue merger without pilots deal

The long-discussed merger of Delta and Northwest airlines may take off this week without agreement on how the combined carrier would sort out seniority status for 11,000 pilots. Sources told the Atlanta Journal-Constitution that Delta will try to cut a deal with its 6,000 pilots, announce the merger, and negotiate with Northwest's 5,000 pilots later. Seniority-rights battles "could go on for years," airline analyst Robert Mann said. The Atlanta Journal-Constitution (free registration) (13 Apr.)

Market Activity

Asian stocks drop on falling GE profits, consumer spirits

Bad news from the U.S. overshadowed the Group of Seven's promised support for the dollar, depressing Asian stock markets on Monday. GE's surprise 6% profit drop on Friday made investors shudder ahead of the upcoming quarterly earnings season. Asian markets also reacted to a report that U.S. consumer sentiment hit its lowest level since 1982, a year of low growth and high inflation. International Herald Tribune/Reuters (13 Apr.)

Bond market regaining faith, quits bidding up Treasuries

In an indication that bond markets are returning to normal, traders have quit paying huge premiums for U.S. Treasury bonds. Three weeks ago, traders were willing to lend cash at rates 2 percentage points less than the Fed's target for overnight loans if they could obtain Treasuries as collateral. Now, the gap is back in line with the 0.06 percentage point average in the 10 years prior to August, when subprime mortgage losses spread. Bloomberg (14 Apr.)

Profits for Philips Electronics falls 75%

Royal Philips Electronics NV said first-quarter profit fell 75% from last year due to falling U.S. TV prices and its sale of shares in Taiwan Semiconductor Manufacturing Co. Europe's largest consumer electronics maker sold most of its chip assets in a shift to areas with more stable earnings, such as medical equipment and lamps. ClipSyndicate/Bloomberg (14 Apr.) , Bloomberg (14 Apr.)

Metal, mining firms from emerging markets flock to LSE

IPOs by metals and mining companies on the London Stock Exchange and Alternative Investment Market exceeded all other sectors last year. The 22 deals raised €4.5 billion. The LSE is poised for another good year thanks to emerging markets' metal and mining firms. Last week it announced IPOs from the sector worth €1.6 billion. Financial News Online (11 Apr.)


G7 warns of intervention to prop up dollar

Finance ministers and central bank governors from the world's seven biggest economies warned they may intervene in currency markets to support the weak dollar. The new posture is seen as a U.S. concession after European governments complained the euro's rise to record highs is the result of the dollar's plunging value. ClipSyndicate/Bloomberg (13 Apr.) , The Times (London) (14 Apr.)

ECB leader says Europe can't afford interest rate cuts

The European Central Bank is unable to cut interest rates this year because inflation is likely to top the allowed limit of 2% in both 2008 and 2009, a bank policymaker said. Yves Mersch, who heads Luxembourg's central bank, is at least the fourth ECB policymaker to suggest last week that the bank ECB will ignore the IMF's advice to cut interest rates in line with the U.S. Federal Reserve and the Bank of England. Bloomberg (14 Apr.)

Spreading inflation may force U.S. to veer from easy money

U.S. officials have started talking about action against the dollar's falling value at a time when inflation has seemed secondary to Washington. The Fed's easing of the money supply is the opposite of the normal inflation cure. Group of Seven finance ministers said Sunday they could intervene to support the dollar. The G7 hopes tough talk will be enough, said Eswar Prasad, a Cornell University economics professor and former International Monetary Fund official, but he thinks markets will see it as a bluff. Reuters (13 Apr.)

European executives see gathering economic clouds

Some of Europe's leading executives believe the eurozone will be hit with the worst effects of the credit crunch within six months. European chief executives have been more optimistic than their U.S. rivals, in part because of their international scope and focus on emerging markets. But with the euro at record highs and booming raw material prices, many executives are growing worried about the wider impact of the U.S. recession. Financial Times (13 Apr.)


G7 leaders vow regulation to balance financial excesses

Governments of the Group of Seven free-market democracies promised action against the financial excesses that have led to global economic fears. Leaders promised that within 100 days they would set higher bank capital requirements and direct banks to reveal the full extent of their losses in their first-half earnings reports. Reuters (12 Apr.)

Paulson welcomes IMF tracking of currencies, sovereign funds

U.S. Treasury Secretary Henry Paulson said the International Monetary Fund should improve its surveillance of currency exchange rates and sovereign wealth funds. Paulson welcomed the IMF developing a set of best practices for sovereign funds and said it also should work with countries receiving the state-controlled investments. CNBC/Reuters (12 Apr.)

Financial Products

PowerShares launches actively managed ETF for stocks

Invesco PowerShares Capital Management LLC has launched the first exchange traded funds that will actively manage investments in stocks. The three new PowerShares ETFs will disclose their holdings daily on a website for the funds. The portfolios may only be changed on the last business day of each week, according to the PowerShares prospectus. InvestmentNews (11 Apr.)


ANZ to investigate conduct involving failed brokerage

ANZ Banking Group will conduct an internal review to assess whether any employee has breached policies or ethical standards in securities lending. Secured creditors of Opes, which included ANZ, stepped in after Australian brokerage Opes Prime was put in receivership. The creditors sold the shares that Opes clients had placed with the failed stockbroker in a bid to recoup more than $1 billion in loans Opes owed. Opes Prime clients say in lawsuits that the shares still belong to them and want them returned. The Sydney Morning Herald (14 Apr.)

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