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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Recession fears are growing

(Reuters) - Expectations for the weakest consumer spending performance in 17 years during 2008 kept the odds of a recession at nearly 40 percent, a survey of top forecasters showed on Thursday.

Panelists surveyed by the Blue Chip Economic Indicators newsletter have the odds of a recession in the next year at 38 percent, a little weaker than the 39 percent odds forecast a month ago.

But the most recent survey was taken ahead of December's grim unemployment report and the newsletter stated that growth forecasts would have been weaker if taken after release of that data.

"The January 4th news of the first decline in private sector nonfarm payrolls since July 2003 and whopping 0.3 of a percentage point jump in the unemployment rate during December no doubt caused some of our panelists to further trim their forecasts of economic growth this year and heightened speculation about the possibility of a recession," the newsletter stated.

"Whether or not the economy is already in a recession, about to enter one, or manages to muddle through without one, will only be known in the fullness of time," the newsletter wrote.

Based on the Jan 2-3 survey of economists -- taken a day ahead of the government's weak employment report that showed a huge uptick in the December unemployment rate and the weakest job growth in more than four years -- consumer spending this year is expected to grow at the weakest annual pace since 1991.

 

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Freddie Mac's Strength Rating May Be Cut by Moody's

(Bloomberg) -- Freddie Mac, the U.S. mortgage company that reported its biggest loss last quarter, may be downgraded by Moody's Investors Service because the damage from loan defaults could be worse than the ratings company expected.

Moody's said it may lower Freddie Mac's financial strength rating from A-, the second-highest grade. The McLean, Virginia- based company's top Aaa senior long-term debt rating and the Prime-1 rating for its commercial paper or short-term IOUs won't be cut, Moody's said.

Chief Executive Officer Richard Syron has attempted to shore up Freddie Mac's finances by selling $6 billion of preferred stock, slicing its dividend in half and reducing its mortgage assets by $30.9 billion to $701.4 billion in the three months to Nov. 30. The government-chartered company may need to take similar steps again, Moody's said.

Freddie Mac ``may experience higher credit losses than Moody's previous expectations,'' Moody's analysts led by Brian L. Harris in New York said in the report late yesterday. ``In its review, Moody's will focus on Freddie Mac's asset quality and the potential that the company may experience an elevated level of credit charges over the near to medium term.''

Freddie Mac, which owns or guarantees one in five U.S. home loans, and larger competitor Fannie Mae are suffering as the worst U.S. housing slump in 27 years increases defaults. More than 100 mortgage lenders were shut, scaled back or sold last year as U.S. home foreclosures rose to the highest on record.

`Credit Stress'

``People may regard the financial strength rating as a signal as to whether the agency is becoming more or less positive on a particular institution, and that may feed through to the debt rating,'' said Simon Adamson, a financial services analyst at CreditSights Inc. in London.

Any downgrade to Freddie Mac's financial strength rating is unlikely to be severe enough to result in a cut to its senior debt ranking, Moody's said.

U.S. home prices may fall 12 percent from their peak through 2010 in ``the toughest housing correction in our lifetimes,'' Fannie Mae Chief Executive Officer Daniel Mudd said this week.

``Credit stress is most likely to occur in the company's guarantee portfolio,'' Moody's said.

The New York-based rating company's financial strength rating measures the likelihood a company will need financial assistance from a third party, such as the government or its shareholders.

 

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U.S. Stock-Index Futures Drop; Capital One, Citigroup Decline

(Bloomberg) -- U.S. stock-index futures fell after Capital One Financial Corp. said profit last year missed its projection because of bad loans and Goldman Sachs Group Inc. analysts reduced their share-price estimates for the country's biggest banks and brokerages.

Capital One, the largest independent U.S. credit-card issuer, dropped after saying 2007 profit missed its October projection by about 20 percent. Citigroup Inc., Morgan Stanley and Merrill Lynch & Co. slipped after Goldman predicted a U.S. recession this year will hurt earnings at financial companies. Exxon Mobil Corp., the nation's largest energy company, declined as oil retreated for the fifth time in six days.

Standard and Poor's 500 Index futures expiring in March lost 5.8 to 1,405.8 as of 9:06 a.m. in New York. Dow Jones Industrial Average futures decreased 40 to 12,705. Nasdaq-100 Index futures fell 13 to 1,954.5.

``The worry is that current earnings estimates are far too optimistic and need to be cut aggressively,'' said Chirin Gill, who helps manage the equivalent of $3 billion at Daiwa SB Investments in London.

Fourth-quarter profit at S&P 500 companies probably fell 8.1 percent from a year ago, the biggest drop since 2001, according to analysts' estimates compiled by Bloomberg. Earnings at financial companies probably declined 63 percent, the only drop among 10 industries.

U.S. stocks gained the most in two weeks yesterday after Warren Buffett's Berkshire Hathaway Inc. said it may invest in municipal bond insurers and Hewlett-Packard Co. predicted earnings will withstand an economic slowdown.

 

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Gold powers to record near $900 as funds active

(Reuters) - Gold surged to a record high just under $900 an ounce on Wednesday, powered by heavy buying by investment funds and helped by rising oil prices and a strong debut for Shanghai gold futures.

Platinum also set a lifetime high on positive fundamentals and tracking gold's rally. Silver touched two-month highs and was not far from its highest level in 27 years.

Spot gold jumped to $891.40 an ounce, surpassing the previous record of $881.10 reached on Tuesday. It was quoted at $883.60/884.40 at 1241 GMT, compared with $878.10/878.90 in New York late on Tuesday.

"This is an extension of the ongoing rally with very strong underlying interest in buying gold across geographic locations," said David Holmes, director of precious metals sales at Dresdner Kleinwort Investment bank.

 

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Li Ka-Shing Rushes Into China Where Bond Angels Fear

(Bloomberg) -- The bond market is telling Li Ka-shing, Asia's richest man, he's sitting on a Chinese property bubble that's bigger than the one deflating in the U.S.

Bonds of China's Agile Property Holdings Ltd. yield 7.17 percentage points more than U.S. Treasuries, double the premium in July and 1.79 percentage points more than the debt of Los Angeles-based KB Home, which has the same credit ratings. Agile, a housing developer in the southern province of Guangdong, and Country Garden Holdings Co., China's most-profitable builder, canceled debt sales in November when borrowing costs climbed.

As China's government attempts to cool property prices with limits on lending, developers are in a land grab. Li, who made his fortune in Hong Kong real estate, Chinese billionaire Xu Rongmao, who owns Shimao Property Holdings Ltd., and hundreds of local developers boosted investment 29 percent in the first eight months of 2007, the National Bureau of Statistics said.

 

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MBIA Cuts Dividend, to Raise $1 Billion After Losses

(Bloomberg) - MBIA Inc., the world's largest bond insurer, sliced its dividend and will raise $1 billion in the sale of notes to boost capital and preserve its AAA credit rating.

The reduction of its quarterly payout to 13 cents a share from 34 cents will save $80 million a year, Armonk, New York- based MBIA said in a statement today.

Fitch Ratings, which gave MBIA until the end of the month to raise money, said the plan may be enough to stave off a downgrade. The loss of MBIA's AAA stamp would jeopardize ratings on $652 billion of bonds and threaten the company's ability to guarantee securities, a business that makes up about 90 percent of revenue. MBIA said today it will report losses of $737 million in the fourth quarter after a slump in the credit quality of the debt it insures.

 

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