Financial Teasers 2 April 08

Top Stories

Lehman increases capital-raising to $4 billion
Shares of Lehman Brothers jumped nearly 18% after it boosted its capital-raising plan from $3 billion to $4 billion due to strong demand. The investment bank has apparently dispelled fears that it would suffer a fate similar to that of Bear Stearns, defying speculators who had bet on Lehman's demise. Financial Times (02 Apr.)

UBS to cut jobs after subprime losses of $37 billion
UBS chief executive Marcel Rohner said that the banking giant, which is losing its chairman, Marcel Ospel, had planned jobs cuts in investment banking and will announce the extent of those cuts, along with other measures, in the coming weeks. The Zurich-based bank revealed that losses stemming from the U.S. subprime meltdown have reached $37 billion -- far larger than the next most exposed banks, Merrill Lynch and Citigroup, with losses of $24 billion and $18 billion. Many in the market took the UBS disclosure as a sign that the worst of the credit crunch may be over. The Times (London) (02 Apr.) , Telegraph (London) (02 Apr.)

Denmark, Sweden to merge postal services, sell shares
In an effort to boost competitiveness, Sweden and Denmark are planning to merge postal services and then sell shares in the new company. "The logic behind the merger is based on the rapid changes in the market," said Maud Olofsson, Swedish industry minister. "Both companies today face three common challenges: European deregulation, more competition and electronic alternatives." Bloomberg (01 Apr.)

Companies pour money into Egypt, despite global turmoil
Despite the ongoing credit crisis and slowdown in Europe's economy, companies from Europe and the Persian Gulf are dropping money in Egypt, betting that a spending boom is just beginning. Analysts, however, warn that increasing inflation threatens to halt the boom. And while the growing middle class is enjoying Egypt's new prosperity, the benefits are not yet reaching the lower classes. Reuters (02 Apr.)

U.S. auto sales drop 8% in first quarter
Buyers steered clear of car lots in the U.S. in the first three months of 2008 as concerns about economic uncertainties led sales to drop 8% from the same quarter the previous year. In March, year-over-year sales were down 12%. General Motors posted an 18.9% drop in sales, Ford Motor's sales were down 14.2% and Chrysler was off 19.4%. ClipSyndicate/Bloomberg (02 Apr.) , BusinessWeek (01 Apr.)

"Grid parity" essential for solar power to thrive
During a panel discussion at Credit Suisse's Asian Investment Conference, a theory emerged that in order for solar power to be a cost-effective alternative for governments, "grid parity" with other energy sources is essential. Governments are struggling with whether to subsidize the nascent industry, but advocates of the technology say consumers will be willing to pay for it. FinanceAsia.com (02 Apr.)

Market Activity

Asian markets advance following rally on Wall Street
Speculation that the worst of the global credit crisis is over boosted Asian markets today. Tokyo's Nikkei 225 Average gained 4.2%, while the Hang Seng Index in Hong Kong jumped 3.2%. The S&P/ASX 200 in Sydney increased 2.6%, New Zealand's NZX 50 index was up 1.7% and China's Shanghai Composite climbed 0.6%. South Korea's Kospi gained 2.4% and Taiwan's Weighted Index advanced 2.2%. MarketWatch (02 Apr.)

Bursting of Shanghai's stock market bubble hurts small investors
In the span of two years, share prices in China soared more than 500%, triggering a frenzy of stock buying. A year ago, the market started to drop, and the Shanghai Composite index has plunged 45% since its high in October. Millions of small investors have become major casualties of the bursting of Shanghai's stock market bubble. Other parts of Asia, including India, Japan and Vietnam, are experiencing similar trends. The New York Times (registration required) (02 Apr.)

European exchanges face challenge as IPO market dries up
Visa's $16.9 billion IPO helped buoy the NYSE Euronext in the first quarter. European exchanges have not been so lucky. In Europe, just $700 million was raised through flotations in the first quarter, compared with $13.8 billion in the first quarter of 2007. Visa's exceptionally large transaction shows that capital is still available, despite the downturn in the market. Financial News Online (02 Apr.)

Economics

Asian Development Bank lowers economic growth forecasts
The global economic slowdown is hurting Asian exports and China's and India's expansions are cooling, leading to the Asian Development Bank's reduction in its growth forecasts for the region. The ADB predicts that Asia, not including Japan, will grow 7.6% in 2008, down from the 8.2% estimate in September. In 2007, Asian economies grew at a rate of 8.7%. Bloomberg (02 Apr.)

Congress to question Bernanke on his latest moves
Ben S. Bernanke, chairman of the Federal Reserve, will testify before two congressional committees this week, and he is expected to be questioned about the Fed's role in the
Bear Stearns rescue and other recent developments. "We want to know about precedent," said Sen. Charles Grassley, R-Iowa. "... People are willing to take chances if they think that the federal government is going to step in and bail them out all the time." Bloomberg (02 Apr.)

Japanese banks' overseas loans increase to 8-year high
A report from Nikkei reveals that outstanding overseas loans by Japan's banks reached an eight-year high at the end of February because of turmoil in the money markets. Non-Japanese companies are turning to banks because they are not able to raise capital on the financial markets. Financial institutions in the U.S. and Europe, meanwhile, are scrambling to shore up their balance sheets and have therefore reined in lending. Japan's banks, as a result, are able to choose the most promising companies and projects. MarketWatch (01 Apr.)

Geopolitical/Regulatory

Bush to push agenda at NATO summit, but success uncertain
At the NATO summit in Bucharest this week, President George W. Bush is expected to make some headway, although his status as a lame-duck president may hinder his success. Wess Mitchell, research director for the Center for European Policy Analysis, said Bush will likely win commitments of more ground troops in Afghanistan and may get the OK for a missile-defense project that includes facilities in Poland and the Czech Republic. However, Mitchell said, Bush will likely fall short in his bid to offer NATO membership to Ukraine and Georgia. The Christian Science Monitor (02 Apr.)

China calls cooperative bond with U.S. valuable
China's new government told Treasury Secretary Henry Paulson that it remains committed to regular, ongoing talks with the U.S., placing particular importance on the twice-yearly "Strategic Economic Dialogue." Paulson is working to accelerate the rise of the yuan and open China's markets to foreigners. ClipSyndicate/Bloomberg (02 Apr.) , CNBC/Reuters (02 Apr.)

Sources say Mugabe lost Zimbabwean presidency; next move unclear
Zimbabwean President Robert Mugabe was defeated in his bid for re-election over the weekend by Morgan Tsvangirai, leader of the opposition Movement for Democratic Change, according to sources familiar with the election. However, Mugabe has not yet released the results of the election. Some say the controversial leader is seeking a "safe exit," while others speculate he is trying to manipulate the outcome. AllAfrica Global Media/Business Day (02 Apr.)

EU again delays plans to update mutual fund framework
Charlie McCreevy, internal market commissioner for the European Union, said plans to update the legal framework for mutual funds, known as UCITS, are being delayed once again. EU officials are now seeking advice from national securities regulators. The result may be that the EU scraps the proposal. Reuters (02 Apr.)

SEC's entrance into "fair value" debate disappoints many
Bankers and insurers were eagerly anticipating news from the Securities and Exchange Commission that it would possibly rescind the use of "fair value" accounting, at least temporarily. Instead, the regulator asked the companies for more disclosure. "The SEC walked to the line but they backed away from it," said a senior insurance official. "It is fair to say there were strong hopes of something more." Financial Times (02 Apr.)

Financial Products

SocGen's ETF arm rolls out water-, energy-linked funds
Societe General's exchange-traded fund arm, Lyxor Asset Management, has launched two new funds. The Lyxor ETF World Water is tied to the World Water Index, made up of 20 stocks active in the three water-related areas: utilities, infrastructure and treatment. The Lyxor ETF New Energy follows the World Alternative Energy Index, which is also made up of 20 stocks. These stocks focus on renewable energy, decentralized energy supply and energy efficiency. Structured Products (01 Apr.)