Business Headlines For October 5, 2009

Asian Markets  Trade Mixed With Major Indices Down on Tech & Commodities

By Jonathan Burgos and Masaki Kondo

Oct. 5 (Bloomberg) — Asian stocks fell for a third day, led by technology and mining companies, as economist Nouriel Roubini said share prices may drop and a report showed the U.S. lost more jobs than estimated.

Samsung Electronics Co., which gets 19 percent of sales from America, slumped 5.7 percent in Seoul. Mitsui & Co., which counts commodities as its biggest source of profit, lost 3.4 percent after oil and metal prices decreased. Hana Financial Group Inc. tumbled 14 percent after the Maeil Business Newspaper reported it may sell new shares.

The MSCI Asia Pacific Index declined 0.8 percent to 113.57 as of 6:18 p.m. in Tokyo, extending its three-day slump to 3.8 percent. The gauge fell 2.8 percent last week, the most since the five days ended Aug. 21, on concern a seven-month rally had outpaced the prospects for a revival in the global economy.

“The expectations of recovery that gave the market an extra boost have come apart,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which oversees the equivalent of $14 billion. “Resource shares won’t rise until we see a vigorous recovery in demand.”

South Korea’s Kospi Index dropped 2.3 percent, while Singapore’s Straits Times Index lost 0.8 percent. Australia’s S&P/ASX 200 Index fell 0.6 percent. Hong Kong’s Hang Seng index added 0.3 percent. China’s markets are closed for a holiday.

Japan’s Nikkei 225 Stock Average dropped 0.6 percent. Bearing maker Nachi-Fujikoshi Corp. and tool manufacturer Mori Seki Co. fell more than 3 percent on loss reports. Among stocks that gained, Nomura Holdings Inc., Japan’s biggest brokerage, rose 11 percent as it finalized details of a share-sale. Fast Retailing Co. climbed 15 percent after sales surged.

U.S. Economy

Futures on the Standard & Poor’s 500 Index added 0.5 percent. The gauge retreated 0.5 percent on Oct. 2 after a Labor Department report showed payrolls dropped more than economists had estimated in September. Orders placed with U.S. factories fell 0.8 percent in August, the Commerce Department said, while economists had forecast orders would be unchanged…..

European Markets Trade To The Upside

By Adria Cimino

Oct. 5 (Bloomberg) — European stocks gained after the region’s manufacturing and service industries expanded more than initially estimated and investors speculated service businesses in America also stabilized. U.S. index futures rose.

Telenor ASA, the biggest Nordic phone company, surged 12 percent after ending a dispute over control of OAO VimpelCom, Russia’s second-largest mobile company. Iberia Lineas Aereas de Espana SA and Bouygues SA advanced after Bank of America Corp. recommended the shares. Swedbank AB and SEB AB, the biggest banks in the Baltic region, dropped more than 3 percent after a report that Swedish Finance Minister Anders Borg warned Swedish lenders of an imminent political crisis in Latvia.

Europe’s Dow Jones Stoxx 600 Index added 0.4 percent to 235.09 at 10:37 a.m. in London. Futures on the Standard & Poor’s 500 Index gained 0.5 percent before a report that may show services industries, the largest share of the U.S. economy, stabilized in September after contracting for almost a year. Asian stocks retreated after Nouriel Roubini said equity markets may decline.

“I think there’s 20 to 30 percent upside in certain share prices,” Chris McGale, head of European equities at Pali International Ltd. in London, said in a Bloomberg Television interview. “You have to pick within sectors. From here, we have to look at balance sheets and earnings power.”

The MSCI Asia Pacific Index slid 0.8 percent as Roubini, the New York University Professor who predicted the financial crisis, said stock and commodity markets may drop in coming months as the gradual pace of the economic recovery disappoints investors.

‘Too Much, Too Soon’

“Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”…..

Oil Trades Unch. @ $70pb

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

The dollar fell to a 5-day low of 1.4656 against the euro in early deals on Monday. The near term support for the US currency is seen around the 1.472 level. At Friday’s close, the euro-dollar pair was quoted at 1.4579.

The Eurostat reported that Euro-zone retail sales declined 0.2% month-on-month in August, matching the pace registered in July. Economists were looking for a larger fall of 0.4%.

Year-on-year, retail sales were down 2.6% in August, after a revised 1.9% decline in the previous month. Initially, the July decline was recorded as 1.8%.

During early deals on Monday, the dollar slipped to a 4-day low of 1.6027 against the pound. The next downside target level for the dollar is seen at 1.613. The pound-dollar pair was worth 1.5933 at last week’s close.

The pound edged up as a survey conducted by the Confederation of British Industry revealed that financial services firms showed the first signs of recovery after reporting decline in business volumes and profitability for almost two years. ……

Japan’s Nomura Raises $5bln to Expand in the U.S.

By Takahiko Hyuga

Oct. 5 (Bloomberg) — Nomura Holdings Inc., Japan’s biggest brokerage, will sell as much as 454.4 billion yen ($5.1 billion) of stock at a 4.1 percent discount to today’s closing price as it seeks money to finance expansion in the U.S.

Nomura will sell 800 million shares to local and overseas investors at 568 yen apiece, according to statements filed to the Ministry of Finance. Shares in the company, which said Sept. 24 it planned to raise as much as 511.3 billion yen, closed at 592 yen on the Tokyo Stock Exchange today.

The sale is the second this year by Chief Executive Officer Kenichi Watanabe, who reported a record 708.2 billion yen loss for the 12 months through March. Nomura, which bought bankrupt Lehman Brothers Holdings Inc.’s operations in Asia and Europe a year ago, tumbled the most in at least 35 years after announcing the offering.

Nomura will raise 433 billion yen from the offering after deducting costs, it said today. As many as 400 million shares will be sold to overseas investors, 366 million in Japan, with a further 34 million available to meet excess demand, according to the statements.

Watanabe, who plans to use some of the funds to expand in fixed income, equities and investment banking in the U.S., told about 70 investors on Sept. 29 that he wouldn’t rule out using acquisitions to expand there.

He also expressed confidence about second-quarter earnings, saying the company’s performance for July and August was “not bad,” according to two people who attended the meeting.

Citigroup Global Markets Japan Inc. is underwriting the share sale, along with Mizuho Securities Co., Mitsubishi UFJ Securities Co. and JPMorgan Chase & Co.

Nomura’s sale follows a March offering that raised about 270 billion yen and was the brokerage’s first sale of common stock in 20 years.

The stock, which has fallen 52 percent during the past 12 months, tumbled 16 percent the day after the offering announcement, the steepest one-day decline since at least 1974.

European PMI Expands More Than Expected

By Emma Ross-Thomas

Oct. 5 (Bloomberg) — Europe’s manufacturing and services industries expanded more than initially estimated in September, adding to signs the economy is gaining steam after the worst recession in six decades.

A composite index of both industries in the euro-area economy rose to 51.1, up from 50.4 in August and higher than an initial estimate of 50.8, London-based Markit Economics said today in a statement. A reading above 50 indicates expansion and the gauge, which is based on a survey of purchasing managers, had remained below that level for 14 months before topping it in August. Economists had projected the index would rise to 50.9 in September, according to a Bloomberg News survey.

The euro-area economy barely contracted in the second quarter as Germany and France returned to growth. The region’s gross domestic product will expand 0.3 percent in 2010, the International Monetary Fund said on Oct. 1, as it trimmed its estimate for this year’s contraction to 4.2 percent from the 4.8 percent it forecast in July.

“We see a good chance that GDP growth outperforms the survey data in the third and fourth quarters,” said Ken Wattret, chief euro-zone economist at BNP Paribas in London. “The underlying condition of the economy remains poor, however,” and a weak labor market is “an obstacle to sustained growth,” he said.

‘Encouraging Signs’….

Private Equity Raises Nearly $2bln For Toxic Debt

By Robert Schmidt

Oct. 5 (Bloomberg) — The U.S. Treasury Department will announce today that AllianceBernstein Holding LP, BlackRock Inc. and Wellington Management Co. have raised a combined $1.94 billion for their funds participating in the U.S. effort to buy toxic assets from banks.

By getting that money from private investors, the three firms will qualify for federal funds under the Public Private Investment Program. The U.S. will match the funds each money manager raised, and provide debt financing that will give them a combined purchasing power of $7.74 billion.

The program, known as PPIP, is a scaled-down effort to spur the purchase of devalued real estate loans and mortgage-backed securities that weighed on banks’ balance sheets and helped cause the financial crisis. The Treasury once envisioned the partnerships buying as much as $1 trillion of the assets.

“The PPIP continues to grow,” Herb Allison, assistant Treasury secretary for financial stability, said in a statement. “Private capital is being drawn into the market for legacy securities, and taxpayers are being given a chance to share in the profits.”

Last week, Invesco Ltd. and TCW Group Inc. became the first two companies in the PPIP to announce initial closings of their funds. Using the federal financing, the five partnerships will have about $12.3 billion in capital.

The department has said it expects the rest of the partnerships to announce closings throughout October.

After the initial closings, the funds will be able to have two more rounds of investment over the next six months that will be eligible for the Treasury’s matching equity and debt.

Treasury Secretary Timothy Geithner has committed as much as $30 billion in funding for PPIP from the $700 billion Troubled Asset Relief Program enacted a year ago.

BRCD Quietly Puts Itself on The Chopping Block… HPQ & ORCL May Be Interested

By JEFFREY MCCRACKEN and BEN WORTHEN

Data-storage and networking company Brocade Communications Systems Inc. has quietly put itself up for sale, people familiar with the matter said.

Hewlett-Packard Co. is among those kicking the tires, these people said. Other companies including Oracle Corp. may also be examining a purchase, said one of the people familiar with the matter. Brocade has a market capitalization of about $3.2 billion, and last year posted net income of $167 million on revenue of nearly $1.5 billion.

No deal is imminent, these people said, and Brocade could eventually decide not to complete a sale. A Brocade spokesman said the San Jose, Calif., company doesn’t comment on rumors and speculation.

The tech industry is in the midst of a long-predicted consolidation. Dell Inc. last month announced a nearly $4 billion agreement to acquire tech-services provider Perot Systems Corp. Dell’s willingness to pay a 68% premium for Perot underscored the sense of urgency Dell felt to expand its services business.

The following week, Xerox Inc. made a move into services by agreeing to buy Affiliated Computer Services for close to $6.4 billion, and days later, Cisco reached a nearly $3 billion deal to buy Norway’s Tandberg, which sells videoconferencing equipment, in an effort to step up a rivalry with H-P.

Brocade makes equipment that links computer networks to data-storage centers. The company expanded its portfolio by acquiring Foundry Networks Inc. late last year…..

HSBC To Liquidate Properties in The Western World

By PATRICIA KOWSMANN

LONDON — HSBC Holdings PLC said Monday it will sell its headquarters building in New York to Israeli investment holding company IDB Group for $330 million.

The U.K. bank said it is also evaluating offers to sell its headquarters in London and an office building in Paris.

Under the agreement with IDB Group, HSBC Bank USA will lease back the entire New York building for one year, and floors one to 11 for 10 years. The deal for the 452 Fifth Ave. tower, which has 865,000 square feet and over 29 stories, is expected to close in the first quarter.

HSBC has escaped the credit crisis relatively unscathed, thanks to its exposure to resilient economies in Asia and a strong balance sheet.

The bank is seeking to expand some businesses and is among the bidders to buy ING Groep NV’s private banking assets in Asia and Europe, which could be worth about $2 billion, according to people familiar with the situation.

In 2007, HSBC negotiated a deal for the sale and leaseback of its global headquarters in London. But because of market disruption, financial arrangements couldn’t be completed for the deal, which was valued at £1.09 billion ($1.73 billion). The agreement was terminated in December and HSBC regained title to the Canary Wharf building, which has an area of 1.1 million square feet.

GS Wins While Small Biz & Tapayers Get Hosed If CIT Goes Bust

As if we needed yet another example of how the taxpayer should have been better protected when bailing out Wall Street last fall…

If CIT goes bust, Goldman Sachs will get a $1 billion “make-whole” payment for an earlier emergency capital infusion.

The U.S. taxpayer, meanwhile, who should have been entitled to the usual last-in-first-out protection any private investor would have demanded (as Goldman did), will lose $2.3 billion.

Henny Sender and Saskia Scholtes, FT: Goldman Sachs stands to receive a payment of $1bn – while US taxpayers would lose $2.3bn – if embattled commercial lender CIT files for Chapter 11 bankruptcy protection, people familiar with the matter said.

The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis. The potential loss for taxpayers would be the biggest to crystalise so far from the government’s capital injection plan for banks.

The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a make-whole amount” that totals $1bn, the people familiar with the matter said.

While Goldman is entitled to demand the full amount, it is likely to agree to postpone payment on a part of that sum, these people added. A CIT filing last week said that it was in negotiations with Goldman “ concerning an amendment to this facility”.

Keep reading >

Roubini States Markets Are Way Ahead of Themselves

The economy won’t live up to the stock market’s V-shaped dreams, and when that becomes apparent, watch out, says Nouriel Roubini.

Bloomberg: “Markets have gone up too much, too soon, too fast,” Roubini said in an interview in Istanbul on Oct. 3. “I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U- shaped. That might be in the fourth quarter or the first quarter of next year.”

…

“The real economy is barely recovering while markets are going this way,” Roubini said. If growth doesn’t rebound rapidly, “eventually markets are going to flatten out and correct to valuations that are justified. I see a growing gap between what markets are doing and the weaker real economic activities.”

Though the rally hasn’t done Roubini’s career any favors, he could very well be right here. Last week the market got whacked pretty hard amid a growing sense that the data wasn’t coming in nearly as robust as people would like. The weak jobs report was just one piece, but there were several other indicators of a creaking recovery, and one that would be particularly fragile without pull-it-forward policies like Cash-For-Clunkers.

Geithner Vows To Do Everything to Save The Dollar

A few months ago, when Tim Geithner was on a bond-selling trip to China, he pledged that the US would repay the Chinese in full, prompting howls of laughter from the university in attendance at his speech.

We presume his international counterparts in Europe were more respectful when he told them basically the same thing.

Bloomberg: The U.S. will do “everything necessary” to maintain confidence in its currency, he told reporters after attending a meeting of counterparts and central bankers from the Group of Seven in Istanbul. This includes reining in budget deficits over time to put the country on a more “sustainable” path, he said.

“It is very important to the United States that we continue to have a strong dollar,” Geithner said. “We recognize that the dollar’s important role in the system conveys special burdens and responsibilities on us and we are going to do everything necessary to make sure we sustain confidence.”

There are so many interesting aspects to all this, the first being that he has to say this in the first place. This follows Bernanke’s testimony on the hill, when he was asked repeatedly about the future of the US Dollar. Basically, everyone’s obsessed with the dollar right now.

But beyond that, the foreign central bankers know that Geithner is writing a check he can’t credibly cash. It’s not under his ability to get deficits under control. With our broken down political system, and an inability to make hard choices, nobody has the power.

We can always hope, of course, but then we’ve heard that isn’t really much of a strategy.

U.S. Officials Exaggerate The Health of U.S. Banks

Senior U.S. officials deliberately created the impression last year that banks receiving huge government cash infusions were healthier than was the case, a Treasury Department watchdog’s report released Monday said.

As a result, the government and the bailout lost public credibility when the financial crisis deepened.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke said at the time that their dramatic force-feeding of $125 billion into nine banks in October 2008 was a program for “healthy” institutions.

Privately senior officials worried about the health of some of those firms, Treasury’s Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky, said.

“By stating expressly that the ‘healthy’ institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions’ condition and their ability to increase lending,” the report said. Paulson won approval from Congress to spend $700 billion to repair the financial system.

CNBC.com

However, the decision to use the money from the Troubled Asset Relief Program, or TARP, to recapitalize banks, rather than to buy assets tainted by association with defaulted credits, was controversial.

The New York Fed, which was at the time headed by current Treasury Secretary Timothy Geithner played a key role in developing the capital injections program, Barofsky’s report said.

Officials said they shifted strategy because capital infusions were the fastest and most effective way to stabilize the financial system. The report accepts that reasoning. But privately, officials worried about the health of several of the nine, the report says.

Paulson thought one firm, which has since paid back its government infusion, might fail. Banks that caused concern are not named in the report.

The Treasury and the Troubled Asset Relief Program lost credibility when the recipients of those capital infusions failed to start lending again and when firms including Citigroup cnbc_comboQuoteMove(‘popup_C_ID0EECAC15839609’);[C 4.52 -0.01 (-0.22%) ]
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and Bank of America needed further life support, the report said.

Danger of Panic

Officials were understandably reluctant to stigmatize any bank by saying it was weak, which could have created a panic at an already chaotic time, Barofsky’s report said.

However, “government officials should be particularly careful, even in time of crisis, of describing their actions (and the rationales for such actions) in an accurate manner,” he said.

Fed General Counsel Scott Alvarez, in a response, acknowledged transparency and effective communication with the public were important to restoring and maintaining public confidence during a crisis.

The Treasury official in charge of administering the TARP program, Herbert Allison, signaled dissent from the report’s conclusion, saying that “people may differ” on how comments about the banks should have been phrased.

The report found no indication that government officials advised Bank of America cnbc_comboQuoteMove(‘popup_BAC_ID0ETKAC15839609’);[BAC 16.34 0.13 (+0.8%) ]
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to withhold information about losses at Merrill Lynch, which it bought in January, from shareholders.

Bank of America considered walking away from the Merrill deal when it discovered the losses, but came under government pressure to complete the merger.

The possibility that the government may have leaned on Bank of America to keep quiet about Merrill’s losses, was the theme of tense congressional hearings this summer and the issue remains in the spotlight.

New York Attorney General Andrew Cuomo last month subpoenaed current and former Bank of America directors and a judge has rejected Bank of America’s $33 million settlement with the Securities and Exchange Commission over charges it lied to shareholders about bonuses.

European Banks May Have To Raise $78bln According To JPM

European banks may raise an additional $78 billion in capital over the next six months as they attempt to boost capital ratios towards levels proposed under the globally agreed Basel II bank capital rules, J.P. Morgan Securities said.

Banks appear focused on a revised minimum Core Tier 1 ratio — a standard of capital held against risky assets — of 8 percent that could lead to potential capital raising of $78 billion, of which $38 billion will be to repay government funds and $40 billion will be fresh capital, JP Morgan said.

With an expected capital need of $17 billion at Germany’s Commerzbank, $10 billion at Allied Irish Banks, $7 billion at Bank of Ireland and $6 billion at France’s Societe Generale, the four account for 52 percent of the total capital requirement seen for European banks, JP Morgan analysts said.

The Group of 20 leading industrial and emerging market countries agreed in September to finalize new capital rules by the end of 2010 and set an end-2012 date for implementing the tougher capital rules for banks.

The Basel Committee on Banking Supervision, which drew up Basel II, is set to finalize major changes to the framework by the end of this year, with actual higher levels of capital requirements set or calibrated by the end of 2010.

Sharon Lorimer

Banks will have to hold more and higher quality capital, cap leverage and comply with minimum liquidity standards.

Last month, UniCredit proposed a 4 billion euro capital increase, a move that would boost Italy’s biggest bank’s Core Tier 1 ratio by around 80 basis points.

The ratio was 6.85 percent in the first half of the year…..

HSBC Worries Over a Second Downturn

HSBC Chief Executive Michael Geoghegan is cautious about “growing too fast” because he fears a second economic downturn could force the bank to make write-downs, he said in an interview with the Financial Times.

Sharon Lorimer

Geoghegan told the FT he thought recovery would be W-shaped rather than V-shaped.

Geoghegan said that if he is right, “we have to be very careful we don’t grow the balance sheet so far before the recovery has come, only to write it back into the impairment line later on. I’m cautious about growing too fast,” the FT quoted him as saying.

The FT said another senior executive told it that he expected HSBC to make medium-sized acquisitions a priority, with troubled banks’ subsidiaries an area of interest. He highlighted “bits of Lloyds and Royal Bank of Scotland,” the FT said.

Rally Made of Quicksand As Insiders Sell ?

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