Electronic Arts bids for Take-Two

(Reuters) - Video game giant Electronic Arts on Sunday said it had made an unsolicited $1.9 billion offer for "Grand Theft Auto" publisher Take-Two Interactive Software, escalating its battle with Activision for the title of biggest video game maker.

Electronic Arts said it had pursued the deal privately since December, and Take-Two on Sunday immediately rejected the offer, a 50 percent premium to its Friday close, and accused EA of trying to scoop up a company in turnaround with an "inadequate" bid just before the publication of its next hit.

The $26-per-share all-cash bid is Electronic Arts' answer to Activision Inc's $18 billion acquisition of the gaming unit of French media and telecoms giant Vivendi. That combination, announced last November, is set to challenge EA's long-standing industry dominance.

Electronic Arts, publisher of blockbuster games like "Madden" and "Need for Speed," would become the largest sports game maker by far if it buys Take Two.

The offer follows months of speculation that Take-Two would be acquired by a major games publisher or media firm, with News Corp and Viacom often mentioned as possible suitors as they eye the fast-growing video game industry.

Take-Two said the offer valued it at a "significant discount" to peers. EA's offer would be about 18 times its expected fiscal 2008 earnings, while France's Ubisoft trades at 34 times expected earnings in the year ending March 2009 and Activision, with a similar year, trades at 24 times.

Take-Two Chairman Strauss Zelnick, who helped oust former management last March after it was laid low by accounting scandals and controversy over its games, said he hadn't ruled out a potential deal.

 

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Auction-Rate Bonds Force `Predatory' Yields on Cities

(Bloomberg) -- U.S. municipal borrowers from Camden, New Jersey, to Sacramento, California, may face a third week of higher interest costs as failures in the auction-rate bond market persist.

Auctions run by banks to determine the rate on more than $45 billion of bonds didn't attract enough buyers last week, according to JPMorgan Chase & Co. research. Even some successful auctions resulted in rates that were twice what borrowers paid in January, as investors who submitted bids demanded higher yields.

``The market right now is very predatory,'' said Marcia Maurer, chief financial officer of the Sacramento Regional County Sanitation District. The agency's weekly expense on $250 million of debt more than doubled to $343,000 from last month.

Investors enticed by rates that jumped as high as 20 percent are seeking opportunities in the $330 billion market no longer supported by dealers from Goldman Sachs Group Inc. to Citigroup Inc. and UBS AG that for years committed their capital to prevent failures. Thousands of unsuccessful auctions have driven up taxpayers' borrowing costs and left investors in the securities unable to get their money.

``Aggressive institutional investors have moved in to pick up auction-rate issues at short-term rates ranging from 5 percent to as much as 15 percent or more,'' George Friedlander, a municipal strategist at Citigroup in New York, said in a report at the end of last week.

Failure Rate

Four of the biggest agents that collect orders from bond dealers and determine winning rates reported failures on 258, or 67 percent, of 386 auctions Feb 22. That's in line with the average since Feb. 15, according to data compiled by Bank of America Corp. and Bloomberg.

Auction bonds, created in 1984, had until recent months allowed municipalities, hospitals, student lenders and funds to borrow long-term at money-market costs by adjusting interest rates through bidding every seven, 28 or 35 days.

When an auction fails, the rate reverts to a ``maximum'' specified in bond documents, or one pegged to money-market benchmarks. Holders of the bonds are stuck with the securities until a later auction attracts enough demand.

Hedge funds and other non-traditional investors showed ``strong interest'' last week in tax-exempt deals with high rates, Alex Roever, a JPMorgan fixed-income analyst, said in an e-mail. The average rate for seven-day municipal auction bonds rose to a record 6.59 percent on Feb. 13 from 4.03 percent the previous week, according to a Securities Industry and Financial Markets Association index.

Closed-End Funds

Many of last week's failures occurred at auctions of debt issued by closed-end funds with penalty rates ranging from 3 percent to 6 percent, data compiled by Deutsche Bank AG, Bank of New York Mellon Corp., Wells Fargo & Co. and Wilmington Trust Corp. show. Closed-end funds have about $60 billion in auction securities outstanding. Municipalities have $166 billion.

The auction-rate market began unraveling late last year as investor confidence in the health of bond insurers backing many of the securities waned. A bank bailout of New York-based Ambac Financial Group Inc. might come as soon as this week, according to a person familiar with rescue talks.

The collapse accelerated as banks including Citigroup and UBS, which have taken losses of about $162 billion from securities related to the collapse of subprime mortgages, grew unwilling to commit capital to support the auctions.

 

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Home Resales in U.S. Probably Dropped, Further Eroding Growth

(Bloomberg) -- Sales of existing homes in the U.S. probably dropped in January to the lowest level in at least nine years, according to a survey of economists, signaling the housing slump is deepening and will weigh on growth in 2008.

The National Association of Realtors will report that purchases fell 1.8 percent to an annual rate of 4.8 million, the fewest since record-keeping began in 1999, according to the median forecast in a Bloomberg News survey of 63 economists.

Mounting foreclosures are adding to a glut of unsold homes that is driving down property values. Would-be homebuyers may be waiting for even lower prices, keeping the housing market depressed for a third year and dragging the economy close to a recession.

``With the backdrop of elevated inventories of unsold homes and continued falling home prices, prospects for the housing market in general seem quite grim,'' said Dana Saporta, an economist at Dresdner Kleinwort in New York.

The Realtors group is scheduled to release the report at 10 a.m. in Washington. Estimates in the Bloomberg News survey ranged from 4.65 million to 5 million.

For all of last year, sales of single-family homes declined 13 percent, the most since 1982, the group said Jan. 24. Earlier this month, it forecast sales this year would slip to 5.38 million, from 5.65 million for all of 2007.

The effects of the worst housing recession in 25 years have spread into other areas of the economy. The Federal Reserve Bank of Philadelphia's general economic index fell this month to minus 24, the weakest reading in seven years.

 

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Stocks Advance in Europe, Asia, Led by UBS; U.S. Futures Fall

(Bloomberg) -- Stocks gained in Europe and Asia, led by financial companies, on speculation bond insurers will avoid a cut in their credit ratings and limit further losses related to subprime mortgages. U.S. index futures declined.

UBS AG and BNP Paribas SA led banks higher in Europe, while Millea Holdings Inc., Japan's biggest insurer, and Commonwealth Bank of Australia climbed in Asia. Royal Bank of Scotland Group Plc gained on expectations Qatar Investment Authority may buy a stake, while Alliance & Leicester Plc jumped on speculation it may get a bid from Lloyds TSB Group Plc.

The MSCI World Index gained 0.7 percent to 1,458.88 as of 1:24 p.m. in London, while Standard & Poor's 500 Index futures slipped 0.1 percent. The MSCI World Financials Index jumped 1.3 percent, the most in almost two weeks, as investors speculated Ambac Financial Group Inc. may get new capital.

``We're making our way toward a rescue plan for Ambac,'' said Salah Seddik, who helps oversee $5.9 billion at Richelieu Finance in Paris. ``This is reassuring and good news for financial stocks. It means that in terms of writedowns, the worst is behind us.''

Speculation that companies in the bond-insurance industry may not be able to maintain the AAA credit ratings they rely on to insure about $2.4 trillion in securities has contributed to an 8.1 percent decline in the MSCI World this year.

Europe's Dow Jones Stoxx 600 Index advanced 1.3 percent, with all 18 national markets gaining. Germany's DAX added 1 percent, while France's CAC 40 rose 1.5 percent. The U.K.'s FTSE 100 jumped 1.4 percent.

Asian Indexes

The MSCI Asia Pacific Index climbed 1.4 percent. Japan's Nikkei 225 Stock Average increased 3.1 percent to 13,914.57, the highest close since Jan. 15.

UBS, Europe's largest bank by assets, rallied 2.5 percent to 36.58 Swiss francs. BNP Paribas, France's biggest bank, advanced 4.3 percent to 63.84 euros. Deutsche Bank AG, Germany's largest lender, gained 1.9 percent to 75.79 euros.

Millea jumped 8.9 percent to 4,030 yen, the most since Oct. 2. Commonwealth Bank, Australia's biggest mortgage lender, rose 4.9 percent to A$44.67.

Ambac may get $3 billion in new capital as part of a rescue agreement with banks, according to a person with knowledge of the discussions. Ambac spokeswoman Vandana Sharma declined to comment specifically on the discussions.

Bailout Plan

Stocks climbed in late trading in the U.S. on Feb. 22 after CNBC on-air editor Charles Gasparino said that a bailout may be announced this week, citing bankers working on the deal. Gasparino also said ``the entire deal could fall apart.''

``The efforts to prevent Ambac from collapsing will push the market up today, particularly financial stocks,'' said Erhan Aslan, a sales trader at Concord Investmentbank AG in Frankfurt.

Royal Bank of Scotland rallied 6.2 percent to 401.5 pence. The Qatari government is considering an investment in the U.K.'s second-largest bank, the Sunday Telegraph Business reported, citing unidentified people with knowledge of the matter.

Alliance & Leicester gained 7.4 percent to 547.5 pence, and Bradford & Bingley Plc jumped 7.2 percent to 202 pence.

Lloyds TSB, the biggest U.K. provider of personal loans, is in the ``early stages'' of assessing approaches to smaller rivals Alliance & Leicester and Bradford & Bingley, the Sunday Telegraph reported, citing unidentified people close to the bank.

 

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Oil seen heading higher after topping $100

(Reuters) - Rampant oil prices are likely to continue to rise for a while yet as supply worries and investor demand for commodities outweigh concerns of economic slowdown.

Crude hit a record high of $101.32 on Wednesday and was trading at $98.64 at 9:45 a.m. EST on Thursday.

The price has climbed from below $50 at the start of 2007 and below $20 in early 2002.

"From here, we think that the next stage may well be a period of consolidation in the high $90s, and that could include increasingly frequent moves above $100," said Paul Horsnell of Barclays Capital.

Prices have risen in part because of expectations that the Organization of the Petroleum Exporting Countries, rather than increase oil output, will maintain or even cut supply at a meeting on March 5.

OPEC argues that factors beyond its control, such as speculation, are boosting prices. One OPEC minister made clear on Thursday that oil's push into triple digits would not bounce the group into changing supplies.

"We will not just react to $100 oil," Qatar's oil minister, Abdullah al-Attiyah, told Reuters by telephone. "OPEC will move when it sees physical demand for its oil."

 

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Morgan Stanley Hires Kenneth deRegt to New Role Overseeing Risk

(Bloomberg) -- Morgan Stanley, the second-biggest U.S. securities firm by market value, hired Kenneth deRegt to a new position in the office of the chairman, where he will oversee risk management and internal controls.

 

DeRegt, who worked at Morgan Stanley for 20 years before joining Aetos Capital in 2002, will start on Feb. 25 and join the firm's management committee, according to an internal memo today from John Mack, Morgan Stanley's chief executive officer. The contents of the memo were confirmed by Mark Lake, a spokesman in New York.

 

Read more at Bloomberg

 

U.S. Stocks Fall, Erasing Early Gains; Exxon, GE Shares Retreat

(Bloomberg) -- U.S. stocks fell after manufacturing in the Philadelphia region unexpectedly contracted the most in seven years and a drop in oil prices dragged down energy shares.

 

Exxon Mobil Corp., Chevron Corp. and General Electric Co. declined, helping erase a 76-point gain in the Dow Jones Industrial Average. The market's losses were limited by gains in technology companies after Citigroup Inc. told clients to buy shares of Cisco Systems Inc., the largest maker of computer- networking equipment.

 

 

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Sharper Image Files for Bankruptcy Following Losses

(Bloomberg) -- Sharper Image Corp., the seller of $300 electric shavers and $1,999 massage chairs, filed for bankruptcy protection after losing money in 11 of the last 13 quarters.

The 31-year-old retailer will shed 90 stores while it deals with a ``severe liquidity crisis,'' Chief Financial Officer Rebecca Roedell said in papers filed last night in U.S. Bankruptcy Court in Wilmington, Delaware. Sharper Image has lost more than $135 million since early 2005 on bad publicity stemming from lawsuits over its Ionic Breeze air purifiers and ``ever-tightening'' credit markets, the company said.

Former Chairman Richard Thalheimer founded Sharper Image in 1977 and built it into a company with 184 stores by selling gadgets such as the Ionic Breeze and $100 shaving mirrors. By January, sales had fallen every quarter for three years, and the San Francisco-based retailer brought in turnaround specialists to run the company last week.

The chain ousted Thalheimer, 59, in 2006 after losing more than three-quarters of its stock market value. Sharper Image, which peaked at $39.98 in February 2004, traded at 40 cents at 11:39 a.m. in Nasdaq Stock Market composite trading.

The company listed assets of $251.5 million and debt of $199 million and is in negotiations to sell its most unprofitable stores and inventory. It competes with Brookstone Inc. and New York-based Hammacher Schlemmer.

Another retailer, Virginia Beach, Virginia-based catalog company Lillian Vernon Corp., also filed for bankruptcy protection with a plan to sell its assets to help pay creditors.

 

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U.S. Stocks Climb, Erasing Earlier Drop; Hewlett-Packard Gains

 (Bloomberg) -- U.S. stocks rose, led by technology and bank shares, after Hewlett-Packard Co.'s profit topped estimates and investor William Ackman proposed a restructuring of bond insurers in an effort to minimize credit losses.

Hewlett-Packard, the biggest maker of personal computers, climbed the most in two years and helped the Dow Jones Industrial Average erase a 109-point drop. Wells Fargo & Co. and Citigroup Inc. led financial shares to their steepest gain in a week on Ackman's plan. TJX Cos., owner of the T.J. Maxx and Marshalls discount chains, led a rally in retailers after posting profit that topped analysts' estimates.

The Standard & Poor's 500 Index gained 2.41 points, or 0.2 percent, to 1,351.19 at 12:57 p.m. in New York. The Dow Jones Industrial Average rose 12.45, or 0.1 percent, to 12,349.67. The Nasdaq Composite Index increased 6.9, or 0.3 percent, to 2,313.1. About four stocks rose for every three that fell on the New York Stock Exchange.

Stocks dropped earlier in the day on concern competition will reduce profits among wireless networks and faster inflation will keep the Federal Reserve from cutting interest rates.

Hewlett-Packard rose $3.33 to $47.28 First-quarter net income increased 38 percent to $2.13 billion, or 80 cents a share, from $1.55 billion, or 55 cents, a year ago. Excluding expenses for acquisitions, profit was 86 cents a share, five cents more than the average analyst estimate in a Bloomberg survey. The company also raised its annual sales forecast on increasing demand overseas.

Tech Rally

Technology companies in the S&P 500 added 1.3 percent as a group, the steepest advance among 10 industries.

Wells Fargo, the biggest bank on the West coast, climbed 67 cents to $30.53. Citigroup added 39 cents to $25.71.

Ackman distributed a plan to restructure bond insurers that may prevent dividends from being paid to the parent companies and minimize losses for holders of asset-backed securities.

 

Read more at Bloomberg

Wal-Mart Profit Climbs on Grocery, Electronics Sales

(Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, said fourth-quarter profit rose more than analysts estimated after it stepped up U.S. holiday discounts and boosted sales in Asia and Latin America.

Full-year earnings will be at most $3.43 a share, less than analysts' projections, the retailer said today. Wal-Mart gained 1 percent in New York trading.

International sales advanced 19 percent, led by China, Brazil and Argentina. In the U.S., Wal-Mart drew cash-strapped customers with an expanded consumer-electronics section and more discounts on groceries. Quarterly sales at stores open at least a year outpaced Target Corp. for the first time in 3 1/2 years.

``Nobody gets rich selling groceries, unfortunately, but I do think it's a great way to drive traffic,'' Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, said in a Bloomberg Television interview. ``In this economic environment, if the consumer's shifting down in terms of the way they're spending their dollars, that benefits Wal-Mart.''

Sorrentino helps oversee $12 billion in assets including Wal-Mart shares.

Net income climbed 4 percent to $4.1 billion, or $1.02 a share, from $3.94 billion, or 95 cents, a year earlier, the Bentonville, Arkansas-based company said today in a statement. Excluding one-time items, profit beat estimates by 2 cents.

Wal-Mart said it expects to earn between 70 cents and 74 cents a share in the current quarter and between $3.30 and $3.43 for the year that ends in early 2009. Analysts surveyed by Bloomberg projected profit of 74 cents for the quarter and $3.44 for the year.

Share Performance

Wal-Mart rose 51 cents to $49.95 at 9:34 a.m. in New York Stock Exchange composite trading. The shares increased 4 percent this year before today, compared with an 8.1 percent decrease in the Standard & Poor's 500 index.

Revenue for the three months that ended Jan. 31 climbed 8.4 percent to $107.4 billion, the first time it exceeded $100 billion, Wal-Mart said.

Excluding costs including a writedown at its Japan unit, Wal-Mart earned $1.04 a share. Nineteen analysts surveyed by Bloomberg projected average profit of $1.02.

``Clearly our underlying operational performance exceeded the expectations we had at the beginning of the quarter,'' Chief Executive Officer H. Lee Scott said on a recorded call. The performance of the U.S. economy ``will be a critical factor'' this year, he said.

Consumer Spending

Consumers have curtailed outlays on extras as they find themselves spending more for food, fuel and housing. Before the holiday season, Wal-Mart made price cuts earlier and on 20 percent more items. Last month, the retailer introduced its own ``economic stimulus'' package, marking down groceries, medicines, fitness equipment and electronics as much as 30 percent.

While Wal-Mart has suffered from a slowing U.S. economy because many of its customers live paycheck to paycheck, the retailer has also gained because of its appeal as a destination for cost-conscious shoppers, said David Abella, an analyst at Rochdale Investment Management in New York with $2.5 billion in assets including Wal-Mart shares.

``They are benefiting from it at the expense of competitors,'' said Abella. ``The low-price effort, which is working especially well because of the slowdown, probably helped get some market share back from Target.''

 

Read more at Bloomberg

Foodmakers squeezed by costs, strapped consumers

(Reuters) - For more than a year, food makers and other consumer products companies have passed on much of the burden of rising commodity costs to consumers.

In fact, companies such as H.J. Heinz (HNZ.N: Quote, Profile, Research) and Hormel Foods Corp (HRL.N: Quote, Profile, Research) proved again with earnings forecasts and announcements on Friday that this was still the case early this year, fueling a rally in food stocks.

But that relief could prove short-lived, as 2008 could be the year consumers say "enough!" and start shunning branded products for less expensive private-label alternatives, industry experts warn.

"The next round of (increases) will actually start to impact consumer behavior in a profound way," Ken Harris, a principal at consulting firm Cannondale Associates, said.

That could hit profits at the companies that already have exhausted most measures to cut costs and become more efficient over the past several years in the wake of soaring prices for wheat, cocoa, milk and energy, just to name a few.

"When you say input costs are going up 6 percent and you are only getting 4 percent net pricing, where do you make up the rest?" asked Gregg Warren, an analyst at Morningstar.

Rising commodity costs and economically stressed consumers are expected to be the key topics when consumer products company executives meet with analysts at the Consumer Analyst Group of New York conference in Florida that begins Tuesday.

 

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Fed's Stern says rate cuts should protect economy

(Reuters) - The Federal Reserve's interest rate cuts are appropriate to restore stability in financial markets and prevent damage to the broader economy, Minneapolis Fed President Gary Stern said on Tuesday.

"Against the backdrop of the financial shocks that have beset the economy and their implications for the outlook, the reduction in the funds rate target appears wholly appropriate," he said in remarks prepared for delivery to the Financial Planning Association of Minnesota.

The Fed is responsible for restoring financial stability and protecting the broad economy from damage, Stern said.

"Policy is now better positioned to attain these objectives than formerly," he added.

Stern said the current situation is reminiscent of the early 1990s, when the economy faced "headwinds" after the 1990-91 recession, particularly tighter credit and a real estate bust.

 

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Exxon open to Venezuela talks, ready to fight

(Reuters) - Exxon Mobil (XOM.N: Quote, Profile, Research) is ready to talk to the Venezuelan government to settle a dispute over the forced acquisition of its oilfields, after gaining a court order to freeze $12 billion of Venezuelan assets, a senior executive said on Monday.

But the U.S. oil major said it was also prepared to fight to assert its interests if it has to.

"We have indicated to the Venezuelan government that we're still prepared to talk, but should that not be the case, we'll protect our rights," Robert Olsen, chairman of Exxon Mobil International told Reuters in an interview at the sidelines of the International Petroleum Week conference in London.

Leftist President Hugo Chavez told foreign oil companies last year to cede a majority stake in oil projects or leave the country.

Most agreed and accepted bids for stakes in their projects from state oil company PDVSA, bids that analysts said were below market value.

But Exxon and rival oil major ConocoPhillips (COP.N: Quote, Profile, Research) opted to pull out rather than give in to government demands.

Olsen, who is also head of production for Europe, the Caspian and Russia, told the conference that resource-holding governments should stick to the terms they agree with foreign investors.

 

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Bayer stops late-stage Nexavar trial

(Reuters) - Bayer HealthCare, a U.S.-based unit of Bayer AG (BAYG.DE: Quote, Profile, Research), stopped a late-stage trial of Nexavar in patients with non-small cell lung cancer, after an independent data monitoring committee concluded that the study would not meet the main goal of improved overall survival.

In the late-stage study, patients received Nexavar in combination with chemotherapeutic drugs carboplatin and paclitaxel.

Bayer said higher mortality was observed in a certain subset of patients treated with the combination of Nexavar and the chemotherapeutic drugs, versus those treated with carboplatin and paclitaxel alone.

Bayer and co-developer Onyx Pharmaceuticals Inc (ONXX.O: Quote, Profile, Research) will review the findings of the analysis to determine what, if any, impact they have on other ongoing Nexavar lung cancer trials.

 

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Fed's Lower Rates Pressure China to Strengthen Yuan

(Bloomberg) -- Like it or not, China has no choice other than to let the yuan appreciate against the dollar.

The combination of the world's fastest economic growth, the highest inflation rate in 11 years and the rising cost of intervention will force gains in the yuan to accelerate, even as policy makers in Beijing resist calls from the West to let the currency appreciate at a faster pace, say Pacific Investment Management Co. and Pictet & Cie., Switzerland's largest closely held private bank.

Central bankers in Thailand, Malaysia, Singapore and the Philippines are in the same situation, making their currencies attractive, according to money managers at the firms and Merrill Lynch & Co. Nine of the 10 best-performing currencies against the dollar in 2008 will come from Asia, surveys of foreign exchange strategists by Bloomberg show.

``You're likely to see less intervention,'' said Ramin Toloui, who helps oversee more than $60 billion in emerging- market bonds and currencies at Newport Beach, California-based Pimco. ``Several Asian central banks see more rapid exchange- rate appreciation as an important tool to fight inflation.''

After rising 7 percent last year, the yuan has appreciated 1.9 percent to 7.1623 per dollar so far in 2008. New York-based JPMorgan Chase & Co., the world's ninth-biggest currency trader, predicts a further 14 percent increase, while Citigroup Inc. in New York, the third-largest, forecasts a 6 percent advance.

Thailand's baht has climbed 3.7 percent to 32.53 this year, while the Taiwan dollar is up 2.4 percent to NT$31.75. The yuan rose 0.3 percent today, the most in six weeks, and the Singapore dollar gained as much as 0.2 percent to S$1.4107, its highest in more than a decade.

Inflation Battle

While the International Monetary Fund expects growth in Asian emerging markets will slow to 8.6 percent in 2008 from 9.6 percent last year, that's still six times faster than the 1.5 percent expansion predicted for the U.S.

Consumer prices in the region's 10 largest economies outside Japan are rising at an average annual rate of 5.30 percent, compared with 4.10 percent in the U.S., data compiled by Bloomberg show. Faster inflation raises the odds that central banks in Asia will increase interest rates, bolstering the appeal of their currencies.

``We are long Asian currencies,'' said Donald Amstad, head of Asia-Pacific fixed-income at Aberdeen, Scotland-based Aberdeen Asset Management Plc, which oversees $205 billion. ``Asia is in relatively better shape than the rest of the world.'' A ``long'' position is a bet that a currency will gain.

Costly Option

To keep their currencies from appreciating too fast and hurting exporters, Asian central banks have bought U.S. dollars, accumulating $4 trillion in foreign-exchange reserves.

The downside to intervention is that it increases the supply of the local currency, which tends to fuel inflation. To prevent that from happening, Asian central banks typically sell bonds to remove those funds from the economy.

That option has become more costly because interest on the debt is paid with income from its reserves, which are invested in dollar-denominated securities. The People's Bank of China pays 1.31 percentage points more on its six-month bills than it earns on similar-maturity Treasuries following the U.S. Federal Reserve's five rate cuts since September. Six months ago, the spread was 2.2 percentage points in favor of U.S. debt.

 

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Stocks Rise in Europe, Latin America; Credit Suisse, Vale Climb

(Bloomberg) -- European stocks rose, led by banks and metal producers, on optimism this year's 12 percent drop in the region's benchmark index was too steep given the outlook for sales. Shares in Latin America gained, while Asian equities fell.

Credit Suisse Group rose the most in three weeks in Zurich after Qatar said it's buying shares in the second-biggest Swiss bank, while Barclays Plc and Lloyds TSB Group Plc climbed in London as traders speculated on higher dividends. BHP Billiton Ltd. followed metals prices higher in Europe, while Cia. Vale do Rio Doce rallied in Sao Paulo.

The Dow Jones Stoxx 600 Index added 1.7 percent as of 3:18 p.m. in London, and the MSCI World Index increased 0.4 percent, as gains from Europe and Latin America more than offset declines in Australian bank shares and Japanese insurers. Futures on the Standard & Poor's 500 Index rose 0.8 percent. The U.S. market is closed today for the Presidents' Day holiday.

Qatar's purchase ``gives the market a boost,'' said Salah Seddik, who helps oversee $5.9 billion at Richelieu Finance in Paris. ``There's been some good news in the financial industry. The strong declines we've seen have left some buying opportunities.''

Concern the subprime mortgage slump will lead to more losses sent Europe's Stoxx Banks Index down 17 percent this year. The gauge was valued at 7.5 times profit in the week ended Feb. 8, the lowest since at least 1998, data compiled by Bloomberg show.

The MSCI Latin America Index added 2.1 percent. Brazil's Bovespa index jumped the most in a week, advancing 2 percent, while Chile's Ipsa stock index rose 0.9 percent.

The MSCI Asia Pacific Index lost 0.6 percent today, reversing an earlier gain of 0.8 percent.

European Markets

National benchmarks advanced in all 18 western European markets except Greece. France's CAC 40 rose 1.5 percent, while the U.K.'s FTSE 100 climbed 2 percent. Germany's DAX increased 1.7 percent.

The Stoxx 50 jumped 1.6 percent, as did the Euro Stoxx 50, a measure for the euro region. All of the 18 industry groups in the Stoxx 600 gained, with five stocks rising for each one that fell.

Credit Suisse rose 3.1 percent to 56.7 francs. Qatar is accumulating shares in Credit Suisse and plans to spend as much as $15 billion on European and U.S. bank stocks over the next year, the Gulf state's prime minister said in an interview.

``We have a relation with Credit Suisse and we bought some of the stock from the market, actually, but I cannot say what percentage because still we are in the process,'' Sheikh Hamad bin Jasim bin Jaber al-Thani, who is also chief executive officer of the Qatar Investment Authority, said in an interview late yesterday in Doha.

Barclays, Lloyds TSB

Barclays, the U.K.'s third-biggest bank, jumped 6.8 percent to 456.5 pence. Lloyds TSB, the U.K.'s No. 1 provider of unsecured loans, increased 6.4 percent to 421 pence.

Barclays and Lloyds, which are seeking to quell concern about financial institutions, are expected to report ``robust'' results, the newspaper said. Barclays will lift its dividend by 10 percent on Feb. 19, the Times reported, without saying where it got the information.

Barclays spokesman Robin Tozer and a Lloyds TSB spokesman Leigh Calder declined to comment on the report.

HBOS Plc, the U.K.'s biggest mortgage lender, advanced 4.1 percent to 633.5 pence. Royal Bank of Scotland Group Plc, the U.K.'s second-largest bank, added 2.9 percent to 360.75 pence.

UBS AG fell 1.2 percent to 35.58 francs after a Bear Stearns Cos. analyst downgraded the stock, forecasting more writedowns on debt holdings.

New disclosure of holdings affected by the subprime debacle ``revealed the full and frightening extent of UBS's potential problems,'' Christopher Wheeler wrote, cutting his stock recommendation to ``peer perform'' from ``outperform.''

Steel Price Accord

Vale do Rio Doce surged the most in three weeks, climbing 5.7 percent to 49.15 reais.

Asia's three largest steelmakers agreed to pay Rio de Janeiro- based Vale, the world's biggest iron-ore producer, 65 percent more than last year for the material. Vale said the price increase shows the market is going through ``very tight conditions.''

ArcelorMittal, the world's largest steelmaker, gained 1.4 percent to 48.22 euros. Nippon Steel Corp., the second-biggest, rose 3.2 percent to 575 yen, its highest close since Feb. 7.

``It's good that the price increases are being decided early,'' Alan Coats, an analyst at HSBC Holdings Plc in London, said today in a telephone interview. ``It means they can be passed on.''

BHP Billiton

BHP Billiton, the world's largest mining company, gained 3.9 percent to 1,612 pence. Vedanta Resources Plc, India's biggest copper producer, climbed 3.9 percent to 2,153 pence.

Copper advanced to the highest in almost four months in London after China, the world's largest user, said imports grew 6.6 percent in January from the previous month. The metal for delivery in three months rose 2.3 percent to $7,910 a metric ton, the highest intraday price since Oct. 29. Zinc and lead also climbed.

Australia & New Zealand Banking Group Ltd., Australia's third-largest bank, dropped 6.1 percent to A$22.46, the lowest since September 2005, after its chief executive said a ``bloodbath'' in debt markets will wipe out earnings growth.

Commonwealth Bank of Australia, the country's top mortgage lender, lost 5.1 percent to A$44.

Aioi Insurance Co., Japan's fourth-largest nonlife insurer, tumbled 6.8 percent to 439 yen, after a newspaper said it will have $740 million of subprime-related losses.

 

Read more at Bloomberg

Best Buy Cuts Forecast, Citing Fourth-Quarter Sales

(Bloomberg) -- Best Buy Co., the largest U.S. consumer electronics chain, cut its full-year earnings forecast to $3.05 to $3.10 a share, saying fourth-quarter revenue will fall short of targets.

The company had previously predicted earnings per share of $3.10 to $3.20 for the year ending March 1, Richfield, Minnesota- based Best Buy said in a statement today. Analysts surveyed by Bloomberg estimated $3.17 a share on average.

``Soft domestic customer traffic in January, coupled with our near-term outlook, now indicate that our fourth-quarter revenue will fall short of our planned targets,'' Chief Executive Officer Brad Anderson said in the statement. ``Our December revenue results were in line with our expectations.''

 

Read more at Bloomberg

UBS Won't Support Failing Auction-Rate Securities

(Bloomberg) -- UBS AG won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation.

The second-biggest underwriter of the securities, whose rates are reset periodically at auctions, notified its 8,200 U.S. brokers of the decision yesterday, said the person, who declined to be identified because the announcement wasn't publicly disclosed. Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Citigroup Inc. allowed auctions to fail as mounting losses from the collapse of subprime mortgages causes capital markets to seize up.

Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds scheduled for bidding daily, according to Alex Roever, a JPMorgan Chase & Co. fixed income analyst.

``We are kind of in uncharted territory right now,'' said Anne Kritzmire, a managing director for closed-end funds at Nuveen Investments in Chicago.

Auctions are failing as confidence in the creditworthiness of insurers backing the securities wanes, and as loss-plagued banks seek to avoid tying up their capital. More than 129 auctions failed yesterday, Kritzmire said.

Four-Fifths Fail

Rohini Pragasam, a spokeswoman for UBS, the second-biggest underwriter of municipal auction-rate debt after Citigroup in 2006 according to Thomson Financial, declined to comment. UBS, the dealer on the hospital corporation's auction, today posted the biggest-ever loss by a bank for the fourth quarter. The stock declined 2.34 francs ($2.12), or 5.7 percent, to 38.54 francs at 3:18 p.m. in Zurich.

Auction bonds have interest rates determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in official statements issued at the initial bond sale.

Investors have little opportunity to judge the risk that auctions will fail because of little public disclosure about interest rates set at the periodic bidding or other details such as how many bids were submitted or how many bonds were offered for sale.

Reporting System Changes

The Municipal Securities Rulemaking board is working on changes to its trade reporting system that would reveal at least the interest rate on auction bonds when they are traded. Currently, only the price is disclosed.

``I think you need to have more transparency in terms of the market so that investors can judge liquidity risks and so that people, both retail investors and corporate investors, can decide where they want to put their money,'' Joseph Fichera, chief executive officer of Saber Partners, a New York based financial adviser to local governments, said in an interview on Bloomberg Television.

Until recently, UBS and other banks that collect fees for running auctions have stepped in with their capital to prevent failures when bidding faltered. These firms have grown unwilling to commit their money to auction-rate securities after suffering at least $133 billion in credit losses and mortgage writedowns stemming from the subprime mortgage collapse.

 

Read more at Bloomberg

Retail sales rebound

(Reuters) - An unexpected rise in January retail sales, reported by the government on Wednesday, fired up hopes the U.S. economy might skirt recession despite the pressure on consumers from a weakening housing market.

The Commerce Department said sales at U.S. retailers rose 0.3 percent in January to a seasonally adjusted $382.91 billion on higher sales of new cars, gasoline and clothing.

That was sharply contrary to Wall Street analysts' forecasts for a 0.2 percent drop and helped drive stock prices higher in early trading while government bond prices fell.

"The report strengthens the case of those who think we'll skirt a recession," said Jim Awad, chairman of W.P. Stewart & Co. Ltd. in New York, but he cautioned the optimism might be short-lived.

"People will say this is subject to revision and it's inconsistent with other incoming data indicating softness and weakness in the economy," Awad said.

The dollar's value strengthened against other key currencies.

 

Read more at Reuters

MGIC Loses $1.47 Billion in Quarter, Seeking Capital

(Bloomberg) -- MGIC Investment Corp., the largest U.S. mortgage insurer, fell the most in a month after posting a record quarterly loss of $1.47 billion and said it hired an adviser to raise capital.

MGIC's fourth-quarter net loss was $18.17 a share, compared with a profit of $122 million, or $1.47, a year earlier, the Milwaukee-based company said in a statement today. Excluding investment losses, the insurer lost $18.09 a share, worse than the $8.13 average loss estimate of seven analysts compiled by Bloomberg.

Claims costs, including additions to reserves, surged sevenfold to $1.35 billion, compared with a Jan. 22 company forecast of as much as $1.3 billion. MGIC set aside money for losses on loans that served as collateral for Wall Street securitizations, whose performance ``deteriorated materially.''

``Higher loss severities and higher delinquencies had a material impact,'' Curt Culver, MGIC's chief executive officer, said in the statement. While the company expects to remain unprofitable this year, Culver said MGIC has adequate capital to meet its claim obligations.

MGIC fell $2.03, or 14 percent, to $12.15 at 10:10 a.m. in New York Stock Exchange composite trading. Earlier in the session the company fell as much as 16 percent.

Foreclosure Rates

U.S. foreclosure rates have risen to their highest since at least World War II, and defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, according to the Mortgage Insurance Companies of America trade group. Foreclosure rates rose 75 percent in 2007, according to Irvine, California-based RealtyTrac Inc. Mortgage insurers reimburse lenders when borrowers don't repay their debts.

Borrowers who couldn't make higher monthly payments after introductory rates expired propelled a jump in third-quarter claims, leading MGIC and smaller rivals PMI Group Inc. and Radian Group Inc. to report their first money-losing quarters as publicly traded companies.

Payments on about $460 billion of adjustable-rate mortgages are scheduled to be repriced this year, with an additional $420 billion expected for 2011, according to New York-based analysts at Citigroup Inc.

 

Read more at Bloomberg

Auction-Bond Failures Roil Munis, Pushing Rates Up

(Bloomberg) -- Bonds sold by U.S. municipal borrowers with rates set through periodic auctions failed to attract enough buyers as banks including Goldman Sachs Group Inc. and Citigroup Inc. that run the bidding wouldn't commit their own capital to the debt.

Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey, with bidding run by Goldman, soared to 20 percent yesterday from 4.3 percent a week ago, according to data compiled by Bloomberg. Presbyterian Healthcare in Albuquerque and New York state's Metropolitan Transportation Authority also experienced failures, officials said.

What began three weeks ago with too few bidders for auction-rate debt backed by relatively small entities, such as Georgetown University and Nevada Power, has widened in recent days to include large issues of state governments, such as New York state's Dormitory Authority. The auction failures provide new indication of Wall Street's unwillingness to commit capital amid $133 billion in credit losses and asset writedowns.

``It's the beginning of the end for the auction-rate market,'' said Matt Fabian, a senior analyst with Concord, Massachusetts-based Municipal Market Advisors. ``Banks have stopped supporting the market.''

Investor demand for the securities has declined on waning confidence in the credit strength of insurers backing the debt, and on reluctance by banks to submit bids and risk ending up with too many of the bonds. Local governments that have borrowed in the $300 billion auction-rate market confront the prospect of higher borrowing costs as economic slowing trims tax revenue.

Auction-Rate Bidding

Auction bonds have interest rates that are determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in official statements issued at the initial bond sale.

Other borrowers paid higher rates, even if their auctions didn't fail. Wisconsin's 28-day auction yesterday of taxable bonds was set at a 10 percent rate, up from 4.75 percent for identical securities Feb. 7.

Frank Hoadley, Wisconsin's director of capital finance, said he had no advance warning from bankers about the jump in rates. ``We are making decisions'' about converting the auction bonds to different kinds of debt, he said.

Local governments are obliged to pay the high rates until either the auctions start attracting more buyers or they modify the bonds to some other kind of variable-rate debt or a fixed interest rate. Bankers and borrowers have been working on conversion plans for several weeks.

Port Authority Bonds

The 20 percent rate for the $100 million of Port Authority auction bonds will cost it $388,889 until the next weekly auction, up from $83,611 last week. Interest on the bonds is subject to federal income tax.

``We have seen widening spreads, reduced demand for certain auction-rate securities and failed auctions, including some auctions in which Citi acted as broker dealer,'' Danielle Romero-Apsilos, a spokeswoman at New York-based Citigroup, said in a statement.

A Citibank-run auction for the New York state's Dormitory Authority failed yesterday, resulting in an interest rate of 6.26 percent, up from 3.12 percent a week earlier, according to Bloomberg data. Following the auction miss, the interest rate was set at twice one-month Libor, the London interbank offered rate for wholesale bank deposits, according to the official statement for the bonds.

Michael DuVally, a spokesman at New York-based Goldman, declined to comment.

 

Read more at Bloomberg

Economy near contraction in 1st quarter: Philly Fed

(Reuters) - The U.S. economy will struggle to grow in the first quarter of this year and faces an almost 50 percent chance of contracting, a quarterly survey issued by the Philadelphia Federal Reserve Bank showed on Tuesday.

Unemployment will edge higher given feeble job creation in the first three months of the year as the world's largest economy teeters on the brink of shrinking for a second consecutive quarter.

Forecasters saw a 47 percent probability of contraction in gross domestic product this quarter and a 43 percent chance in the second quarter, levels not seen since the recession in 2001 in the wake of the dot-com bubble, the survey said.

"Although the forecasters' median estimate for real GDP this quarter and the next suggests slow but positive growth, they think the risk of a contraction is high," it said.

"These current-quarter and one-quarter-ahead risks have not been this high since the survey of 2001 Q4, when they were 82 percent and 49 percent, respectively," the survey added.

The 50 forecasters pegged current-quarter growth in real GDP at a rate of just 0.7 percent, a sharp drop from the previous forecast of 2.2 percent.

According to the government's initial estimates, U.S. GDP grew just 0.6 percent in the fourth quarter of 2007.

 

Read more at Reuters

AIG says potential derivatives loss not material

(Reuters) - American International Group Inc (AIG.N: Quote, Profile, Research) on Tuesday moved to calm investors shaken by its earlier disclosure that derivatives losses could more than triple to about $5 billion, a development that earned it a rebuke from its auditor for a "material weakness" in internal controls.

AIG, the world's largest insurer, said in a statement on Tuesday that the size of any write-down was not expected to be material to the company.

AIG shares gained 4 percent to $46.60, after falling nearly 12 percent on Monday to the stock's lowest level in five years.

Investors pushed the shares down on Monday, after AIG disclosed in a regulatory filing that its mark-to-market unrealized losses on a credit default swap portfolio within its AIG Financial Products unit were expected to be about $4.88 billion through November, compared with an earlier indication of a loss of up to $1.5 billion.

The loss could wipe out AIG's fourth-quarter earnings, some analysts said.

AIG, which is expected to release quarterly results later this month, has not yet disclosed whether it saw further deterioration in December.

"The valuation adjustment as of December 31, 2007, is likely to be significant, and will likely cause AIG to report an accounting loss for the quarter," S&P credit analyst Rodney Clark said.

 

Read more at Reuters

Vodafone still after Vodacom?

(Fin24) - Any notion that Vodafone will give in to Telkom's rejection of its offer for a controlling stake in Vodacom (the duo's joint cellular business) has been dismissed - at least given Vodafone CE Arun Sarin's declaration that Africa and Asia were firmly on Vodafone's growth radar screen.

In a carefully crafted speech steering clear of the company's intention to up its control of Vodacom, Sarin - addressing a large audience at the 3GSM Mobile Word Conference in Barcelona, Spain - said South Africa and India were two countries in emerging markets critical to Vodafone's growth strategy.

"Last year we recorded 15% growth in our South African-based business," said Sarin, adding that with most markets across Europe reaching saturation South Africa and India were critical to the company's growth plans.

In India - a market in which Vodafone made its foray after acquiring a controlling stake in Bharti Telecoms - the company had signed up nearly 1.5m subscribers.

"Our target in that particular market is to sign up close to 300m subscribers over the next three years," said Sarin.

Asked by Fin24 to state weather Vodafone would return for Vodacom with a revised offer, Sarin declined to answer before quickly making a dash to the exit door of a packed auditorium with a horde of Vodacom executives in tow.
 

 

Read more at Fin24

Miller Says Microsoft Needs to Enhance Yahoo Offer

(Bloomberg) -- Legg Mason Inc. fund manager Bill Miller, the second-biggest shareholder of Yahoo! Inc., said Microsoft Corp. will need to raise its $44.6 billion offer to buy the Internet company.

``We think Microsoft will need to enhance its offer if it wants to complete a deal,'' Miller, 58, wrote in a Feb. 10 letter to shareholders released today by the Baltimore-based company.

Miller heads Legg Mason Capital Management, which owned about 80 million shares, or 6 percent, of Yahoo on Sept. 30, Bloomberg data show. Microsoft, the biggest software maker, on Jan. 31 bid $31-per-share to buy Yahoo, 62 percent more than the closing price the day before the offer. Yahoo yesterday rejected the bid, saying it ``substantially undervalues'' the company.

``We think this deal is a strategic imperative for Microsoft, and that Yahoo is in a tough spot if it wishes to remain independent,'' Miller wrote. ``It will be hard for Yahoo to come up with alternatives that deliver more value than Microsoft will ultimately be willing to pay.''

Microsoft, based in Redmond, Washington, responded yesterday to the Yahoo board's rejection with a statement calling its offer a ``full and fair proposal.'' The company didn't disclose its next steps and said it is ``moving forward'' with its $31-a-share bid for Sunnyvale, California-based Yahoo.

Miller said Legg Mason's own calculations put Yahoo's value in the range of $40 or more per share.

Countrywide Deal

Miller, whose subsidiary is the biggest holder of Countrywide Financial Corp., said in the letter released today that he hasn't decided to back the bid by Bank of America Corp. to buy the largest U.S. home lender.

The offer has ``truncated'' any gains in Countrywide's shares, Miller said. Bank of America, based in Charlotte, North Carolina, on Jan. 11 agreed to buy Countrywide after the stock lost 85 percent of its value in a year. The bank's takeover bid equates to less than $8 a share for Calabasas, California-based Countrywide.

 

Read more at Bloomberg

Paulson, U.S. Banks Forge Foreclosure-Freeze Deal

(Bloomberg) -- Bank of America Corp., Citigroup Inc. and four other U.S. lenders agreed with Treasury Secretary Henry Paulson to take new steps to help borrowers in danger of foreclosure stay in their homes.

Paulson and the banks offered a 30-day freeze on some foreclosures while loan modifications are considered. The Treasury chief, with Housing and Urban Development Secretary Alphonso Jackson, said today at a news conference in Washington that ``Project Lifeline'' would help stabilize communities disrupted by mortgage defaults.

``If someone is willing to make a call, to reach out, there's a chance they can save their home,'' Paulson said. ``As our economy works through this difficult period, we will look for additional opportunities to try to avoid preventable foreclosures.''

The program is designed to help a broad range of homeowners, not just subprime debtors who borrowed more than they could afford. Still, it won't help everyone, Paulson said. The U.S. housing correction ``is not over'' and ``the worst is just beginning'' for subprime borrowers who face higher interest rates in the next two years, he said.

In a statement, the banks said the program would start with a letter to homeowners more than 90 days delinquent on payments that lays out procedures for them to ``pause'' the foreclosure process. The homeowner has 10 days to respond to the notice and give additional financial information so the lender is able to weigh new payment options.

Loan Types

Subprime, Alt-A and prime borrowers are eligible, according to the plan. Subprime mortgages are made to borrowers with poor credit or high debt. Alt-A loans are for borrowers who want atypical terms, such as proof-of-income waivers or investment- property collateral, without sufficient compensating attributes, such as larger down payments.

JPMorgan Chase & Co., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. will also participate in the plan. All six are members of Hope Now, the alliance of lenders, trade groups and counselors formed last year to head off a surge of foreclosures by identifying and working with borrowers struggling to meet higher payments.

The Treasury chief said the six banks account for half of the U.S. mortgage market, and called on other lenders to adopt the plan as well.

Rate Freeze

Paulson, who as recently as last month opposed a moratorium on foreclosures, wants lenders to go beyond earlier pledges to freeze subprime interest rates for five years. The deepest housing slump in a generation is threatening consumer spending and the job market, pushing the economy to the verge of a recession.

Jackson said the plan is a ``responsible, timely effort'' aimed at encouraging borrowers to come forward if they're having trouble making payments.

``In some parts of our nation, the foreclosure crisis is have a devastating impact on neighborhoods and communities,'' said Floyd Robinson, head of Bank of America's home-loan business. He stressed that ``homeowners can only take advantage of this program by taking action -- they must respond when they hear from us.''

Democratic Complaints

Paulson last week heard complaints from Democrats in Congress that the number of homeowners receiving relief so far has been insufficient. ``We are now in the midst of one of the most serious economic crises we have seen in recent years,'' Barney Frank, the Massachusetts Democrat who heads the House Financial Services Committee, said in Boston yesterday.

Federal Reserve officials project about 2 million homeowners face higher mortgage rates over the next two years as their loans reset higher. Economists at the Federal Deposit Insurance Corp. estimate foreclosures this year will be about 1 million more than average, a level that FDIC Chairman Sheila Bair has said ``is just too high.'' They average about 600,000 in a typical year.

``This is good, but we've seen this over and over again,'' said Kathleen Day, a spokeswoman for the Center for Responsible Lending in Washington. ``The fact that they keep having to roll out subsequent rescue plans every few weeks underscores that each plan is inadequate.''

 

Read more at Bloomberg

Eskom's buyback plan in motion

(Fin24) - State-owned power utility Eskom is negotiating to buy electricity from local industrial firms in a bid to solve an energy crisis, Public Enterprises Minister Alec Erwin said on Monday.

Eskom is under pressure to come up with a plan to increase power generation after weeks of rolling blackouts that have darkened millions of homes and forced businesses to shut. Large mining operations ground to a halt for five days last month.

"Large producers who would not normally want to be in electricity are now considering that there may be merit in them going into electricity production and selling to Eskom," Erwin told a media briefing in Cape Town.

Erwin told Reuters government was talking with Sasol, BHP Billiton and Anglo as it sought to boost power capacity.

"Clearly we are interested in that ... given the strictures on energy and the difficulties we have ... This opens an interesting possibility. We are in intensive negotiations now," Erwin said.

President Thabo Mbeki expressed confidence on Friday that the crisis would be solved quickly but did not give details of the
government's plan. There have been calls from media and opposition parties for him to sack several ministers.

Mbeki and other senior officials have blamed the country's booming economy for increasing demand for electricity, while acknowledging that warnings of such a problem went unheeded for years.
 

Read more at Fin24

SocGen launches rights issue at deep discount

(Reuters) - Societe Generale (SOGN.PA: Quote, Profile, Research) launched a 5.5 billion euros ($7.97 billion) capital increase on Monday to plug holes in its balance sheet following a rogue trading scandal.

The one-for-four rights issue at 47.50 euros per share offers a discount of 38.9 percent to Friday's closing price.

"The price is very low. The feedback from the market cannot have been very encouraging. As they can't miss this deal they decided to strike very low," said Landsbanki Kepler banking analyst Pierre Flabbee.

Fund managers contacted by Reuters last week had been looking for a discount of up to 30 percent.

The bank's shares fell 3 percent to 75.40 euros by 1156 GMT with France's benchmark CAC 40 index .FCHI down 0.5 percent.

SocGen revealed plans to tap investors on January 24 when it stunned the financial world with 4.9 billion euros of rogue trading losses blamed on a single trader.

 

Read more at Reuters

Yahoo rejects Microsoft's bid

 (Reuters) - Yahoo Inc (YHOO.O: Quote, Profile, Research) on Monday rejected Microsoft Corp's (MSFT.O: Quote, Profile, Research) unsolicited takeover bid, currently valued at $42 billion, as too low, saying its board had unanimously concluded it was not in the best interests of shareholders.

In a statement, Yahoo said the offer "substantially undervalues" the company.

Microsoft made the half-stock, half-cash offer on February 1. It was originally worth $44.6 billion or $31 per share -- a 62 percent premium to Yahoo's stock price. Since then, Microsoft shares have fallen and the deal is now worth $41.8 billion.

 

Read more at Reuters

Turkey Finds Growth Boom Hazardous as Unlicensed Kill

 (Bloomberg) -- An explosion at an illegal fireworks factory in Istanbul on Jan. 31 sent bloodied survivors running for safety as bodies littered the street outside.

``One of them had his head smashed; I saw his brain,'' said Mustafa Guvenbag, 32, who works in a nearby sock factory and lives close to the area. ``These people have been making bombs and they are killing us. Someone has to stop them.''

The disaster, which killed 22 people and injured about 100, underscores the dangers of Turkey's unrestrained economic growth. Unlicensed businesses and those that employ unregistered workers account for almost half the country's economy, which expanded an average of 7 percent annually during the past five years, according to government estimates.

After the explosion, district Mayor Murat Aydin promised to do more to regulate businesses that have proliferated with little oversight. In the Davutpasa district, where the accident occurred, an estimated 20,000 factories have sprung up next door to homes and shops.

``We have been conducting very tight and serious inspections on such factories over the last few years, but this accident shows that we need to do more,'' Aydin said.

The destroyed factory was profiting from growing demand for sparklers and skyrockets. Increased incomes have spurred working- class families to set off fireworks at weddings and other celebrations, copying their rich neighbors.

Raining Metal

The disaster was caused by an explosion in a pressure boiler in a denim factory on the second floor of the building, Aydin said. The fire spread to the third and fourth floors, igniting materials used to make fireworks and causing a second, more powerful blast.

Metal and concrete debris rained down on an area 50 yards in diameter, blocking nearby roads and making it difficult for ambulances and aid workers to reach the scene. Most of the people killed were people on the streets outside, or workers in nearby buildings.

The fireworks plant was identified as unlicensed at the end of last year and ordered to submit a permit application, Aydin said. Inspectors who visited the site were told the factory produced plastic toys. The denim plant was also operating illegally and had been shut down by officials four times in the past, according to the mayor.

Municipalities have encouraged entrepreneurs to skirt licensing laws by repeatedly granting amnesties to businesses set up without planning permission and accepting bribes, said Tores Dincoz, a board member at the Chamber of Architects of Turkey.

800 Inspectors

``How did those explosives get there is one question, and how can the mayor claim his officials thought they were making plastic toys is another one,'' Dincoz said. ``If this is the way officials conduct inspections, I can't imagine the state of security in this country.''

Following the deaths, Labor Minister Faruk Celik ordered 800 inspectors to check all businesses in Istanbul to ensure they are being run legally.

Many factories in Davutpasa don't take basic safety precautions such as installing alarms or providing emergency exits and conducting regular machinery inspections, Aydin said. This is particularly dangerous in Davutpasa because a residential area sits about 100 yards away, separated from the plants by a gas station and a soccer field.

At least one-fifth of the area's factories are illegal, with many producing counterfeit money or bootleg raki, the national aniseed-flavored spirit, Referans newspaper reported today, citing municipal officials. More than 20 people died after being poisoned by fake raki in 2005.

 

Read more at Bloomberg

Europe's Economy May Stay Sick Longer After Catching U.S. Cold

(Bloomberg) -- Europe's economy has caught the U.S.'s cold, and may be sick longer.

Persistent inflation and budget deficits may prevent policy makers in the 15 nations that share the euro from moving as aggressively as their U.S. counterparts to cut interest rates and taxes. Meanwhile, Europe's labor laws will make it harder for companies to speed a recovery in profits by reducing payrolls.

``A European downturn will take noticeably longer to run its course than the U.S. one,'' Nobel laureate Edmund Phelps, an economics professor at Columbia University in New York, said in an interview.

Next year ``might be a period of `reverse decoupling,' with the U.S. economy enjoying a sharp recovery and the euro-area economy stagnating,'' says Dario Perkins, senior European economist for ABN Amro Holding NV in London. ``A relatively inflexible economy and `sticky' inflation'' will hold Europe back, he says.

European Central Bank President Jean-Claude Trichet said twice last week that there is ``unusually high uncertainty'' about growth amid signs that Europe's resistance to the U.S. slowdown is finally wearing off.

``Risks are on the downside,'' he told reporters in Tokyo on Feb. 9 after a meeting of central bankers and finance ministers from the Group of Seven industrialized nations. The G- 7 officials said the U.S. economy may slow further, eroding global growth, and forecast no end to financial-market turmoil.

``Europe cannot go unscathed from the U.S.'s credit crisis,'' says Phelps.

Slower Growth

December retail sales in the euro region fell the most since 1995 and service industries grew in January at the slowest pace in more than four years. The European Union's statistics office will report Feb. 14 that the economy expanded 0.4 percent in the fourth quarter, half the pace of the previous three months, according to the median forecast of economists surveyed by Bloomberg News.

``Euro-zone growth is in trouble, and the risk of recession at some stage should not be underplayed,'' says David Brown, chief European economist at Bear Stearns International in London. He says the region will be ``very lucky'' to expand 1.5 percent this year, which would be the weakest since 2003.

Much of what ails Europe has its origins across the Atlantic. Borrowing costs for consumers and companies jumped as BNP Paribas SA and other European banks ran up losses on investments tied to U.S. mortgages. Exporters such as Heidelberg, Germany-based Heidelberger Druckmaschinen AG, the world's largest maker of printing machines, blame declines in the dollar and U.S. demand for hurting profits.

Short, Shallow Recession

Economists Jan Hatzius at Goldman Sachs Group Inc. and Richard Berner of Morgan Stanley say the U.S. economy is already in a recession, and they predict that action by policy makers will ensure it is short and shallow.

Federal Reserve Chairman Ben S. Bernanke and his colleagues have cut interest rates five times in less than five months by a total of 2.25 percentage points. Congress last week passed an economic-stimulus package worth about $168 billion.

European policy makers have been slower to administer medicine. The ECB has left its benchmark unchanged at 4 percent for eight months as inflation accelerated to the highest level in 14 years and workers sought more pay in response.

While Trichet last week signaled that he's open to cutting interest rates for the first time in almost five years, he also said he doesn't anticipate inflation will moderate until the second half of the year. Consequently, while investors increased bets on rate cuts last week, they don't expect the ECB to start easing credit before the second quarter.

Delayed Response

Trichet's ``somewhat delayed and gradual policy response'' means the euro-area economy will lag behind the U.S., growing just 1.4 percent this year and 1.6 percent in 2009, compared with 1.9 percent and 3 percent for the U.S., says Janet Henry, chief European economist at HSBC Holdings Plc in London.

Few economists yet anticipate a recession in Europe. Potential housing busts are limited to a few countries, unemployment is at a record low and demand from emerging markets offsets a decline in trade with the U.S.

Inflation still may not retreat fast enough for the ECB to continue cutting as the Fed has. Price pressures persist longer in Europe than in the U.S. for several reasons. Competition among businesses is weaker, and employers have less flexibility on wages because of regulations that set minimum levels or tie worker pay to past inflation rates. German unions are still seeking above-inflation pay agreements.

 

Read more at Bloomberg

Ford May Cut 9,000 More U.S. Plant Jobs, Person Says

 (Bloomberg) -- Ford Motor Co., the world's third- largest automaker, may eliminate as many as 9,000 more U.S. factory jobs through its latest buyout offers, a person with direct knowledge of the situation said.

The cuts would be in addition to the 33,600 union workers who left through buyouts and early retirements in 2006 and 2007, when Ford lost a combined $15.3 billion. Further reductions may help Ford restore profit by speeding the hiring of new workers who would be paid about half as much as current employees.

``These are realistic numbers,'' said Harley Shaiken, a labor professor at the University of California at Berkeley. ``Workers are reassessing their options. It is a very tough choice.''

Ford doesn't have an estimate of how many workers will accept the buyouts, proposed to a first group of workers last month, the person said. The Dearborn, Michigan-based automaker won't limit the number who leave if more than the target range of 8,000 to 9,000 opt for the offers, the person said.

Marcey Evans, a Ford spokeswoman, declined to comment. Roger Kerson, a spokesman for the United Auto Workers union, didn't return telephone messages. The Detroit Free Press reported Feb. 9 that Ford had an internal target of 8,000, citing people familiar with the objective. That reduction would represent more than 12 percent of the carmaker's North American factory workers.

Ford's employment fell to 64,000 at the end of last year at North American plants from 99,500 two years earlier. That decline includes the 33,600 UAW-represented jobs shed through the buyout and retirement offers.

New Contract

Ford and the UAW in November agreed on a contract that permits the company to pay lower wages for new hires while keeping open five factories targeted for closure. Under the four-year agreement, Ford can pay up to 20 percent of its U.S. factory workers the reduced wage.

Under the accord, Ford's hourly costs for new workers will be $26 to $31, or about half the $60 expense for a current UAW member's wages and benefits.

Before any new, lower-paid workers can be hired, Ford must resolve the fate of workers at closed factories and at its Automotive Components Holdings unit. Automotive Components includes factories Ford took back from former parts subsidiary Visteon Corp. Most of those plants are being closed or sold, and some of the UAW-represented employees may go to Ford plants.

UAW workers at Automotive Components are eligible for buyouts. The outcome of the buyout program will determine how many of those employees are reassigned to Ford factories.

Ford has about 54,000 UAW-represented employees, with about 12,000 eligible to retire.

Savings

UAW President Ron Gettelfinger last month estimated that new contracts at Ford, General Motors Corp. and Chrysler LLC will save the automakers ``somewhere in the neighborhood'' of $1,000 per vehicle. Buyouts of higher paid workers will help Ford increase the number of new hires at lower wage levels.

Ford hopes to reach the 9,000 target through offers pending at four closed U.S. plants that will be broadened to other U.S. factories next week.

Workers at St. Louis; Edison, New Jersey; Norfolk, Virginia; and Atlanta began considering buyouts Jan. 22 and have a ``buyout window'' running through Feb. 28, Ford said Jan. 24 when it released 2007 year-end earnings. Workers from that group who accept buyouts are to leave the company by March 1.

Workers at those sites are being offered buyouts or relocation to other Ford plants. Workers who don't accept either choice will be placed on a ``no-pay, no-benefit leave,'' Ford's Evans said. That leave would last as long as their employment with Ford, she said.

 

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PepsiCo 4th-quarter profit falls

(Reuters) - PepsiCo Inc (PEP.N: Quote, Profile, Research) reported lower quarterly profit on Thursday, hurt by a higher tax rate and a decline in sales volume of carbonated soft drinks.

The company, which makes Pepsi Cola, Frito Lay snacks and Quaker oatmeal, said net income for the fourth quarter ended on December 29 was $1.26 billion, or 77 cents per share, compared with $1.83 billion, or $1.09 per share, a year earlier.

Excluding restructuring charges and tax items, the company earned 80 cents per share.

Last month Pepsi Bottling Group Inc (PBG.N: Quote, Profile, Research), the world's largest bottler of Pepsi drinks, reported flat sales volume in the United States and weaker sales of refrigerated drinks, sold at convenience stores and gas stations.

 

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Dec pending home sales fell 1.5 percent: Realtors

(Reuters) - Pending sales of previously owned homes fell a steeper-than-expected 1.5 percent in December, pointing to more dreary conditions for the beleaguered housing market, a real estate trade group report on Thursday showed.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in December, dropped to 85.9 from 87.2. Economists were expecting pending home sales -- which are a key gauge of future home sales activity -- to fall 1.0 percent.

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Trichet Sees `Unusually High Uncertainty' on Growth

(Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled that risks to euro-region economic growth are increasing, prompting investors to raise bets on interest-rate cuts.

``As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. ``We will continue to monitor very closely all developments over the coming weeks.''

The ECB has kept borrowing costs at a six-year high, declining to follow counterparts in the U.S. and Great Britain by cutting borrowing costs as it seeks to contain inflation in the 15 euro nations. Investors predict that a slowing economy will prompt the ECB to reduce its key interest rate.

``There is a greater acknowledgment that risks to growth are on the downside,'' said David Owen, chief European economist at Dresdner Kleinwort in London. ``The ECB's not going to cut in next couple of months, but it is starting to prepare the markets for rate reductions.''

The euro weakened 0.8 percent to $1.4521 at 3:21 p.m. in Frankfurt and the yield on 10-year German bunds fell 5 basis points to 3.85 percent.

Growth Forecasts

The ECB on Dec. 6 projected the euro-region economy to expand about 2 percent this year after 2.6 percent in 2007. Trichet said today that latest data confirmed the bank's assessment that ``risks surrounding the economic outlook lie on the downside.''

The International Monetary Fund on Jan. 29 cut its 2008 euro-region growth estimate by half a point to 1.6 percent, saying that ``no one is going to be exempt from some slowdown.'' The Washington-based fund also trimmed its growth estimates for the U.S. and Japan, the world's two largest economies.

Stock markets have dropped this year on concern the U.S. economy is sliding into a recession, curbing earnings growth. Germany's benchmark DAX Index has lost 16 percent this year and the Dow Jones Stoxx 600 Index 12 percent.

The Bank of England today cut interest rates for the second time in three months, lowering the benchmark by a quarter point to 5.25 percent. The Fed last month lowered its rate by 1.25 percentage points in two reductions to 3 percent.

 

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Biogen Fourth-Quarter Net Rises 85 Percent on Tysabri

 (Bloomberg) -- Biogen Idec Inc., the world's largest maker of multiple sclerosis drugs, said fourth-quarter profit rose 85 percent on sales of its fastest-growing product, the MS medicine Tysabri.

Net income rose to $201.2 million, or 67 cents a share, from $108.6 million, or 32 cents, a year earlier, the Cambridge, Massachusetts-based company said today in a statement. Profit excluding certain costs beat analysts' estimates by 9 cents a share.

Revenue rose 26 percent from a year earlier to $893 million as worldwide sales of Tysabri quadrupled. Biogen said it expects 100,000 patients will be taking Tysabri by the end of 2010, which could mean $2.8 billion in annual sales at current prices, according to analysts. The MS drug was cleared in the U.S. last month for an expanded use, Crohn's disease, an inflammation of the intestines.

``It was a very good quarter, they deserve credit,'' said Michael King, an analyst with Rodman & Renshaw in New York, in a telephone interview today.

Biogen fell $2.77 cents, or 4.4 percent, to $60.52 yesterday in Nasdaq Stock Market composite trading. The stock has gained 23.7 percent in the 12 months before today.

Tysabri generated $129 million in worldwide sales in the quarter, up from $30 million a year earlier. Worldwide sales are split with Biogen's partner, Irish drugmaker Elan Corp. Biogen recorded $90 million of the Tysabri sales in the fourth quarter, the company said. About 21,000 patients worldwide were taking the drug at the end of December.

Reintroduced

Biogen and Elan pulled the drug from the market in February 2005 after two patients developed rare, fatal brain infections. A month later, the companies disclosed a third case of the disorder, progressive multifocal leukoencephalopathy. The drug was reintroduced in July 2006 after the U.S. Food and Drug Administration decided the benefits for slowing MS relapses outweighed the risk.

In December, Biogen lost more than $5 billion in market value when it abandoned a plan to sell the company, saying it didn't receive any offers. Billionaire investor Carl Icahn criticized the process last week as ``flawed,'' and nominated three people to the company's 12-member board.

Biogen reiterated its forecast annual revenue growth of 15 to 20 percent in 2008, driven by increasing prescriptions of Tysabri. Profit excluding certain costs will be $3.20 to $3.35 a share, said Chief Executive Officer James Mullen, at an investor conference in San Francisco Jan. 7.

 

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U.S. Stock Futures Rise on Productivity Report, Disney Earnings

(Bloomberg) -- U.S. stock futures rose, pointing to a rebound from the market's biggest drop in 11 months, after worker productivity grew more than forecast and earnings at Walt Disney Co. and JDS Uniphase Corp. topped analysts' estimates.

Walt Disney, the second-largest U.S. media company, gained on higher revenue from cable networks and theme parks. JDS Uniphase rallied after the maker of telecommunications testing equipment said it isn't being affected by the slowdown in the U.S. economy. Newmont Mining Corp. led metal producers higher as BHP Billiton Ltd. raised its bid for Rio Tinto Group.

``Disney and Uniphase have shown that companies are still capable of good results, despite recent carnage in the markets,'' said Jonathan Monk, a fund manager at Aerion Fund Management in London, who helps oversee about $23 billion.

Standard & Poor's 500 Index futures expiring in March climbed 4.2 to 1,347.4 at 8:48 a.m. in New York. Dow Jones Industrial Average futures gained 32 to 12,352. Nasdaq-100 Index futures increased 6 to 1,791. European and Asian stocks fell.

Fourth-quarter earnings have declined 23 percent on average at the 316 companies in the S&P 500 that reported results so far, according to data compiled by Bloomberg. Excluding financial companies, profit growth averaged 18 percent.

Productivity, a measure of employee efficiency, rose at an annual rate of 1.8 percent in the fourth quarter, the Labor Department said. Economists in a Bloomberg News survey projected a 0.5 percent gain. A gauge of labor costs climbed less than forecast.

Disney, JDS Uniphase

Walt Disney jumped $1.78 to $31.85. Net income in the first quarter was 63 cents a share, beating the 52 cent average estimate of 19 analysts compiled by Bloomberg. Sales rose 9.1 percent to $10.45 billion, surpassing the $10.1 billion average estimate.

JDS Uniphase increased $2.14 to $12.30. Profit for the first quarter, excluding costs such as stock-based compensation, was 22 cents a share, exceeding the 11 cent average estimate of analysts in a Bloomberg survey.

Newmont, Barrick Gold Corp., Freeport-McMoRan Copper & Gold Inc. and Goldcorp Inc. gained after Australia's BHP Billiton, the world's largest miner, raised its hostile bid for the U.K.'s Rio Tinto Group to $147 billion. Aluminum Corp. of China, China's biggest aluminum company, and Alcoa Inc. last week bought a stake in Rio to block the takeover attempt, which was announced in November.

Newmont climbed 90 cents to $50.38. Barrick rose 65 cents to $48.38. Goldcorp added 83 cents to $35.43. Freeport-McMoRan advanced $1.09, or 1.3 percent, to $87.

 

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Recovery for SIVs unlikely given Basel II rules-panel

(Reuters) - The troubled market for so-called structured investment vehicles (SIVs) is effectively dead and likely to stay that way given new international rules for matching banks' reserves to their risks, panelists at a bond industry conference said on Tuesday.

The new Basel II international accord, to be applied to U.S. banks with total assets of $250 billion or more, is likely to make investing through off-balance sheet SIVs less attractive for banks, which are the main sponsors of such vehicles, speakers at the American Securitization Forum conference in Las Vegas said.

SIVs are specialized funds that raise cash by issuing short-term debt and invest the proceeds in longer-dated and higher-yielding assets, including U.S. mortgages. The funds pocket the difference between what they make on their investments and the interest they pay out to investors.

The vehicles have been unable to fund themselves normally for many months amid the U.S. credit crisis and the market value of their investment portfolios has plummeted, prompting ratings downgrades and mass restructuring efforts.

But the market for SIVs may have eventually contracted anyway given the onset of Basel II, which has been seen as offering a way for banks to lower their capital reserves by linking reserve requirements to the credit quality of investments.

 

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Chrysler and Plastech reach interim deal

(Reuters) - Chrysler LLC and bankrupt supplier Plastech Engineered Products Inc reached an interim deal that would allow the U.S. automaker to resume production at four idled plants and avoid closing all of its assembly operations, a lawyer for Plastech said on Tuesday.

Gregg Galardi, speaking at a hearing in U.S. Bankruptcy Court in Detroit, told the judge a deal has been reached that runs through February 15.

Chrysler closed four assembly plants on Monday and had said more shutdowns could quickly follow because it was no longer receiving parts from Plastech.

"We have made significant progress in a number of areas," said Galardi, who was flanked by Chrysler attorney Michael Hammer.

Galardi said the deal had been presented to Plastech creditors.

"Some are happy, some are not so happy," but all parties had agreed to it, he said.

He said Plastech would resume production of Chrysler parts during the second or third shift at the company's plants on Tuesday. Chrysler said it would resume production at its affected plants during the second shift on Tuesday.

 

 

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Apollo, Bain LBOs Lose Investors' Money, Bonds Show

(Bloomberg) -- Less than a year after Apollo Management LP paid $6.6 billion for real estate broker Realogy Corp., bond prices show the deal may be worthless.

Debt used to finance the April purchase trades at 61 cents on the dollar, and derivatives tied to the securities indicate an 80 percent chance that Parsippany, New Jersey-based Realogy will default. Apollo, the private-equity firm run by Leon Black, put up about $2 billion of cash to buy the owner of Coldwell Banker and Century 21, borrowing the rest.

The bonds show Apollo's equity in Realogy ``has no value right now,'' said Sabur Moini, a money manager in Los Angeles at Payden & Ragel, which oversees $50 billion in fixed-income securities. ``If bonds are trading in the 50s or 60s, the market is saying that these guys are headed toward bankruptcy.''

Falling bond prices are jeopardizing private-equity returns after easy access to cheap debt fueled a record $1.4 trillion of leveraged buyouts in 2006 and 2007. New York-based Morgan Stanley estimates buyout funds raised in 2003 have returned an average of 42 percent, and now Apollo, Bain Capital LLC, Cerberus Capital Management LP and their competitors may face losses.

Twenty-seven percent of the approximately $74 billion in bonds used in LBOs the last two years classify as ``distressed'' because they yield at least 10 percentage points more than Treasuries, Bloomberg data show.

Distressed Defaults

About 19 percent trade at less than 80 cents on the dollar, below the 91-cent average for high-yield bonds, Bloomberg data show. Freescale Semiconductor Inc., an Austin, Texas-based maker of chips for mobile phones, and OSI Restaurant Partners Inc., the Tampa, Florida-based owner of Outback Steakhouse, are in both categories.

Debt is 20 times more likely to default within a year once it's crossed the distressed threshold, according to research by Martin Fridson, chief executive officer of high-yield research firm FridsonVision LLC in New York.

``There's going to be some blow-ups'' as the economy slows, said Eric Bushell, the chief investment officer at Toronto-based Signature Funds, which oversees $17 billion and invests in publicly traded buyout funds. LBO firms ``paid prices that maybe weren't necessary,'' he said.

LBO firms typically seek out investors such as pension funds or university endowments to fund 32 percent of the cost of any buyout on average, according to Standard & Poor's. They borrow the rest through high-yield, or junk, bonds and loans in the target company's name. Junk bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- by S&P.

 

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Pfizer, Schering HIV Drugs May Fail On Incorrect Test

(Bloomberg) -- Pfizer Inc.'s new AIDS drug and a similar pill from Schering-Plough Corp. may stop working in some patients because a test identifying who should get the medicines is sometimes inaccurate.

The pills, made by Pfizer, of New York, and Schering, based in Kenilworth, New Jersey, block a chemical entryway known as CCR5 that the virus uses to infect cells. In about 10 percent of cases, a Monogram Biosciences Inc. test incorrectly identifies patients who will benefit from the drug, scientists said this week at an AIDS meeting.

New research on Pfizer's Selzentry and Schering's vicriviroc, as well as the test's reliability, will be presented today at the Conference on Retroviruses and Opportunistic Infections in Boston. While the pills promise to fight HIV in patients who can't take older medicines, the new drugs' effectiveness depends on accurate screening.

``The test is wrong in about 8 to 10 percent of patients initially screened to see if they are candidates for a CCR5 antagonist,'' David Hardy, director of the division of infectious disease at Cedars Sinai Medical Center in Los Angeles, said in a telephone interview. ``We're waiting to see if the next-generation test from Monogram will eliminate the errors.''

Selzentry was cleared in August for patients who stopped responding to older medicines. It's the only approved CCR5 inhibitor, the first new family of AIDS medicines in a decade.

Pfizer didn't report revenue for Selzentry last year. Analysts have projected the pill could have peak annual sales of about $300 million. Vicriviroc, a similar drug, is in the third and final stage of testing usually required for U.S. regulatory approval.

90 Percent

As many as 90 percent of previously untreated HIV patients will have a strain of the virus that enters healthy cells through the CCR5 doorway, Howard Mayer, executive director of clinical research and development for Pfizer, said in an interview at the meeting in Boston.

After five years of HIV infection, about half of patients still have that strain, Mayer said. By then, most patients have higher levels of another virus version known as X4 that infects cells through a different route unaffected by drugs such as Selzentry and vicriviroc.

A new test to better determine who can benefit from the Pfizer and Schering drugs is about six months from reaching the U.S. market, Chris Petropoulos, chief scientific officer for South San Francisco-based Monogram, said in a telephone interview.

 

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