Keppel Land International (Keppel Land) and Bellingham Marine Industries
(Bellingham) have signed a Memorandum of Understanding (MOU) to enter
into a strategic partnership where Bellingham will design and construct premier
marinas within Keppel Land's Waterfront properties in the region, where
appropriate. Under the agreement, Bellingham will provide Keppel Land with design, project management and
construction expertise for world-class marinas, the first being Marina at Keppel Bay, located within the Keppel Bay
Precinct.
Thursday, January 17, 2008
latest news of Cosco
COSCO Corporation announced that its 51%-owned COSCO Shipyard Group
(“CSG”) had signed an investment agreement with Jiangsu Qidong Municipal
Government (Nantong, Jiangsu Province) for the expansion of the offshore
construction base of COSCO (Nantong) Shipyard Co. Ltd (“COSCO
Nantong”), CSG’s subsidiary. The new yard is located at the entrance of
Yangtze River and covers an area of 2 million square meters along 2km of
coastline. It will focus on offshore projects including the construction of oil &
gas related equipments such as semi-submersible rig, jack-up rig and other
floaters.
(“CSG”) had signed an investment agreement with Jiangsu Qidong Municipal
Government (Nantong, Jiangsu Province) for the expansion of the offshore
construction base of COSCO (Nantong) Shipyard Co. Ltd (“COSCO
Nantong”), CSG’s subsidiary. The new yard is located at the entrance of
Yangtze River and covers an area of 2 million square meters along 2km of
coastline. It will focus on offshore projects including the construction of oil &
gas related equipments such as semi-submersible rig, jack-up rig and other
floaters.
Singapore Dollar to Reach 27-Year High on MAS Policy, UBS Says
By Lilian Karunungan and David Yong
Jan. 17 (Bloomberg) -- The Singapore dollar will gain to the strongest in at least 27 years in 2008 as the central bank curbs inflation and investors seek to profit from the city-state's economic growth, according to UBS AG.
The currency will climb 4.2 percent this year to S$1.38 against the U.S. dollar, UBS, the world's second-biggest trader of foreign exchange, forecast in a research report. Singapore's dollar has advanced 2.8 percent since the central bank said in its semi-annual review on Oct. 10 that it would allow ``slightly'' faster appreciation in the currency.
Singapore's inflation reached the highest in 25 years in November as prices of food, housing and transportation costs rose. Fixed-asset investment in Southeast Asia's fourth-largest economy reached a record last year as property developers built new office towers and condominiums and companies such as Exxon Mobil Corp. set up new factories.
Asia's domestic-driven growth stories such as Singapore's will lure global investors to safer assets and boost fund inflows, Chiou Yi Chang, a UBS economist based in Singapore, said in an interview yesterday. ``Expectations of currency appreciation have further incurred strong money inflows.''
The local dollar traded at S$1.4309 against the U.S. currency as of 1 p.m. in Singapore, according to data compiled by Bloomberg. It reached S$1.4263 on Jan. 11, the highest since June 1997. The currency has risen 0.5 percent this year, adding to a 6.7 percent advance in 2007.
Inflation Context
The Monetary Authority of Singapore uses the exchange rate instead of interest rates to guide monetary policy, allowing the local dollar to move within an undisclosed band against a basket of currencies of the island's biggest trading partners.
``In the current context of high inflation, we would be expecting the exchange rate to remain at the top of the policy band until mid-2008,'' UBS said in a Jan. 15 research report.
Singapore's dollar rose 3.4 percent in the three months ended December, the best quarterly gain of 2007, and the second- fastest pace among Southeast Asian currencies following the October MAS review. Only the Philippine peso did better.
The central bank seeks to prevent the dollar from rising or falling outside of the band, raising speculation the MAS buys and sells its currency to control the exchange rate. The currency gained 2.6 percent in October, before slowing to 0.2 percent and 0.6 percent in November and December, respectively.
Singapore has almost $163 billion in foreign-exchange reserves, the seventh-biggest in the Asia-Pacific region and the most among Southeast Asian countries.
Singapore's consumer price index rose 4.2 percent in November from a year earlier, versus 3.6 percent in October, the statistics department said on Dec. 24.
Inflation may accelerate to 5 percent in the first half, before averaging out at 3.5 percent for 2008, Chang said.
Jan. 17 (Bloomberg) -- The Singapore dollar will gain to the strongest in at least 27 years in 2008 as the central bank curbs inflation and investors seek to profit from the city-state's economic growth, according to UBS AG.
The currency will climb 4.2 percent this year to S$1.38 against the U.S. dollar, UBS, the world's second-biggest trader of foreign exchange, forecast in a research report. Singapore's dollar has advanced 2.8 percent since the central bank said in its semi-annual review on Oct. 10 that it would allow ``slightly'' faster appreciation in the currency.
Singapore's inflation reached the highest in 25 years in November as prices of food, housing and transportation costs rose. Fixed-asset investment in Southeast Asia's fourth-largest economy reached a record last year as property developers built new office towers and condominiums and companies such as Exxon Mobil Corp. set up new factories.
Asia's domestic-driven growth stories such as Singapore's will lure global investors to safer assets and boost fund inflows, Chiou Yi Chang, a UBS economist based in Singapore, said in an interview yesterday. ``Expectations of currency appreciation have further incurred strong money inflows.''
The local dollar traded at S$1.4309 against the U.S. currency as of 1 p.m. in Singapore, according to data compiled by Bloomberg. It reached S$1.4263 on Jan. 11, the highest since June 1997. The currency has risen 0.5 percent this year, adding to a 6.7 percent advance in 2007.
Inflation Context
The Monetary Authority of Singapore uses the exchange rate instead of interest rates to guide monetary policy, allowing the local dollar to move within an undisclosed band against a basket of currencies of the island's biggest trading partners.
``In the current context of high inflation, we would be expecting the exchange rate to remain at the top of the policy band until mid-2008,'' UBS said in a Jan. 15 research report.
Singapore's dollar rose 3.4 percent in the three months ended December, the best quarterly gain of 2007, and the second- fastest pace among Southeast Asian currencies following the October MAS review. Only the Philippine peso did better.
The central bank seeks to prevent the dollar from rising or falling outside of the band, raising speculation the MAS buys and sells its currency to control the exchange rate. The currency gained 2.6 percent in October, before slowing to 0.2 percent and 0.6 percent in November and December, respectively.
Singapore has almost $163 billion in foreign-exchange reserves, the seventh-biggest in the Asia-Pacific region and the most among Southeast Asian countries.
Singapore's consumer price index rose 4.2 percent in November from a year earlier, versus 3.6 percent in October, the statistics department said on Dec. 24.
Inflation may accelerate to 5 percent in the first half, before averaging out at 3.5 percent for 2008, Chang said.
SembCorp Marine Ltd: Uncertainty still looms
As of 1 Nov 07, all of SembCorp Marine’s (SMM) forex positions had
been closed. The total potential realized loss announced was US$303m (or
S$439m), of which US$83m had been paid out to an undisclosed bank. On
account of the ongoing investigations, management has not indicated whether
they would be making a provision for forex losses in 2007. This aside, FY07
was an outstanding year for the group due to strong order momentum as well
as the expansion of its operations. The group will be releasing its FY07
results in the coming weeks and we are maintaining our FY07 and FY08
estimates for now.
been closed. The total potential realized loss announced was US$303m (or
S$439m), of which US$83m had been paid out to an undisclosed bank. On
account of the ongoing investigations, management has not indicated whether
they would be making a provision for forex losses in 2007. This aside, FY07
was an outstanding year for the group due to strong order momentum as well
as the expansion of its operations. The group will be releasing its FY07
results in the coming weeks and we are maintaining our FY07 and FY08
estimates for now.
Financials Daily - 17th Jan 2008
US: Technology and energy shares sent the Standard & Poor's 500 Index to its lowest level in 14 months on Intel Corp.'s worse-than-estimated sales forecast and a drop in oil prices.
Europe: European stocks slumped, led by commodity producers and chipmakers, for the biggest two-day decline since August after oil and metals prices fell and Intel Corp. forecast sales that missed analysts' estimates.
Asia: Asian stocks fell, extending a global rout, after an unexpected drop in U.S. retail sales added to concern the world's largest economy will enter a recession.
Commodities: Crude oil fell to a four-week low after a U.S. Energy Department report showed that supplies rose more than expected. Gold futures tumbled the most in almost nine weeks after prospects for an emergency interest-rate cut by the Federal Reserve faded, reducing the appeal of the precious metal as hedge against inflation. Silver also declined.
Europe: European stocks slumped, led by commodity producers and chipmakers, for the biggest two-day decline since August after oil and metals prices fell and Intel Corp. forecast sales that missed analysts' estimates.
Asia: Asian stocks fell, extending a global rout, after an unexpected drop in U.S. retail sales added to concern the world's largest economy will enter a recession.
Commodities: Crude oil fell to a four-week low after a U.S. Energy Department report showed that supplies rose more than expected. Gold futures tumbled the most in almost nine weeks after prospects for an emergency interest-rate cut by the Federal Reserve faded, reducing the appeal of the precious metal as hedge against inflation. Silver also declined.
Wednesday, January 16, 2008
Inflation Accelerated Last Year, but Jump Is Unlikely to Deter Fed
NEWS ALERT
from The Wall Street Journal
Jan. 16, 2008
The consumer price index rose 0.3% in December, the Labor Department said, as higher energy, food and medical bills took a toll on consumers. The core CPI, which excludes volatile food and energy prices, advanced 0.2%. Consumer prices soared at their fastest rate in almost two decades last year, rising 4.1% from a year earlier. Underlying prices crept 2.4% higher for 2007, suggesting some spillover from food and energy. Still, the inflation data aren't alarming enough to prevent the Fed from carrying out a fourth straight interest-rate reduction later this month amid signs that the housing slump has spread to the broader economy.
from The Wall Street Journal
Jan. 16, 2008
The consumer price index rose 0.3% in December, the Labor Department said, as higher energy, food and medical bills took a toll on consumers. The core CPI, which excludes volatile food and energy prices, advanced 0.2%. Consumer prices soared at their fastest rate in almost two decades last year, rising 4.1% from a year earlier. Underlying prices crept 2.4% higher for 2007, suggesting some spillover from food and energy. Still, the inflation data aren't alarming enough to prevent the Fed from carrying out a fourth straight interest-rate reduction later this month amid signs that the housing slump has spread to the broader economy.
Dollar Declines to 2 1/2-Year Low Against Yen on Credit Losses
By Lukanyo Mnyanda and Ron Harui
. 16 (Bloomberg) -- The dollar fell to a 2 1/2-year low against the yen as losses in credit markets widened and the U.S. showed more signs of sinking into recession.
The U.S. currency fell the most versus the yen and the Swiss franc on expectations Merrill Lynch & Co. and JPMorgan Chase & Co. will follow Citigroup Inc. in writing down the value of investments linked to U.S. mortgages. The yen climbed against Canadian dollar and the South Korean won as a slump in global stocks prompted investors to repay loans in the currency used to buy higher-yielding assets.
``Further weakness is in store for the dollar as financial companies underperform,'' said Kamal Sharma, a London-based currency strategist at Bank of America Corp. ``The equity markets are shaky and the yen should remain robust.''
The dollar dropped to 106.11 yen as of 9:35 a.m. in London, from 106.78 yesterday in New York. It touched 105.97, its first time below 106 since May 2005. The U.S. currency also traded at $1.4816 per euro from $1.4804 yesterday, when the euro reached $1.4922, the strongest since the record high of $1.4967 in November. The Swiss franc reached an all-time high of 1.0838 per dollar.
The yen rose to 157.21 per euro after reaching 157.20, the strongest since Sept. 11, from 158.08 yesterday. It also climbed 0.8 percent to 93.32 versus Australia's dollar and 1.25 percent to 81.93 against New Zealand's dollar. The MSCI Asia-Pacific Index of regional shares fell 3.6 percent.
Merrill will post a fourth-quarter loss of $3.23 billion tomorrow, while JPMorgan will report today a 29 percent drop in earnings to $3.21 billion, analysts estimate.
Fed Rate Bets
Bank of America Corp. lowered its forecast for the dollar in a research note yesterday because of market expectations for a recession. The second-largest U.S. bank cut its outlook for March 31 to $1.48 from $1.45 previously and to 109 yen from 112.
Fed funds futures contracts on the Chicago Board of Trade show a 100 percent likelihood the Fed will lower the target overnight lending rate between banks by at least a half- percentage point to 3.75 percent on Jan. 30. The chance of a cut to 3.5 percent is 40 percent, compared with zero a week ago.
The Fed may say today that industrial production fell 0.2 percent in December, after a 0.3 percent increase in November, according to a Bloomberg News survey of economists before the report due at 9:15 a.m. in Washington.
The Japanese currency reached the highest in four months versus the euro as rising volatility spurred investors to sell higher-yielding assets. Japan's benchmark interest rate of 0.5 percent compares with 4 percent in the 15-nation euro region and 8.25 percent in New Zealand.
`Cutting Foreign Assets'
``Investors don't want to take risks at this stage, with some of them probably cutting foreign assets,'' said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world's second-largest currency trader. The yen may advance to 157 per euro today, he forecast.
Volatility implied by one-month dollar-yen options rose to 14.75 percent, the highest since Nov. 27, from 13.65 percent yesterday. An increase in volatility may discourage carry trades as it implies greater exchange-rate fluctuation risk.
In carry trades, investors borrow in countries with lower interest rates and invest in those with higher borrowing costs, earning the spread between the two.
The euro extended this month's gain versus the dollar to 1.6 percent before a European report that may show inflation stayed at the highest in more than six years in December, backing the European Central Bank's case for higher interest rates.
ECB `Hawkish'
``The commentary from ECB officials in the past week has clearly been on the hawkish side,'' said John Horner, a currency strategist at Deutsche Bank AG in Sydney, in an interview with Bloomberg television. ``The risk that they see is rates may need to go up further. That should push the euro against the dollar through the $1.50 mark.''
The European Union's statistics office will say at 11 a.m. in Luxembourg the inflation rate in the euro area was 3.1 percent in December, unchanged from the preliminary estimate, according to a Bloomberg News survey of economists.
. 16 (Bloomberg) -- The dollar fell to a 2 1/2-year low against the yen as losses in credit markets widened and the U.S. showed more signs of sinking into recession.
The U.S. currency fell the most versus the yen and the Swiss franc on expectations Merrill Lynch & Co. and JPMorgan Chase & Co. will follow Citigroup Inc. in writing down the value of investments linked to U.S. mortgages. The yen climbed against Canadian dollar and the South Korean won as a slump in global stocks prompted investors to repay loans in the currency used to buy higher-yielding assets.
``Further weakness is in store for the dollar as financial companies underperform,'' said Kamal Sharma, a London-based currency strategist at Bank of America Corp. ``The equity markets are shaky and the yen should remain robust.''
The dollar dropped to 106.11 yen as of 9:35 a.m. in London, from 106.78 yesterday in New York. It touched 105.97, its first time below 106 since May 2005. The U.S. currency also traded at $1.4816 per euro from $1.4804 yesterday, when the euro reached $1.4922, the strongest since the record high of $1.4967 in November. The Swiss franc reached an all-time high of 1.0838 per dollar.
The yen rose to 157.21 per euro after reaching 157.20, the strongest since Sept. 11, from 158.08 yesterday. It also climbed 0.8 percent to 93.32 versus Australia's dollar and 1.25 percent to 81.93 against New Zealand's dollar. The MSCI Asia-Pacific Index of regional shares fell 3.6 percent.
Merrill will post a fourth-quarter loss of $3.23 billion tomorrow, while JPMorgan will report today a 29 percent drop in earnings to $3.21 billion, analysts estimate.
Fed Rate Bets
Bank of America Corp. lowered its forecast for the dollar in a research note yesterday because of market expectations for a recession. The second-largest U.S. bank cut its outlook for March 31 to $1.48 from $1.45 previously and to 109 yen from 112.
Fed funds futures contracts on the Chicago Board of Trade show a 100 percent likelihood the Fed will lower the target overnight lending rate between banks by at least a half- percentage point to 3.75 percent on Jan. 30. The chance of a cut to 3.5 percent is 40 percent, compared with zero a week ago.
The Fed may say today that industrial production fell 0.2 percent in December, after a 0.3 percent increase in November, according to a Bloomberg News survey of economists before the report due at 9:15 a.m. in Washington.
The Japanese currency reached the highest in four months versus the euro as rising volatility spurred investors to sell higher-yielding assets. Japan's benchmark interest rate of 0.5 percent compares with 4 percent in the 15-nation euro region and 8.25 percent in New Zealand.
`Cutting Foreign Assets'
``Investors don't want to take risks at this stage, with some of them probably cutting foreign assets,'' said Seiichiro Muta, director of foreign exchange in Tokyo at UBS AG, the world's second-largest currency trader. The yen may advance to 157 per euro today, he forecast.
Volatility implied by one-month dollar-yen options rose to 14.75 percent, the highest since Nov. 27, from 13.65 percent yesterday. An increase in volatility may discourage carry trades as it implies greater exchange-rate fluctuation risk.
In carry trades, investors borrow in countries with lower interest rates and invest in those with higher borrowing costs, earning the spread between the two.
The euro extended this month's gain versus the dollar to 1.6 percent before a European report that may show inflation stayed at the highest in more than six years in December, backing the European Central Bank's case for higher interest rates.
ECB `Hawkish'
``The commentary from ECB officials in the past week has clearly been on the hawkish side,'' said John Horner, a currency strategist at Deutsche Bank AG in Sydney, in an interview with Bloomberg television. ``The risk that they see is rates may need to go up further. That should push the euro against the dollar through the $1.50 mark.''
The European Union's statistics office will say at 11 a.m. in Luxembourg the inflation rate in the euro area was 3.1 percent in December, unchanged from the preliminary estimate, according to a Bloomberg News survey of economists.
STX Pan jumps on news of share migration
Shares of South Korean shipping firm STX Pan Ocean <028670.KS> rose as much as 13.1 percent to S$2.77 with 49.4 million shares traded after the company announced details on the migration of its shares between Singapore and Seoul.
Shares of STX Pan Ocean, which is also listed on the Seoul exchange, is trading in Singapore at around a 34 percent discount to its Korean counterpart.
By 0425 GMT, STX Pan Ocean shares were trading down 2.77 percent on the Korea Exchange, at 2,455 won.
A STX Pan Ocean spokeswoman said she could not give an exact timeline for the migration of shares, but a local dealer told Reuters it will take about two weeks.
Shares of STX Pan Ocean, which is also listed on the Seoul exchange, is trading in Singapore at around a 34 percent discount to its Korean counterpart.
By 0425 GMT, STX Pan Ocean shares were trading down 2.77 percent on the Korea Exchange, at 2,455 won.
A STX Pan Ocean spokeswoman said she could not give an exact timeline for the migration of shares, but a local dealer told Reuters it will take about two weeks.
SGX FALLS ON NEGATIVE BROKER CALLS
Shares of Singapore Exchange (SGX) tumbled as much as 7 percent to S$9.30, its lowest level in four and a half months, with 1.4 million traded after brokers downgraded the stock citing a potential slowdown in the market's turnover value.
Morgan Stanley has cut the target price for shares of SGX to S$10.50 from S$15, keeping its "equal weight" rating on the stock.
Goldman Sachs lowered its target share price to S$15.30 from S$18.40 and Macquarie Research cut the stock's target price to S$10.20 from S$11.10, but raised investor rating to "neutral" from "underperform".
"We believe a murkier U.S. outlook will likely dampen sentiment/turnover in the near term and lower the supportable valuation of SGX," Goldman Sachs analyst Darwin Lam wrote in a research note.
Singapore Exchange said its quarterly net profit almost doubled to beat expectations on a surge in stock and derivative trading, and said it will continue focusing on foreign listings in the city-state.
Morgan Stanley has cut the target price for shares of SGX to S$10.50 from S$15, keeping its "equal weight" rating on the stock.
Goldman Sachs lowered its target share price to S$15.30 from S$18.40 and Macquarie Research cut the stock's target price to S$10.20 from S$11.10, but raised investor rating to "neutral" from "underperform".
"We believe a murkier U.S. outlook will likely dampen sentiment/turnover in the near term and lower the supportable valuation of SGX," Goldman Sachs analyst Darwin Lam wrote in a research note.
Singapore Exchange said its quarterly net profit almost doubled to beat expectations on a surge in stock and derivative trading, and said it will continue focusing on foreign listings in the city-state.
Financials Daily-16th Jan 2008
US: The U.S. stock market resumed its January tumble after Citigroup Inc. reported a record loss, retail sales unexpectedly dropped and falling oil prices dragged down energy shares.
Europe: European stocks declined the most in almost eight weeks after Tesco Plc reported sales that trailed estimates, Hypo Real Estate Holding AG's profit dropped and reports signaled slowing regional and U.S. economic growth.
Asia: Asian stocks fell, led by Toyota Motor Corp. and Honda Motor Co., after the yen strengthened to the highest in seven weeks, eroding the value of the Japanese carmakers' overseas sales when converted into their home currency.
Commodities: Crude oil fell more than $2 a barrel in New York after a U.S. government report showed that retail sales unexpectedly declined last month and Saudi Arabia's oil minister said OPEC is ready to increase production. Gold futures fell from a record after the dollar rebounded against the euro and energy costs eased, reducing the appeal of the precious metal as an alternative investment. Silver also declined.
Currencies: The dollar fell to the lowest level since 2005 against the yen after U.S. retail sales dropped in December, bolstering speculation the economy is headed for recession.
Europe: European stocks declined the most in almost eight weeks after Tesco Plc reported sales that trailed estimates, Hypo Real Estate Holding AG's profit dropped and reports signaled slowing regional and U.S. economic growth.
Asia: Asian stocks fell, led by Toyota Motor Corp. and Honda Motor Co., after the yen strengthened to the highest in seven weeks, eroding the value of the Japanese carmakers' overseas sales when converted into their home currency.
Commodities: Crude oil fell more than $2 a barrel in New York after a U.S. government report showed that retail sales unexpectedly declined last month and Saudi Arabia's oil minister said OPEC is ready to increase production. Gold futures fell from a record after the dollar rebounded against the euro and energy costs eased, reducing the appeal of the precious metal as an alternative investment. Silver also declined.
Currencies: The dollar fell to the lowest level since 2005 against the yen after U.S. retail sales dropped in December, bolstering speculation the economy is headed for recession.
Tuesday, January 15, 2008
U.S. Retail Sales Unexpectedly Declined in December (Update)
By Bob Willis
Jan. 15 (Bloomberg) -- Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002.
Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.
Treasury notes rose and stock-index futures dropped as the figures underscored Federal Reserve Chairman Ben S. Bernanke's concern that risks to growth are intensifying. A sustained slump in consumer spending brought on by falling property values and rising unemployment would mean the end of the six-year expansion, economists say.
``Consumer spending slowed down pretty dramatically'' in the fourth quarter, said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who correctly forecast the drop in sales. ``We are kind of flying very close to a stall speed.''
Economists forecast retail sales would be unchanged, according to the median of 74 estimates. Projections ranged from a decline of 0.8 percent to a gain of 0.5 percent.
Yields on benchmark 10-year notes dropped to 3.72 percent at 8:55 a.m. in New York, from 3.77 percent late yesterday. Futures contracts on the Standard & Poor's 500 stock index expiring in March declined 1.1 percent to 1,404.40.
Producer Prices
Producer prices in the U.S. also dropped in December, against economists' forecasts for an increase. Wholesale prices fell 0.1 percent after a 3.2 percent surge in November that was the biggest in 34 years, a Labor Department report showed.
For all of 2007, retailers posted a 4.2 percent sales increase, the smallest in five years. Purchases rose 5.9 percent in 2006.
``Growth stalled out at the end of the fourth quarter and into the new year,'' Joshua Feinman, chief U.S. economist at Deutsche Asset Management in New York, said before the report. ``The economy will narrowly be able to avoid recession.''
Sales excluding automobiles were forecast to decrease 0.1 percent from the prior month, according to the survey median.
The drop in sales was led by a 2.9 percent decline at building-material stores, the biggest since February 2003, reflecting the slump in housing. Sales at clothing, electronics and sporting-goods stores were among those that also decreased.
Gas Stations
Purchases at service stations dropped 1.7 percent, which economists said reflected lower gasoline prices. The price of a gallon of regular gasoline in December averaged $3.01, down from $3.07 the previous month, according to AAA, a group representing motorists. Excluding gas, retail sales fell 0.2 percent.
Auto dealers saw a 0.4 percent decline in sales.
AutoNation Inc., the largest publicly traded U.S. car dealer, doesn't expect the nation's auto market to pull out of its slump until 2009, Chief Executive Officer Michael Jackson said from Fort Lauderdale, Florida.
The drop in housing and the slowing economy usually take ``30 to 40 months to work through,'' Jackson said in a Bloomberg Radio interview yesterday. ``So we've had declines in 2006, 2007 and 2008, but I'm feeling pretty good about 2009.''
Excluding autos, gasoline and building materials, the figures the government uses to calculate gross domestic product, sales increased 0.1 percent, following a 0.7 percent gain the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.
Spending Outlook
Consumer spending, which accounts for more than two-thirds of the economy, is likely to cool rather than collapse in coming months as the housing slump worsens and hiring slows, according to the median estimate of economists surveyed by Bloomberg News earlier this month.
Spending will grow at an annual rate of 1.6 percent this quarter, down from an estimated 2.6 percent pace in the last three months of 2007, according to the median estimate of economists surveyed by Bloomberg News this month. Spending expanded at an average 3.5 percent pace per quarter over the past decade.
The continued gains, together with increasing exports, will help the economy avoid recession, economists said. Fed rate cuts will ensure a short downturn should one occur, they said.
Bernanke on Jan. 10 pledged ``substantive additional action'' to insure against ``downside risks'' to the economic expansion.
Investors are certain the Fed will lower the benchmark interest rate by at least a half percentage point following two days of meetings of Jan. 29-30.
Wal-Mart
Discount retailers are benefiting as Americans rein in spending. Wal-Mart Stores Inc., the world's largest retailer, said Jan. 10 that its December sales were within its forecast after it lured shoppers with price cuts on more holiday items.
Purchases at chain stores in November-December rose at the slowest pace in five years, according to the International Council of Shopping Centers.
An early Thanksgiving boosted holiday shopping in November at the expense of December sales, economists such as Peter Kretzmer of Bank of America Corp. said. Additionally, gift cards bought over the last two months won't be reflected in the sales figures until they're redeemed in January or later.
The biggest housing recession in 16 years is reverberating across the economy as access to credit tightens, consumer and corporate demand weaken and job growth slows. Unemployment rose to 5 percent in December, a 0.3 point jump from November and a highest in two years, according to Labor Department figures.
The magnitude of the gain from a recent 4.4 percent trough prompted economists including Jan Hatzius of Goldman Sachs Group Inc. to warn that the economy may have already entered a recession.
``Recession has now arrived, or will very shortly,'' Hatzius wrote in a note to clients last week.
Jan. 15 (Bloomberg) -- Sales at U.S. retailers unexpectedly fell in December, capping the weakest year since 2002.
Sales dropped 0.4 percent, the first decline since June, following a revised 1 percent gain in November, the Commerce Department said today in Washington. Purchases excluding automobiles also decreased 0.4 percent.
Treasury notes rose and stock-index futures dropped as the figures underscored Federal Reserve Chairman Ben S. Bernanke's concern that risks to growth are intensifying. A sustained slump in consumer spending brought on by falling property values and rising unemployment would mean the end of the six-year expansion, economists say.
``Consumer spending slowed down pretty dramatically'' in the fourth quarter, said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts, who correctly forecast the drop in sales. ``We are kind of flying very close to a stall speed.''
Economists forecast retail sales would be unchanged, according to the median of 74 estimates. Projections ranged from a decline of 0.8 percent to a gain of 0.5 percent.
Yields on benchmark 10-year notes dropped to 3.72 percent at 8:55 a.m. in New York, from 3.77 percent late yesterday. Futures contracts on the Standard & Poor's 500 stock index expiring in March declined 1.1 percent to 1,404.40.
Producer Prices
Producer prices in the U.S. also dropped in December, against economists' forecasts for an increase. Wholesale prices fell 0.1 percent after a 3.2 percent surge in November that was the biggest in 34 years, a Labor Department report showed.
For all of 2007, retailers posted a 4.2 percent sales increase, the smallest in five years. Purchases rose 5.9 percent in 2006.
``Growth stalled out at the end of the fourth quarter and into the new year,'' Joshua Feinman, chief U.S. economist at Deutsche Asset Management in New York, said before the report. ``The economy will narrowly be able to avoid recession.''
Sales excluding automobiles were forecast to decrease 0.1 percent from the prior month, according to the survey median.
The drop in sales was led by a 2.9 percent decline at building-material stores, the biggest since February 2003, reflecting the slump in housing. Sales at clothing, electronics and sporting-goods stores were among those that also decreased.
Gas Stations
Purchases at service stations dropped 1.7 percent, which economists said reflected lower gasoline prices. The price of a gallon of regular gasoline in December averaged $3.01, down from $3.07 the previous month, according to AAA, a group representing motorists. Excluding gas, retail sales fell 0.2 percent.
Auto dealers saw a 0.4 percent decline in sales.
AutoNation Inc., the largest publicly traded U.S. car dealer, doesn't expect the nation's auto market to pull out of its slump until 2009, Chief Executive Officer Michael Jackson said from Fort Lauderdale, Florida.
The drop in housing and the slowing economy usually take ``30 to 40 months to work through,'' Jackson said in a Bloomberg Radio interview yesterday. ``So we've had declines in 2006, 2007 and 2008, but I'm feeling pretty good about 2009.''
Excluding autos, gasoline and building materials, the figures the government uses to calculate gross domestic product, sales increased 0.1 percent, following a 0.7 percent gain the month before. The government uses data from other sources to calculate the contribution from the three categories excluded.
Spending Outlook
Consumer spending, which accounts for more than two-thirds of the economy, is likely to cool rather than collapse in coming months as the housing slump worsens and hiring slows, according to the median estimate of economists surveyed by Bloomberg News earlier this month.
Spending will grow at an annual rate of 1.6 percent this quarter, down from an estimated 2.6 percent pace in the last three months of 2007, according to the median estimate of economists surveyed by Bloomberg News this month. Spending expanded at an average 3.5 percent pace per quarter over the past decade.
The continued gains, together with increasing exports, will help the economy avoid recession, economists said. Fed rate cuts will ensure a short downturn should one occur, they said.
Bernanke on Jan. 10 pledged ``substantive additional action'' to insure against ``downside risks'' to the economic expansion.
Investors are certain the Fed will lower the benchmark interest rate by at least a half percentage point following two days of meetings of Jan. 29-30.
Wal-Mart
Discount retailers are benefiting as Americans rein in spending. Wal-Mart Stores Inc., the world's largest retailer, said Jan. 10 that its December sales were within its forecast after it lured shoppers with price cuts on more holiday items.
Purchases at chain stores in November-December rose at the slowest pace in five years, according to the International Council of Shopping Centers.
An early Thanksgiving boosted holiday shopping in November at the expense of December sales, economists such as Peter Kretzmer of Bank of America Corp. said. Additionally, gift cards bought over the last two months won't be reflected in the sales figures until they're redeemed in January or later.
The biggest housing recession in 16 years is reverberating across the economy as access to credit tightens, consumer and corporate demand weaken and job growth slows. Unemployment rose to 5 percent in December, a 0.3 point jump from November and a highest in two years, according to Labor Department figures.
The magnitude of the gain from a recent 4.4 percent trough prompted economists including Jan Hatzius of Goldman Sachs Group Inc. to warn that the economy may have already entered a recession.
``Recession has now arrived, or will very shortly,'' Hatzius wrote in a note to clients last week.
Citigroup cuts dividend, and is raising $14.5 bln
Citigroup Inc on Tuesday cut its quarterly dividend 41 percent, and said it is raising $14.5 billion from offerings of convertible preferred securities.
The bank also posted its first quarterly loss since its creation in 1998, hurt by $18.1 billion of write-downs for exposure to subprime mortgages and other risky debt. The net loss for the largest U.S. bank totaled $9.83 billion, or $1.99 per share.
Citigroup reduced its quarterly dividend to 32 cents per share from 54 cents.
(Reporting by Jonathan Stempel; Editing by Derek Caney)
The bank also posted its first quarterly loss since its creation in 1998, hurt by $18.1 billion of write-downs for exposure to subprime mortgages and other risky debt. The net loss for the largest U.S. bank totaled $9.83 billion, or $1.99 per share.
Citigroup reduced its quarterly dividend to 32 cents per share from 54 cents.
(Reporting by Jonathan Stempel; Editing by Derek Caney)
Merrill Gets Capital Injections From Foreign Investors
NEWS ALERT
from The Wall Street Journal
Jan. 15, 2008
Merrill Lynch reached agreements for investments totaling $6.6 billion from investors including Korea Investment Corp., Kuwait Investment Authority, and Japan's Mizuho Corporate Bank. Merrill is only the latest Wall Street firm to seek funding from big, well-capitalized sources overseas. Citigroup, Morgan Stanley, Bear Stearns and Switzerland's UBS have each received cash injections from foreign investors.
"One of my main priorities over the last several weeks has been to ensure Merrill Lynch's balance sheet is strong, and these transactions make certain that Merrill Lynch is well-capitalized," said Merrill CEO John Thain.
from The Wall Street Journal
Jan. 15, 2008
Merrill Lynch reached agreements for investments totaling $6.6 billion from investors including Korea Investment Corp., Kuwait Investment Authority, and Japan's Mizuho Corporate Bank. Merrill is only the latest Wall Street firm to seek funding from big, well-capitalized sources overseas. Citigroup, Morgan Stanley, Bear Stearns and Switzerland's UBS have each received cash injections from foreign investors.
"One of my main priorities over the last several weeks has been to ensure Merrill Lynch's balance sheet is strong, and these transactions make certain that Merrill Lynch is well-capitalized," said Merrill CEO John Thain.
Commodities Daily 15th Jan 2008
Spotlight: Gold reached yet another record high as a declining dollar and expectations of further interest rate cuts spurred buying. Corn rose to the highest ever in Chicago while soybeans and feeder cattle fell. U.S. steel prices may rise more quickly than anticipated to $600 a ton. Cocoa rose to the highest price since 2003.
Energy: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. The euro settled at 1.4869 against the dollar yesterday. A 2 percent gain in heating prices also prompted traders to buy oil as colder weather shut schools and cancelled flights in Boston. In a survey of analysts, crude oil inventories probably gained 1.3 million barrels last week as refiners reduced output from a four-month high and imports rose. Gasoline and distillate inventories also gained, according to the survey.
Agriculture: Corn soared to record high levels yesterday as investors bought on speculation that global demand for feed and biofuel will exceed production for the seventh time in the past eight years. Corn futures for the active month March settled at 512 cents a bushel, up 17 cents from the previous limit-up session on Friday. Wheat futures ended slightly higher as traders continue to buy the new crop months July, narrowing the old/new crop spread. March wheat rose 7.75 cents to 917 cents a bushel while July limit-up for a second straight session, settling at 836 cents a bushel. Soybeans fell from a record high as U.S. and South American farmers increased sales to benefit from prices that rose 78 percent last year.
Precious Metals: Gold futures set new record highs yesterday, reaching a high of $915.90 an ounce before settling lower in earlier trade as a declining dollar increased demand for precious metals. The dollar fell as traders increased bets that the Federal Reserve will lower U.S. interest rates to avoid a recession. Fed funds futures contracts on the Chicago Board of Trade show 54 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting.
Industrial Metals: Copper rose for a second straight session as a weaker dollar increased the demand for raw materials as a hedge against inflation. Copper however, remains weighed down by increasing stockpiles and a stabilizing U.S. demand. Stockpiles monitored by the Comex have plunged 61 percent in the last year. Inventories tallied by the London Metal Exchange have dropped 0.4 percent in the past 12 months.
Energy: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. The euro settled at 1.4869 against the dollar yesterday. A 2 percent gain in heating prices also prompted traders to buy oil as colder weather shut schools and cancelled flights in Boston. In a survey of analysts, crude oil inventories probably gained 1.3 million barrels last week as refiners reduced output from a four-month high and imports rose. Gasoline and distillate inventories also gained, according to the survey.
Agriculture: Corn soared to record high levels yesterday as investors bought on speculation that global demand for feed and biofuel will exceed production for the seventh time in the past eight years. Corn futures for the active month March settled at 512 cents a bushel, up 17 cents from the previous limit-up session on Friday. Wheat futures ended slightly higher as traders continue to buy the new crop months July, narrowing the old/new crop spread. March wheat rose 7.75 cents to 917 cents a bushel while July limit-up for a second straight session, settling at 836 cents a bushel. Soybeans fell from a record high as U.S. and South American farmers increased sales to benefit from prices that rose 78 percent last year.
Precious Metals: Gold futures set new record highs yesterday, reaching a high of $915.90 an ounce before settling lower in earlier trade as a declining dollar increased demand for precious metals. The dollar fell as traders increased bets that the Federal Reserve will lower U.S. interest rates to avoid a recession. Fed funds futures contracts on the Chicago Board of Trade show 54 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting.
Industrial Metals: Copper rose for a second straight session as a weaker dollar increased the demand for raw materials as a hedge against inflation. Copper however, remains weighed down by increasing stockpiles and a stabilizing U.S. demand. Stockpiles monitored by the Comex have plunged 61 percent in the last year. Inventories tallied by the London Metal Exchange have dropped 0.4 percent in the past 12 months.
Economic Outlook 15th Jan 2008
Better-than-anticipated earnings news from IBM got equities off to a strong
start today. Optimism that the Fed will not let inflation fears keep it from
easing added fuel to the stock rally. Treasuries were mixed and little changed,
while the dollar took another step lower versus the euro and the yen.
Retail Sales and sales ex-autos for December will be released at 8:30
(Forecast +0.2%/+0.2%, Consensus unch/-0.1%). Retail sales surprised to the
upside in November, jumping 1.2% overall and 1.8% excluding autos. We estimate
the gains in December were much more modest, with the pace of holiday spending
petering out as the season progressed. We put December retail sales up 0.2%
both with and without motor vehicles. Gasoline sales are not likely to be a
large factor; we see the same 0.2% gain when gasoline is excluded.
The December Producer Price Index and core PPI are also due out at 8:30
(Forecast +0.1%/+0.1%, Consensus +0.2%/+0.2%). The December PPI should look
nothing like November's, when the index posted an energy-related rise of 3.2%.
Wholesale energy prices, which surged by 14.1% in November, probably edged up
only 0.2% last month. We put the headline December PPI at +0.1%. Excluding
food and energy, the core PPI should also be contained, rising an estimated 0.
1% in December after November's 0.4% gain. This would leave the core PPI
unchanged at +2.0% YoY through December.
January's Empire State Manufacturing Survey is also scheduled for 8:30
(Forecast +7.0, Consensus +10.0). This survey of manufacturers from the New
York region fell to 10.3 in December after posting strong readings above 25 in
five of the previous six months. Its average for all of 2007 was +17.1. For
January, we look for a further deterioration in the index to a nine-month low
of +7.0.
Business Inventories for November are due out at 10:00 (Forecast +0.4%,
Consensus +0.4%). Factory inventories jumped 0.8% in November, and we estimate
wholesale inventories rose 0.4%. We put retail inventories up 0.2% for the
month. These estimates leave us with an expected increase of 0.4% for total
business inventories in November. Looking forward, slowing inventory
accumulation is expected to subtract from GDP growth throughout the first half
of 2008.
start today. Optimism that the Fed will not let inflation fears keep it from
easing added fuel to the stock rally. Treasuries were mixed and little changed,
while the dollar took another step lower versus the euro and the yen.
Retail Sales and sales ex-autos for December will be released at 8:30
(Forecast +0.2%/+0.2%, Consensus unch/-0.1%). Retail sales surprised to the
upside in November, jumping 1.2% overall and 1.8% excluding autos. We estimate
the gains in December were much more modest, with the pace of holiday spending
petering out as the season progressed. We put December retail sales up 0.2%
both with and without motor vehicles. Gasoline sales are not likely to be a
large factor; we see the same 0.2% gain when gasoline is excluded.
The December Producer Price Index and core PPI are also due out at 8:30
(Forecast +0.1%/+0.1%, Consensus +0.2%/+0.2%). The December PPI should look
nothing like November's, when the index posted an energy-related rise of 3.2%.
Wholesale energy prices, which surged by 14.1% in November, probably edged up
only 0.2% last month. We put the headline December PPI at +0.1%. Excluding
food and energy, the core PPI should also be contained, rising an estimated 0.
1% in December after November's 0.4% gain. This would leave the core PPI
unchanged at +2.0% YoY through December.
January's Empire State Manufacturing Survey is also scheduled for 8:30
(Forecast +7.0, Consensus +10.0). This survey of manufacturers from the New
York region fell to 10.3 in December after posting strong readings above 25 in
five of the previous six months. Its average for all of 2007 was +17.1. For
January, we look for a further deterioration in the index to a nine-month low
of +7.0.
Business Inventories for November are due out at 10:00 (Forecast +0.4%,
Consensus +0.4%). Factory inventories jumped 0.8% in November, and we estimate
wholesale inventories rose 0.4%. We put retail inventories up 0.2% for the
month. These estimates leave us with an expected increase of 0.4% for total
business inventories in November. Looking forward, slowing inventory
accumulation is expected to subtract from GDP growth throughout the first half
of 2008.
Financials Daily 15th Jan 2008
US: U.S. stocks rallied, sending the Dow Jones Industrial Average and Nasdaq Composite Index to their biggest gains this year, after International Business Machines Corp.'s earnings beat forecasts.
Europe: European stocks rose for the first time in four days, led by technology companies, after sales for SAP AG and International Business Machines Corp. topped analysts' estimates.
Asia: Asian stocks fell to a three-week low, led by shipbuilders and oil producers, after Goldman Sachs Group Inc. cut its forecasts for regional growth on expectations the U.S. will fall into recession.
Commodities: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. Gold and platinum rose to records and cotton and corn surged as a declining dollar increased demand for precious metals and farm products as alternatives to stocks and bonds.
Currencies: The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.
Europe: European stocks rose for the first time in four days, led by technology companies, after sales for SAP AG and International Business Machines Corp. topped analysts' estimates.
Asia: Asian stocks fell to a three-week low, led by shipbuilders and oil producers, after Goldman Sachs Group Inc. cut its forecasts for regional growth on expectations the U.S. will fall into recession.
Commodities: Crude oil rose for the first time in four days after the dollar fell to within a cent of its all-time low against the euro, prompting investors to buy energy and metals futures as an inflation hedge. Gold and platinum rose to records and cotton and corn surged as a declining dollar increased demand for precious metals and farm products as alternatives to stocks and bonds.
Currencies: The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.
Citigroup Is Expected to Slash Dividend, Announce Write-Down
Citigroup is expected to announce a sizable dividend cut, cash infusion of at least $10 billion and write-down of as much as $20 billion in mortgage-related investments as part of its fourth-quarter earnings report, people familiar with the plans said.
Monday, January 14, 2008
Citigroup's Deal With China Development Bank May Be in Jeopardy
Citigroup Inc.'s plans to raise capital by selling a stake of about $2 billion to China Development Bank could be in jeopardy because of opposition from China's government, according to a person familiar with the situation. Citigroup is hoping to announce a capital injection from investors when it reports fourth-quarter earnings Tuesday.
Wall Street's $35 Billion Writedown Puts Squeeze on '08 Profits
By Bradley Keoun and Elizabeth Hester
Jan. 14 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.
The losses have depleted the banks' capital, forcing New York-based Citigroup and Merrill to seek more than $13 billion from foreign investors, and hobbled their ability to make new loans. Other sources of fees, including credit cards, are also in jeopardy as the U.S. economy slows, said CreditSights Inc. analyst David Hendler, who estimates Citigroup, Bank of America and Merrill won't earn more this year than they did in 2006.
``The banks are already operating like they're in a recession,'' by ratcheting back on trading and lending, said Adam Compton, who helps oversee $150 billion at San Francisco- based RCM Capital, which holds shares of Citigroup, Bank of America and Merrill. ``Everybody has tightened up tremendously.''
Citigroup may report a fourth-quarter loss tomorrow of $4 billion, the first for the largest U.S. bank since its commercial real estate holdings plummeted in value during the early 1990s, according to a survey of 8 analysts by Bloomberg. The company also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.
Merrill, the world's biggest brokerage, probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion loss reported in the third quarter, Stan O'Neal's last as chief executive officer, analysts estimate.
New CEOs
John Thain, O'Neal's replacement, may use the quarter's earnings to write down most remaining investments infected by subprime defaults, said Sandler O'Neill & Partners analyst Jeffrey Harte. Citigroup replaced CEO Charles O. ``Chuck'' Prince III with Vikram Pandit, who turns 51 today, a former investment banker with a Ph.D. in finance who has formed a dedicated task force to mitigate losses in the bank's subprime investments.
Prince, 58, resigned in early November when the bank said it might have $8 billion to $11 billion of subprime writedowns, based on a slide in prices for mortgage-related securities during October.
In a Nov. 15 interview, Thain, 52, said that in many market declines, ``asset prices tend to go much lower than they ultimately are worth, and it takes longer to work out of them than people think.''
Writedown Estimates
The loss at Citigroup may include almost $19 billion of writedowns on holdings of mortgage-related securities known as collateralized debt obligations, according to Goldman Sachs Group Inc. analyst William Tanona. Merrill was battered by $11.5 billion of writedowns, Tanona estimates.
Bank of America's fourth-quarter net income probably fell 79 percent to $1.08 billion, the biggest drop in at least a decade, according to a Bloomberg survey. Sanford C. Bernstein & Co. analyst Howard Mason estimates the bank had $5.5 billion of writedowns on mortgage-related securities.
Earnings per share would be 23 cents, the lowest since the Charlotte, North Carolina-based company was formed from the 1998 merger of BankAmerica and NationsBank, according to analysts' estimates. Citigroup was put together the same year through the combination of Travelers Group Inc. and Citicorp.
Bank of America, the second-biggest U.S. bank, increased its bet on the U.S. housing market last week when it agreed to acquire unprofitable mortgage lender Countrywide Financial Corp. of Calabasas, California, for about $4 billion.
JPMorgan's Outlook
Bank of America, led by 60-year-old CEO Ken Lewis, may face writedowns caused by the declining value of Countrywide's loan portfolio, said Sean Egan, managing director of Egan-Jones Rating Co. in Philadelphia. A 5 percent writedown on the portfolio would be more than $10 billion, or about half of Bank of America's 2006 profit of $21 billion, he said.
Even New York-based JPMorgan Chase & Co., the least damaged by the subprime losses, faces ``a challenging credit environment mired by further asset write-offs'' of $3.4 billion, Tanona wrote in a Dec. 26 report. JPMorgan's fourth-quarter earnings may drop 29 percent to $3.21 billion, the first decline in three years, analysts estimate.
JPMorgan fell 15 percent during the past 12 months in New York Stock Exchange composite trading, compared with Citigroup's 47 percent, Bank of America's 28 percent and Merrill's 43 percent.
Great Depression
Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business.
U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock market crash of October 1929. The industry lost about $500 million in 1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said.
Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bank holiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said.
Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.''
Abu Dhabi
``This is the classic credit crunch,'' Geisst said. ``It might not have gotten to credit cards, it might not have gotten to car loans, but it's coming.''
Citigroup, Bank of America and Merrill probably were profitable in 2007, earning about $23 billion on a combined basis, even after the second-half writedowns, according to Bloomberg data. The banks earned about $50 billion in 2006. They may earn $44.8 billion this year, analyst surveys by Bloomberg show.
Citigroup, which in November had to seek a $7.5 billion capital infusion from the ruling family of oil-rich Middle Eastern emirate Abu Dhabi, may have to cut shareholder dividends to maintain the capital cushion it keeps to absorb loan losses, Tanona wrote in a Dec. 26 note.
Even with the Abu Dhabi investment, Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, may fall to 7 percent by the end of this year, he estimated. While above the 6 percent needed to maintain its ``well-capitalized'' status from federal regulators, the capital ratio is below Citigroup's own target of 7.5 percent.
Fed Data
Bank of America's Tier 1 ratio fell to 8.22 percent in the third quarter, from 8.52 percent in the second quarter and 8.48 percent a year earlier. JPMorgan's ratio was 8.4 percent in the third quarter, down from 8.6 percent a year earlier.
The resulting tightfistedness at the banks may help push the U.S. economy toward recession, RCM's Compton said. In the third quarter, less than a tenth of U.S. bank loan officers witnessed ``substantially'' higher demand for commercial loans, down from more than 50 percent in the second quarter of 2005, CreditSights reported, citing data from the Federal Reserve.
The banks' ``willingness and ability to lend remain the leading issues for the risk and extent to which current turmoil in the financial credit markets spreads to the broader economy,'' wrote Jeffrey Rosenberg, Bank of America's senior debt-investing analyst, in a Dec. 20 report.
Loss Ratios
Profits may suffer as banks set aside higher reserves for bad loans, Sanford Bernstein's Mason wrote in a Dec. 31 report. Bank of America's net loss ratio on commercial loans this year may average 0.7 percent, compared with 0.42 percent in the third quarter and more than triple the rate of the fourth quarter of 2006, Mason estimated. Citigroup's losses on credit-card loans may climb to $7.6 billion this year from $6.4 billion last year and $5.8 billion in 2006.
``A lot of these banks have large consumer portfolios in addition to the subprime side,'' said Malcolm Polley, who helps oversee $1 billion at Stewart Capital Advisors in Pittsburgh, including Bank of America shares. ``As we sink closer to recession, consumer delinquencies are going to tick up.''
U.S. construction loans that were 30 days to 89 days overdue represented 0.7 percent of those outstanding in the third quarter, more than double the rate of a year earlier, according to analysts at Arlington, Virginia-based Friedman, Billings, Ramsey & Co. Delinquent commercial loans climbed to 0.36 percent from 0.3 percent in the same period.
Default Rates
The default rate on U.S. junk-grade corporate loans may reach 2 percent to 3 percent this year, compared with about 0.9 percent in 2007, according to Bank of America's Rosenberg.
``Credit deterioration will continue to pressure industry valuations well into 2008,'' Friedman Billings analysts James Abbott, David Rochester and Scott Cottrell wrote in the Jan. 3 report. ``Even modest upticks in delinquencies can drive lower returns.''
The banks misjudged how bad the home-loan market would get, and they accumulated more than $100 billion of AAA-rated securities they thought were safe. This quarter's writedowns may acknowledge that prices for mortgage bonds and collateralized debt obligations, which repackage assets such as buyout loans and mortgage bonds into new debt with varying risks, probably won't recover anytime soon, RCM's Compton said.
Asset Markdowns
Under U.S. accounting rules, banks and other financial firms have to take losses to ``mark'' the value of tradeable securities to current market prices. Morgan Stanley marked down some AAA-rated securities last month to as little as 30 cents on the dollar, while Zurich-based UBS AG, Switzerland's biggest bank, took marks as low as 22 cents, Credit Suisse analyst Susan Roth Katzke said in a Jan. 3 report.
Any holdings remaining after the fourth quarter may have to be written down further, said Andrew Seibert, who helps oversee $400 million at Nextier Wealth Management in Pittsburgh. He sold his bank stocks during the first half of 2007. Even after writing down subprime holdings by $11.5 billion in the fourth quarter, Merrill would have about $8 billion left, Tanona said.
``I don't think these guys actually know the total of the losses they have on the books,'' Seibert said. ``They're still digging through it all trying to figure out what's there.''
Jan. 14 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. may report their worst-ever quarter, beset by $35 billion of writedowns that threaten to crimp profit through 2008.
The losses have depleted the banks' capital, forcing New York-based Citigroup and Merrill to seek more than $13 billion from foreign investors, and hobbled their ability to make new loans. Other sources of fees, including credit cards, are also in jeopardy as the U.S. economy slows, said CreditSights Inc. analyst David Hendler, who estimates Citigroup, Bank of America and Merrill won't earn more this year than they did in 2006.
``The banks are already operating like they're in a recession,'' by ratcheting back on trading and lending, said Adam Compton, who helps oversee $150 billion at San Francisco- based RCM Capital, which holds shares of Citigroup, Bank of America and Merrill. ``Everybody has tightened up tremendously.''
Citigroup may report a fourth-quarter loss tomorrow of $4 billion, the first for the largest U.S. bank since its commercial real estate holdings plummeted in value during the early 1990s, according to a survey of 8 analysts by Bloomberg. The company also may announce that it received a new cash infusion of as much as $10 billion from investors in China and the Middle East, the Wall Street Journal reported on Jan. 11, citing people familiar with the matter.
Merrill, the world's biggest brokerage, probably will post a loss of $3.23 billion on Jan. 17, topping the record $2.24 billion loss reported in the third quarter, Stan O'Neal's last as chief executive officer, analysts estimate.
New CEOs
John Thain, O'Neal's replacement, may use the quarter's earnings to write down most remaining investments infected by subprime defaults, said Sandler O'Neill & Partners analyst Jeffrey Harte. Citigroup replaced CEO Charles O. ``Chuck'' Prince III with Vikram Pandit, who turns 51 today, a former investment banker with a Ph.D. in finance who has formed a dedicated task force to mitigate losses in the bank's subprime investments.
Prince, 58, resigned in early November when the bank said it might have $8 billion to $11 billion of subprime writedowns, based on a slide in prices for mortgage-related securities during October.
In a Nov. 15 interview, Thain, 52, said that in many market declines, ``asset prices tend to go much lower than they ultimately are worth, and it takes longer to work out of them than people think.''
Writedown Estimates
The loss at Citigroup may include almost $19 billion of writedowns on holdings of mortgage-related securities known as collateralized debt obligations, according to Goldman Sachs Group Inc. analyst William Tanona. Merrill was battered by $11.5 billion of writedowns, Tanona estimates.
Bank of America's fourth-quarter net income probably fell 79 percent to $1.08 billion, the biggest drop in at least a decade, according to a Bloomberg survey. Sanford C. Bernstein & Co. analyst Howard Mason estimates the bank had $5.5 billion of writedowns on mortgage-related securities.
Earnings per share would be 23 cents, the lowest since the Charlotte, North Carolina-based company was formed from the 1998 merger of BankAmerica and NationsBank, according to analysts' estimates. Citigroup was put together the same year through the combination of Travelers Group Inc. and Citicorp.
Bank of America, the second-biggest U.S. bank, increased its bet on the U.S. housing market last week when it agreed to acquire unprofitable mortgage lender Countrywide Financial Corp. of Calabasas, California, for about $4 billion.
JPMorgan's Outlook
Bank of America, led by 60-year-old CEO Ken Lewis, may face writedowns caused by the declining value of Countrywide's loan portfolio, said Sean Egan, managing director of Egan-Jones Rating Co. in Philadelphia. A 5 percent writedown on the portfolio would be more than $10 billion, or about half of Bank of America's 2006 profit of $21 billion, he said.
Even New York-based JPMorgan Chase & Co., the least damaged by the subprime losses, faces ``a challenging credit environment mired by further asset write-offs'' of $3.4 billion, Tanona wrote in a Dec. 26 report. JPMorgan's fourth-quarter earnings may drop 29 percent to $3.21 billion, the first decline in three years, analysts estimate.
JPMorgan fell 15 percent during the past 12 months in New York Stock Exchange composite trading, compared with Citigroup's 47 percent, Bank of America's 28 percent and Merrill's 43 percent.
Great Depression
Banks haven't lost this much money, in relative terms, since the Great Depression, said Richard Sylla, a professor of the history of financial institutions and markets at New York University's Stern School of Business.
U.S. banks, insurers and real-estate companies earned about $1 billion a year during the 1920s until the stock market crash of October 1929. The industry lost about $500 million in 1930, $1.7 billion in 1931, and $2 billion in 1932, Sylla said.
Within days of being inaugurated in March 1933, President Franklin Roosevelt issued an emergency order declaring a ``bank holiday'' to stem a run on deposits. About 7,000 banks, or a third of the U.S. total, failed and financial companies didn't return to profitability until 1936, Sylla said.
Last year's collapse of the subprime mortgage market was worse than the third-world debt crisis of the early 1980s, when soaring oil prices and surging interest rates pushed Mexico and other developing countries into default on their loans, said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of ``100 Years of Wall Street.''
Abu Dhabi
``This is the classic credit crunch,'' Geisst said. ``It might not have gotten to credit cards, it might not have gotten to car loans, but it's coming.''
Citigroup, Bank of America and Merrill probably were profitable in 2007, earning about $23 billion on a combined basis, even after the second-half writedowns, according to Bloomberg data. The banks earned about $50 billion in 2006. They may earn $44.8 billion this year, analyst surveys by Bloomberg show.
Citigroup, which in November had to seek a $7.5 billion capital infusion from the ruling family of oil-rich Middle Eastern emirate Abu Dhabi, may have to cut shareholder dividends to maintain the capital cushion it keeps to absorb loan losses, Tanona wrote in a Dec. 26 note.
Even with the Abu Dhabi investment, Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, may fall to 7 percent by the end of this year, he estimated. While above the 6 percent needed to maintain its ``well-capitalized'' status from federal regulators, the capital ratio is below Citigroup's own target of 7.5 percent.
Fed Data
Bank of America's Tier 1 ratio fell to 8.22 percent in the third quarter, from 8.52 percent in the second quarter and 8.48 percent a year earlier. JPMorgan's ratio was 8.4 percent in the third quarter, down from 8.6 percent a year earlier.
The resulting tightfistedness at the banks may help push the U.S. economy toward recession, RCM's Compton said. In the third quarter, less than a tenth of U.S. bank loan officers witnessed ``substantially'' higher demand for commercial loans, down from more than 50 percent in the second quarter of 2005, CreditSights reported, citing data from the Federal Reserve.
The banks' ``willingness and ability to lend remain the leading issues for the risk and extent to which current turmoil in the financial credit markets spreads to the broader economy,'' wrote Jeffrey Rosenberg, Bank of America's senior debt-investing analyst, in a Dec. 20 report.
Loss Ratios
Profits may suffer as banks set aside higher reserves for bad loans, Sanford Bernstein's Mason wrote in a Dec. 31 report. Bank of America's net loss ratio on commercial loans this year may average 0.7 percent, compared with 0.42 percent in the third quarter and more than triple the rate of the fourth quarter of 2006, Mason estimated. Citigroup's losses on credit-card loans may climb to $7.6 billion this year from $6.4 billion last year and $5.8 billion in 2006.
``A lot of these banks have large consumer portfolios in addition to the subprime side,'' said Malcolm Polley, who helps oversee $1 billion at Stewart Capital Advisors in Pittsburgh, including Bank of America shares. ``As we sink closer to recession, consumer delinquencies are going to tick up.''
U.S. construction loans that were 30 days to 89 days overdue represented 0.7 percent of those outstanding in the third quarter, more than double the rate of a year earlier, according to analysts at Arlington, Virginia-based Friedman, Billings, Ramsey & Co. Delinquent commercial loans climbed to 0.36 percent from 0.3 percent in the same period.
Default Rates
The default rate on U.S. junk-grade corporate loans may reach 2 percent to 3 percent this year, compared with about 0.9 percent in 2007, according to Bank of America's Rosenberg.
``Credit deterioration will continue to pressure industry valuations well into 2008,'' Friedman Billings analysts James Abbott, David Rochester and Scott Cottrell wrote in the Jan. 3 report. ``Even modest upticks in delinquencies can drive lower returns.''
The banks misjudged how bad the home-loan market would get, and they accumulated more than $100 billion of AAA-rated securities they thought were safe. This quarter's writedowns may acknowledge that prices for mortgage bonds and collateralized debt obligations, which repackage assets such as buyout loans and mortgage bonds into new debt with varying risks, probably won't recover anytime soon, RCM's Compton said.
Asset Markdowns
Under U.S. accounting rules, banks and other financial firms have to take losses to ``mark'' the value of tradeable securities to current market prices. Morgan Stanley marked down some AAA-rated securities last month to as little as 30 cents on the dollar, while Zurich-based UBS AG, Switzerland's biggest bank, took marks as low as 22 cents, Credit Suisse analyst Susan Roth Katzke said in a Jan. 3 report.
Any holdings remaining after the fourth quarter may have to be written down further, said Andrew Seibert, who helps oversee $400 million at Nextier Wealth Management in Pittsburgh. He sold his bank stocks during the first half of 2007. Even after writing down subprime holdings by $11.5 billion in the fourth quarter, Merrill would have about $8 billion left, Tanona said.
``I don't think these guys actually know the total of the losses they have on the books,'' Seibert said. ``They're still digging through it all trying to figure out what's there.''
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