Business Headlines For September 28, 2009

Zoellick Challenges U.S. Dollar as World Reserve Currency

The U.S. would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency, World Bank Group President Robert Zoellick warned. He noted that there will be other options to the dollar in the future. The World Bank chief’s warning comes as China, Russia, Brazil and India repeat calls for a replacement to the dollar as the global reserve currency.

In excerpts from a speech to be delivered on Monday at the Paul H. Nitze School of Advanced International Studies in Washington, DC, Zoellick said a new level of international cooperation and coordination will be required to form a new framework for strong, sustainable and balanced growth. He applauded the decision taken at last week’s G-20 Summit to initiate a new peer review system.

“As agreed in Pittsburgh last week, the G-20 should become the premier forum for international economic cooperation among the advanced industrialized countries and rising powers,” he said.

With regard to the current economic crisis, Zoellick said central banks failed to address risks building in the new economy. “They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy.”

According to him, central banks argued that damage to the “real economy” of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. But, they turned out to be wrong.

Moreover, he said in the U.S., it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority. “My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators,” he said.

by RTT Staff Writer

___________________________________________________________

Swine Flu Ramps Up Fears

In Austin, so many parents are rushing their children to the Dell Children’s Medical Center of Central Texas with swine flu symptoms that the hospital had to set up tents in the parking lot to cope with the onslaught.

In Memphis, the Le Bonheur Children’s Medical Center emergency room got so crowded with feverish, miserable youngsters that it had to do the same thing.

And in Manning, S.C., a private school where an 11-year-old girl died shut down after the number of students who were out sick with similar symptoms reached nearly a third of the student body.

“It just kind of snowballed,” said Kim Jordan, a teacher at the Laurence Manning Academy, which closed Wednesday after Ashlie Pipkin died, and the number of ill students hit 287. “We had several teachers out also. That was the reason to close the school — so everyone could just be away from one another for a few days.”

After months of warnings and frantic preparations, the second wave of the swine flu pandemic is starting to be felt around the country, as doctors, health clinics, hospitals and schools are reporting rapidly increasing numbers of patients experiencing flu symptoms.

“H1N1 is spreading widely throughout the U.S.,” said Thomas R. Frieden, director of the federal Centers for Disease Control and Prevention in Atlanta during a briefing on Friday. At least 26 states, including Maryland and Virginia, are now reporting widespread flu activity, up from 21 a week earlier, the CDC reported. “H1N1 activity is now widespread,” Frieden said.

While so far most cases are mild, and the health-care system is handling the load, officials say the number of people seeking treatment for the flu is unprecedented for this time of year. Even though some parts of the Southeast that started seeing a surge of cases first now seem to be showing a decline in cases, that could be a temporary reprieve, Frieden said. And other parts of the country are likely just starting to feel the second wave.

Maryland health authorities on Friday said a Baltimore-area youth with an underlying health problem had died of swine flu, the state’s first such fatality involving a youth.

Despite new federal guidelines aimed at keeping schools open, the pandemic has already prompted scattered school closings around the country in recent weeks, including 42 schools that closed in eight states on Friday, affecting more than 16,000 students.

___________________________________________________________

Asian Markets Hit a 6 week Low

By Shani Raja and Jonathan Burgos

Sept. 28 (Bloomberg) — Asian stocks fell, dragging the MSCI Asia Pacific Index to its biggest loss in two weeks, as the yen surged and disappointing U.S. data raised concerns about the strength of the economic recovery.

Honda Motor Co., which gets 47 percent of its sales in North America, sank 5 percent in Tokyo as the yen strengthened to an eight-month high versus the dollar and U.S. durable goods orders missed economist estimates. Mitsui O.S.K. Lines Ltd., Japan’s No. 2 shipping company, lost 5.4 percent after widening its loss forecast. Henderson Land Development Co. dropped 3 percent in Hong Kong after new mortgages in the city fell.

The MSCI Asia Pacific Index sank 1.6 percent to 115.93 as of 7:19 p.m. in Tokyo, the biggest drop since Sept. 14. The gauge has climbed 64 percent from a five-year low on March 9 as stimulus measures worldwide dragged economies out of recession. It has fallen 2.5 percent from a one-year high on Sept. 17.

“We are setting the stage for a mild correction in the next month,” Arjuna Mahendran, Singapore-based chief investment strategist for Asia at HSBC Private Bank, which oversees $494 billion in assets, told Bloomberg Television today. “Everybody is extremely undecided as to whether the next leg will be up or down. That leads us to question whether everything good that has happened in the past six months is really sustainable.”

Japan’s Nikkei 225 Stock Average slumped 2.5 percent to 10,009.52. Nomura Holdings Inc., which announced a record $5.7 billion share sale last week, sank 5.8 percent as Merrill Lynch & Co. recommended holding fewer shares of Japan’s brokerages.

China’s Shanghai Composite Index dropped 2.7 percent, while Hong Kong’s Hang Seng Index sank 2.1 percent. India is closed today for a public holiday….

European Markets Fall On Commodities, But Turn Green As of 7am EST

By Sarah Jones

Sept. 28 (Bloomberg) — European stocks declined for a third day, extending the Dow Jones Stoxx 600 Index’s biggest weekly drop since July, as a sell-off in mining companies overshadowed gains by German utilities after Chancellor Angela Merkel won re-election.

Rio Tinto Group and Antofagasta Plc dropped more than 1.8 percent as copper led declines on the London Metal Exchange. RWE AG and E.ON AG, Germany’s biggest utilities, rallied more than 2.8 percent after Merkel’s re-election yesterday fueled speculation that her desired coalition will scrap a nuclear phase-out law. Crucell NA led gains by drugmakers as Johnson & Johnson bought an 18 percent stake.

Europe’s Stoxx 600 lost 0.3 percent to 238.13 at 11:11 a.m. in London, extending last week’s 2.4 percent retreat. The measure has soared 51 percent since March 9, pushing its price- earnings ratio near to the highest level since 2003, according to Bloomberg data.

“Whilst valuations are not expensive there is no doubt that the rally that we have seen has got valuations very quickly to fair value,” said Henk Potts, a London-based fund manager at Barclays Stockbrokers Ltd. in London, which oversees about $45 billion. “Future direction really comes down to the third- quarter reporting season which gets underway next week. In the short term, we can expect to see an element of nervousness in the market or even consolidation.”

Alcoa Inc., the largest U.S. aluminum producer, is due to become the first member of the Dow Jones Industrial Average to post third-quarter results when it reports earnings on Oct. 7.

German Election

Germany’s DAX Index added 0.7 percent after Merkel’s Christian Democrats and the Free Democrats, her preferred allies, won enough votes to form the next government.

Standard & Poor’s 500 Index futures fluctuated after three straight days of losses for the benchmark gauge for U.S. equities. The MSCI Asia Pacific Index slid 1.6 percent as the yen rose to an eight-month high versus the dollar…..

Oil Falls Below $66pb

By ALEX KENNEDY p {margin:12px 0px 0px 0px;}

By Justin Carrigan

Sept. 28 (Bloomberg) — The yen rose to the highest level in eight months against the dollar, and commodities and stocks fell, as policy makers signaled the global economy isn’t strong enough for governments to withdraw their stimulus measures.

The Japanese currency advanced against all 16 of its most- traded peers tracked by Bloomberg as of 9:23 a.m. in London. The MSCI World Index of 23 developed countries slipped for a fourth day, losing 0.5 percent. Copper and crude oil declined. The Shanghai Composite Index fell 2.4 percent to a four-week low. Germany’s DAX Index gained 0.6 percent after Chancellor Angela Merkel’s re-election.

International Monetary Fund Managing Director Dominique Strauss-Kahn told a conference in Ukraine that policy makers “need to secure the recovery before we address the problem” of inflation and how to end stimulus packages. Group of 20 leaders meeting at the weekend said they would “avoid any premature withdrawal of stimulus,” and acknowledged that the global recovery remains dependent on emergency government money.

“The leaders of G-20 didn’t really come out very convincingly in terms of the continuation of the stimulus and that leads us to this question about whether everything good that happened in the last six months is sustainable,” Arjuna Mahendran, the Singapore-based chief investment strategist for Asia at HSBC Private Bank, said in an interview with Bloomberg Television today. “We are heading toward some form of correction in October.”

Japanese Exporters

The yen’s gains drove it to stronger than 89 per dollar for the first time since Feb. 5 after Japanese Finance Minister Hirohisa Fujii said the currency’s moves aren’t excessive, signaling he won’t curb its gains to support exporters. He said later that people were mistakenly saying he supported a “strong yen.”….

Anglo American Seeing the First Signs of Recovery From Metals

By Rebecca Keenan

Sept. 28 (Bloomberg) — Anglo American Plc, owner of stakes in the world’s biggest diamond and platinum producers, is seeing signs of recovery in demand for metals, Chief Executive Officer Cynthia Carroll said.

“We have seen the worst of the downturn and we are starting to see the first signs of recovery,” Carroll said today at an industry presentation in Brisbane, Australia. Anglo is the target of a merger proposal by Xstrata Plc.

The world’s near-term outlook for metals has improved faster than expected, Carroll said. Commodities are poised for further gains heading into 2010 because supply constraints persist for many raw materials as the global economy recovers, Barclays Capital said in a report last week.

Carroll, who became CEO in 2007, has promised to extend job cuts to 19,000 this year, from 15,505 in the first half, to help save $2 billion of costs by 2011, while Zug, Switzerland-based Xstrata says a merger would save more than $1 billion annually by the third full year after a deal.

Xstrata, the largest exporter of power station coal, is seeking a “merger of equals” that would combine mines in Canada, Australia and South Africa with nearby sites operated by London-based Anglo, creating a mining group that could compete with BHP Billiton Ltd., the world’s biggest. Anglo rejected the proposal in June.

The index of the six metals traded on the London Metal Exchange has jumped 62 percent this year, outpacing a 21 percent gain in the MSCI World Index of stocks.

Anglo slipped 44 pence, or 2.1 percent, to 2,015 pence as of 9:47 a.m. on the London Stock Exchange, paring this year’s gain to 30 percent. The Bloomberg Europe Metals & Mining Index of 15 companies dropped 1.9 percent.

Anglo’s first-half profit dropped 31 percent to $2.97 billion, it said on July 31. So-called underlying earnings of 91 cents a share exceeded analyst forecasts.

China Unicom To Have A $1.3bln Stock Buy Back

By Mark Lee and Shinhye Kang

Sept. 28 (Bloomberg) — China Unicom (Hong Kong) Ltd. and South Korea’s SK Telecom Co. ended a three-year investment tie- up after the Chinese mobile-phone operator deepened its partnership with Spain’s Telefonica SA.

Unicom, China’s second-largest provider of mobile-phone service, plans to buy back 899.7 million shares for HK$10 billion ($1.3 billion) from SK Telecom, the Beijing-based carrier said in statement today. The company will pay HK$11.105 a share, 1.4 percent lower than the closing price in Hong Kong trading on Sept. 25.

Telefonica, which replaced SK Telecom as Unicom’s biggest overseas investor last year, said this month it would raise its shareholdings by 50 percent. For Unicom, the reorganization of the domestic telecommunications industry made the strategic alliance forged in 2006 with the South Korean carrier “no longer relevant,” according to Mirae Asset Management analyst Daniel Baker.

“As Unicom aligns itself more closely with Telefonica, this has made it more likely for SK Telecom to seek an exit,” said Baker, who rates Unicom shares “reduce.”

The SK Telecom holding, a 3.8 percent stake, will be canceled after the repurchase, according to the statement….

Xerox To Buy Affiliated Computer $6.4bln

By Katie Hoffmann

Sept. 28 (Bloomberg) — Xerox Corp., the world’s largest maker of high-speed color printers, said it’s buying Affiliated Computer Services Inc. for $6.4 billion, extending its reach in the services market.

Xerox is paying $63.11 in cash and stock for each Affiliated Computer share, 33.6 percent more than the closing price on Sept. 25 of $47.25, the Norwalk, Connecticut-based company said in a statement.

With the purchase, Xerox will have revenue of $22 billion, of which $17 billion is recurring, Chief Executive Officer Ursula Burns said in the statement. Burns, who took over as chief executive officer July 1, had been trying to boost revenue as customers delay purchases during the recession….

Abbott Labs Buys Solvay for $7.1bln

By Meg Tirrell, Albertina Torsoli and Jacqueline Simmons

Sept. 28 (Bloomberg) — Abbott Laboratories’ purchase of Solvay SA’s pharmaceutical unit, for about 4.8 billion euros ($7.1 billion), will give it full control of the TriCor cholesterol drug and a bigger presence in emerging markets.

Abbott will pay 4.5 billion euros in cash, with as much as 300 million euros in contingent payments between 2011 and 2013. The milestone payments relate to whether products perform well. The agreement also includes the assumption about 400 million euros of pension liabilities, Solvay said in a statement today.

The purchase will lower Abbott’s dependence on the arthritis drug Humira, said Larry Biegelsen, a Wells Fargo Securities LLC analyst, in a Sept. 25 report. The company’s biggest product with $4.5 billion in 2008 revenue, Humira risks losing sales as consumers cut spending. Solvay, which also makes chemicals and plastics, wasn’t big enough to compete in pharmaceuticals, Chief Executive Officer Christian Jourquin said.

“If the deal is completed, it would reduce Humira’s share of Abbott’s total sales to 15 percent from the current level of 18 percent,” Biegelsen wrote. Based in New York, he recommends holding Abbott shares.

The deal also suggests Abbott is comfortable with the landscape for TriCor and TriLipix, cholesterol drugs it co- promotes with Solvay. Both use the active ingredient fenofibrate, and account for about 20 percent of Brussels-based Solvay’s pharmaceutical sales, Biegelsen wrote…..

J&J Buys A 18% Piece of Crucell

AMSTERDAM — U.S. health care products maker Johnson & Johnson Inc. has bought an 18 percent stake in biotechnology company Crucell NV for euro301.8 million ($440 million), the Dutch company said in a statement Monday.

The companies will collaborate on the development and marketing of vaccines and hope to create a “universal” flu vaccine, among other goals, Crucell said.

Crucell said the shares it is selling to Johnson & Johnson are newly created.

Crucell’s shares were up 2.8 percent at euro16.395 in midday trading in Amsterdam.

Bernanke & Investors To Celebrate A Loss in Treasuries

By Daniel Kruger

Sept. 28 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke has some good news for investors: Treasury bondholders will lose money for the first time in 10 years amid an unprecedented decline in the gap between the interest rate on 30-year mortgages and government notes, signaling an end to the worst financial crisis since the Great Depression.

Yields on benchmark 10-year notes will end the year little changed at 3.36 percent before rising to 3.65 percent by mid- 2010 as bond prices fall, according to the average estimate in a Bloomberg News survey of JPMorgan Chase & Co., Goldman Sachs Group Inc. and the rest of the 18 primary dealers that trade Treasuries directly with the central bank.

The 2.65 percent loss posted so far this year, as measured by Merrill Lynch & Co.’s Treasury Master Index, shows investors no longer require the refuge of U.S. government debt that led to a gain of 14 percent last year. Borrowing rates have declined on everything from mortgages to corporate bonds after the Fed and the government lent, spent or guaranteed $11.6 trillion to shore up banks and end the recession.

“The safe bet from here is a gradual rise in yields,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. He expects 10-year yields in a range of 3.75 percent to 4.25 percent by the first half of 2010, compared with 3.25 percent to 3.75 percent now…..

Profits Poised To Beat Again

By E.S. BROWNING

The stock market’s strong rally is facing its next test as companies gear up to announce third-quarter earnings that, while still weak, will very possibly be better than investors expect.

Earnings in the first two quarters of the year that beat expectations helped propel the market’s recovery, and the prospect of a repeat has even some bears wondering if they have been too pessimistic.

Morgan Stanley investment strategist Jason Todd, one of the few remaining bears on Wall Street, told clients last week that the stock market is looking stronger than he thought and won’t tumble, as he has been predicting, at least through the end of the year. “We think equities will now trade above” his previous target for this year, Mr. Todd said in his report, “in large part because earnings will be higher than we previously anticipated.”

Until now, Mr. Todd had been predicting the market would fall 14% from today’s level by the end of the year. Now he is telling clients that the Standard & Poor’s 500-stock index — which is up 54% from its March 9 low — is likely to rise marginally between now and year’s end and could be up as much as 15% before it gets into trouble.

That, keep in mind, is the bearish view.

One big reason for the market’s continued strength is that expectations were so low for the economy and corporate earnings that the market was able to rise even on modestly good news.

“If you are expecting to lose a dime and you lost a nickel, you are a winner,” says senior analyst Howard Silverblatt at Standard & Poor’s.

Expectations remain low. Analysts forecast a 25% decline in third-quarter profits for companies in the S&P 500 compared with a year ago, not counting charges and special items, according to Thomson Reuters. When the quarter began, analysts had been forecasting a drop of 21%.

For makers of industrial materials, analysts now forecast a 68% third-quarter profit drop. The expected profit decline for energy companies is 64%, for industrial companies, 45%, and for technology companies, 15%, Thomson Reuters says.

The one area where expectations are bubbly is at financial companies, whose escape from death is forecast to result in a 60% year-on-year profit gain. The other bright spot is consumer-discretionary stocks, makers of appliances, cars and other things consumers can easily delay purchasing, whose profits are expected to rise 16% compared with a year ago…..

How Much Smart is in Your Portfolio?

By REBECCA SMITH and BEN WORTHEN

After struggling to sell cutting-edge products to utilities, technology companies are sensing better times ahead with the influx of $4.5 billion in federal stimulus funds for so-called smart-grid projects.

View Full Image

San Diego Union Tribune/Zuma Press

A San Diego Gas & Electric technician installs a residential smart meter.

The federal grants are expected to speed transformation of the power grid from a largely electromechanical system into a digital network that gives utilities more efficient ways to send electricity to customers. That could help cut pollution and electric bills.

Smart meters, one component of a smart grid, allow utilities to monitor usage almost in real time, letting them charge variable prices based on demand, for example. Corporate and residential customers would acquire tools to manage their energy use. Residential customers could be given an in-home meter to see how much power they are using and what it is costing them.

Utilities often take years to make technological change, in part because they must justify large expenditures to utility commissions to recoup costs through rates. Utilities also fear that new equipment could degrade transmission reliability if it doesn’t perform flawlessly.

But now, utilities are being encouraged by state utility regulators to seek the federal stimulus funds. California regulators this month voted to expedite their review of smart-grid proposals to fit the U.S. Department of Energy’s timetable for smart-grid grants.

That has opened up a sizeable sales opportunity for a host of tech companies, ranging from giant Cisco Systems Inc. to closely held Tendril Networks Inc. Some tech companies are beefing up staffs to pursue smart-grid projects, while others are helping utilities apply for the grants, the first of which could be doled out as early as next month.

North American utilities are expected to spend $10.75 billion on computer hardware, software and services related to the smart grid this year, up from $7.56 billion in 2008, according to research company IDC Energy Insights.

The smart-grid market “may be bigger than the whole Internet,” said John Chambers, chief executive of networking giant Cisco…..

A Calm B4 The Storm in Bankruptcies?

By Chelsea Emery

NEW YORK (Reuters) – Bankruptcy professionals have noted a curious calm in the pace of corporate Chapter 11 filings, But don’t relax yet, they say. A recent slowdown just marks a calm period before another storm of business collapses.

Things may be getting slightly better in the U.S. economy, and paradoxically, that makes it more likely companies will be pushed into bankruptcy in coming months. For one, the largest U.S. banks posted surprisingly strong profits during the first half of the year. That has made them more willing to foreclose on deadbeat debtors, pushing them into bankruptcy.

It is a marked change from the end of 2008, when lenders were so anxious to keep losses off their books that they extended loan deadlines for struggling companies.

“The calls (for restructuring advice) have slowed up,” said Lawrence Adelman, co-founder of restructuring advisory firm AEG Partners. “But it is a lull. Banks have had time to get their reserves in balance and they’re in a better position to take a writeoff.”

“The commercial real estate market is starting to fall apart now,” Adelman added.

In addition, media and auto-related companies are about four times more like to file for bankruptcy in the next year than companies in other industries, according to a study by Audit Integrity, which tracked liquidity, debt levels and other risk measures at more than 2,500 companies.

And most restructuring professionals say retailers, particularly those in the women’s apparel and jewelry sector, are at risk for collapse.

“There will be more Chapter 11s, more out-of-court workouts,” said Richard Mikels, a partner at law firm Mintz Levin. “The deleveraging that we need so badly, it’s starting to happen.”

Top restructuring experts, bankruptcy attorneys and distressed investors will address the outlook for struggling companies at the Reuters Restructuring Summit in New York and London next week. The specialists will also address which industries might be next in line and what steps can be taken to shore up weakened firms, as well as attractive investment opportunities.

WHAT’S NEXT…..

A New Reality For Social Security

WASHINGTON (AP) – Big job losses and a spike in early retirement claims from laid-off seniors will force Social Security to pay out more in benefits than it collects in taxes the next two years, the first time that’s happened since the 1980s.

The deficits – $10 billion in 2010 and $9 billion in 2011 – won’t affect payments to retirees because Social Security has accumulated surpluses from previous years totaling $2.5 trillion. But they will add to the overall federal deficit.

Applications for retirement benefits are 23 percent higher than last year, while disability claims have risen by about 20 percent. Social Security officials had expected applications to increase from the growing number of baby boomers reaching retirement, but they didn’t expect the increase to be so large.

What happened? The recession hit and many older workers suddenly found themselves laid off with no place to turn but Social Security…..

Insider Selling Stays Relentless

The relentless selling by insiders continued in the most recent week.   According to data compiled by Finviz insiders sold $641MM worth of stock in the last two weeks while purchasing just $112MM worth of stock.   The data on insider buying is skewed by the large purchases in PALM which accounted for over $100MM worth of purchases. The buying and selling are slight improvements over last weeks data, but still represent an environment in which corporate insiders are hesitant to bet on the future price appreciation of their own stock.

As we’ve mentioned previously, insiders sell stock for a varying number of reasons, but generally only purchase stock for one reason – they believe the stock will rise in the future.  As of now, it’s safe to say that insiders aren’t confident enough to put their personal fortunes behind their own firms – a trend we’re also seeing in terms of corporate buybacks.  This has to make one wonder just how strong the recovery is in terms of corporate earnings.  While the stimulus based recovery may appear strong on the surface, the long-term sustainability is certainly being questioned by those on the inside….

Insider buying:

Insider selling:

Source: Finviz, insidercow.com

* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.

The hidden war of debt

KBH

LOS ANGELES–(BUSINESS WIRE)–KB Home (NYSE:KBH – News), one of America’s premier homebuilders, today reported financial results for its third quarter ended August 31, 2009. Results for the quarter include:

• Revenues totaled $458.5 million, down 33% from $681.6 million in the third quarter of 2008, due to lower housing revenues. Third quarter housing revenues were $454.2 million, down 32% from $668.3 million in the year-earlier quarter, the result of a 20% year-over-year decrease in homes delivered to 2,240 and a 15% decline in the average selling price over the same period to $202,800.
• The Company generated a net loss of $66.0 million, or $.87 per diluted share, in the third quarter of 2009. These results included pretax, noncash charges of $47.7 million for inventory and joint venture impairments and the abandonment of land option contracts. In the 2008 third quarter, the Company reported a net loss of $144.7 million, or $1.87 per diluted share, which included pretax, noncash charges of $82.2 million for inventory and joint venture impairments.
• Company-wide net orders increased 62% in the third quarter to 2,158, up from 1,329 in the third quarter of 2008 with each of the Company’s geographic regions experiencing year-over-year net order growth. The Company’s backlog at August 31, 2009 totaled 3,722 homes, representing potential future housing revenues of approximately $734.1 million. A year earlier, the Company’s backlog totaled 4,774 homes, representing potential future housing revenues of approximately $1.13 billion.
• On July 30, 2009, the Company issued $265.0 million in aggregate principal amount of 9.1% senior notes due 2017, using the net proceeds to purchase, pursuant to a simultaneous tender offer, $250.0 million in aggregate principal amount of its $350.0 million 6 3/8% senior notes due 2011. The two transactions effectively extended the maturity of $250.0 million of senior debt by six years, enhancing the maturity schedule of the Company’s outstanding public debt. Other than the maturity of the remaining $100.0 million of 6 3/8% senior notes in 2011, the Company’s next public debt maturity is in 2014 when $250.0 million of 5 3/4% senior notes become due. The Company had no borrowings outstanding under its revolving credit facility as of August 31, 2009.

• The Company recently announced it has resumed homebuilding operations in the Washington, D.C. metro market, bolstering its presence in the southeastern United States and complementing its existing operations across Florida and the Carolinas. The Company believes its value-engineered product line, The Open Series^TM, combined with its consumer-focused Built-to-Order^TM operating model will compete well in meeting the region’s growing demand for affordable, high-quality new homes.

“The housing market overall remains in a transition where it will likely be some time before we see meaningful improvement in the economic conditions that are essential to our industry’s future growth,” said Jeff Mezger, president and chief executive officer. “While tentative indications are that some negative economic trends are slowing or leveling out to varying degrees in certain markets, the ongoing impact of and the potential for increased foreclosures and mortgage delinquencies, higher unemployment, tighter credit standards, and relatively weak consumer confidence make the timing and extent of a sustained rebound still uncertain.”

“In this challenging environment, we significantly narrowed our third quarter net loss from a year ago through the disciplined execution of our strategic initiatives,” said Mezger. “Restoring the profitability of our homebuilding business remains our highest priority, and we continue to take actions to achieve this objective. These include our ongoing implementation of initiatives to generate cost reductions and operating efficiencies, carefully managing our inventory and developing innovative new products. Our new product line, The Open Series, embodies many of these strategies and was a primary contributor to the year-over-year increase in net orders we achieved in the third quarter. This product meets the preferences and needs of our core customer—the first-time homebuyer—in a cost-effective manner.”

AZZ

FORT WORTH, Texas, Sept. 25 /PRNewswire-FirstCall/ — AZZ incorporated (NYSE: AZZ – News), a manufacturer of electrical products and a provider of galvanizing services today announced unaudited financial results for the three and six-month periods ended August 31, 2009. Revenues for the second quarter were $95.2 million compared to $103.3 million for the same quarter last year, a decrease of 7.8 percent. Net income for the second quarter was $11.1 million, or $0.89 per diluted share, compared to net income of $11.3 million, or $0.92 per share, in last year’s second quarter.

For the six-month period, the Company reported revenues of $190.6 million compared to $203.2 million for the comparable period last year, a decrease of 6.2 percent. Net income for the six months was $21.0 million, or $1.69 per share, compared to $21.4 million, or $1.74 per share in the comparable period of last year.

Backlog at the end of our second quarter ending August 31, 2009 was $139.4 million. Backlog at the end of the second quarter of fiscal 2009 was $190.8 million and $174.8 million at February 28, 2009. Incoming orders for the second quarter totaled $84.5 million while shipments totaled $95.2 million resulting in a book to ship ratio of 89 percent. For the first six months, orders totaled $155.2 million while shipments totaled $190.6 million, resulting in a year-to-date book to ship ratio of 81 percent. Based upon current customer requested delivery dates and our planned production schedule, 65 percent of our backlog is expected to ship in the current fiscal year. Of our $139.4 million backlog, 43 percent is to be delivered outside of the U.S.

Revenues for the Electrical and Industrial Products Segment increased 7 percent to $55.6 million for the second quarter ending August 31, 2009, compared to $52 million in the previous year’s second quarter. Operating income for the second quarter ending August 31, 2009, was $12.1 million, compared to $9.8 million in the second quarter of last year, an increase of 23 percent. Operating margins were 22 percent for the second quarter of fiscal 2010. For the first six months, revenues increased 7 percent to $111 million and operating income increased 28 percent to $22.6 million compared to $104 million and $17.7 million, respectively, for the first six months of the prior year. Operating margins for the first six months were 20 percent.

David H. Dingus, president and chief executive officer, commented, “The operating results for our Electrical and Industrial Products Segment continued at a very strong pace. The increase in domestic and international quotation activity which we reported in the first quarter of fiscal 2010 has continued into the second quarter. The primary increases have been in our power generation, transmission and distribution markets. While some of the increase can be attributed to the budgetary quotations of new projects that have yet to be released, it is still encouraging that overall project activity has increased. The release of the orders for new and existing projects remains sluggish and we have not seen any decrease in the extended evaluation period we have witnessed for the past nine months. We anticipate the slow and selective release of orders continuing into our third quarter. While it is difficult to forecast timing of order releases in current market conditions, we would anticipate that it will be the first quarter of our fiscal 2011 before we start seeing a rebuilding of our backlog. Our international quotations are strong and we did secure two significant international orders in the second quarter.”

Revenues for the Company’s Galvanizing Service Segment decreased 23 percent to $39.6 million for the second quarter ending August 31, 2009, compared to $51.3 million in the previous year’s comparable quarter. Operating income for this segment was $12.3 million, compared to $15.5 million in the same quarter last year, a decrease of 21 percent. Operating margins for the second quarter ending August 31, 2009 were 31 percent. For the first six months of fiscal 2010, revenues decreased 20 percent to $79.7 million, and operating income decreased 13 percent to $25.1 million, compared to $99.3 million and $28.8 million, respectively, for the first six months of the prior year. Operating margins for the six month period was 31.5%. Volume of steel processed decreased 15 percent, while average selling price decreased 5 percent when compared to the same six months period in the prior year.

Mr. Dingus continued, “Demand for our galvanizing services continues to be below the record setting pace of last year. Our continuing commitment to quality and service, close attention to all operating performance criteria and favorable cost of commodities, led to another outstanding margin performance quarter. The strategic actions that we have taken in this segment over the past few years have broadened our customer base and geographic presence. We believe this has and should continue to help us to offset some of the economic weakness in particular market areas.”

Mr. Dingus concluded, “As a company, we are extremely well positioned to take advantage of any improving market conditions. We are looking for opportunities to better our positioning with new products and new markets, and the strength of our balance sheet with $72 million in cash should increase our chances for success in implementation of our Strategic Plans. Based upon the evaluation of information currently available to management, we are revising our previously issued guidance for fiscal year 2010. Our earnings are estimated to be within the range of $3.00 and $3.10 per diluted share and revenues to be within the range of $370 million to $380 million. The previous estimates were for earnings to be within the range of $2.70 to $2.90 and revenues to be in the range of $370 million to $390 million. Our estimates assume that we will not have any appreciable change in our current market conditions, competitive activity or significant delays or timing in the receipt of orders of our electrical and industrial products, and demand for our galvanizing services.”

AZZ incorporated will conduct a conference call to discuss financial results for the second quarter of fiscal 2010 at 11:00 a.m. ET on September 25, 2009. Interested parties can access the call by dialing (800) 860-2442 or (412) 858-4600 (international). The call will be web cast via the Internet at www.azz.com/AZZinvest.htm. A replay of the call will be available for three days at (877) 344-7529, or (412) 317-0088 (international) confirmation #434004, or for 30 days at www.azz.com/AZZinvest.htm.

AZZ incorporated is a specialty electrical equipment manufacturer serving the global markets of industrial, power generation, transmission and distributions, as well as a leading provider of hot dip galvanizing services to the steel fabrication market nationwide.

Julian Robertson:

World Markets Fall On Potential Sustainability

HONG KONG (AP) – Global stock markets dropped Friday as leaders of the world’s 20 largest economies assembled in the U.S. to find ways to foster a healthy economic recovery.

European shares were modestly lower after Asian markets closed down, while the dollar fell against major currencies and oil prices gained slightly after a two-day plunge.

Asia’s move lower followed a fall on Wall Street, where investors pulled out of stocks amid worries about the sustainability of this year’s rally and news of an unexpected drop in sales of existing homes in August.

Investors are also increasingly nervous that governments will prematurely unwind emergency measures that have gotten money flowing through financial markets since the crisis erupted last year. This week, the U.S. Federal Reserve announced it would slow its purchases of mortgage-backed securities, while European Central Bank said it would curtail certain types of dollar-denominated loans.

Amid the concern, G-20 leaders were gathered for a two-day meeting in the U.S. dedicated to bringing about a strong and sustainable turnaround after the world’s worst downturn in decades. Both President Obama and British Prime Minister Gordon Brown said nations should not move too quickly to end low-interest rates, stimulus spending and other props.

“Much of the gains across asset classes so far this year – to levels not justified by fundamentals – have been a direct result of cheap and easily available funding,” Dariusz Kowalczyk, chief Investment strategist for SJS Markets in Hong Kong, wrote in a note. “News that the amount and availability of liquidity will be imminently limited caused fears that asset bubbles will be diffused sooner.”

As trade got under way in Europe, Britain’s FTSE was up 0.1 percent, Germany’s DAX fell 0.4 percent and France’s CAC-40 was down 0.2 percent.

In Japan, the Nikkei 225 stock index shed 278.24 points, or 2.6 percent, to 10,265.98 after Nomura, the country’s leading brokerage, announced its biggest shares sale ever, weighing on the broader market.

Hong Kong’s Hang Seng lost 0.1 percent to 21,024.40, and China’s Shanghai index dropped 0.5 percent.

Elsewhere, South Korea’s Kospi shed 0.1 percent, India’s Sensex edged lower by 0.1 percent and Indonesia’s index lost 1.0 percent. Taiwan and Australia’s markets were up 0.3 percent.

Overnight on Wall Street, the Dow fell 41.11, or 0.4 percent, to 9,707.44.

The S&P 500 index fell 10.09, or 1.0 percent, to 1,050.78, and the Nasdaq composite index fell 23.81, or 1.1 percent, to 2,107.61.

U.S. futures pointed to a higher open on Wall Street Friday. Dow futures were up 18 points, or 0.2 percent, at 9,653.

Oil prices clawed back some losses in Asia, with benchmark crude for November delivery up 33 cents at $66.22.

The dollar weakened to 90.53 yen from 91.26 yen. The euro gained to $1.4688 from $1.4661.

Oil Rises Slightly To Hover Around $66pb

By ALEX KENNEDY p {margin:12px 0px 0px 0px;}

SINGAPORE (AP) – Oil prices hovered near $66 a barrel Friday in Asia after investor concerns about U.S. crude demand sparked a two-day plunge.

Benchmark crude for November delivery was up 52 cents at $66.41 a barrel by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. On Thursday, the contract fell $3.08 to settle at $65.89, the lowest since July 29.

Oil fell $6.86 during Wednesday and Thursday after an unexpected increase in U.S. crude and gasoline supplies triggered doubts about consumer spending and the strength of the economic recovery.

“People have been too optimistic about the economy,” said Clarence Chu, a trader at market maker Hudson Capital Energy in Singapore. “The U.S. and Europe are still losing jobs every month.”

Crude has traded between $65 and $75 for months, a period of stability after prices soared to $147 in July 2008 before crashing to $32 in December.

“If next week’s inventory number shows another build, we could break below $65,” Chu said. “Until that happens, I still think we’re range bound.”

In other Nymex trading, gasoline for October delivery was steady at $1.64 a gallon, and heating oil held at $1.69 a gallon. Natural gas was up 2.5 cents to $3.98 per 1,000 cubic feet.

In London, Brent crude rose 56 cents to $65.41 on the ICE Futures exchange.

Sigapore’s Industrial Output Rises For A Second Consecutive Month

Industrial production in Singapore climbed for the second straight month on a yearly basis in August mainly due to a continued surge in biomedical output, an official report showed Friday.

The Economic Development Board of Singapore said industrial output grew 12.3% year-on-year in August, following the 17% rise in the preceding month. Economists had expected a 5% increase in output.

The yearly growth was largely attributed to an increase in biomedical manufacturing output. With the second largest share in overall industrial output, the biomedical manufacturing output surged 97.8%, mainly due to the strong performance in the pharmaceutical segment. Pharmaceutical output soared 108.1%, while output in the medical technology segment fell 7.5%.

At the same time, electronics output, having the largest share in the total, decreased 6.4% in August following the 5.9% fall in July. Declines in output continued in the precision engineering, transport engineering and general manufacturing industries, although at a slower pace. Transport engineering output dropped 2.5% compared to the 11.8% fall in the previous month. Precision engineering output decreased 12.7%, slower than the 16.2% slide in July, while output from general manufacturing industries was down 4.2%.

On a monthly basis, industrial output was down a seasonally adjusted 5.6% in August, in contrast to the upwardly revised 25.7% rise in the previous month, with the decline smaller than the 6.4% decline expected by economists. Cumulative industrial output in the first eight months of 2009 contracted by 6.7% compared to the corresponding period of the preceding year.

Yen Bonds Rise As Japan Begins To Relieve Stimulus

By Justin Carrigan

Sept. 25 (Bloomberg) — The yen and government bonds gained as central banks weighed withdrawing economic-stimulus measures that have helped buoy demand for riskier assets.

The Japanese currency rose against all 16 of its most- traded peers tracked by Bloomberg, strengthening to less than 90 per dollar, as of 11:26 a.m. in London. European bonds advanced, driving the yield on the German 10-year bund to the lowest level in almost two weeks. The Dow Jones Stoxx 600 Index of European shares added 0.2 percent after falling as much as 0.5 percent earlier. U.S. index futures climbed 0.4 percent.

Group of 20 leaders are meeting in Pittsburgh to discuss policy coordination and tighter banking regulation. Federal Reserve Governor Kevin Warsh said the U.S. may need to be as aggressive in reversing its actions to revive the economy as it was in starting. European Central Bank policy maker Yves Mersch said “timely preparation” is needed about when to raise rates and withdraw liquidity once money markets recover.

“If the world starts to believe that we are moving on from crisis management mode, the market could get sensitive about the timing of the retreat from the abnormal level of intervention,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a report.

The yen climbed 1.2 percent to trade as high as 89.97 per dollar, the first time it has breached 90 against the U.S. currency since Feb. 12. It advanced 1.5 percent against the pound and 1 percent compared with the euro. The pound fell against all 16 most-traded currencies.

Gilts Lead Gains

U.K. gilts led gains in government bonds, with the yield on the 10-year note dropping 3 basis points to 3.67 percent. The yield on the German 10-year bund declined 2 basis points to 3.28 percent, while the U.S. 10-year note yield fell 1 basis point to 3.37 percent.

The U.S. government and the Fed have spent, lent or committed more than $12 trillion in an effort to revive the economy and credit markets. Germany yesterday reduced its fourth-quarter debt-sale program, citing “improved funding conditions.”

The gains in U.S. futures indicated the Standard & Poor’s 500 Index will trim its weekly decline of 1.6 percent. A report today from the Commerce Department may show orders for U.S. durable goods rose in August for the fourth time in the past five months, economists said. New-home sales probably rose 1.6 percent to a 440,000 rate, a separate report may show……

G-20 Emerges As The New Go To Forum

By Hans Nichols and Simon Kennedy

Sept. 25 (Bloomberg) — World leaders will today announce the Group of 20 nations is replacing the G-8 as the main forum for global economic coordination, reflecting a shift in power from rich countries to emerging markets.

The decision, unveiled in a White House statement late yesterday, comes as President Barack Obama, Chinese President Hu Jintao and other leaders gather in Pittsburgh for their third summit in a year to reshape the governance of the world economy following the worst financial crisis since the Great Depression. The G-8 will still exist and may meet on separate matters such as security, a U.S. official said earlier.

The transfer of influence to the broader group, whose membership ranges from the U.S. to China to Saudi Arabia, symbolizes the fact that the richest industrial nations now lack the sway to govern the world economy alone after their excesses sparked the turmoil that tipped the globe into recession.

“The G-20 needs to prove it can make the tough calls and implement agreed outcomes in a timely fashion,” said Tim Adams, who served as the U.S. Treasury’s top international official under former Secretaries John Snow and Henry M. Paulson and is now managing director of the Lindsey Group. “I think it will succeed, but the G-20 must prove skeptics wrong and that will take time and effort.”

The G-20 accounts for about 85 percent of global gross domestic product and was created after a spate of currency devaluations plagued emerging markets from Russia to Thailand in the 1990s. The G-8 oversees about two thirds of global GDP.

‘One Chance’

“What we are trying to do is create a system for economic cooperation across the world,” U.K. Prime Minister Gordon Brown said yesterday. “We have this one chance to make a huge success of international cooperation.”…..

Unilever To Buy Sara Lee Unit

By Duane D. Stanford and Jeroen Molenaar

Sept. 25 (Bloomberg) — Unilever, the maker of Dove soap, agreed to buy Sara Lee Corp.’s personal-care and European detergent unit for 1.28 billion euros ($1.88 billion), gaining Sanex shower gel in its biggest purchase in nine years.

Unilever, based in London and Rotterdam, will pay cash for the business, which makes Duschdas and Radox soap and had sales of more than 750 million euros for the year ending June 2009, according to a statement today. Sara Lee, which has been shedding units to focus on coffee and food, said the proceeds would help it buy back up to $1 billion in stock.

The purchase is the largest by Chief Executive Officer Paul Polman since he took the reins at Unilever at the start of the year. He focused the company on winning back cash-strapped shoppers and boosting sales volumes by cutting prices, and was rewarded as the company unexpectedly posted volume growth in western Europe in the second quarter.

“We’re not convinced that this is the greatest collection of assets, but another acquisition shows Unilever is still moving from the back foot — cost cutting, disposals — to the front foot — volume growth, acquisitions,” Credit Suisse analysts said in an e-mailed note.

The deal is Unilever’s biggest acquisition since buying SlimFast Foods Co. and Ben & Jerry’s Homemade Inc. for a combined $2.6 billion in April 2000. Unilever’s brands besides food include Vaseline and Axe deodorants……

ANZ To Complete Full Purchase of ING

By Angus Whitley and Shani Raja

Sept. 25 (Bloomberg) — Australia & New Zealand Banking Group Ltd. agreed to buy ING Groep NV’s stake in their life insurance and wealth-management venture for A$1.76 billion ($1.5 billion) in the bank’s biggest acquisition since 2003.

Australia’s fourth-biggest lender will pay cash for ING’s 51 percent stake in ING Australia and ING New Zealand, the Melbourne-based bank said in a statement today. Amsterdam-based ING, which received a 10 billion euro ($14.6 billion) lifeline in October from the Netherlands, will book a profit of 300 million euros from the sale, it said in a statement.

Australian banks, which remained profitable throughout the financial crisis, have raised capital via share sales to help fund asset purchases from distressed sellers. ANZ Chief Executive Officer Mike Smith, who previously headed HSBC Holdings Plc’s Asian division, in August agreed to buy Royal Bank of Scotland Group Plc’s units in six Asian countries.

“ANZ is taking advantage of the retreat by international banks,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. The deal is “symptomatic of a very healthy domestic banking sector.”

ING, which is seeking to raise funds to repay the Dutch state, and ANZ merged their insurance and wealth management divisions in Australia and New Zealand in 2002. Under the terms of the joint venture, ANZ and ING were unable to independently undertake wealth management takeovers without opening the deal to the other partner.

‘More Attractive’

ING’s other businesses in Australia — ING Direct, ING Investment Management, ING Wholesale Banking and ING Real Estate — are not affected by the transaction, the Dutch company said……

Ford To Build A Plant in China

SHANGHAI (AP) – Ford Motor Co. said Friday it plans to spend $490 million on building a third assembly plant in China, ramping up production to meet surging demand in this fast-growing market as the U.S. automaker expands in Asia.

The factory, to be built in the central Chinese city of Chongqing, will make the next-generation Focus compact car, which Ford plans to sell globally.

The announcement from Chongqing came the day after the Dearborn, Michigan-based automaker unveiled a made-in-India compact car – part of a plan to boost sales in Asia, a region the U.S. automaker has hardly dented but is counting on to drive growth.

“Today’s announcement reinforces our commitment to the further expansion of our China operations to meet the continued rise in demand from Chinese consumers for world-class Ford products and services,” Ford chief executive Alan Mulally said in a statement.

In India earlier this week, Mulally said he expects a third of global car sales to come from Asia in 20 years, a third from the Americas and a third from Europe and Russia…..

Barclays To Buy Citi Assets in Portugal

By SARA SCHAEFER MUñOZ

Barclays PLC is in talks to buy some of Citigroup Inc.’s retail-banking assets in Portugal, including the American bank’s credit-card portfolio there, according to people familiar with the matter.

The deal, which could be announced as early as next week, would increase Barclays’s retail presence in southern Europe. Barclaycard, the bank’s credit-card business, has suffered fewer impairment charges than many of its peers since the onset of the financial crisis, and has eyed expansion in Western Europe and the U.S.

Spokespeople for Citi and Barclays declined to comment. It was unclear how much the assets would sell for, but people close to the matter suggested it is less than $100 million.

The move comes at a time when Barclays Capital, Barclays’s investment bank, has been expanding in the U.S., Europe and Asia, and analysts have said that Barclays may look for opportunities to expand its retail and commercial division to balance the company’s revenue stream.

The sale could auger more disposals by Citigroup as it exits pieces of its European businesses. In a recent presentation, Citigroup Chief Executive Vikram Pandit classified the bank’s Western Europe retail banking and cards portfolios as noncore assets.

U.S. Large Loan Losses Triple to $53bln

(Reuters) – U.S. regulators say that the level of losses from syndicated loans facing banks and other financial institutions tripled to $53 billion in 2009, due to poor underwriting standards and the continuing weakness in economic conditions.

According to the Shared National Credit Program (SNC) 2009 Review, an annual inter-agency report released on Thursday, credit quality deteriorated to record levels with respect to large loans and loan commitments.

The Shared National Credit Program which was set up in 1977 to review large syndicated loans now reviews and classifies all institutional loans of at least $20 million that are shared by three or more supervised institutions.

According to the report, criticized assets rated ‘special mention’, ‘substandard’, ‘doubtful’ and ‘loss’, touched $642 billion, representing 22.3 percent of the SNC portfolio, compared with 13.4 percent a year ago.

Classified assets rated ‘substandard’, ‘doubtful’, and ‘loss,’ rose to $447 billion from $163 billion in 2008.

The volume of SNCs rated ‘doubtful’ and ‘loss’ in 2009 rose almost 14-fold to $110 billion, while non-accrual loans touched $172 billion, up from $22 billion in 2008.

The report also said foreign banks held about 38 percent of the $2.9 trillion in loans, while hedge funds, pension funds, insurance companies and other entities held about 21 percent.

The report also said that non-banks continued to hold a “disproportionate share” of classified assets compared with their total share of the SNC portfolio. They hold 47 percent of loans seen as ‘substandard’, ‘doubtful’ and ‘loss’.

The SNC review is prepared by the Federal Reserve Board of Governors, Federal Deposit Insurance Corp (FDIC), Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS)

The Fed May Have To Raise Rates Sooner Than Expected

PITTSBURGH (Reuters) – The U.S. Federal Reserve may have to raise interest rates from their currently ultra-low setting near zero before the need to take action becomes obvious, Fed Board Governor Kevin Warsh said on Thursday.

Warsh, in an op-ed published in the Wall Street Journal a day after the Fed left rates unchanged and declared the U.S. economic recovery under way, said the central bank was at “a critical transition period, of still unknown duration.”

“I would hazard the view that prudent risk management indicates that policy likely will need to begin normalization before it is obvious that it is necessary, possibly with greater force than is customary,” Warsh said.

The Fed on Wednesday said that growth had resumed after a severe economic downturn, and Warsh echoed this line while emphasizing that inflation remained in check, allowing policy-makers to leave rates low while the recovery builds.

“Longer-term inflation expectations are stable, and economic conditions are likely to warrant exceptionally low levels of the federal-funds rate for an extended period,” Warsh said, repeating the Fed’s Wednesday policy statement.

He said financial markets could provide better forward-looking guides to the development of growth and price pressures than traditional economic data, and picked out asset prices and credit spreads as two important gauges. U.S. stock markets are up 50 percent since March and credit spreads have narrowed.

In addition to cutting interest rates to the bone, the Fed pumped hundreds of billions of dollars into financial markets to prevent them from seizing up during last year’s crisis, doubling the size of its balance sheet to over $2 trillion.

“Policy makers should acknowledge the heightened costs of policy error. The stakes are high, in part, because the policy accommodation that requires timely removal as the economy rebounds is substantial,” Warsh said.

Critics fear that massive increases in liquidity represented in the boost in the size of the Fed’s balance sheet could spark inflation as growth picks up steam.

The Fed has said it will exit from its massive monetary expansion to prevent inflation taking hold.

“Policy makers should continue to communicate as clearly as possible the guideposts, conditions and means by which extraordinary monetary accommodation will be unwound, including the removal of excess bank reserves,” Warsh said.

The Vampire Squid to Benefit From Derivatives Regulation

(Reuters) – Goldman Sachs Group Inc (NYSE:GS – News) expects to benefit from the new over-the-counter derivatives and commodity trading rules owing to its strong technology position, said a Citigroup analyst, who met with Goldman management, and raised his earnings outlook for the bank.

“Standardized central clearing of OTC derivatives are likely to force a major electronification of derivatives trading, which may play to Goldman’s advantage given their existing technology platform and expertise in high volume electronic trading,” Citigroup analyst Keith Horowitz said.

Taming the over-the-counter (OTC) derivatives market — a “shadow banking system” of enormous size now largely beyond government reach — is a key part of a push for tighter government oversight of banks and capital markets under way now for six months.

“Standardized” OTC derivatives would go through clearinghouses at regulated exchanges to reduce the risk of default. OTC derivatives are complex instruments whose value is based on an underlying asset.

Horowitz, who recently met with Goldman’s Chief Financial Officer David Viniar, said the new rules, which could set mandatory minimum collateral and margin requirements, if enacted are expected to benefit the bank relative to its peers.

Goldman has historically had among the most stringent collateral and margin terms versus more generous peers, who too often cut deals with easy credit terms to win business, said Horowitz, who also met Goldman’s Chief Operating Officer Gary Cohn and investment banking head David Solomon.

“We are more optimistic on Goldman’s long-term prospects and gained comfort that worst-case outcomes from regulatory reform are unlikely to materialize and structurally impair returns,” Horowitz wrote in a note to clients.

Global policymakers agree that the OTC derivatives market should be regulated after a type of derivative, credit default swaps, led to insurer American International Group’s (NYSE:AIG – News) near collapse and $180 billion government bailout.

The analyst raised his earnings estimate for Goldman by 20 cents to $4.20 a share for the third quarter, and by 25 cents to $5 a share for the fourth.

He kept his “buy” rating and target of $215 on the stock. Goldman shares closed at $183.06 Thursday on the New York Stock Exchange.

More Trouble Ahead For Housing

Guest post from The Decline And Fall of Western Civilization:

This factoid from Mark Hanson:

Let me frame this… in the bubble years existing sales $500k and over were common. In CA alone, from early 2005 to late 2007, the average house price was over $450k. Total sales were huge then too…over 700k nationally in many summer months.

In July 2009 there were only 460k single family (ex-condo) sales – by the way that was down from June’s 465k, but that got lost in the housing bottom headlines. Of the 460k houses sold, only 12k or roughly 2.5% had a purchase price over $500k. I don’t have inventory numbers on houses for sale over $500k but even at 5% of the total inventory that is 1.75 years of supply. Oh, and by the way in CA alone last month there was close to 12k NODs on props over $500k.

This 2.5% sales rate goes to underscore how insignificant (and ruined in many cases) the organic move-up/across buyer has become due to epidemic negative equity and absolute lack of affordability through exotic finance. Unless he can sell and re-buy he will remain gone.

But what really is negative equity? Unlike the bubble years when zero down or a 100% HELOC after the purchase in order to replenish savings was the norm, today’s buyer has to sell for enough to cover the Realtor cost and the 20% down needed to buy most mid-to-high end houses using new vintage loans. Most analysts look at the reported negative-equity figures as the tipping point — it’s not.

If homeowners can’t sell for enough to pay a Realtor 6%, extract the down on the new property, and pay for moving costs they are effectively in a negative equity position. Homeowners know this — a homeowner that has only 15% equity knows they are trapped in their house. We are still learning what this realization does to spending habits, as the focus for many becomes ‘how do I earn or save my way out of this’.

When looking at neg-equity if you move the bar down to 90%, 80%, or even 74% (6% Realtor fee + 20% down) then it changes everything. The vast majority of homeowners in the nation become stuck (see chart below). Without these existing homeowners active in the real estate market, we will never find a true bottom.

Hanson is painting a picture of a residential real estate market in a death spiral. With some states seeing a sizable majority of potential homebuyers frozen out of the housing market by negative equity, there will be effectively no (ie, net negative) move-up or organic homebuying. Folks with less than 25% equity in a house that can be sold today cannot even move laterally, much less trade up, without adding capital that (for the most part) they don’t have to spare. So mid- to high-end homes become completely illiquid assets at anything like current prices — and illiquidity will drive prices further south as supply overwhelms demand. With prices declining further, banks will tighten lending standards further — the era of the 30% down payment is already here in the blighted coastal states, and it figures to spread, moving the bar yet further away for the trapped. There is furthermore a demographic trend at work, as savings-light empty-nest baby boomers divest themselves of the grand houses that characterized their materialistic phase and move to downsize in an effort to raise capital and lower expenses in advance of old age. And so the vicious cycle perpetuates itself.

The end result will i think be a massive compression in price differentials between small and large homes. Square footage, greatrooms, stainless-and-granite professional kitchens and fourth bedrooms were at a huge premium in the boom; in the bust the functional essence of a home, the roof it provides, will likely become the focal point to the relative devaluation of all extraneous components. It would not surprise me if, in the most afflicted markets, large houses actually exchange more cheaply than mid-size units, reflecting the significant differential in operating costs and taxes.

That may seem like great news if you’re waiting out the housing bust from the sidelines and renting your way to, if not prosperity, at least smaller losses. but the effect of further significant declines in house prices on the properties to which the banks are perhaps most exposed has utterly no positive effect for credit quality and therefore the economy.

Source: Decline And Fall Of Western Civilization

* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.

From the Cato Institute