(Reuters) - Back in March, Wells Fargo & Co Chairman Dick Kovacevich scoffed at being pressured into taking $25 billion of taxpayer money from the government, saying his bank was healthy and didn't need it.
Now, the fourth-largest U.S. bank may find itself unable to get free of the government's clutches for some time.
The bank said on Thursday it would need $13.7 billion of capital, in light of results from the U.S. government stress test, and that it plans to sell $6 billion of common stock. The bank plans to make up the rest from internal sources like earnings.
The stress test findings give more fuel to short sellers who for months have argued that there are dangerous risks lurking on Wells Fargo's balance sheet.
And even though investors like Warren Buffett have demonstrated great faith in Wells Fargo's earnings power, government entanglement may weigh on the bank's performance in the near term, analysts said.
"Government involvement is a real impediment to doing business," said Anton Schutz, president of Mendon Capital, a fund manager focusing on financial stocks.
"Wells Fargo has tremendous earnings power, but the government's role makes valuing the company very difficult."
To investors shorting Wells Fargo, the extra capital requirements come as no surprise.
Wells Fargo has nearly $130 billion of home equity loans on its books, about a quarter of which are in California, the epicenter of the nation's housing crisis.
That loan book is about three times larger than the bank's tangible common equity, which means heavier-than-expected losses could have a big impact.
In the first quarter, as many banks were adding heavily to their loss reserves, Wells Fargo boosted its reserves by just $1.3 billion, meaning it was writing off bad loans almost as fast as it was setting aside money for them.
And the bank at December 31 had about $270 billion of off-balance sheet entities such as asset-backed commercial conduits and collateralized debt obligations that could move onto its balance sheet.
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Thursday, May 7, 2009
More FBI agents sought to probe financial crimes
(Reuters) - The U.S. Justice Department's proposed $26.7 billion budget for fiscal 2010 included more FBI agents to investigate mortgage fraud and white-collar crime, Attorney General Eric Holder said on Thursday.
In prepared testimony to a Senate appropriations subcommittee, Holder said the 3.8 percent increase in the total budget from the previous year included more money for combating financial fraud and for a number of other areas.
Increased funding would be used for "additional federal prosecutors, civil litigators and bankruptcy attorneys to protect investors, the market, the federal government's investment of resources in the financial crisis and the American public," he said.
The FBI has said it has 43 corporate fraud cases under investigation directly related to the financial crisis, and they include allegations of financial statement manipulation, accounting fraud and insider trading.
FBI Director Robert Mueller told Congress in late March the law enforcement agency is bracing for a wave of fraud and corruption cases stemming from the government's multitrillion-dollar effort to stimulate the economy and bail out financial institutions.
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In prepared testimony to a Senate appropriations subcommittee, Holder said the 3.8 percent increase in the total budget from the previous year included more money for combating financial fraud and for a number of other areas.
Increased funding would be used for "additional federal prosecutors, civil litigators and bankruptcy attorneys to protect investors, the market, the federal government's investment of resources in the financial crisis and the American public," he said.
The FBI has said it has 43 corporate fraud cases under investigation directly related to the financial crisis, and they include allegations of financial statement manipulation, accounting fraud and insider trading.
FBI Director Robert Mueller told Congress in late March the law enforcement agency is bracing for a wave of fraud and corruption cases stemming from the government's multitrillion-dollar effort to stimulate the economy and bail out financial institutions.
Read more here
Oil Set for Biggest Weekly Gain Since March on Demand Optimism
(Bloomberg) -- Crude oil rose for a third day in New York, poised for the biggest weekly gain since March, on signs the global economy may be starting to recover.
Oil has advanced this week after reports showed fewer Americans filed claims for unemployment benefits, China’s manufacturing expanded for the first time in nine months and Australia’s jobless rate unexpectedly dropped last month.
“We are getting a bit of a consistent run of slightly better-than-expected economic data out of the U.S.,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “Oil is maybe moving to a higher trading range, pushing through what looked like a key resistance level of $55 a barrel.”
Crude oil for June delivery rose as much as 68 cents, or 1.2 percent, to $57.39 a barrel in electronic trading on the New York Mercantile Exchange, and was at $57.27 at 11:20 a.m. Singapore time.
Oil is set to reach $62.65 a barrel “in the near future” and rally to $78 within six months as prices retrace the surge that started in 1998, according to technical analysis by PVM Oil Associates Ltd.
Yesterday, oil closed at $56.71, the highest settlement since Nov. 14. Prices have gained 7.6 percent this week, poised for the largest gain since the week ended March 20, and are up 28 percent this year.
Intraday High
Crude retreated from an intraday high of $58.57 yesterday as declines in U.S. financial, telephone and technology shares snuffed out an early rally. The S&P 500, which has risen 34 percent from a 12-year-low in March, slid 1.3 percent to 907.39. The Dow Jones Industrial Average decreased 1.2 percent to 8,409.85.
Prices earlier climbed on signs that U.S. refiners were ramping up production ahead of the peak driving demand season this summer. Processors increased their utilization by 2.7 percentage points to 85.3 percent last week, the Energy Department said in a May 6 report.
Refiners have more incentive to produce gasoline as the so- called crack spread, the profit from making motor fuel versus crude oil, has climbed 48 percent in the past two weeks to $13.64 a barrel today. It was $8.10 a barrel a year ago.
“With gasoline prices lower than last year, you’d think we’d have a more healthy driving season,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “You can argue that people will drive more because it’s a cheaper form of travel. Directionally we’re coming into a stronger demand season.”
Gasoline Gains
Gasoline for June delivery has risen to $1.6853 a gallon today at 10:48 Singapore time on the Nymex, the highest in six months. That’s 46 percent less than a year ago.
U.S. crude oil inventories rose 605,000 barrels to 375.3 million during the week ended May 1, the highest since 1990, said the Energy Department. Analysts forecast a gain of 2.5 million barrels. Gasoline supplies fell 167,000 barrels to 212.4 million, leaving stockpiles 2.8 percent above the five-year average for the period.
The number of Americans filing for unemployment insurance fell last week to the lowest level in three months. Initial jobless claims dropped by 34,000 to 601,000 in the week ended May 2, the fewest since late January, the Labor Department said in Washington yesterday.
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Oil has advanced this week after reports showed fewer Americans filed claims for unemployment benefits, China’s manufacturing expanded for the first time in nine months and Australia’s jobless rate unexpectedly dropped last month.
“We are getting a bit of a consistent run of slightly better-than-expected economic data out of the U.S.,” said Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd. in Melbourne. “Oil is maybe moving to a higher trading range, pushing through what looked like a key resistance level of $55 a barrel.”
Crude oil for June delivery rose as much as 68 cents, or 1.2 percent, to $57.39 a barrel in electronic trading on the New York Mercantile Exchange, and was at $57.27 at 11:20 a.m. Singapore time.
Oil is set to reach $62.65 a barrel “in the near future” and rally to $78 within six months as prices retrace the surge that started in 1998, according to technical analysis by PVM Oil Associates Ltd.
Yesterday, oil closed at $56.71, the highest settlement since Nov. 14. Prices have gained 7.6 percent this week, poised for the largest gain since the week ended March 20, and are up 28 percent this year.
Intraday High
Crude retreated from an intraday high of $58.57 yesterday as declines in U.S. financial, telephone and technology shares snuffed out an early rally. The S&P 500, which has risen 34 percent from a 12-year-low in March, slid 1.3 percent to 907.39. The Dow Jones Industrial Average decreased 1.2 percent to 8,409.85.
Prices earlier climbed on signs that U.S. refiners were ramping up production ahead of the peak driving demand season this summer. Processors increased their utilization by 2.7 percentage points to 85.3 percent last week, the Energy Department said in a May 6 report.
Refiners have more incentive to produce gasoline as the so- called crack spread, the profit from making motor fuel versus crude oil, has climbed 48 percent in the past two weeks to $13.64 a barrel today. It was $8.10 a barrel a year ago.
“With gasoline prices lower than last year, you’d think we’d have a more healthy driving season,” said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. “You can argue that people will drive more because it’s a cheaper form of travel. Directionally we’re coming into a stronger demand season.”
Gasoline Gains
Gasoline for June delivery has risen to $1.6853 a gallon today at 10:48 Singapore time on the Nymex, the highest in six months. That’s 46 percent less than a year ago.
U.S. crude oil inventories rose 605,000 barrels to 375.3 million during the week ended May 1, the highest since 1990, said the Energy Department. Analysts forecast a gain of 2.5 million barrels. Gasoline supplies fell 167,000 barrels to 212.4 million, leaving stockpiles 2.8 percent above the five-year average for the period.
The number of Americans filing for unemployment insurance fell last week to the lowest level in three months. Initial jobless claims dropped by 34,000 to 601,000 in the week ended May 2, the fewest since late January, the Labor Department said in Washington yesterday.
Read more here
Macquarie Said to Bid for AIG Unit in Strategy Shift
(Bloomberg) -- Macquarie Group Ltd., Australia’s biggest investment bank, is bidding for an American International Group Inc. fund unit with about $100 billion under management, said two people with the knowledge of the matter.
AIG expects to sell the unit for as much as $500 million, one of the people said, speaking on condition of anonymity because the talks are private. Macquarie is among several firms pursuing AIG Investments, a New York-based fund manager put up for sale in January, the people said.
Macquarie last week raised A$540 million ($407 million) in a stock sale and would more than triple assets under management at its fund division with a successful bid. Chief Executive Officer Nicholas Moore is shifting focus from infrastructure investments to businesses such as managing stocks and bonds for clients after a 16-year run of rising profits was snuffed out by writedowns.
“It would make sense,” said Paul Xiradis, who manages $8 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney, including Macquarie shares. “The business model of Macquarie is going to be more orientated toward transactional-type management rather than recycling assets as they have done in the past because the structure of the market has changed.”
Macquarie slipped 0.5 percent to A$35.03 in Sydney trading at 11:35 a.m. The stock has more than doubled since slumping to a decade-low on March 3.
Forced Seller
AIG Investments, run by Win Neuger, has 46 offices from Atlanta to Zurich and manages money for institutions, pension funds and wealthy individuals in stock, bond, private equity and hedge funds, according to the company’s Web site.
AIG, once the world’s largest insurer, is selling assets to raise cash after its near collapse led to four U.S. government rescues worth $182.5 billion in all.
“AIG is a forced seller, so it could be quite attractive from a valuation point of view,” Xiradis said.
The insurer received about a half-dozen bids in all for the unit, including from private equity firms and rival asset managers, the Wall Street Journal reported on April 7, citing unidentified sources.
Macquarie spokeswoman Fiona Tyndall and AIG spokesman Peter Tulupman declined to comment.
‘Global Scale’
Macquarie’s Funds Group manages A$49.7 billion in assets, the company said May 1. The unit’s earnings plunged 85 percent from a year earlier to A$45 million on higher expenses, writedowns and impairments.
The Funds Group “will use Macquarie’s strong capital position to seek to gain global scale through acquisitions,” the company said in a May 1 investor presentation.
Macquarie on May 1 sold 20 million shares to raise A$540 million and announced a stock purchase plan for ordinary shareholders, which may raise as much as A$200 million according to a person with knowledge of the sale.
Following the share sales, which come two months after the company said it didn’t need to raise capital, Macquarie will have A$4.1 billion to spare above its regulatory minimum.
“What we have always done is raised capital ahead of needing the capital,” Moore said in an interview on May 1. “Whether it is because of uncertain markets or opportunities coming from the markets, we always want to make sure we are in a very strong capital position.”
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AIG expects to sell the unit for as much as $500 million, one of the people said, speaking on condition of anonymity because the talks are private. Macquarie is among several firms pursuing AIG Investments, a New York-based fund manager put up for sale in January, the people said.
Macquarie last week raised A$540 million ($407 million) in a stock sale and would more than triple assets under management at its fund division with a successful bid. Chief Executive Officer Nicholas Moore is shifting focus from infrastructure investments to businesses such as managing stocks and bonds for clients after a 16-year run of rising profits was snuffed out by writedowns.
“It would make sense,” said Paul Xiradis, who manages $8 billion as chief executive officer of Ausbil Dexia Ltd. in Sydney, including Macquarie shares. “The business model of Macquarie is going to be more orientated toward transactional-type management rather than recycling assets as they have done in the past because the structure of the market has changed.”
Macquarie slipped 0.5 percent to A$35.03 in Sydney trading at 11:35 a.m. The stock has more than doubled since slumping to a decade-low on March 3.
Forced Seller
AIG Investments, run by Win Neuger, has 46 offices from Atlanta to Zurich and manages money for institutions, pension funds and wealthy individuals in stock, bond, private equity and hedge funds, according to the company’s Web site.
AIG, once the world’s largest insurer, is selling assets to raise cash after its near collapse led to four U.S. government rescues worth $182.5 billion in all.
“AIG is a forced seller, so it could be quite attractive from a valuation point of view,” Xiradis said.
The insurer received about a half-dozen bids in all for the unit, including from private equity firms and rival asset managers, the Wall Street Journal reported on April 7, citing unidentified sources.
Macquarie spokeswoman Fiona Tyndall and AIG spokesman Peter Tulupman declined to comment.
‘Global Scale’
Macquarie’s Funds Group manages A$49.7 billion in assets, the company said May 1. The unit’s earnings plunged 85 percent from a year earlier to A$45 million on higher expenses, writedowns and impairments.
The Funds Group “will use Macquarie’s strong capital position to seek to gain global scale through acquisitions,” the company said in a May 1 investor presentation.
Macquarie on May 1 sold 20 million shares to raise A$540 million and announced a stock purchase plan for ordinary shareholders, which may raise as much as A$200 million according to a person with knowledge of the sale.
Following the share sales, which come two months after the company said it didn’t need to raise capital, Macquarie will have A$4.1 billion to spare above its regulatory minimum.
“What we have always done is raised capital ahead of needing the capital,” Moore said in an interview on May 1. “Whether it is because of uncertain markets or opportunities coming from the markets, we always want to make sure we are in a very strong capital position.”
Read more here
Australian Economy to Shrink 1.25% Before Recovering, RBA Says
(Bloomberg) -- Australia’s central bank said the nation’s economy will shrink 1.25 percent in the 12 months through June before the lowest interest rates in five decades spur a “gradual” recovery next year.
The bank today revised its gross domestic product forecasts in line with Governor Glenn Stevens’ statement last month that the economy is in a recession. The bank said GDP will contract this year before gaining 0.25 percent in the 12 months through June, 2010, compared with its February prediction of 0.25 percent growth this fiscal year and 1.25 percent a year later.
A record 4.25 percentage points of interest-rate cuts since September and government spending will “provide significant support to domestic demand,” the central bank said in its quarterly monetary policy statement released in Sydney. Signs that a recovery may already be emerging include reports this week showing retail sales jumped in March, the unemployment rate dropped and exports to China have surged 80 percent this year.
“They don’t look keen to cut rates again,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “If we see a recovery, inflation will rise.”
The bank said today that inflation will slow to 1.5 percent in the 12 months through June, before accelerating to 2.5 percent the following year. Inflation will then cool again to 1.5 percent in the year through June 2011, it said.
‘Less Severe’
The Australian dollar fell to 75.20 U.S. cents at 1 p.m. in Sydney from 75.38 cents just before the statement was released. The two-year government bond yield dropped 2 basis point to 3.53 percent. A basis point is 0.01 percentage point.
Australia’s recession will be “less severe” than in many other countries, helped by lower borrowing costs for home buyers and businesses, the nation’s healthier financial system, a decline in the currency and “the recent recovery in the Chinese economy,” today’s statement said.
The central bank’s view echoes Australia & New Zealand Banking Group Ltd. Chief Executive Officer Mike Smith, who said Australia’s recession won’t be as “deep or protracted” as other developed economies.
“Our region remains the best-performing part of the world economy,” Smith said in a speech in Brisbane yesterday.
Read more here
The bank today revised its gross domestic product forecasts in line with Governor Glenn Stevens’ statement last month that the economy is in a recession. The bank said GDP will contract this year before gaining 0.25 percent in the 12 months through June, 2010, compared with its February prediction of 0.25 percent growth this fiscal year and 1.25 percent a year later.
A record 4.25 percentage points of interest-rate cuts since September and government spending will “provide significant support to domestic demand,” the central bank said in its quarterly monetary policy statement released in Sydney. Signs that a recovery may already be emerging include reports this week showing retail sales jumped in March, the unemployment rate dropped and exports to China have surged 80 percent this year.
“They don’t look keen to cut rates again,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “If we see a recovery, inflation will rise.”
The bank said today that inflation will slow to 1.5 percent in the 12 months through June, before accelerating to 2.5 percent the following year. Inflation will then cool again to 1.5 percent in the year through June 2011, it said.
‘Less Severe’
The Australian dollar fell to 75.20 U.S. cents at 1 p.m. in Sydney from 75.38 cents just before the statement was released. The two-year government bond yield dropped 2 basis point to 3.53 percent. A basis point is 0.01 percentage point.
Australia’s recession will be “less severe” than in many other countries, helped by lower borrowing costs for home buyers and businesses, the nation’s healthier financial system, a decline in the currency and “the recent recovery in the Chinese economy,” today’s statement said.
The central bank’s view echoes Australia & New Zealand Banking Group Ltd. Chief Executive Officer Mike Smith, who said Australia’s recession won’t be as “deep or protracted” as other developed economies.
“Our region remains the best-performing part of the world economy,” Smith said in a speech in Brisbane yesterday.
Read more here
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