Northwest, JetBlue, AirTran Post Losses on Fuel Costs

(Bloomberg) -- Northwest Airlines Corp., JetBlue Airways Corp. and AirTran Holdings Inc. posted fourth-quarter losses as rising fuel costs erased gains from fare increases.

Northwest said its deficit was $8 million after a $267 million year-earlier loss in bankruptcy, while JetBlue's $4 million loss compared with net income of $17 million. AirTran pared its loss to $2.17 million from $3.55 million.

Fuel is ``the principal culprit,'' said Dave Swierenga, president of consulting firm AeroEcon in Round Rock, Texas. ``The softening economy is clearly also having a negative effect.''

Today's results from the three carriers echoed those reported earlier by larger rivals including American Airlines and United Airlines, which also blamed fuel for blunting benefits from higher fourth-quarter ticket prices.

JetBlue jumped as much as 16 percent, leading U.S. airline shares higher, as its loss was narrower than analysts expected. The shares rose 77 cents to $5.71 at 12:19 p.m. New York time in Nasdaq Stock Market composite trading.

Northwest gained 56 cents, or 3.1 percent, to $18.50 in New York Stock Exchange composite trading, while AirTran rose 29 cents, or 3.4 percent, to $8.75.

Northwest, the fifth-largest U.S. airline, and other big carriers raised fares six times last quarter to counter a 43 percent jump in average jet-fuel prices. The major airlines also doubled their fuel surcharges to $40 round trip. The surcharges are supposed to be temporary.

Northwest

Northwest's loss was 3 cents a share, narrower than the loss of 8 cents projected in a Bloomberg survey of nine analysts. Sales at the Eagan, Minnesota-based airline rose 3.9 percent to $3.1 billion.

Northwest said it would have broken even except for a $14 million pretax loss from selling its remaining holdings in commuter carrier Pinnacle Airlines Corp. The quarterly deficit was Northwest's first since leaving bankruptcy in May.

Spending on fuel rose 16 percent to $937 million, making it Northwest's largest cost and helping to boost operating expenses by 4.3 percent. Higher prices were partially offset by a drop in fuel consumption as Northwest retired older, less-efficient planes and reduced mainline capacity by 2.5 percent.

The surge in fuel is spurring calls by investors for airlines to consolidate and pare expenses. Northwest is considering a tie-up with Delta Air Lines Inc., according to Northwest's pilots union. The airlines have declined to comment on any merger talks.

 

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Bank of America Affirms Plan to Acquire Countrywide

(Bloomberg) -- Bank of America Corp. said its purchase of Countrywide Financial Corp. is proceeding and the bank doesn't need more capital after last week's preferred stock sale raised almost $13 billion.

``Everything is a `go' to complete this transaction,'' Bank of America Chief Executive Officer Kenneth Lewis said at an investor conference today, referring to Countrywide. The Calabasas, California-based mortgage company rose as much as 8.6 percent today in New York Stock Exchange composite trading.

Chief Executive Officer Angelo Mozilo agreed Jan. 11 to sell Countrywide, the biggest U.S. mortgage lender, for about $4 billion in stock to Bank of America, the nation's second- biggest bank by assets. Investors have speculated the bid might be revised if Countrywide didn't fulfill Mozilo's October vow to restore profit by year-end.

Countrywide posted a fourth-quarter net loss of $422 million, or 79 cents a share, compared with a profit of $621.6 million, or $1.01 a share, in the year-earlier period, the company said in a statement today. The loss was more than twice the 28 cents predicted in a Bloomberg survey of analysts.

The home lender rose 20 cents to $6.15 in 12:03 p.m. composite trading on the New York Stock Exchange as investors concluded Bank of America won't renege on the purchase. Bank of America, based in Charlotte, North Carolina, added 67 cents, or 1.6 percent, to $41.87.

Bank of America could have raised 2 1/2 times as much as it sought in last week's share offerings, Lewis told the New York investor conference today. The sale came with some of the highest yields in 15 years.

 

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Goldman, Morgan Stanley probed on subprime

(Reuters) - Investigators are seeking information from Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) and Morgan Stanley (MS.N: Quote, Profile, Research), Wall Street's largest banks by market value, regarding their activities related to subprime mortgages.

In its annual report filed with the U.S. Securities and Exchange Commission, Goldman said it was cooperating with requests from governmental agencies and self-regulatory organizations for information about securitizations, collateralized debt obligations and synthetic products related to subprime mortgages.

Meanwhile, in its annual report filed with the SEC, Morgan Stanley said it was responding to subpoenas and information requests from governments and regulators concerning subprime and non-subprime mortgages.

The SEC filings came on Tuesday.

Morgan Stanley also said it was a defendant in lawsuits over its role as an underwriter of preferred stock offerings for mortgage lenders New Century Financial Corp (NEWCQ.PK: Quote, Profile, Research) and Countrywide Financial Corp (CFC.N: Quote, Profile, Research). New Century is liquidating in bankruptcy, while Countrywide agreed on January 11 to be acquired by Bank of America Corp (BAC.N: Quote, Profile, Research).

Subprime mortgages go to people with poor credit. The U.S. housing crisis has caused dozens of mortgage lenders to go out of the business in the last year, and led to more than $100 billion of write-downs at banks worldwide.

Goldman and Morgan Stanley are among 21 banks sued on January 10 by the city of Cleveland. The city alleges that fee-hungry banks created a foreclosure crisis by offering mortgages that borrowers couldn't afford but which could be packaged into securities that investors could buy.

 

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Durable goods orders jump, house prices slump

(Reuters) - Stronger-than-expected orders for U.S.-made durable goods in December suggested the economy retained some life and might not need a heavy dose of interest-rate cuts, even though house prices fell a record amount in November.

New orders for long-lasting goods rose 5.2 percent last month, a Commerce Department report showed on Tuesday, well above the 1.5 percent increase forecast by economists in a Reuters poll.

The surprise surge in durable goods orders helped offset a report that showed home prices in 10 major metropolitan areas fell a record 8.4 percent in the year through November.

U.S. Treasuries fell after the durables report, which contradicted weakness in other areas of the economy and undermined the argument for more aggressive interest rate cuts by the Federal Reserve. Stocks rose.

A consumer sentiment survey, meanwhile, showed confidence fell in January but by slightly less than economists had expected. The Conference Board's index of consumer sentiment fell to 87.9 from an upwardly revised 90.6 in December.

"Consumers are on the edge but haven't packed it in yet. They are worried about the up-and-down stock market, falling house value and high gasoline prices. But they still have jobs," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania.

 

Read more at Reuters

IMF to world economy: no one escapes U.S. slowdown

(Reuters) - When the U.S. coughs, the whole world still catches cold.

"No one is exempt from a global slowdown. That is why you call it global," International Monetary Fund chief economist Simon Johnson said on Tuesday as he updated the IMF's World Economic Outlook.

"It will be very hard for even the most effective counter-cyclical policy to keep any country from having some slowdown in these circumstances," he said.

The IMF has trimmed its estimate for world growth this year to 4.1 percent from its prior outlook of 4.4 percent, with still-resilient emerging economies seen growing at a rate of 6.9 percent from 7.8 percent last year. Even growth in China will moderate from a thumping 11.4 percent in 2007 to 10 percent.

"There are obviously linkages. I think that reports of decoupling have been greatly exaggerated. It is a question of what kind of linkages," Johnson told a media briefing.

World stock markets have swung wildly since problems in the U.S. subprime mortgage market surfaced in August, sparking a global credit crunch that has yet to fully abate. Investors have bet heavily that the United States will tip into recession and drag other economies in its wake.

 

Read more at Reuters

PetroChina's 44% Loss Proves BRIC Premium Is Nonsense

(Bloomberg) -- The biggest slide in emerging-market stock valuations in a year and a half is proving that a slowdown in the U.S. economy still matters to Brazil, Russia, India and China.

Shares in the MSCI Emerging Markets Index dropped 12 percent relative to profit this month as the prospect of a U.S. recession pushed two-thirds of the world's equity indexes into so-called bear markets. The last monthly decline as steep was in May 2006, according to data compiled by Bloomberg. Even the price-earnings ratio for the Standard & Poor's 500 Index, the benchmark for U.S. stocks, didn't fall as much.

Companies such as PetroChina Co., the country's biggest oil producer, and Russia's OAO Lukoil show the threat of a global slump is shaking the confidence of investors who viewed developing countries as a haven from the U.S. PetroChina's 44 percent plummet since November erased about $400 billion, more than the market value of Microsoft Corp., the No. 1 software maker. Russian stocks are headed for their biggest loss in 19 months after money managers bought an unprecedented amount in 2007.

``The only way they could decouple would be for them to be on another planet,'' said David Dreman, who oversees $20 billion as chief investment officer at Jersey City, New Jersey-based Dreman Value Management LLC. ``We are the biggest buyer of their products and biggest user of their services, so if our economy slows down their growth rate has to slow down. There's no other plausible way.''

Record High

The MSCI index rose to an all-time high in October on expectations economic growth in the so-called BRIC countries, which accounted for half the world's expansion last year, would shield stocks even if the U.S. stumbled.

Last year's surge pushed the valuation for the MSCI above the S&P 500 for the first time since the Internet bubble burst in March 2000. Investors were willing to risk capital on profit growth in developing markets as their governments boosted currency reserves and cut debt.

Now, the price-earnings ratio is 15.35, down from 17.44 at the end of last year and an all-time high of 90.6 in February 1999, Bloomberg data show. Investors pulled a record $10.7 billion from emerging-market stock funds last week, according to data compiled by Cambridge, Massachusetts-based research firm EPFR Global.

 

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Verizon Profit Rises on Wireless; Sales Miss Estimate

(Bloomberg) -- Verizon Communications Inc., the second-largest U.S. phone company, said fourth-quarter profit rose 3.9 percent, driven by new wireless subscribers. Sales missed estimates after home-phone users defected to cable rivals.

Net income climbed to $1.07 billion, or 37 cents a share, from $1.03 billion, or 35 cents, a year ago, the New York-based company said today in a statement. Sales rose 5.5 percent to $23.8 billion, below the $24 billion average estimate of analysts in a Bloomberg survey.

Chief Executive Officer Ivan Seidenberg is spending $23 billion over seven years to offer TV service and higher Internet speeds, to compete with cable companies that sell phone plans. Verizon lost 875,000 phone lines in the quarter, an 8.1 percent drop from a year ago, compared with an 8 percent decline in the previous quarter.

``Line losses accelerated again,'' said Todd Rosenbluth, an equity analyst at Standard & Poor's in New York. ``That's a trend we expected, given cable competition.'' He recommends holding the shares.

Profit excluding items such as severance pay for fired workers was 62 cents a share, meeting the average estimate of 21 analysts in the Bloomberg survey. The wireless unit's operating margin, the percentage of sales remaining after deducting the costs of providing the service, expanded to 26.2 percent from 25 percent a year ago.

Verizon fell $1.02, or 2.7 percent, to $36.74 at 9:37 a.m. in New York Stock Exchange composite trading. The stock was little changed in the 12 months before today.

Job Cuts

The company said it began cutting jobs in the fourth quarter and plans to continue firing workers this year. Spokesman Bob Varettoni declined to say how many positions the company will eliminate.

Verizon's larger rival, AT&T Inc., also reported fourth- quarter revenue that fell short of analysts' estimates. While AT&T blamed the results on shutting off service to nonpaying customers, Verizon pointed to competition from cable companies such as Comcast Corp.

Seidenberg, 61, has been shedding businesses to focus on Verizon's fiber-optic network and wireless unit. Verizon is awaiting regulatory approval for a $2.72 billion deal to hand over about 1.6 million phone lines in the northeastern U.S. to FairPoint Communications Inc.

Spinoff, Sale

Fourth-quarter results last year included expenses of 22 cents a share for taxes on the sale of assets in the Dominican Republic and the cost of spinning off a directories unit.

Verizon added 226,000 TV subscribers to its fiber-optic network, less than the 234,000 projected by UBS AG analyst John Hodulik in New York. The company also recruited 245,000 fiber Internet customers, missing Hodulik's 284,000 estimate.

The fiber-optic network, called FiOS, is available in parts of 16 states. Verizon plans to make it available to 18 million homes by the end of 2010, up from about 9 million last year.

Verizon Wireless, jointly owned by Verizon and Vodafone Group Plc, added 2 million wireless customers, including 1.6 million on long-term contracts. Verizon Wireless took subscribers from smaller rival Sprint Nextel Corp., which lost 683,000 contract customers last quarter. AT&T, owner of the biggest U.S. mobile-phone service, added 2.7 million users in the quarter, including 1.2 million on contracts.

 

Read more at Bloomberg

Gold Rebounds as Dollar Tumbles After Fed's Interest-Rate Cut

(Bloomberg) -- Gold rose after an emergency cut in U.S. borrowing costs reduced the value of the dollar, boosting the appeal of the precious metal as an alternative investment.

The Federal Reserve slashed its benchmark interest rate 0.75 percentage point to 3.5 percent after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Gold rallied 31 percent in 2007 after the Fed cut rates by 1 percentage point, sending the dollar down 9.5 percent against the euro.

``This is a pure dollar play if ever there was one,'' said Jon Nadler, an analyst at Kitco Minerals & Metals Inc. in Montreal.

Gold futures for February delivery climbed $8, or 0.9 percent, to $889.70 an ounce at 11:57 a.m. on the Comex division of the New York Mercantile Exchange. The price earlier fell as low as $849.50.

Gold for immediate delivery rose $24.22, or 2.8 percent, to $889.22. The price fell 2.1 percent yesterday, when the Comex was closed for Martin Luther King Jr. Day.

The rate cut was the biggest single reduction since the Fed began using the benchmark as the principal tool to control monetary policy in 1990. The dollar dropped as much as 1.3 percent against the euro.

``Lower interest rates are very good for gold because the dollar will weaken against other currencies,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York.

Policy makers are scheduled to meet on Jan. 30. Interest- rate futures show a 70 percent chance the Fed will cut the benchmark rate 0.25 percentage point to 3.25 percent at that session, compared with no chance a week ago.

`Total Meltdown'

``At this point, the Fed looks like they're asset- senstive,'' said Frank McGhee, head metals trader at Integrated Brokerage Services LLC in Chicago. ``They're going to put liquidity in the market to keep stock prices higher and a total meltdown from happening.''

U.S. stocks tumbled for the fifth session with the Dow Jones Industrial Index plunging as much as 3.8 percent before paring losses. European stocks rose for the first time in six session after the Fed's surprise cut.

``Market participants see weakening economic conditions as the cause of the emergency rate cuts and stronger inflationary pressures as a result,'' said Stuart Flerlage, who helps manage more than $600 million at NuWave Investment Corp. in New York ``This will continue to provide a strong bid for gold.''

 

Read more at Bloomberg

ABN Leads Stocks Bears as MFS Sees No Repeat of '03

(Bloomberg) -- The last time the Standard & Poor's 500 Index was at least 10 percent below its previous high, in 2003, the world's biggest stock investors were bullish.

Not this time. Institutions handling $1.5 trillion, including Baring Asset Management's Andrew Cole, ABN Amro Asset Management's Joost van Leenders and MFS Investment Management's James Swanson, are holding or selling. They say stocks are riskier today than they were during that last correction in 2003, even though valuations are half as much.

``It's a much more dangerous game today,'' said Cole, 44, a fund manager who helps invest $48 billion at Baring in London. ``2008 is going to be a year of preservation of capital. We've got a lot of cash and we're not frightened to say so.''

Cole, whose firm favored shares over bonds or cash in 2003, said in an interview he's ``underweight'' equities this year because evidence of a U.S. recession is mounting. January's decline in the S&P 500, the benchmark for American equities, marked the worst start in the index's history.

The Federal Reserve's three interest-rate cuts since September haven't encouraged stock investors about the prospects for the economy. Equities are the cheapest relative to bonds since 1974, and still investors are shifting funds to fixed- income.

Steepest Drop

Stocks got even less expensive as the MSCI World Index dropped 3 percent yesterday, its biggest decline since 2002. The global benchmark slipped 1.1 percent today, its sixth straight decline and the longest stretch of losses since the period ended July 18, 2006.

Benchmark indexes from Hong Kong to London and Brazil retreated yesterday as concern grew that a U.S. recession will weaken global growth. Japan's Nikkei 225 Stock Average dropped today by the most since September 2001, and Australia's All Ordinaries Index tumbled the most since October 1989. In Hong Kong, the Hang Seng Index was headed for its biggest two-day slump in a decade.

Investors pulled money from U.S. stock funds every month between May and November, the longest streak this decade, according to Investment Company Institute, which compiles data from 4,744 equity funds with $6.6 trillion in assets.

Net inflows to fixed-income funds in 2007 were the biggest since the start of the U.S. bull market in 2002, according to data from ICI, the Washington-based trade group for the mutual- fund industry.

``What we've been telling people to do is, `Face reality and take action.''' said David Darst, the New York-based chief investment strategist for Morgan Stanley's private banking unit, which oversees $700 billion.

Recession Forecasts

Last month, Darst recommended clients raise their cash holdings to 16 percent of assets. He told them to move money from equities to hedge funds that use futures to bet on currencies, interest rates and commodities.

ABN Amro Asset's van Leenders, 38, the firm's investment strategist, said he's daunted as earnings fall and predictions from Morgan Stanley, Goldman Sachs Group Inc., and Merrill Lynch & Co. increase investors' conviction that the country is sliding into a recession.

Profit for S&P 500 members may have tumbled an average of 17 percent in the fourth quarter, according to Bloomberg data. The 2.5 percent drop in the third was the first quarterly decline since 2002.

End of Expansion

A jump in the jobless rate in December signaled that the longest expansion in consumer spending on record will end in the first quarter, Goldman said. The number of Americans who fell behind on mortgage payments rose to a 20-year high in the third quarter and home prices probably fell last year for the first time since the Great Depression.

Economic growth will slow to 1.1 percent in the first quarter, according to the median estimate of 65 economists surveyed by Bloomberg. In 2003, the U.S. grew at an annual rate of 2.5 percent while profits rose 17.4 percent a quarter, on average.

A correction is any time a stock index declines 10 percent or more from peak to trough. The latest for the S&P 500 was reached Nov. 26, when it fell 10 percent from its record in October.

Prior to that, the 15 percent drop in the index between November 2002 and March 2003 was the sixth correction in three years. Those were spurred by the collapse of the technology bubble, the terrorist attacks on Sept. 11, 2001, a recession in 2001 and the dissolution of Enron Corp.

`Entering Recession'

The S&P 500 rebounded 39 percent between its 2003 low and the end of the year, marking the beginning of a five-year bull market.

``The macro picture right now is much weaker,'' said van Leenders, whose Amsterdam-based firm has $309 billion in assets. ``Then we were recovering from a recession, now we are entering one.''

ABN Amro Asset lowered its allocation to equities last quarter by raising cash and buying government and investment- grade corporate debt, he said. Swanson, the chief investment strategist at Boston-based MFS, sold a third of the shares he owned at the end of the year to boost his holdings in U.S. government bonds.

The S&P 500 fell 9.8 percent in the first 13 trading days of this year for the worst start since the index's inception in 1957. Stocks will drop further as the economy forces more homeowners into default and banks' losses on investments tied to subprime mortgages double to as much as $200 billion, Swanson said.

Benchmarks Drop

MSCI's world index slid 1.1 percent to 1,380.60 as of 3:03 p.m. in Tokyo, extending its decline from an Oct. 31 record to 18 percent. Japan's Nikkei 225 dropped 5.7 percent, and Australia's S&P/ASX 200 lost 7.1 percent. Hong Kong's Hang Seng plunged as much as 8.2 percent. India's Sensex index tumbled 12 percent when trading resumed after a halt to avoid breaching limits.

Yesterday, London's FTSE 100 Index dropped 5.5 percent for the steepest loss since September 2001. Brazil's Bovespa index plunged 6.6 percent, the biggest retreat in almost a year.

``Everything is being painted with a `dump-it-now' brush,'' Swanson, 58, said in an interview from Omaha, Nebraska. ``Seeing those red numbers on stock after stock after stock, it changes the psychology. It's very easy to give in to the doom of `Man, this is really now a recession and bear market and it's never going to get better.'''

Banks Extend Decline

Banks and brokerages in the S&P 500, last year's worst- performing industry with a 21 percent decline, have dropped another 13 percent in 2008. Telephone companies, energy producers and computer makers have fallen more than 12 percent since the start of this year.

New York-based Merrill, the biggest U.S. brokerage, had a record loss last week after writing down the value of its subprime-infected assets by $16.7 billion.

The stock-market slump hasn't been limited to the U.S. Benchmarks in more than two dozen countries including Japan, Sweden and Peru have plunged at least 20 percent from their peaks in the past six months, marking the start of so-called bear markets. This month alone, global stocks have lost more than $5 trillion in market capitalization, Bloomberg data show.

Stuart Fraser, who helps manage $42 billion at Brewin Dolphin Securities Ltd. in London, said he purchased inflation- linked government debt because ``central banks will be more concerned about rescuing the economy than worrying about inflation.''

Fraser, 61, also bought futures contracts and exchange- traded funds that track wheat and soybean prices. Wheat reached a record $10.095 a bushel in December and has doubled in the past year. Soybeans set an all-time high of $13.415 a bushel this month after surging 78 percent in 2007.

Long Volatility

Ashburton Ltd.'s Peter Lucas bought futures on the so-called VIX, the Chicago Board Options Exchange Volatility Index that tracks the price of S&P 500 options. The gauge of stock market price swings almost doubled in 2007.

``Whatever happens this year, volatility will remain elevated,'' said Lucas, 42, who oversees $1.7 billion as chief investment officer at Ashburton in Jersey, Channel Islands. ``Being long volatility is a smart way of hedging equity risk.''

Relative to earnings, stocks are about half as expensive as they were in 2003. Companies in the S&P 500 are valued at an average 17.5 times reported profit, compared with 33 times at the start of 2003, data compiled by Bloomberg show.

 

Read more at Bloomberg

ECB, BOE May Follow U.S. Fed Cut, Economists Say

(Bloomberg) -- The European Central Bank and the Bank of England may have to follow the Federal Reserve and cut interest rates as the risk of a U.S. recession threatens to drag down a global expansion, economists said.

``From a European and a U.K. perspective, the Fed cut adds to the risk of more and quicker rate cuts,'' said Amit Kara, an economist at UBS AG in London. Kara, a former economist at the U.K. central bank, predicts four cuts from the Bank of England this year and two by the ECB.

The Fed today lowered its benchmark rate in an emergency move for the first time since 2001 after global stock markets tumbled amid signs the world's largest economy is sliding into recession. The move spurred a rally in European stocks, though failed to stem a decline in U.S. indexes.

The widening interest-rate gap between the U.S. and Europe may spur gains in the euro, worsening the outlook for an economy already showing signs of a slowdown by hobbling exports. German investor confidence dropped to the lowest since 1992 in January and European manufacturing growth slowed in December.

``This market has been calling for help,'' said Alberto Espelosin, who helps to manage about $12 billion at Zaragoza, Spain-based Ibercaja Gestion. ``The ECB should follow suit.''

The Bank of Canada, in a scheduled meeting, lowered its main rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown.

Yields Fall

Investors are increasing bets Europe's two major central banks will cut borrowing costs, interest-rate futures trading shows. The ECB's benchmark rate is currently 4 percent, while the Bank of England's 5.75 percent is the highest among the Group of Seven industrial nations.

The yield on the June ECB contract fell to 3.80 percent today from yesterday's close of 3.94 percent. On the June U.K. contract, the yield fell 3 basis points to 4.89 percent.

The ECB and the U.K. central bank refused to give away their intentions. The Bank of England said it has no plans to bring forward next week's meeting of the Monetary Policy Committee, which is scheduled for Feb. 7. ECB council member Juergen Stark declined to comment on the Fed's decision when questioned by reporters in Brussels.

The Swiss National Bank also declined to comment, as did spokespeople for the central banks of Norway and Sweden.

The euro, which touched a record $1.4967 on Jan. 23, rose 1.1 percent to $1.4619 at 6:08 p.m. Frankfurt time after the Fed's announcement. The pound climbed 0.8 percent to $1.9592.

`Forced to Act'

``If it becomes clear that this is merely a temporary fix, and the situation deteriorates further, then the ECB will be forced to act,'' said Ken Wattret, an economist at BNP Paribas SA in London.

While David Brown, chief European economist at Bear Stearns Cos. in London, predicted the Bank of England will cut its rate next month and the ECB will do so in the second quarter, he ruled out either following the Fed in reducing rates outside their normally scheduled meetings, as they did in September 2001.

``It's not their style,'' said Brown. ``European central banks tend to move by the calendar.''

European inflation at a six-year high of 3.1 percent, breaching the ECB target of just below 2 percent, is limiting policy makers' room for maneuver. President Jean-Claude Trichet said Jan. 10 that the bank is ready to act ``preemptively'' to raise rates to contain consumer prices.

 

Read more at Bloomberg

U.S. Stocks Pare Declines; Exxon Retreats, Financials Gain

(Bloomberg) -- U.S. stocks fell for a fifth day, the longest streak of declines in 11 months, as growing concern about the slowing economy prompted the Federal Reserve to cut interest rates by the most in two decades.

The Standard & Poor's 500 Index pared its worst loss in five years after some investors were persuaded the Fed would continue cutting rates after its emergency reduction today. Exxon Mobil Corp., Microsoft Corp. and AT&T Inc. led declines. Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. helped carry financial shares higher for the first time in three days after the Fed cut its benchmark rate by 0.75 percentage point.

``It shows that they're trying to stem the negative sentiment that's out there that there's a recession under way,'' said Ed Peters, chief investment officer at PanAgora Asset Management in Boston, which manages $25 billion.

The S&P 500 retreated 23, or 1.7 percent, to 1,302.19 at 12 p.m. in New York. The Dow Jones Industrial Average decreased 179, or 1.5 percent, to 11,920.3. The Nasdaq Composite Index lost 56.66, or 2.4 percent, to 2, 283.36. About three stocks fell for every two that rose on the New York Stock Exchange.

Growing evidence that the U.S. economy is slowing has dragged more than half of the world's biggest stock indexes into a bear market and wiped out $7.3 trillion in global stock-market value this year.

`Increasing Downside Risks'

The Fed cited ``a weakening of the economic outlook and increasing downside risks to growth'' for its first emergency cut since 2001. Policy makers weren't scheduled to gather on rates until Jan. 29-30.

The U.S. market was closed for Martin Luther King Day yesterday. Stocks posted the steepest weekly drop since July 2002 last week after lower-than-estimated home construction, retail sales and manufacturing reinforced speculation that the economy is contracting.

Exxon, the largest U.S. crude producer, decreased $2.48 to $82.60. Chevron Corp., the second biggest, lost $2.96 to $80.50. Crude oil dropped to a six-week low, falling $2.39 to $88.18 a barrel in New York, on concern demand will diminish in an economic slowdown.

Microsoft, the biggest software company, retreated $1.04 to $31.87. AT&T slid 78 cents to $35.33.

Bank of America

Bank of America gained 87 cents, or 2.4 percent, to $36.84 even after reporting earnings that fell 97 percent. Fourth- quarter net income slumped to $268 million, or 5 cents a share, from $5.26 billion, or $1.16, a year earlier the bank said in a statement. Excluding merger and restructuring costs and a gain from the sale of Marsico Capital Management LLC, the company earned 5 cents a share, missing the 21-cent average estimate of analysts surveyed by Bloomberg.

Wells Fargo, the biggest bank on the West Coast, rose $1.35 to $26.83. JPMorgan, the third-largest U.S. bank, increased $1.30 to $40.89.

The MSCI World Index fell 0.6 percent. The Dow Jones Stoxx 600 Index of European shares added 2.4 percent.

The Nasdaq Composite today entered a so-called bear market, marked by a decline of at least 20 percent from a high. The S&P 500 and Dow average have both lost about 16 percent from their Oct. 9 records. The Nasdaq reached an almost seven-year high on Oct. 31.

Wachovia Corp., the fourth-largest U.S. bank, said profit fell 98 percent after writedowns for bad loans and mortgage- backed securities. Its shares added 15 cents to $30.95.

 

Read more at Bloomberg

JSE boosted by US rates cut

(Fin24) - The JSE turned around on Tuesday afternoon and was trading the black after the US Federal Reserve announced
an emergency rate cut of 75 basis points.

The JSE's all share index fell as low as 24 005.35 at one stage this morning, but recovered to 25 213.200 by noon. Shortly after the Fed's announcement it turned around and was last at 265 615.56 - up 192 points from its previous close.
 

The Fed announced an emergency rate cut of 75 basis points to bring the fed fund rate to 3.5%.
 

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Stark Says Growth Will Hold Up, ECB Ready to Act on Inflation

(Bloomberg) -- European Central Bank Executive Board member Juergen Stark said the bank still expects the economy to expand around 2 percent this year and remains ready to raise interest rates to counter inflation.

``We're sticking to our assessment that, based on current data, growth will be around potential in 2008,'' Stark said in an interview in Viernheim, Germany, today. ``I want to repeat that we have said that we will do what is needed to avoid so-called second-round effects. We are ready to act.''

ECB President Jean-Claude Trichet threatened to raise rates on Jan. 10 if unions push through bigger wage demands to compensate for faster inflation. Since then, several ECB policy makers have expressed concern that economic growth may slow more markedly as the U.S. economy teeters on the brink of recession.

Stark said while risks to the growth outlook ``are pointing downward,'' even a more pronounced slowdown wouldn't necessarily damp inflation.

``Price and wage stickiness in Europe is considerably more pronounced than in other regions, for example the U.S., so that a possible growth slowdown does not automatically lead to a drop in the inflation rate.''

 

Read more at Bloomberg

ACA Customers Allow More Time to Unwind Default Swaps

(Bloomberg) -- ACA Capital Holdings Inc., the bond insurer being run by regulators after subprime-mortgage losses, won a month's grace to unwind $60 billion of credit-default swap contracts that it can't pay.

ACA, under the control of the Maryland Insurance Administration, extended an agreement that waives collateral requirements, policy claims and termination rights until Feb. 19, the New York-based company said in a statement on Business Wire late yesterday.

The insurer is working with its trading partners ``to develop a permanent solution to stabilize its capital position,'' according to the statement.

Standard & Poor's cut ACA's rating 12 levels to CCC last month, casting doubt on the company's guarantees and triggering collateral requirements. ACA, which lost 97 percent of its market value in the past 12 months, caused Merrill Lynch & Co. to write down $1.9 billion of securities last week and Canadian Imperial Bank of Commerce to sell more than C$2.75 billion ($2.7 billion) in stock to cover writedowns.

Bond insurer shares plunged last week and credit-default swaps rose to a record on concern the companies may be unable to meet their obligations as the subprime-mortgage securities and collateralized debt obligations they guarantee slump in value.

Ambac Financial Group Inc., the second-largest bond insurer, had its AAA credit ranking cut to AA by Fitch Ratings. Both Ambac and its larger rival, MBIA Inc., are under threat of losing the top grades from Moody's Investors Service and S&P, a move that would throw doubt on the ratings of $2.4 trillion of securities.

An after-hours call to ACA last night by Bloomberg News wasn't immediately returned.

Derivative Contracts

``ACA is an important case to follow because it shows how the banks' react to fast-deteriorating counterparty creditworthiness,'' said Toby Nangle, who helps oversee $37 billion as head of global aggregate business at Baring Asset Management in London.

The bond insurers, also known as monolines, guaranteed $127 billion of CDOs backed by subprime-mortgage securities as of June 30, according to S&P. CDOs are created by packaging debt or derivatives into new securities with varying ratings.

Most of those guarantees are in the form of derivatives. Unlike insurance, these contracts are required to be valued at market rates. Derivatives are contracts whose value is derived from assets including stocks, bonds, currencies and commodities, or from events such as the weather or changes in interest rates.

South Dakota Bonds

ACA was founded in 1997 by former Fitch executive H. Russell Fraser, who left the ratings company in 2001 as it shifted focus to structured finance from municipal bonds.

Fraser said his idea was to start an A rated municipal bond insurance company to guarantee a new crop of borrowers he sometimes called ``the cream of the crap.'' ACA's larger competitors such as Ambac and MBIA had enough cash to get the top AAA ratings on their insured bonds.

ACA backed $51.5 million of bonds sold to finance the construction of a jail in Pinal County, Arizona, and $4.7 million of bonds for the city of Deadwood, South Dakota.

CDOs were created by Wall Street by repackaging assets such as mortgage bonds and buyout loans into new obligations for sale to institutional investors. The insurers agreed to pay CDO holders, many of them banks that created the securities, in the event of a default.

CDO Downgrades

The tipping point came last year when the three major rating companies downgraded thousands of CDOs. Ratings on more than 2,000 CDOs were cut in November alone, according to a Dec. 13 UBS AG research report.

Maryland Insurance Administration held off filing delinquency proceedings last month while ACA sought capital. ACA was required under its credit-default swap contracts to post collateral if its rating fell below A-.

ACA gained 2 cents, or 4 percent, to 48 cents in over-the- counter trading on Jan. 18 in New York.

``The monolines are dead, their business model is dead,'' said David Roche, head of investment consultancy Independent Strategy in London. ``The government is going to have to recapitalize this industry or there will be communities in the U.S. where they can't even flush their toilets'' because they can't afford the services.

 

Read more at Bloomberg

Murdoch, Packer offer $2.9 bln for Consolidated Media

(Reuters) - Lachlan Murdoch, son of media tycoon Rupert Murdoch, and Australian gaming magnate James Packer launched a joint A$3.3 billion ($2.9 billion) offer on Monday to buy out the Packer-backed publishing company Consolidated Media Holdings CMJ.AX.

The deal would mark Lachlan's first big business move since quitting his father's business in 2005, and is the second major effort by the two rival media empires to forge a venture, after backing One.Tel, a telecommunications company that collapsed in 2001 owing A$600 million.

The move comes less than three months since Packer separated his late father Kerry Packer's media business from gaming to better focus on building up the gambling operations.

The sons of the media moguls are each expected to take a 50 percent stake in the joint venture vehicle Consolidated Media, which was formed from the split late last year.

The indicative offer, which represents a 24.4 percent premium to Consolidated's last traded price, has the blessing of Consolidated's biggest shareholder -- the James Packer-backed Consolidated Press Holdings (CPH).

Consolidated Media Holdings has appointed UBS as its financial adviser.

Consolidated Media owns 25 percent of pay-TV provider Foxtel, about 27 percent of on-line job site Seek Ltd (SEK.AX: Quote, Profile, Research) and 25 percent of PBL Media. Seek rose 7.4 percent to A$7.15 on Monday.

 

Read more at Reuters

Fujitsu reorganizes semiconductor operations

(Reuters) - Japanese electronics firm Fujitsu Ltd (6702.T: Quote, Profile, Research) said on Monday it would put its struggling semiconductor operations into a new unit, in a move that could smooth the way for partnerships with other chip makers.

Fujitsu's business building system chips, used in products ranging from digital cameras to supercomputers, has suffered from falling prices and the high cost of keeping up with the latest technology.

The company also said it would transfer development and test production of state-of-the art system chips to its Mie plant in central Japan from a technology centre in Tokyo, at a cost of some 10 billion yen ($94 million).

 

Read more at Reuters

Northern Rock bids deadline set

(Reuters) - Britain set a two-week deadline for a private-sector rescue of Northern Rock, as it confirmed plans to convert its almost 25 billions pounds ($49 billion) of loans to the stricken bank into bonds in a bid to smooth a deal.

The financing package will tie the government to Northern Rock, Britain's biggest casualty of the global credit crunch, for years to come.

But it also increases the prospect of a private-sector takeover, which would avoid a politically damaging nationalization for Prime Minister Gordon Brown, who has seen his popularity slump in opinion polls in recent weeks.

Details of the plan sent Northern Rock's battered shares soaring on Monday. By 1105 GMT they were up 40 percent at 90.5 pence, valuing the bank at 380 million pounds ($746 million), still down over 90 percent since the end of May.

The financing package will be available to the three front-runners for a private-sector deal -- Richard Branson's Virgin Group, a rival consortium led by investment firm Olivant, and an in-house solution under new Northern Rock management.

 

Read more at Reuters

ECB's Mersch Urges Caution as Growth Risks Increase

(Bloomberg) -- European Central Bank council member Yves Mersch said the bank should exercise caution as risks to economic growth increase.

``We have certainly downside risks to economic activity,'' Mersch, 58, said in an interview at his office in Luxembourg yesterday. While inflation risks have also risen, ``we're not unaware of mitigation to price developments,'' he said, citing a stronger euro, near-record oil prices, the slowing U.S. economy and higher credit costs.

The ECB has threatened to raise interest rates as unions demand wage increases to compensate for the fastest inflation in six years. At the same time, the U.S. Federal Reserve is cutting borrowing costs to stave off recession in the world's largest economy after its housing market slumped.

``I don't like assumptions that what's happening in one part of the world is also true for another part,'' Mersch said. The ECB should nevertheless ``be cautious, look at the figures and take the appropriate decisions. There's still widespread uncertainty, and that's affecting confidence.''

The euro fell more than a cent on the comments, to $1.4652 at 5.06 p.m. in Frankfurt, and bonds rallied.

Mersch is the fifth policy maker this week to note either downside risks to the economic outlook or the temporary nature of the jump in inflation.

`Look Through'

The ECB can afford to ignore an oil-driven surge in inflation if it doesn't inflate wage settlements, Mersch said. ``If there's no pass-through of these temporary factors to the general price level, we're able to look through if need be.''

Inflation, which held at 3.1 percent in December, may return to the ECB's 2 percent limit next year if oil prices ease and wages don't rise excessively, ECB council members Michael Bonello, Lorenzo Bini Smaghi and Axel Weber all said this week.

Mersch said while rising oil and food costs have increased the likelihood of so-called second-round effects materializing, they ``haven't materialized so far.'' Financial-market uncertainty and ``other international developments'' may ``weigh on the inflation development,'' he said.

The ECB shelved a planned rate increase in September and has since kept its benchmark at 4 percent to assess the economic impact of the U.S. subprime mortgage collapse, which made banks reluctant to lend and drove up the cost of credit globally. Oil prices near $100 a barrel and the euro's appreciation may also damp European growth.

 

Read more at Bloomberg

JPMorgan Fourth-Quarter Earnings Fall, Miss Estimates

(Bloomberg) -- JPMorgan Chase & Co., the third- biggest U.S. bank, said profit dropped 34 percent on subprime- mortgage writedowns and higher provisions for future loan defaults.

Fourth-quarter net income declined to $2.97 billion, or 86 cents a share, from $4.53 billion, or $1.26, a year earlier, the New York-based bank said today in a statement. JPMorgan rose as much as 6.8 percent in New York trading as the $1.3 billion writedown was smaller than analysts estimated.

The profit decline, the first since Jamie Dimon became chief executive officer in 2005, came as trading revenue fell and JPMorgan prepared for what it said may be a substantial weakening in the U.S. economy. The company added $2.3 billion to credit reserves, bringing the total to $10 billion. Citigroup Inc., the biggest U.S. bank, said yesterday it added $5.2 billion to cover U.S. loan losses and took an $18.1 billion writedown.

``We remain extremely cautious as we enter 2008,'' Dimon, 51, said in the statement. ``If the economy weakens substantially from here -- for which, as a company, we need to be prepared --it will negatively affect business volumes and drive credit costs higher.''

JPMorgan gained $1.68, or 4.3 percent, to $40.85 in composite trading on the New York Stock Exchange at 10:28 a.m.

``Their diversified business model really continues to separate JPMorgan from a lot of their peers,'' said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees $1.7 billion including JPMorgan shares.

Revenue Increase

Revenue climbed 7 percent to $17.4 billion, compared with the average estimate of $17.2 billion in the Bloomberg survey. Profit fell short of the 92-cent average estimate of 17 analysts surveyed by Bloomberg. Last year's fourth-quarter earnings included a one-time gain of $622 million.

Net income at the investment-banking division tumbled 88 percent to $124 million in the fourth quarter, as credit-market turmoil reduced revenue from debt underwriting 39 percent, to $467 million. Fixed-income revenue tumbled 70 percent because of the writedown, to $615 million, and ``weaker trading results'' contributed to a 40 percent drop in equity market revenue, which fell to $578 million.

The retail bank's profit climbed 5 percent to $752 million, driven by increases in mortgage banking. Those gains were tempered by declines in the home-equity and auto-loan businesses. Charge-offs on home-equity loans totaled $248 million. Profit from auto loans was $49 million, a 25 percent drop from a year earlier.

Credit Costs

Dimon said on a conference call with analysts that he isn't predicting a U.S. recession, though credit costs will increase as the economy weakens.

JPMorgan earned 15 percent less from its card services business, as its provision for future losses rose 40 percent to $1.79 billion.

Return on equity from continuing operations, a gauge of how effectively the company reinvests earnings, was 10 percent, compared with 14 percent a year earlier.

JPMorgan lost 18 percent of its market value in the past 12 months, compared with 50 percent at New York-based Citigroup and 29 percent at Charlotte, North Carolina-based Bank of America Corp.

JPMorgan's Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, remained unchanged from the third quarter at 8.4 percent.

 

Read more at Bloomberg

BEA accepts $8.5 billion Oracle offer

(Reuters) - Oracle Corp (ORCL.O: Quote, Profile, Research) on Wednesday won a three-month-long campaign to buy BEA Systems Inc (BEAS.O: Quote, Profile, Research) by raising its bid for the business software maker by 14 percent to $8.5 billion.

Activist investor Carl Icahn, BEA's largest shareholder with a nearly 13 percent stake, said he supported the deal, one of last year's highest profile corporate takeover battles.

Icahn and BEA's board initially rejected Oracle, saying it undervalued the company, but no other buyers emerged even as BEA's investment bank, Goldman Sachs, solicited bids from other software makers.

The price that BEA finally agreed to, $19.375 per share in cash, represents a compromise between the $17 that Oracle offered in October and the $21 that BEA had demanded.

"It's a fair price. It's a good deal for Oracle. It's a good deal for BEA," said Trip Chowdhry, analyst at Global Equities Research.

Shares of BEA rose 19 percent to $18.59 in morning Nasdaq trade, while Oracle shares were down 2 cents to $21.29.

BEA is a maker of "middleware," which helps business computer systems interact with each other. Oracle could sell its technology alongside its own middleware, database products and business-management software.

 

Read more at Reuters

Shoprite pockets rise in sales

(Fin24) - Pan-African food retailer Shoprite said sales for December 2007 rose by 16.1% when compared with 2006, which analysts have billed as "pleasing".

The 16.1% increase accounted for both inflation and volume
growth; for the same month, same-store sales grew by 11.7%.

Shoprite says that for the six months to end-December, sales rose by 21.8% to R23.3bn, but notes that the increase should be seen against the three-month strike which took place from August to October 2006, as earnings in thatperiod were affected.

It says like-for-like business in the six-month period
grew by 16.5%.

Nedcor Securities retail analyst Syd Vianello says that
while the numbers were good, the market may be a little disappointed and may have expected more growth given increased social grants, higher food inflation and the perception that Shoprite is taking market share away from Pick n Pay.

Room to fall further

Coronation Fund Managers' food retail analyst Quinton Ivan
says high food inflation - especially in staple foods, which comprise a large part of the Shoprite basket - was beneficial for food retailers' numbers because, despite higher prices, sales volumes do not drop as food is a basic commodity.

Ivan says that while Shoprite is on a heavier rating
(trading on an earnings multiple of 19.3) when compared with Spar (17.6) and Pick n Pay (19.2), its earnings have grown at a faster rate.

Ivan's preference in the food-retail space remains Spar.

Ivan was particularly impressed with the 32.5% growth (20.2% on a like-for-like bases) in Shoprite's African operations. As at end-June 2007 (the most recent figures available), Shoprite had 120 stores in 16 African countries.

Negative overall market sentiment, which saw the all-share index down 3.4% by 13:00 - overshadowed the positive trading update, with Shoprite shares falling 5.4% to 3 700c.

Shoprite's fall was in line with that of fellow food
retailers Pick n Pay (down ) and Spar Group (down 3.6% to 5 300c).

Nedcor Securities retail analyst Syd Vianello says that food retail stocks have, until now, held up well due to them being defensive plays.

Vianello says that while the sell-off presented a buying opportunity, there was room for food retailers to fall further relative to apparel retailers, which have been trading at low price levels.
 

Read more at Fin24

Rand on back foot

(Fin24) - The rand remained on the back foot in late trade on Wednesday amid continuing turmoil in global stock markets with a raft of recent US economic data adding to fears of a
recession in the world's biggest economy.

Dealers added that local data indicating a slowdown in retail sales which supports the argument against another South African rate hike later this month had also contributed to the rand's weakness.

By 15:55 the rand was bid at R6.9210 to the dollar from its previous close of R6.8050. It was bid at R10.2638 to the euro from a previous R10.1070 and at R13.6167 against sterling from R13.1853 before.

The euro was bid at $1.4805 from $1.4780 overnight, while gold was quoted at $890.75 a troy ounce from its previous close of $889.10/oz.

 

Read more at Fin24

Soros Hires BlackRock's Anderson as Investment Chief

(Bloomberg) -- George Soros's hedge-fund firm named BlackRock Inc. co-founder Keith Anderson as its new chief investment officer, according to a letter sent to shareholders.

``Keith will assume responsibility for managing all investment activities at Soros Fund Management,'' said the letter, dated yesterday and signed by Soros's sons Robert, 44, and Jonathan, 37, deputy chairmen of the New York-based fund- management group. Anderson, 48, starts his job next month.

Anderson takes the helm after a year in which the $17 billion fund returned 32 percent, outpacing the average hedge- fund gain of 10.4 percent. In 2007, the senior Soros, 77, was more involved in Quantum Endowment Fund's investments than he has been in years. Money-making trades in the portfolio included investments in China and India and in the currency markets.

Robert, who stepped down at the end of July as chief investment officer but continues to manage money, also contributed to the outsize return.

Anderson is the fourth chief investment officer at Soros since the billionaire philanthropist decided to scale back risk at the Quantum Endowment Fund following the departures of star traders Stanley Druckenmiller and Nicholas Roditi in April 2000.

In addition to Robert, the other investment executives were Robert Bishop, previously a principal at hedge fund Maverick Capital Ltd., and former Goldman Sachs Group Inc. partner Jacob Goldfield.

 

 

Read more at Bloomberg

U.S. Retail Sales Unexpectedly Declined in December

(Bloomberg) -- Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002.

Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.

Treasury notes rose and stock-index futures dropped as the figures underscored Federal Reserve Chairman Ben S. Bernanke's concern that risks to growth are intensifying. A sustained slump in consumer spending brought on by falling property values and rising unemployment would mean the end of the six-year expansion, economists say.

``Consumer spending slowed down pretty dramatically'' in the fourth quarter, said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who correctly forecast the drop in sales. ``We are kind of flying very close to a stall speed.''

Economists forecast retail sales would be unchanged, according to the median of 74 estimates. Projections ranged from a decline of 0.8 percent to a gain of 0.5 percent.

Yields on benchmark 10-year notes dropped to 3.72 percent at 8:55 a.m. in New York, from 3.77 percent late yesterday. Futures contracts on the Standard & Poor's 500 stock index expiring in March declined 1.1 percent to 1, 404.40.

Producer Prices

Producer prices in the U.S. also dropped in December, against economists' forecasts for an increase. Wholesale prices fell 0.1 percent after a 3.2 percent surge in November that was the biggest in 34 years, a Labor Department report showed.

For all of 2007, retailers posted a 4.2 percent sales increase, the smallest in five years. Purchases rose 5.9 percent in 2006.

``Growth stalled out at the end of the fourth quarter and into the new year,'' Joshua Feinman, chief U.S. economist at Deutsche Asset Management in New York, said before the report. ``The economy will narrowly be able to avoid recession.''

Sales excluding automobiles were forecast to decrease 0.1 percent from the prior month, according to the survey median.

The drop in sales was led by a 2.9 percent decline at building-material stores, the biggest since February 2003, reflecting the slump in housing. Sales at clothing, electronics and sporting-goods stores were among those that also decreased.

Gas Stations

Purchases at service stations dropped 1.7 percent, which economists said reflected lower gasoline prices. The price of a gallon of regular gasoline in December averaged $3.01, down from $3.07 the previous month, according to AAA, a group representing motorists. Excluding gas, retail sales fell 0.2 percent.

Auto dealers saw a 0.4 percent decline in sales.

AutoNation Inc., the largest publicly traded U.S. car dealer, doesn't expect the nation's auto market to pull out of its slump until 2009, Chief Executive Officer Michael Jackson said from Fort Lauderdale, Florida.

The drop in housing and the slowing economy usually take ``30 to 40 months to work through,'' Jackson said in a Bloomberg Radio interview yesterday. ``So we've had declines in 2006, 2007 and 2008, but I'm feeling pretty good about 2009.''

Excluding autos, gasoline and building materials, the figures the government uses to calculate gross domestic product, sales increased 0.1 percent, following a 0.7 percent gain the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.

Spending Outlook

Consumer spending, which accounts for more than two-thirds of the economy, is likely to cool rather than collapse in coming months as the housing slump worsens and hiring slows, according to the median estimate of economists surveyed by Bloomberg News earlier this month.

Spending will grow at an annual rate of 1.6 percent this quarter, down from an estimated 2.6 percent pace in the last three months of 2007, according to the median estimate of economists surveyed by Bloomberg News this month. Spending expanded at an average 3.5 percent pace per quarter over the past decade.

The continued gains, together with increasing exports, will help the economy avoid recession, economists said. Fed rate cuts will ensure a short downturn should one occur, they said.

Bernanke on Jan. 10 pledged ``substantive additional action'' to insure against ``downside risks'' to the economic expansion.

Investors are certain the Fed will lower the benchmark interest rate by at least a half percentage point following two days of meetings of Jan. 29-30.

 

Read more at Bloomberg

Citigroup Posts Record Loss on $18 Billion Writedown

(Bloomberg) -- Citigroup Inc. posted the biggest loss in the U.S. bank's 196-year history as surging defaults on home loans forced it to write down the value of subprime-mortgage investments by $18 billion.

The fourth-quarter net loss of $9.83 billion, or $1.99 a share, compared with a profit of $5.1 billion, or $1.03, a year earlier, the largest U.S. bank said today in a statement. New York-based Citigroup also reduced its dividend by 41 percent, cut 4,200 jobs and obtained $14.5 billion from outside investors to shore up depleted capital.

The results are ``unacceptable,'' Chief Executive Officer Vikram Pandit, who was installed in December after Charles ``Chuck'' Prince stepped down amid mounting subprime losses, said on a conference call with analysts and investors. ``We need to do better, and we will.''

Citigroup fell as much as 3.7 percent in New York trading as the writedown for subprime home loans and related securities was almost double what the company forecast in November and the loss exceeded analysts' estimates. The bank also set aside $5.2 billion to cover lending losses, including credit-card and auto loans where delinquencies increased.

The markdown on subprime securities is the biggest so far, exceeding the $14 billion reported by Zurich-based UBS AG, Europe's biggest bank. Former CEO Sanford I. Weill and Saudi Prince Alwaleed bin Talal, who is already Citigroup's largest individual shareholder, were among the investors contributing new capital to the bank.

`Deep, Desperate Hole'

``They've got themselves in a deep, desperate hole and it's going to take them all of 2008 to work their way out of it,'' Jon Fisher, who helps manage $22 billion at Minneapolis-based Fifth Third Asset Management, said in an interview on Bloomberg TV. Fifth Third owns shares of Citigroup. ``There are probably issues on their balance sheet that the management team, who's only really been running the company for about a month, doesn't even know about.''

The net loss exceeded analysts' estimates of 97 cents a share, according to a survey by Bloomberg. Citigroup has slumped 47 percent in New York Stock Exchange composite trading during the past year. The shares fell 92 cents, or 3.2 percent, to $28.14 in composite trading at 9:52 a.m.

Standard & Poor's lowered its long-term rating on Citigroup to AA- from AA after the earnings announcement, reflecting the ``severe losses'' and the likelihood that the bank's 2008 performance ``could be rocky.''

Dividend Reduced

Citigroup, founded in 1812 as the City Bank of New York, cut the quarterly dividend to 32 cents a share from 54 cents. The reduction, the first since the merger of Citicorp and Travelers Group Inc. in 1998, will help save the company about $4.4 billion annually. The company said as recently as November that it had no plans to lower the payout to shareholders.

Citigroup also had to turn to outside investors for fresh capital for the second time in two months, bringing to $22 billion the total amount raised. The bank said it generated $6.88 billion by selling convertible preferred shares to an investment fund controlled by the government of Singapore. Similar shares were sold to Capital Research Global Investors, Capital World Investors, the Kuwait Investment Authority, the New Jersey Division of Investment, Prince Alwaleed and Weill.

In November, the bank got a $7.5 billion injection from the ruling family of the Middle Eastern emirate Abu Dhabi. Alwaleed, the 52-year-old billionaire, already owns 4 percent of the company. He has been Citigroup's biggest individual shareholder since the early 1990s, when soured investments in commercial real estate left corporate predecessor Citicorp short of funds.

 

Read more at Bloomberg

Moody’s downgrades FMR’s senior debt

(Investmentnews) - Moody's Investors Service downgraded the long-term senior unsecured debt rating of FMR LLC, the parent company of Fidelity Investments of Boston, from Aa3 to A1 as of Jan. 11.

 

At the same time, they upgraded the ratings outlook from negative to stable.

The downgrade reflects the loss of the dominating market share lead and a shift in revenue mix toward lower margin defined-contribution plan servicing and higher volatility brokerage businesses, Moody's said in a statement.

The New York-based credit research organization also cited the company's diminished financial flexibility caused by its employee incentive programs.

Approximately $2.1 billion in notes are affected, Moody's reported.

"While Fidelity's recent trends in investment performance show improvement, our action today recognized that the gap between Fidelity and other large mutual fund providers has largely been eliminated," Moody's vice president and senior credit officer Matthew Noll said in the statement.

"Higher financial leverage and thinning profit margins also contributed to the rating pressure."

 

Read more at Investmentnews

The AltX acquisitors

(Fin24) - Recent listings on the JSE's AltX exchange are taking advantage of their new firepower as listed entities to consolidate the lower end of their respective markets.

Companies ranging from call-centre business Dialogue Group to engineering technology business Ansys, biometrics company Ideco, consumer electronics company Ellies, and managed telecoms player Huge Group have announced acquisitions since late last year.

Meanwhile others, like cellular least-cost router TeleMasters and applications software business Dynamic Visual Technologies are trading under cautionary, the former since January 10, and the latter, since January 3.

Although Vox Telecom is not currently trading under cautionary, it has been highly acquisitive, buying 12 companies in the past 18 months.

Its most recent purchases were of Absa's internet customer base, and complementary business Storm Telecom. Vox is likely to be a player in other sector consolidation opportunities that may arise.

In the most recent of the AltX company acquisitions, Dialogue announced on January 11 that it would pay at least R47.5m in cash and shares for a company called Verge, a consultancy and provider of business process outsourcing services to the public sector, from Simeka Group.

Dialogue said this was in line with its expansion strategy and desire to further penetrate the public sector. Dialogue already owns 50% of one of Verge's businesses, Sibize International, and is buying the other half as part of this transaction. It is also buying various outsourcing contracts, the price of which will be determined at a later stage.
 

Read more at Fin24

China Zim's biggest investor

(Fin24) - Cash-starved Zimbabwe soaked up $7.8bn in foreign investment last year with China as the biggest investor, state media announced yesterday.

The Zimbabwe Investment Authority (ZIA) approved 98 projects in the agricultural, manufacturing, tourism and mining sectors, said the Sunday Mail newspaper.

Manufacturing projects were worth $3.5bn, while the value of the 20 mining projects approved totalled $2.5bn. Most of the projects are partnerships between local and foreign investors. Exact investment figures for China were not given.
 

Read more at Fin24

Prosecutors raid Samsung office

(Fin24) - Investigators probing alleged corruption at the massive Samsung conglomerate raided an office of Chairperson Lee Kun-hee, an official said on Monday, as part of a special probe reluctantly approved last year by South Korea's president.

Kang Dong-ju, an official with the team carrying out the probe, would say only that a total of eight locations associated with Samsung Group executives were raided. South Korean media said Lee's home was part of the sweep, though Kang only mentioned an office.

Lee, who late last year marked 20 years at the helm of Samsung, is widely reported to mostly work from his residence. Photos and television footage showed what appeared to be prosecutors entering and later leaving his hilltop Seoul home.

Yim Jun-seok, a Samsung spokesperson, said earlier that he could not confirm media reports of the raid and could not be reached later.

Samsung, a conglomerate spanning dozens of companies with interests ranging from construction to shipbuilding, is anchored by Samsung Electronics, South Korea's biggest corporation.
 

Read more at Fin24

Pelosi and Bernanke to discuss economy

(Reuters) - Federal Reserve Chairmen Ben Bernanke will meet on Monday with House of Representatives Speaker Nancy Pelosi to discuss how they can work together to boost the U.S. economy, a spokesman for the California Democrat said.

Falling home values, higher oil prices and a decline in the stock market have raised concerns that the United States could slip into recession this year.

Pelosi will meet one-on-one with Bernanke to get his views on what steps Congress should take, as well as to let him know what ideas Democratic leaders are considering, Pelosi spokesman Brendan Daly said on Saturday.

It will be a "mutual exchange," Daly said.

Bernanke, who earlier this week sent a strong signal that the Fed was prepared to cut interest rates further to spur growth, also will speak to House Democrats at their policy retreat later this month, Daly said.

Many prominent economists believe Congress should supplement any Federal Reserve action with a temporary fiscal stimulus package that could include tax breaks.

Pelosi and Senate Majority Leader Henry Reid have asked to discuss the issue with President George W. Bush soon after he returns on Wednesday from a trip to the Middle East.

 

Read more at Reuters

Wall Street's $35 Billion Writedown Puts Squeeze on '08 Profits

Bloomberg) -- Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.

The losses have depleted the banks' capital, forcing New York-based Citigroup and Merrill to seek more than $13 billion from foreign investors, and hobbled their ability to make new loans. Other sources of fees, including credit cards, are also in jeopardy as the U.S. economy slows, said CreditSights Inc. analyst David Hendler, who estimates Citigroup, Bank of America and Merrill won't earn more this year than they did in 2006.

``The banks are already operating like they're in a recession,'' by ratcheting back on trading and lending, said Adam Compton, who helps oversee $150 billion at San Francisco- based RCM Capital, which holds shares of Citigroup, Bank of America and Merrill. ``Everybody has tightened up tremendously.''

Citigroup may report a fourth-quarter loss tomorrow of $4 billion, the first for the largest U.S. bank since its commercial real estate holdings plummeted in value during the early 1990s, according to a survey of 8 analysts by Bloomberg. The company also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.

Merrill, the world's biggest brokerage, probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion loss reported in the third quarter, Stan O'Neal's last as chief executive officer, analysts estimate.

New CEOs

John Thain, O'Neal's replacement, may use the quarter's earnings to write down most remaining investments infected by subprime defaults, said Sandler O'Neill & Partners analyst Jeffrey Harte. Citigroup replaced CEO Charles O. ``Chuck'' Prince III with Vikram Pandit, who turns 51 today, a former investment banker with a Ph.D. in finance who has formed a dedicated task force to mitigate losses in the bank's subprime investments.

Prince, 58, resigned in early November when the bank said it might have $8 billion to $11 billion of subprime writedowns, based on a slide in prices for mortgage-related securities during October.

In a Nov. 15 interview, Thain, 52, said that in many market declines, ``asset prices tend to go much lower than they ultimately are worth, and it takes longer to work out of them than people think.''

Writedown Estimates

The loss at Citigroup may include almost $19 billion of writedowns on holdings of mortgage-related securities known as collateralized debt obligations, according to Goldman Sachs Group Inc. analyst William Tanona. Merrill was battered by $11.5 billion of writedowns, Tanona estimates.

Bank of America's fourth-quarter net income probably fell 79 percent to $1.08 billion, the biggest drop in at least a decade, according to a Bloomberg survey. Sanford C. Bernstein & Co. analyst Howard Mason estimates the bank had $5.5 billion of writedowns on mortgage-related securities.

Earnings per share would be 23 cents, the lowest since the Charlotte, North Carolina-based company was formed from the 1998 merger of BankAmerica and NationsBank, according to analysts' estimates. Citigroup was put together the same year through the combination of Travelers Group Inc. and Citicorp.

Bank of America, the second-biggest U.S. bank, increased its bet on the U.S. housing market last week when it agreed to acquire unprofitable mortgage lender Countrywide Financial Corp. of Calabasas, California, for about $4 billion.

JPMorgan's Outlook

Bank of America, led by 60-year-old CEO Ken Lewis, may face writedowns caused by the declining value of Countrywide's loan portfolio, said Sean Egan, managing director of Egan-Jones Rating Co. in Philadelphia. A 5 percent writedown on the portfolio would be more than $10 billion, or about half of Bank of America's 2006 profit of $21 billion, he said.

Even New York-based JPMorgan Chase & Co., the least damaged by the subprime losses, faces ``a challenging credit environment mired by further asset write-offs'' of $3.4 billion, Tanona wrote in a Dec. 26 report. JPMorgan's fourth-quarter earnings may drop 29 percent to $3.21 billion, the first decline in three years, analysts estimate.

JPMorgan fell 15 percent during the past 12 months in New York Stock Exchange composite trading, compared with Citigroup's 47 percent, Bank of America's 28 percent and Merrill's 43 percent.

Great Depression

Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business.

U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock market crash of October 1929. The industry lost about $500 million in 1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said.

Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bank holiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said.

Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.''

Abu Dhabi

``This is the classic credit crunch,'' Geisst said. ``It might not have gotten to credit cards, it might not have gotten to car loans, but it's coming.''

Citigroup, Bank of America and Merrill probably were profitable in 2007, earning about $23 billion on a combined basis, even after the second-half writedowns, according to Bloomberg data. The banks earned about $50 billion in 2006. They may earn $44.8 billion this year, analyst surveys by Bloomberg show.

Citigroup, which in November had to seek a $7.5 billion capital infusion from the ruling family of oil-rich Middle Eastern emirate Abu Dhabi, may have to cut shareholder dividends to maintain the capital cushion it keeps to absorb loan losses, Tanona wrote in a Dec. 26 note.

Even with the Abu Dhabi investment, Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, may fall to 7 percent by the end of this year, he estimated. While above the 6 percent needed to maintain its ``well-capitalized'' status from federal regulators, the capital ratio is below Citigroup's own target of 7.5 percent.

Fed Data

Bank of America's Tier 1 ratio fell to 8.22 percent in the third quarter, from 8.52 percent in the second quarter and 8.48 percent a year earlier. JPMorgan's ratio was 8.4 percent in the third quarter, down from 8.6 percent a year earlier.

The resulting tightfistedness at the banks may help push the U.S. economy toward recession, RCM's Compton said. In the third quarter, less than a tenth of U.S. bank loan officers witnessed ``substantially'' higher demand for commercial loans, down from more than 50 percent in the second quarter of 2005, CreditSights reported, citing data from the Federal Reserve.

The banks' ``willingness and ability to lend remain the leading issues for the risk and extent to which current turmoil in the financial credit markets spreads to the broader economy,'' wrote Jeffrey Rosenberg, Bank of America's senior debt-investing analyst, in a Dec. 20 report.

Loss Ratios

Profits may suffer as banks set aside higher reserves for bad loans, Sanford Bernstein's Mason wrote in a Dec. 31 report. Bank of America's net loss ratio on commercial loans this year may average 0.7 percent, compared with 0.42 percent in the third quarter and more than triple the rate of the fourth quarter of 2006, Mason estimated. Citigroup's losses on credit-card loans may climb to $7.6 billion this year from $6.4 billion last year and $5.8 billion in 2006.

``A lot of these banks have large consumer portfolios in addition to the subprime side,'' said Malcolm Polley, who helps oversee $1 billion at Stewart Capital Advisors in Pittsburgh, including Bank of America shares. ``As we sink closer to recession, consumer delinquencies are going to tick up.''

U.S. construction loans that were 30 days to 89 days overdue represented 0.7 percent of those outstanding in the third quarter, more than double the rate of a year earlier, according to analysts at Arlington, Virginia-based Friedman, Billings, Ramsey & Co. Delinquent commercial loans climbed to 0.36 percent from 0.3 percent in the same period.

Default Rates

The default rate on U.S. junk-grade corporate loans may reach 2 percent to 3 percent this year, compared with about 0.9 percent in 2007, according to Bank of America's Rosenberg.

``Credit deterioration will continue to pressure industry valuations well into 2008,'' Friedman Billings analysts James Abbott, David Rochester and Scott Cottrell wrote in the Jan. 3 report. ``Even modest upticks in delinquencies can drive lower returns.''

The banks misjudged how bad the home-loan market would get, and they accumulated more than $100 billion of AAA-rated securities they thought were safe. This quarter's writedowns may acknowledge that prices for mortgage bonds and collateralized debt obligations, which repackage assets such as buyout loans and mortgage bonds into new debt with varying risks, probably won't recover anytime soon, RCM's Compton said.

 

Read more at Bloomberg

Money-Market Rates in Dollars Drop Before Fed

(Bloomberg) -- The cost of borrowing dollars fell the most in four months before a $30 billion cash auction by the Federal Reserve to break the logjam in short-term lending.

The three-month London interbank offered rate, or Libor, for dollars fell 20 basis points to 4.06 percent, the British Bankers' Association said today. That's the biggest decline since Sept. 19, the day after the Fed lowered its benchmark interest rate a half point. The equivalent euro and pound rates also dropped.

The Fed is offering cash in the first of two $30 billion emergency-cash injections. The European Central Bank plans two $10 billion auctions this month and the Bank of England will offer 10 billion pounds ($19.6 billion) tomorrow. Policy makers are responding to about $100 billion of losses at financial institutions after the collapse of the U.S. subprime-mortgage market.

``Central banks are committed to providing banks with as much cash as is necessary to prevent pressures escalating,'' said Lena Komileva, an economist in London at Tullett Prebon Plc, part of the world's second-biggest inter-dealer broker. ``There's a consensus view among policy officials that further coordinated action will be required to achieve this.''

The three-month euro interbank offered rate, or Euribor, dropped 2 basis points to 4.56 percent, the European Banking Federation said. It was at a seven-year high of 4.95 percent on Dec. 12, when policy makers said they would combine forces to counter a short-term credit shortage. The comparable pound rate fell 1 basis point to 5.67 percent.

 

Read more at Bloomberg

U.S. Stock Futures Rise on IBM Profit, Rate-Cut Speculation

(Bloomberg) -- U.S. stock-index futures rallied after International Business Machines Corp.'s profit topped analysts' estimates and investors bet on larger interest-rate cuts by the Federal Reserve.

IBM, the world's biggest computer-services provider, rose on results that were boosted by international growth. Apple Inc. climbed after Bank of America Corp. increased its earnings forecast for the maker of the iPod media player. Barrick Gold Corp. and Newmont Mining Corp. advanced as gold reached a record.

The gains today signaled that the market may rebound from the worst start for a year since 1982. Standard & Poor's 500 Index futures expiring in March added 10 to 1,417.8 as of 9:16 a.m. in New York. Dow Jones Industrial Average futures rose 111 to 12,772 and Nasdaq 100 Index futures increased 24.75 to 1,950.25.

``One of the driving forces behind weakness in the markets had been the theory corporate earnings would be squeezed with the global slowdown,'' said Tim Smalls, head of U.S. trading at Execution LLC in Greenwich, Connecticut. ``IBM telling you they're doing well is going to take a little bit of the pressure off.''

U.S. stocks were poised to rebound from the worst start for a year since 1982 as Fed fund futures showed traders see a 44 percent probability the central bank will lower its benchmark interest rate by 0.75 percentage point to boost economic growth at its Jan. 30 meeting. Before Jan. 11, traders saw no chance of a three-quarter point cut.

 

Read more at Bloomberg

Rock raises £2.25bn from mortgage sale

(FT.com) - Northern Rock expects to raise £2.25bn through the sale of its portfolio of Lifetime home equity release mortgages to JPMorgan Chase at a premium to its balance sheet value.

 

The move is likely to be seen as an encouraging sign that buyers are beginning to emerge for mortgage assets owned by the stricken bank that are regarded as good quality.

 

However it may raise concerns that Northern Rock is selling off the better quality assets, leaving the government and shareholders with less attractive portfolios.

A spokesman for Northern Rock said: "It's not a question of degrees of quality. This was an opportunity to sell a relatively small percentage of our assets."

In another twist in the Northern Rock saga, trustees of the pension scheme have asked the company to place members on the same footing as depositors by setting aside enough mortgage assets to guarantee that all promised benefits could be fully paid if the bank becomes insolvent.

The move, detailed in a letter to scheme members sent on Friday, puts yet more pressure on a government that has already extended more than £25bn in loans to keep Northern Rock solvent.

But the bank would be unable to meet the trustees' request to pledge assets as security without the permission of its regulator and the guarantors of its loans - the Financial Services Authority, Bank of England and the Treasury.

In the letter, Sir David Chapman, chairman of the Trustees, notes that if Northern Rock were to become insolvent immediately "significant additional funds would need to be paid into the scheme" of around £150m to £200m.

Last October, as the lender's woes mounted, Trustees moved to shift the scheme's assets into much less risky areas. Nearly half is currently invested in index-linked government gilts.

But Friday's sale of the mortgage portfolio may raise hopes at the Treasury, the FSA and the Bank that a private sale may still be possible.

However, among leading shareholders concerns that the bank is selling the lender's most desirable assets may rise.

The sale value of £2.2bn, represents a premium of 2.25 per cent or about £50m over the balance sheet value, bringing the total cash proceeds from the agreed sale to £2.25bn. The Lifetime assets comprise about 2 per cent of the company's total assets.

Andy Kuipers, new chief executive, welcomed the sale.

"This...is a positive development in the company's ongoing strategic review," he said in a statement.

"It illustrates the quality of our assets, which has enabled us to achieve a sale at a premium despite continuing difficult financial markets, and will allow the company to reduce its debt to the Bank of England."

Read more at FT.com

FTSE falls amid global weakness, food stocks weigh

(Reuters) - Britain's top share index fell on Friday amid global weakness in equities fuelled by fears of more subprime-related writedowns and as food stocks suffered from a brokerage downgrade and profit-warning talk.

Britain's FTSE 100 .FTSE shed 0.3 percent to end at 6,202.0 points, while the pan-European FTSEurofirst 300 benchmark hit its lowest level in over a year before ending down 0.5 percent.

The New York Times reported Merrill Lynch (MER.N: Quote, Profile, Research) is expected to suffer $15 billion in losses stemming from soured mortgage investments, reminding investors the jury was still out on the extent of the fallout of the credit crisis.

This came on the heels of a profit warning from American Express (AXP.N: Quote, Profile , Research).

Worries over global growth pushed the price of crude further off record highs hit last week, taking oil stocks along with it. BP (BP.L: Quote, Profile, Research) fell 0.7 percent and Royal Dutch Shell (RDSa.L: Quote, Profile, Research) shed 1.6 percent as crude slipped to near $93 a barrel.

Unilever (ULVR.L: Quote, Profile, Research) was among the biggest percentage losers on the index after Morgan Stanley downgraded its rating on the consumer goods giant late on Thursday to "underweight" from "equal weight".

Elsewhere in the sector Reckitt Benckiser (RB.L: Quote, Profile, Research) fell 3.4 percent and Associated British Foods (ABF.L: Quote, Profile, Research) fell 0.9 percent. Cadbury (CBRY.L: Quote, Profile, Research) shed nearly 3 percent, with traders citing market talk the confectionery group would issue a profit warning. The company had no immediate comment.

 

Read more at Reuters

Merrill seen suffering $15 billion loss: report

(Reuters) - Merrill Lynch (MER.N: Quote, Profile, Research) is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost twice the company's original estimate, the New York Times reported on Friday.

The losses were prompting the company to raise additional capital from an outside investor, the newspaper said in a report on its Web site. Merrill is expected to disclose the huge write-down when it reports earnings next week, the New York Times said, citing people who had been briefed on the company's plans.

The loss exceeds the $12 billion hit that many Wall Street analysts had forecast, the newspaper said.

 

Read more at Reuters

Citigroup and Merrill in talks for foreign capital: report

(Reuters) - Citigroup Inc. (C.N: Quote, Profile, Research) and Merrill Lynch & Co Inc. (MER.N: Quote, Profile, Research) are in discussions to receive more capital from investors, primarily foreign governments, The Wall Street Journal reported on Thursday.

Citigroup could get as much as $10 billion, likely all from foreign governments, while Merrill is expected to get $3 billion to $4 billion, much of it from a Middle Eastern government investment fund, the report said.

The report also said Citigroup's board is expected to discuss cutting the firm's dividend in half, a move that could save it more than $5 billion a year.

Representatives were not immediately available for comment at either bank.

U.S. banks have been wrestling with huge subprime mortgage losses, prompting some to seek cash from sovereign wealth funds

 

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