Joined Feb 3, 2009
1,759 Blog Posts
Business News
Do Not Fall Behind on Your Property Taxes
Hard times are causing more homeowners to fall behind on their property taxes. But in thousands of cases, they are not responsible to their local governments, but to private companies that charge double-digit interest and thousands of dollars in service fees.
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This is because in recent years struggling cities and counties have sold their delinquent tax bills to the highest bidder. It seemed a painless way to turn old debts into cash to finance schools or public services.
But housing advocates say the private companies may be exacerbating the foreclosure crisis, pushing out homeowners faster than would governments, which are increasingly concerned about neighborhoods becoming wastelands of abandoned properties.
“In the beginning, you’re getting this immediate windfall of cash,” said Anita Lopez, the auditor of Lucas County, Ohio, which sold off more than 3,000 tax liens for $14.7 million. The county includes Toledo. “But when you think about abandoned properties, foreclosed properties — the cost to the community is far more expensive than the short-term benefits.”
Investors say the arrangement actually benefits everyone. School districts, fire departments and public parks get an infusion of cash. The investors take on a risky but potentially high-yielding investment. And taxpayers do not have to pick up the slack from scofflaw landlords or tax evaders.
Governments, of course, can charge interest and penalties too, and they foreclose on properties for back taxes. But governments charge interest rates that are half what private investors charge — often offering no-interest payment plans — and are also more likely to be concerned about the long-term prospects of neighborhoods.
In Toledo, one of the areas hardest hit by the downturn and by private lenders holding tax liens, homeowners like Richard Fix are facing foreclosure for a few thousand dollars in overdue taxes.
Mr. Fix said he lost his job with Chrysler in January 2008 and took a lower-paying job. As he and his family struggled to pay their mortgage, credit cards and other bills, he said they fell behind on $5,900 in taxes.
“I’m in a no-win situation at this point,” he said.
With the economy faltering and property values plunging, homeowners and landlords are falling behind on their bills or abandoning their property, just as governments are facing huge budget shortfalls.
Private investors step in and buy tax liens, paying governments upfront all or part of the value of the taxes. The investors then get the right to foreclose on the properties, taking priority over mortgage lenders, and to charge interest rates as high as 18 percent on the unpaid taxes.
“It beats the heck out of any certificate of deposit,” said Howard Liggett, executive director of the National Tax Lien Association.
Because the sales occur in a patchwork of cities and counties across more than two dozen states, there are no figures tracking the number of tax-lien sales nationwide. The liens that are sold come from cases in which homeowners pay taxes to the local government, not through their lenders. But Mr. Liggett, whose group represents tax-lien investors, said they generated about $10 billion every year.
In 2006, Lucas County began selling off its overdue tax certificates to a New Jersey company named Plymouth Park Tax Services, a subsidiary of JPMorgan Chase cnbc_comboQuoteMove(‘popup_jpm_ID0EHCAC15839609’);[JPM 41.85 
1.12 (+2.75%) 
]
cnbc_quoteComponent_init_getData(“jpm”,”WSODQ_COMPONENT_JPM_ID0EHCAC15839609″,”WSODQ”,”true”,”ID0EHCAC15839609″,”off”,”false”,”inLineQuote”);
. It also operates under the name Xspand.
The company, once run by the former governor of New Jersey, James J. Florio, was sold to Bear Stearns and then absorbed into JPMorgan after Bear’s collapse last year. Today, Plymouth Park is one of the largest players in the tax-lien business……
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SEC Proposes New Short Selling Rules
Yesterday the Securities and Exchange Commission made a new proposal to curb short-selling. The rule would make it more difficult for short-sellers to quickly execute trades, which might make it more difficult for “bear raids” on faltering stocks to occur. But it’s a dangerous proposition that should be rejected.
Here’s how the new rule works. When a short-seller wants to put on a short trade, he must offer to sell the stock at a penny higher than the highest reported bid for the stock. So if the highest bid on Citigroup’s stock is 3.00 a share, the short-seller can offer to sell it for 3.01.
It’s designed to function as an up to date version of the old uptick rule, which said a stock could only be shorted when its price ticked upward. That rule probably wouldn’t work now because stocks are traded on so many different, mostly electronic exchanges, it’s not really clear where or what the “tick” is.
Many short-sellers are long term investors who won’t be effected by the rule in any obvious way. Some market neutral traders and market makers worry that it could negatively effect liquidity.
But the real problem isn’t with the known effects of the regulation. It’s with the unknown and unanticipated effects. We’re not sure what this rule would do to market efficiency or price discovery. What’s more, we don’t know how this rule will interact with the uncountable past and future rules that regulate the markets. But we do know that new financial regulations have a very messy history of creating perverse results. They should be avoided unless absolutely necessary.
So is this short-selling rule necessary? Certainly not. But don’t take our word for it. Here’s Floyd Norris in the New York Times:
Much of Wall Street has argued that there is no evidence that short-selling caused the plunge last year, and the academic studies available do not support the idea. But the pressure on the commission to do something has been intense.
So we’re being asked to gamble on a short selling
regulation aimed at solving a non-problem. Ugh.
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Today’s Earnings
ADI, CAH*, HD*, HPQ, SKS*, & TGT*
MINNEAPOLIS–(BUSINESS WIRE)–Target Corporation (NYSE:TGT – News) today reported net earnings of $594 million for the second quarter ended August 1, 2009, compared with $634 million in the second quarter ended August 2, 2008. Earnings per share in the second quarter decreased 3.9 percent to $0.79 from $0.82 in the same period a year ago. All earnings per share figures refer to diluted earnings per share.
“Second quarter earnings were stronger than expected due to very strong operating margin in our retail segment, and credit card segment performance in line with expectations,” said Gregg Steinhafel, chairman, president and chief executive officer. “Looking forward to the second half of the year, we are focused on initiatives to drive incremental traffic and sales in our stores while maintaining disciplined execution in both of our business segments.”
Retail Segment Results
Sales decreased 2.7 percent in the second quarter to $14.6 billion in 2009 from $15.0 billion in 2008, due to a 6.2 percent decline in comparable-store sales partially offset by the contribution from new store expansion. Retail segment earnings before interest expense and income taxes (EBIT) were $1,064 million in the second quarter of 2009, a 3.1 percent decrease from $1,098 million in 2008.
Second quarter gross margin rate increased to 31.9 percent from 31.2 percent in 2008, due to gross margin rate improvements within categories, partially offset by the unfavorable mix impact of faster sales growth in non-discretionary lower margin rate categories. Second quarter selling, general and administrative (SG&A) expense dollars were 0.4 percent lower than 2008, benefiting from productivity improvements that more-than-offset the expense of operating additional stores in 2009. At quarter-end, the company was operating 71 more stores than a year ago.
Credit Card Segment Results
Average credit card receivables in the quarter decreased $150 million, or 1.8 percent, from the second quarter of 2008, and quarter-end receivables decreased $349 million, or 4.0 percent, from the same period a year ago.
Credit card segment profit in the quarter declined to $63 million from $74 million last year as a result of Target’s reduced investment in the segment and lower floating interest rates, partially offset by improved portfolio performance. Target’s pretax return on invested capital (ROIC) from its investment in the credit card segment increased to 8.8 percent in the second quarter from 8.2 percent in 2008.
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By Mark Clothier
Aug. 18 (Bloomberg) — Home Depot Inc., the largest home- improvement retailer, reported second-quarter profit that fell less than analysts estimated and increased its full-year earnings forecast after reducing operating expenses.
Net income dropped 7.2 percent to $1.12 billion, or 66 cents a share, from $1.2 billion, or 71 cents, a year earlier, the Atlanta-based company said today in a statement. Excluding costs to close the company’s Expo business, earnings were 67 cents a share. Analysts predicted 59 cents, the average of estimates compiled by Bloomberg.
Home Depot beat projections after rival Lowe’s Cos. yesterday reported profit and revenue that fell more than analysts anticipated. The companies are trying to counter sales declines with cost cutting as shoppers contend with sinking home values and job losses. Home Depot’s sales in the three months ended Aug. 2 decreased 9.1 percent to $19.1 billion.
“Concerns about the housing market, rising unemployment and softness in the overall economy continue to pressure consumers,” Chief Executive Officer Frank Blake said in the statement. “Our business performed well in a down market. We captured market share and drove operating productivity.”
The retailer said it now expects adjusted earnings from continuing operations to decline by 15 percent to 20 percent this year after forecasting a drop of as much as 26 percent in June. Home Depot still predicts sales will fall about 9 percent.
Home Depot lost $1.03, or 3.8 percent, to $26.11 yesterday in New York Stock Exchange composite trading. The shares have gained 13 percent this year.
Sales Drop……
NEW YORK (Reuters) – Drug wholesaler Cardinal Health Inc (NYSE:CAH – News) posted a 14 percent decline in quarterly net profit on Tuesday, hurt by costs related to its spin-off of its medical technology company CareFusion.
The company said it lifted its fiscal-year forecast for its stand-alone Cardinal business.
Fiscal fourth-quarter net earnings were $273.2 million, or 75 cents per share, compared with $318 million, or 88 cents a share, a year ago.
Results included 12 cents of costs tied to the planned spinoff of CareFusion, which the company said remains on track to be completed at the end of the month.
Cardinal projected fiscal-year profit, excluding items, of $1.90 to $2.00 per share, which it said was an increase over its previous forecast of $1.87 to $1.91, implied in comments from its June investor day.
NEW YORK (MarketWatch) — Saks Inc. /quotes/comstock/13*!sks (SKS 5.35, -0.49, -8.39%) said Tuesday that its second-quarter loss widened to $54.5 million, or 39 cents a share, from $32.7 million, or 24 cents a share, a year earlier. Sales in the quarter ended Aug. 1 fell to $561.7 million from $657 million. Analysts, on average, estimated the luxury retailer would lose 53 cents a share, according to FactSet. Saks forecast second-half comparable-store sales declining in the mid-to-high single digit percentage.
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FSLR Inks A Deal With SoCal Edison
ROSEMEAD, Calif.–(BUSINESS WIRE)–First Solar, Inc. and Southern California Edison (SCE) today announced agreements to build two large-scale solar power projects in Riverside and San Bernardino counties in Southern California. The installations, which will be among the largest of their kind, will have a generation capacity of 550 megawatts of photovoltaic solar electricity, enough to provide power to approximately 170,000 homes. The agreements are subject to approval by the California Public Utilities Commission.
“Southern California Edison is always looking for innovative ways to deliver clean power from renewable sources. First Solar is an excellent partner in helping us achieve our goals,” said Stuart Hemphill, SCE senior vice president, Power Procurement. “This agreement is good for our customers, for the industry and for the environment.”
First Solar will engineer, procure and construct the two solar facilities, using its industry leading thin-film photovoltaic solar modules. The projects are the 250 megawatt Desert Sunlight project near Desert Center, Calif., and the 300 megawatt Stateline project in northeastern San Bernardino County. Pending network upgrades and receipt of applicable governmental permits, construction is scheduled to begin in 2012 for Desert Sunlight and 2013 for Stateline. Both projects are expected to be completed in 2015. Several hundred construction jobs are expected to be created at each site. When completed, the solar projects will produce 1.2 billion kilowatt-hours of clean energy per year.
“Supplying solar power to Southern California Edison and its customers advances our mission of providing clean, affordable and sustainable solar electricity,” said John Carrington, First Solar executive vice president, Marketing and Business Development. “These projects will help California reach its renewable energy goals, and are powerful examples of large-scale photovoltaic solar generation becoming a reality in the United States.”
California currently has a goal of delivering 20 percent of electricity from renewable sources by 2010 and is considering legislation to increase the goal to 33 percent by 2020. SCE is the nation’s leading purchaser of renewable energy and, in 2008, delivered 12.6 billion kilowatt-hours of energy to its customers from renewable resources – about 16 percent of its total energy portfolio. In addition, the utility delivered more than 65 percent of the solar energy produced in the United States for its customers in 2008.
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European Stocks Rebound Along With U.S. Futures
By Stuart Wallace
Aug. 18 (Bloomberg) — European stocks and U.S. futures advanced and industrial metals gained on a bigger-than-forecast increase in German investor confidence and speculation a government report will show U.S. housing starts climbed.
The MSCI World Index of 23 developed nations added 0.4 percent at 11:10 a.m. in London, rebounding from its biggest retreat since April. Futures on the Standard & Poor’s 500 Index gained 0.6 percent. Copper added 2 percent and aluminum rose 4.1 percent on the London Metal Exchange after a two-day drop. The yen fell against all 16 most-traded currencies tracked by Bloomberg, while the dollar declined against every one except the yen and the Brazilian real.
The ZEW Center for European Economic Research index of investor and analyst expectations rose to 56.1 in August from 39.5 in July, exceeding the median forecast in a Bloomberg News survey for a reading of 45. U.S. builders in July probably broke ground on homes at the fastest pace in eight months, analysts said before a report scheduled for 8:30 a.m. in Washington. Stocks and commodities plunged yesterday on speculation that the rally had outpaced the prospects for economic growth.
“There is still much to be optimistic about for the second half of the year,” said Bill O’Neill, the London-based strategist at Merrill Lynch Global Wealth Management, which has $1.1 trillion in assets. “This ‘two steps forward, one step back’ pattern is typical of phases covering the end of a recession.”
Rebound in Europe
The Dow Jones Stoxx 600 Index of European shares added 0.9 percent, recovering from the biggest one-day drop since July 2, as raw-material producers gained with metals. A 43 percent rebound since March 9 has left the regional measure valued at 40.2 times the profits of its companies, near the most expensive since 2003, weekly data compiled by Bloomberg show.
Rio Tinto Group, the world’s third-biggest mining company, gained 3.7 percent in London, while BHP Billiton Ltd., the largest, added 2.3 percent.
HSBC Holdings Plc rose 2.6 percent. Europe’s biggest bank was raised to “buy” from “neutral” at Goldman Sachs Group Inc., which said provisions and losses at HSBC may decline.
Home Depot Inc., the largest home-improvement retailer, rose 2.7 percent in German trading after reporting second- quarter profit that fell less than analysts estimated and increasing its full-year earnings forecast.
Copper, Oil
Copper for delivery in three months rose 2 percent to $6,172 a metric ton on the LME. The average U.S. home contains 440 pounds (0.2 ton) of copper, according to the Copper Development Association. Crude oil advanced 1.4 percent to $67.65 a barrel in New York. Gold added 0.4 percent to $938.47 an ounce.
Stocks and commodities tumbled yesterday after foreign direct investment in China fell and Japan’s economy grew less than economists estimated, reigniting concern the rally was overdone.
Confidence in the world economy surged to a 22-month high in August on signs the first global recession since World War II is approaching an end, a Bloomberg survey of users on six continents showed last week. The U.S. unemployment rate dropped in July for the first time since April 2008, data from the Labor Department showed this month, while the German and French economies unexpectedly grew last quarter, government figures indicated last week.
Emerging Markets
Emerging-market stocks rose from a four-week low and bonds snapped a six-day losing streak.
The MSCI Emerging Markets Index added 0.4 percent to 822.98 after dropping the most in 5 1/2 months yesterday. Bonds rose, pushing the extra yield investors demand to own developing nations’ debt instead of U.S. Treasuries down 4 basis points to a 3.8 percentage points., according to JPMorgan Chase & Co.’s EMBI+ Index. The decline snaps six days of increases, the longest streak since November.
The Micex index of stocks in Russia, the world’s biggest energy-exporting economy, added as much as 2.3 percent and the ruble strengthened 1 percent to 31.8966 per dollar as oil advanced.
China’s Shanghai Composite Index increased 1.4 percent, the most in two weeks, and Poland’s WIG20 benchmark added as much as 1.3 percent to a three-day high after the country’s equities were raised to “overweight” from “equal-weight” by Morgan Stanley.
Treasuries declined, sending the yield on the benchmark 10- year note up 3 basis points to 3.50 percent. The 30-year yield increased 4 basis points to 4.36 percent.
The yen dropped most against the South African rand, weakening 2.1 percent, and fell 0.9 percent against the euro, amid revived demand for higher-yielding currencies. The pound advanced 0.6 percent against the dollar after the Office for National Statistics said the U.K. inflation rate remained at 1.8 percent in July, confounding economists’ forecasts for a decline.
By Shani Raja
Aug. 18 (Bloomberg) — Most Asian stocks fell, led by commodity companies, as metals prices declined amid concern the global economic recovery will fall short of investors’ expectations.
Mitsubishi Corp., which generates about half its revenue from trading commodities, sank 3 percent in Tokyo, while Fortescue Metals Group Ltd. slumped 3.9 percent in Sydney. Everbright Securities Co. soared 30 percent on its first trading day in Shanghai. James Hardie Industries NV, the biggest seller of home siding in the U.S., surged 22 percent after forecasting profit at the high end of analyst estimates.
The MSCI Asia Pacific Index dropped 0.2 percent to 110.45 as of 7:32 p.m. in Tokyo, extending yesterday’s 3.1 percent slump. About five stocks fell for every four that advanced. The gauge’s two-day decline has pared its rally from a more than five-year low on March 9 to 56 percent.
“Pullbacks are to be expected, but my feeling is that they’ll be relatively shallow,” said Prasad Patkar, who helps manage about $1.2 billion at Platypus Asset Management in Sydney. “Valuations looked stretched, but as long as earnings keep going up, they will start to look more normal as time goes by.”
Japan’s Nikkei 225 Stock Average added 0.2 percent. Hong Kong’s Hang Seng Index advanced 0.8 percent. The Shanghai Composite Index rallied 1.4 percent following a 5.8 percent slump yesterday. The Chinese gauge has lost 16 percent from its peak this year on Aug. 4. Markets are typically deemed to have entered a bear market when declines exceed 20 percent.
Equity Declines
Citic Securities Co. sank 4.1 percent in Shanghai as Andy Xie, Morgan Stanley’s former chief Asian economist, predicted further equity declines. Air China Ltd. lost 2.4 percent on concern it may have paid too much to raise its stake in Hong Kong’s Cathay Pacific Airways Ltd.
Futures on the Standard & Poor’s 500 Index climbed 0.7 percent. The stock gauge fell 2.4 percent yesterday, extending a global stock slump after figures on Japan’s economic growth trailed some economists’ estimates and foreign direct investment in China dropped for a 10th month. The MSCI World Index added 0.4 percent after sinking 2.8 percent yesterday on concern the global recovery may be stalling.
Reports last week showed Chinese exports dropped in July, lending fell, and investment growth slowed, while Australia’s statistics bureau said wage growth stalled last quarter as the worst global slump since the Great Depression drove up unemployment………
By Svenja O’Donnell
Aug. 18 (Bloomberg) — The U.K. inflation rate unexpectedly held at 1.8 percent in July as the cost of computer games, DVDs and alcohol rose, a sign the economy is staving off deflation as the recession eases.
The annual gain in consumer prices was the same as in June, which was the lowest level since September 2007, the Office for National Statistics said today in London. All 31 economists in a Bloomberg News survey predicted a reduction in the rate. On the month, prices stayed unchanged, compared with a median forecast for a 0.3 percent drop.
Bank of England Governor Mervyn King said last week that inflation is likely to be volatile in the short term as it stays below the 2 percent target. Central bank officials have expanded their money-printing program beyond its original limit to aid economic growth and fight the threat of deflation.
“Inflation is quite sticky while the Bank of England is still pushing down on the accelerator,” said Nick Kounis, an economist at Fortis Bank Nederland Holding NV in Amsterdam and a former U.K. Treasury official. “The idea that there’s a huge amount of slack in the economy that’s going to bear down significantly on inflation just isn’t coming out in the data.”
Market Reaction
The pound rose as much as 0.3 percent against the dollar after the report. The U.K. currency traded at $1.6444 as of 9:59 a.m. in London.
XOM & PetroChina Ink A LNG Deal
By RACHEL PANNETT,
CANBERRA — PetroChina Co., the listed unit of China National Petroleum Corp., Tuesday signed a liquefied natural gas import deal with ExxonMobil Corp. worth an estimated A$50 billion ($41.03 billion) over the next 20 years, Australian Energy and Resources Minister Martin Ferguson said.
The LNG supplied to PetroChina will come from Exxon’s 25% share of the huge Gorgon gas field offshore of Australia, Mr. Ferguson said, bringing the Gorgon project another step closer to fruition.
Exxon will supply 2.25 million metric tons of LNG a year to PetroChina from Gorgon under the long-term deal, Mr. Ferguson said.
Worried by a reliance on crude oil imports and pollution from burning coal, China is seeking to raise the share of cleaner-burning natural gas in its energy mix. LNG is natural gas cooled to liquid form so it can be transported by ship.
The binding agreement with Exxon is the third struck by PetroChina for LNG imports from Australia since September 2007 and marks Australia’s biggest trade deal ever, according to Mr. Ferguson.
“This unprecedented export deal confirms Australia’s importance as a global energy superpower supplying vital clean energy resources and technologies to China and our other Asia-Pacific trading partners,” Mr. Ferguson said.
“PetroChina is an increasingly important partner in the Australian LNG industry, and I hope the relationship will be long and successful,” he said……
By DAISUKE WAKABAYASHI
TOKYO — Sony Corp.’s next-generation television, an ultrathin model hailed by executives as a symbol of the company’s technological comeback, is now a symbol of another kind: the dilemma facing its TV business.
Sony will delay the launch of its next organic light emitting diode, or OLED, television because mass producing the new displays would exacerbate losses at its TV division, according to people familiar with the matter.
The company had been targeting a 2009 release for a larger successor to a model with an 11-inch screen released in late 2007, which is the first and only OLED TV to reach stores so far. That model’s screen is three millimeters thick. But Sony has decided to push back the new model until at least next year, these people said.The decision sends a message to Sony’s engineers that returning its TV business to profitability is a priority. The business is on track to lose money for the sixth straight year. In the past, Sony’s engineers could push the company to roll out products that were technological marvels but struggled to turn a profitThe postponement opens the door to competitors such as LG Electronics Inc. and Samsung Electronics Co. to assume leadership in a promising technology, touted as a potential replacement to liquid-crystal displays.Already found on smaller devices like mobile phones and digital media players, OLED displays are thinner, consume less power, offer better color contrasts and respond faster to moving images than LCDs.
However, as is often the case with new display technology, producing an OLED television is expensive and the product can cause sticker shock. For example, Sony’s first model, the 11-inch XEL-1, sells for $2,500 — a price reserved for the latest TVs with screens of 50 inches and above. Sony declined to say how many OLED units it has sold so far…….
Sinopec Completes Their Deal With Addax Petroleum
BEIJING (AP) – Sinopec Group said Tuesday it has completed its $7.5 billion acquisition of Addax Petroleum, obtaining new reserves in Africa and the Middle East in China’s biggest foreign corporate takeover to date.
State-owned Sinopec Group is the parent of Sinopec Corp., also known as China Petroleum & Chemical Corp., Asia’s biggest refiner by volume. It wants to expand its production capacity to profit from rising crude prices that have cost it billions of dollars in recent years due to government caps on retail fuel prices.
Addax is China’s biggest foreign corporate takeover but the deal is half the size of last year’s $14.3 billion acquisition by Aluminum Corp. of China, with Alcoa Corp., of a 12 percent stake in global miner Rio Tinto PLC, according to financial information firm Dealogic.
Chinese oil, mining and other resource companies, flush with cash from their country’s economic boom, are investing in foreign oilfields, mines and other assets to profit from rising commodities demand.
The previous record for a Chinese corporate takeover abroad also was in the petroleum industry – last year’s $2.5 billion purchase by China Oilfield Services of Norway’s Awilco Offshore.
Addax, based in Geneva, has oil and gas exploration and production operations mainly in West Africa and the Middle East. It jointly operates the Taq Taq field in Iraq’s self-ruled Kurdish region with Turkey’s Genel Enerji.
In its announcement, Sinopec said it paid 52.80 Canadian dollars ($47.80) per share for 157.6 million Addax shares.
Addax, which is listed on exchanges in London and Toronto, says Sinopec promised to keep Addax’s top management intact.
Comments »Video Editorial With Nassim Taleb on ” A Crazier Future “
A Podcast on Past Podcasts : “Is That Finally It For The Sucker’s Rally “
Empire State Manufacturing Index: Prior -0.55 / Mkt Expects 2.20 / Actual 12.08… Plus A Outlook On Today’s Market
Business News
MOORESVILLE, N.C. (AP) — Lowe’s Cos. says poor weather and cautious consumer spending caused sales to fall below expectations and earnings to fall 19 percent in the second quarter.
The company also says it will scale back new store openings in its next fiscal year.
The No. 2 home-improvement retailer says profit fell to $759 million, or 51 cents per share, from $938 million, or 64 cents per share last year.
Revenue fell 5 percent to $13.84 billion.
Analysts predicted a profit of 54 cents per share on revenue of $14.35 billion. Lowe’s had forecast earnings of 51 cents to 55 cents per share.
The Mooresville, N.C.-based company says it expects yearly earnings of $1.13 to $1.21 per share, from previous guidance of $1.13 to $1.15 per share.
World Markets Sell Off While Many Currencies Rise Against The Dollar
By Daniel Hauck
Aug. 17 (Bloomberg) — Stocks fell around the world, the yen and the dollar advanced and Treasuries rose as investors speculated that a rally in riskier assets has outpaced the prospects for economic growth.
The MSCI World Index of 23 developed nations sank 1.5 percent at 11:12 a.m. in London, the biggest retreat in a month. Futures on the Standard & Poor’s 500 Index slid 1.9 percent, while China’s Shanghai Composite Index slumped the most since November. The yen strengthened against all 16 of the most-traded currencies tracked by Bloomberg, while the dollar advanced against every one except the yen. The yield on the benchmark 10- year Treasury note dropped to its lowest level this month. Copper and oil declined for a second day.
Equities tumbled after a government report showed Japan’s economy grew less than economists estimated in the second quarter, reigniting concern that a five-month, 52 percent rally in the MSCI World was overdone. The tally of failed U.S. banks this year climbed to 77 last week, while the Reuters/University of Michigan index of consumer sentiment in America showed an unexpected decrease.
“The rally in risk assets has become overextended as it has run ahead of the improvement in fundamentals,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an e-mailed report. “The dollar and yen have been boosted by a pickup in safe-haven demand.”
European Stocks
The Dow Jones Stoxx 600 Index of European shares retreated 2.1 percent, the biggest drop in a month. A 42 percent rebound since March 9 has left the regional measure valued at 40.2 times the profits of its companies, near the most expensive since 2003, data compiled by Bloomberg show.
Raw-materials shares declined with metals and oil. Rio Tinto Group, the world’s third-largest metals producer, decreased 5.1 percent in London. Swedbank AB decreased 5.3 percent in Stockholm. The Baltic region’s biggest bank announced a second rights offer in less than a year as it seeks to shore up reserves and exit the Swedish state’s bank support plan. The lender faces soaring loan losses and provisions in Latvia, Lithuania and Estonia.
The world’s biggest pension funds have lost confidence in stocks as the best long-term investment, cutting holdings or leaving them unchanged during the steepest rally since the 1930s. Funds overseeing money for California teachers and public workers, Dutch government retirees and South Korean private- sector employees reduced their target weightings for equities this year, data compiled by Bloomberg show.
Japan’s Economy
The MSCI Asia Pacific Index lost 3.3 percent, the steepest decline since March. Japan’s gross domestic product expanded at an annual 3.7 percent pace in the three months ended June 30, missing the median estimate for a 3.9 percent increase in a Bloomberg News survey. Sony Corp., the maker of the PlayStation 3 game console, retreated 4.1 percent in Tokyo.
Confidence in the world economy surged to a 22-month high in August on signs the first global recession since World War II is approaching an end, a Bloomberg survey of users on six continents showed last week.
The U.S. unemployment rate dropped in July for the first time since April 2008, data from the Labor Department showed this month, while the German and French economies unexpectedly grew last quarter, government figures indicated last week.
China’s Shanghai Composite Index sank 5.8 percent, the steepest slump since Nov. 18, as foreign direct investment plunged, Ping An Insurance (Group) Co.’s profit missed estimates and Yunnan Copper Industry Co. said there are “no clear signs” of a recovery.
Emerging Markets
Ping An, China’s second-biggest insurance company, fell 3.9 percent after first-half net income dropped 45 percent. Yunnan Copper sank 10 percent after posting a first-half loss.
The MSCI Emerging Markets Index declined 3.2 percent, the steepest drop since March. Russia’s ruble weakened 2 percent against the dollar and depreciated 1.1 percent against the euro.
The yen advanced the most against the Australian dollar, strengthening 2.3 percent as demand for higher-yielding currencies waned, and rose 1.2 percent versus the euro. The pound slid 1.6 percent against the dollar on growing evidence the U.K.’s sputtering economy is halting the currency’s biggest five-month rally in 24 years.
Gains for Treasuries sent the yield on the benchmark 10- year note down 7 basis points to 3.49 percent. The 30-year yield lost 5 basis points to 4.37 percent.
The cost of protecting European corporate bonds from default rose to the highest since July 23 in the market for credit-default swaps. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 4.25 basis points to 99, according to JPMorgan Chase & Co. prices.
Copper for delivery in three months fell 3.3 percent to $6,038 a metric ton on the London Metal Exchange. Aluminum, nickel and zinc also declined. Crude oil retreated 2.4 percent to $65.87 a barrel in New York. Gold fell 1.3 percent to $936.10 an ounce, leading a decline in precious metals.
By CARLO PIOVANO
By KERRY GRACE BENN
Capital One Financial Corp. continued to face rising charge-offs and delinquencies in July.
The credit-card lender turned bank has been struggling with increasing credit woes in recent months and has seen the economic slump threaten its balance sheet, leading it to slash its dividend earlier this year.
In a filing with the Securities and Exchange Commission, Capital One released data that showed 30-day delinquencies, on a weighted average across its national lending business, increased in July from June. Meanwhile, the weighted average for national lending charge-offs — loans it doesn’t think are collectible — also climbed from June.
Capital One said Monday that within its national lending business, 30-day delinquencies in its U.S. card segment rose to 4.83% as of July 31, from 4.77% as of June 30, while auto-finance delinquencies increased to 9.22% from 8.89% and international delinquencies slipped to 6.68% from 6.69%.
Meanwhile, the charge-offs for U.S. cards rose to 9.83% from 9.73%, while they grew to 4.26% from 3.89% for auto finance and jumped to 9.76% from 9.26% in the international segment.
Late last week, Barclays Capital said it expected charge-offs to rise to 9.88% and delinquencies to remain flat at 4.77%. It said Capital One’s management recently indicated they expect U.S. card charge-offs to rise in the second half as the economy weakens.
Capital One’s shares closed Friday at $35.08 and haven’t traded premarket.
FDIC Feels The Weight of Dead Banks
By JOE BEL BRUNO
Banks in the U.S. that failed in the past two years were in far worse shape than those that collapsed during the industry’s last crisis, a looming problem for the government agency charged with insuring deposits.
At three of the five banks that failed Friday, increasing the total to 77 so far this year, the financial hit to the agency’s deposit-insurance fund is expected by the Federal Deposit Insurance Corp. to be about 50% of their assets.
Zuma Press
Police watch as workers remove files during a raid of Colonial Bank’s offices in Orlando on Aug. 3.
The biggest hit on a percentage basis is coming from Community Bank of Nevada, a Las Vegas bank with $1.52 billion in assets and an estimated cost of $781.5 million. The failure of Colonial Bank, a unit of Colonial BancGroup Inc. that was sold to BB&T Corp., will cost $2.8 billion, or 11% of the Montgomery, Ala., bank’s assets.
For the 102 banks that have collapsed in the past two years, the FDIC’s estimated cost averaged 25% of assets. That is up from the 19% rate between 1989 and 1995, when 747 financial institutions were closed by regulators, according to the FDIC.
The agency’s insurance fund already has dipped to $13 billion, with more than 300 battered banks and thrifts still on an undisclosed FDIC list of problem institutions.
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- Bank Fails, and So Did Announcement
08/17/2009
One problem is that so many banks took risks when the economy was booming, and are seeing their capital dissipate with alarming speed.
“Compared to the savings-and-loan crisis, banks these days have gotten much bigger and the economy has gotten much bigger,” said Bob Patten, an analyst at Morgan Keegan & Co. “This crisis won’t eclipse the last one in size, but the costs to the FDIC are showing the amount of leverage they really had on their books.”
![[FDIC's deposit-insurance fund]](http://ibankcoin.com/cronkite/wp-content/imagescaler/b32b78902608fb38a29c2e55c8f6d8eb.gif)
Regulators also have been blamed for not taking quick enough action and for allowing zombie banks to limp along. Inspectors general at the Treasury Department and FDIC, which serve as watchdogs, have issued more than a dozen reports that conclude regulators dithered while banks they oversaw plowed ahead with rapid and unsteady growth.
“When you get these failing banks, they are much more like a fresh-caught fish than a fine wine. They don’t get better with age and the losses keep piling up.” said Bert Ely, a longtime banking-industry consultant.
Integrity Bank, of Alpharetta, Ga., was permitted to keep luring deposits paying unusually high interest rates for more than two years after examiners noted deficiencies in its loan underwriting, according to the FDIC’s inspector general. Integrity failed last year, costing the FDIC $295 million.
The FDIC’s response to the report about Integrity noted that “greater concern for Integrity’s loan administration and underwriting weakness identified could have led to earlier supervisory action.”
As the number of bank failures escalates, FDIC officials have been trying to find investors and buyers for terminally ill financial institutions, increasingly by agreeing to shield acquirers from certain losses on assets of the failed bank.
The FDIC and BB&T entered into a loss-share transaction on approximately $15 billion of the $22 billion in Colonial assets bought by the Winston-Salem, N.C., bank. FDIC Chairman Sheila C. Bair said in a statement that losses from Friday’s failures “are lower than had been projected.”
Insiders Liquidate @ Record Pace
By Edward Krudy – Analysis
NEW YORK (Reuters) – A massive rally in U.S. stocks since March has reawakened bullish spirits, but insiders are jumping out of the market in a sign the run up is getting stretched.
Company executives are selling stock at a rate not seen in two years after a near 50 percent rise in the S&P 500 from a March 9 low. That suggests directors and managers may think stock prices are nearing the top end of their range in the current economic climate.
There has been a decline in short interest — borrowed shares sold but not yet repurchased — which some analysts see as a warning. Some investors sell short to profit from price declines, and some say the recent rally has been supported by the reversing of short positions.
For brokerage Jefferies & Co., a significant increase in insider selling transactions as well as a decrease in short interest across most sectors of the S&P 500 demonstrates the weathering of the bear market rally.
Short interest fell in mid-July and firms with insider selling activity outnumber those with buying activity two to one, according to research firm InsiderScore.com.
“Both of those (factors) lends to our general thesis” that the equity market rally is running on borrowed time, said Patrick Neal, head of U.S. equity strategy at Jefferies & Co.
INSIDE MOVES
Since early March investors have piled back into the stock market in the hope of an economic recovery, bank sector stabilization and expectations many more will follow them.
But there are doubts the run-up is warranted amid signs of a difficult economic recovery.
Increased insider selling has in the past been an indicator of an inflection point for equity markets, said Ben Silverman, director of research at InsiderScore.com.
Sales of stock by company insiders suggests managers have a dim view of the market’s prospects.
According to InsiderScore, buying peaked this year around the market low in early March. For the week ended March 3, six days before the market sank to a 12-year low, insider bullishness as reflected in buying activity recorded its fourth-highest reading ever.
“Insiders historically have a strong correlation on a macro level to buying and selling, said Silverman, who is based in Princeton, New Jersey. “There’s a lot of negative signs right now coming from insiders.”
Jefferies said the selling has taken place in the consumer staples, information technology, materials and energy, and utilities sectors, with Neal pointing to a “huge” acceleration in some economically sensitive areas such as energy.
SHORT-COVERING FIZZLES OUT? Continued…
