Northwest, JetBlue, AirTran Post Losses on Fuel Costs

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

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

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

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

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

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

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

Northwest

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

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

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

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

 

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Bank of America Affirms Plan to Acquire Countrywide

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

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

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

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

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

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

 

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Goldman, Morgan Stanley probed on subprime

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

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

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

The SEC filings came on Tuesday.

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

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

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

 

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Durable goods orders jump, house prices slump

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

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

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

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

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

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

 

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

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

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

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

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

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

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

 

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PetroChina's 44% Loss Proves BRIC Premium Is Nonsense

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

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

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

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

Record High

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

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

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

 

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Verizon Profit Rises on Wireless; Sales Miss Estimate

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

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

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

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

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

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

Job Cuts

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

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

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

Spinoff, Sale

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

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

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

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

 

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