Dresdner Bank says to support Ambac rescue

(Reuters) - Dresdner Bank, part of the Allianz (ALVG.DE: Quote, Profile, Research) insurance group, intends to support a rescue package for U.S. bond insurer Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) with a sum in the low double-digit millions of euros, the head of Dresdner's investment banking operations said on Monday.

Various rescue options for Ambac were now under discussion, Stefan Jentzsch told reporters. "If what is now on the table comes to pass then we will take part in the package," he said.

 

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Cheap Palm Oil May Overtake Soy on Rising Asia Demand

(Bloomberg) -- Palm oil, the world's most-used cooking oil, is also the cheapest, a discrepancy that won't last long as demand rises across Asia's biggest countries.

An ingredient in curries, stir-fries and Skittles candy, Malaysian palm oil costs 15 percent less than soybean oil on the Chicago Board of Trade. Tobin Gorey, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney, said the two may soon be even money, raising the prospect of at least a $1.5 million profit from a $10 million investment.

Rising incomes mean billions of people in Asia's developing economies seek palm oil for fried and processed foods, according to the U.S. Department of Agriculture. Crude oil at $100 a barrel is boosting demand for alternative fuels such as diesel from vegetable oil. As consumption rises, supply in China may drop after the worst snowstorms in five decades damaged rapeseed crops in January, the government reported.

``We may have a case of mass shortage of vegetable oil in China,'' said Rudolphe Roche, a manager at Schroders Plc's $6 billion agricultural commodities fund in London. ``This means they will continue to import from the rest of the world.'' Palm oil, produced in Malaysia and Indonesia, will benefit the most because its proximity to China lowers shipping costs, he said.

Rising prices will increase expenses at Nissin Food Products Co., Japan's biggest instant-noodle maker, and increase profits at Kuala Lumpur-based Sime Darby Bhd., the world's largest publicly traded owner of palm plantations. About 36 percent of the world's cooking oil comes from oil palm, more than any other plant, USDA data show.

The Precedent

``Ninety-three percent of all the palm oil in the world is going to food demand,'' William Doyle, chief executive officer of fertilizer maker Potash Corp. of Saskatchewan Inc., said in a Feb. 19 interview. ``It's enormously powerful, and we don't see this backing off.''

The last time palm oil was this cheap, in April 2007, prices rallied for two months because of increasing demand, gaining 38 percent to 2,855 ringgit ($889) a metric ton on the Malaysia Derivatives Exchange to reach parity with Chicago prices. Contracts for May delivery ended at 3,698 ringgit a ton (52 U.S. cents a pound) on Feb. 22 in Malaysia. May soybean oil finished at 63.02 cents a pound on the CBOT.

Palm oil and soybean oil reached records today. Palm oil rose as much as 5.8 percent to 3,914 ringgit a ton and closed 4.5 percent higher at 3,866 ringgit, the biggest gain since Dec. 26, 2006. Soybeans advanced as much as 2.4 percent to 64.52 cents a pound and last traded at 64.29. That narrowed palm oil's discount to 16 percent from 17 percent.

Food Inflation

``There is no reason why the price of soybean oil and palm oil cannot be the same,'' said Edgare Kerwijk, chief financial officer for Biox Group BV in Rotterdam, which has put on hold plans for three biodiesel projects in the Netherlands and the U.K. due to higher prices. ``The discount will narrow'' for palm oil, he said.

U.S. manufacturers will increase consumption of soybean oil for energy by 22 percent to 3.4 million pounds in the year ending November, the USDA forecasts. The total equals 16 percent of U.S. use.

Soaring food prices are fueling inflation. China's consumer- price gains accelerated to 7.1 percent in January, the fastest pace in more than 11 years, the statistics bureau said Feb. 19. U.S. inflation quickened to 4.3 percent in January from 4.1 percent in December, the Labor Department said Feb. 20.

China's January snowstorms and rains, the worst in 50 years, affected as much as 48 million mu (7.9 million acres) of rapeseed crops, almost half the total area planted, the China National Grain and Oils Information Center said Feb. 14.

China, U.S.

China, the biggest annual buyer of cooking oils, raised palm oil imports 18 percent in January to 360,000 metric tons, compared with a year earlier, according to customs figures. India boosted imports 75 percent to 366,353 tons that month, and imports of all cooking oils may gain 15 percent to 5.4 million tons in the year ending Oct. 31, according to a Bloomberg News survey of six traders and analysts.

``With the strong demand coming from the substitution effect this year, the discount should narrow further from here,'' said Ben Santoso, a plantations analyst at the brokerage arm of DBS Group Holdings, Singapore's largest bank. He said palm oil may reach the same level as soy by June.

Even the U.S., the world's largest soybean grower and exporter, is buying more palm oil. Soyoil is hydrogenated in some foods to make them last longer on store shelves, a process resulting in trans-fats that may raise the risk of heart disease, according to the Food and Drug Administration.

``Trans-fats are a big reason for more palm oil imports,'' Anne Frick, a senior oilseed analyst for Prudential Financial Inc. in New York, said in a Feb. 20 e-mail.

 

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Home Resales in U.S. Probably Dropped, Further Eroding Growth

(Bloomberg) -- Sales of existing homes in the U.S. probably dropped in January to the lowest level in at least nine years, according to a survey of economists, signaling the housing slump is deepening and will weigh on growth in 2008.

The National Association of Realtors will report that purchases fell 1.8 percent to an annual rate of 4.8 million, the fewest since record-keeping began in 1999, according to the median forecast in a Bloomberg News survey of 63 economists.

Mounting foreclosures are adding to a glut of unsold homes that is driving down property values. Would-be homebuyers may be waiting for even lower prices, keeping the housing market depressed for a third year and dragging the economy close to a recession.

``With the backdrop of elevated inventories of unsold homes and continued falling home prices, prospects for the housing market in general seem quite grim,'' said Dana Saporta, an economist at Dresdner Kleinwort in New York.

The Realtors group is scheduled to release the report at 10 a.m. in Washington. Estimates in the Bloomberg News survey ranged from 4.65 million to 5 million.

For all of last year, sales of single-family homes declined 13 percent, the most since 1982, the group said Jan. 24. Earlier this month, it forecast sales this year would slip to 5.38 million, from 5.65 million for all of 2007.

The effects of the worst housing recession in 25 years have spread into other areas of the economy. The Federal Reserve Bank of Philadelphia's general economic index fell this month to minus 24, the weakest reading in seven years.

 

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SocGen in record loss, may take new writedowns

(Reuters) - Societe Generale (SOGN.PA: Quote, Profile, Research) confirmed a record fourth-quarter loss of 3.35 billion euros ($4.93 billion) after absorbing a huge rogue trading scandal that has made France's second-biggest listed bank a potential takeover target.

The loss coincided with an internal report acknowledging that better systems might have prevented the costly stock market gambles it blames on junior trader Jerome Kerviel.

SocGen, like many of the world's top banks, has also been hit by losses related to a global credit crunch and the bank warned it may make further writedowns in the future.

Executive Chairman Daniel Bouton told Reuters the 144-year-old firm was determined to ride out the storm as an independent bank, despite reports of a potential bid from long-time suitor and arch-rival BNP Paribas (BNPP.PA: Quote, Profile, Research).

"I am completely determined to continue with our strategy because, even taking into account our very bad year in 2007 due to the financial crisis and this fraud, it's this strategy which creates and will create the most value for shareholders," Bouton said in an interview. "This is my opinion, and it's one that's backed by the board."

SocGen's fourth-quarter net loss compared with a 1.18 billion euro profit a year earlier and a fourth-quarter profit of 1.0 billion euros unveiled by rival BNP Paribas, although BNP Paribas' results were down from the year before.

SocGen cut its 2007 dividend to 0.90 euro from 5.20 euros.

 

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UBS to Shorten Ospel Term to One Year at Re-election

(Bloomberg) -- UBS AG said it would reduce Chairman Marcel Ospel's next term of office to one year from three after Europe's largest bank by assets reported a record loss.

Ospel, 58, was a force behind the merger of Swiss Bank Corp. and Union Bank of Switzerland that created UBS in 1998 and has been chairman for seven years. UBS posted a 12.5 billion-franc ($11.4 billion) fourth-quarter loss after an expansion into debt trading led to writedowns when the U.S. housing market slumped.

``Shareholders have a lack of confidence and that is linked to Ospel's name,'' said Vinzenz Mathys, an analyst at the Ethos Foundation, an investor in UBS calling for a special audit of the bank's risk controls. ``We are disappointed because UBS could have proposed new candidates.''

Shareholders will vote on re-electing Ospel and two other board members to shortened terms at the annual general meeting on April 23, Zurich-based UBS said in an e-mailed statement today. Sergio Marchionne, Fiat SpA's chief executive officer, was named a non-executive vice chairman.

UBS's losses already led to the departures of former CEO Peter Wuffli, 50, his finance chief Clive Standish, 54, and Huw Jenkins, 50, who ran the investment bank.

``It will take at least a year, if not longer, to clean up things at UBS and Ospel being around means there will be no clean cut with mistakes of the past,'' said Ralf Rybarczyk, who manages 1.5 billion francs at DWS Investment GmbH, including UBS shares.

`Current Challenges'

Peter Voser, finance director at Royal Dutch Shell Plc, and Larry Weinbach, the former chairman of Unisys Corp., will also stand for re-election to one-year board terms at the annual meeting, UBS said. Voser, 49, will take over from Weinbach, 68, as chairman of the audit committee. In subsequent elections, all board members will be elected for one year, the company said.

Marchionne, 55, was named non-executive vice chairman to replace Marco Suter, 49, who was an executive vice chairman before taking on the role of chief financial officer in October. Italian newspaper MF reported on Feb. 15 that Marchionne was a possible replacement for Ospel, which the Fiat executive denied. He said in a statement today his new role is ``absolutely compatible'' with running Fiat.

``With these moves we have strengthened the leadership structure in order to manage UBS's current challenges,'' Ospel said in the statement. ``I proposed the new tenure rule to the board, and am prepared, pursuant to their request, to stand for re-election for one year.''

UBS rose 48 centimes, or 1.3 percent, to 36.80 francs by 2:08 p.m. in Swiss trading. The stock has fallen 30 percent this year, the fourth-worst performance on the 60-member Bloomberg Europe Banks and Financial Services Index.

 

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Auction Debt Succumbs to Bid-Rig Taint as Citi Flees

(Bloomberg) -- The collapse of the auction-rate bond market, where state and local governments go to raise cash, demonstrates that regulators are no match for Wall Street.

Hundreds of auctions have failed this month, sending borrowing costs as high as 20 percent because dealers from Goldman Sachs Group Inc. to Citigroup Inc., UBS AG and Merrill Lynch & Co. stopped using their own capital to support the sales. Regulators, who allowed the manipulation of bids and lack of information to persist even after two probes in the past 15 years, are now watching a $342 billion market evaporate at the expense of taxpayers.

Inadequate disclosure ``may have masked the impact of broker-dealer bidding on rates and liquidity,'' Martha Haines, head of the Securities and Exchange Commission's municipal office, said in an interview. ``The large numbers of recent auction failures, which are reported to have occurred due to a reduction in bidding by broker-dealers, appears to indicate those concerns were well founded.''

Citizens Property Insurance of Tallahassee, Florida, a state-run insurer that protects homeowners against hurricane losses, is a casualty. The rate Citizens pays on a portion of the $4.75 billion in securities it has sold jumped to 15 percent from 5 percent at an auction run by UBS that failed on Feb. 13.

No `Backstop'

``The banks were the backstop,'' said Sharon Binnun, the chief financial officer of Citizens. ``If you had more sell orders than buy orders, they'd pick up the difference and you wouldn't have a failed auction.''

Officials at Goldman, Citigroup, UBS and Merrill declined to comment. All the firms are based in New York, except UBS, which is located in Zurich. UBS told its brokers this month that it won't buy bonds that fail to attract enough bidders, and Merrill said it was reducing its purchases.

Auction-rate securities are long-term bonds whose interest resets every seven, 28 or 35 days at bidding run by a dealer who collects a fee of about 25 basis points. Unlike Treasuries or stocks, there is no daily source of information about auction- rate bonds. Issuers have relied on banks to be buyers of last resort when bidders couldn't be found at their auctions.

Since the first of the securities were sold in 1984 for American Express Co., the market has expanded as investors sought the bonds as a higher-yielding alternative to money funds.

SEC Fines

Along the way, New York-based Lehman Brothers Holdings Inc. was fined $850,000 in 1995 by the SEC for manipulating auctions conducted for American Express. Almost two years ago, 15 securities firms paid the SEC $13 million to settle claims of bid-rigging in auction-rate bonds. The banks neither admitted nor denied wrongdoing.

While the SEC required dealers to disclose that they may use insider knowledge to place bids, they don't have to say how frequently they bid or how much. Dealers also aren't obligated to disclose rates on auction debt when the securities trade.

The settlement didn't go far enough because it still deprives investors of information they need to make informed bids, said Joseph Fichera, chief executive of Saber Partners LLC, an advisory firm in New York.

``Investors aren't sure they can sell the bonds when they want,'' Fichera said.

Aside from the fines, the market worked smoothly until November, when investors began pulling back from all except the safest of government debt as losses on securities tied to subprime mortgages began infecting other parts of the credit market.

Subprime Contagion

Wall Street firms, reeling from $146 billion in losses on their debt holdings, became unwilling to commit their own capital to support auctions that don't attract enough bidders.

``It's more a liquidity issue, I don't think there's a concern here about these entities being able to repay their debts,'' said Tony Crescenzi, chief bond-market strategist in New York at Miller Tabak & Co., in an interview today with Bloomberg Radio. ``These auction-rate securities are proving to no longer be viable, and we'll see them diminish in scope and size as we go forward.''

A month ago, it was ``unthinkable'' that the banks wouldn't intervene to support auctions, said Steven Brooks, executive director of the North Carolina State Education Assistance Agency. ``I had certainly hoped and believed that that liquidity was there and was an important part of why this marketplace was good for investors and good for issuers.''

From 1984 through 2006, only 13 auctions failed, typically because of changes in the credit of the borrower, according to Moody's Investors Service. There were 31 failures in the second half of 2007, and 32 during a two-week period beginning in January.

`Ugly' Market

``It's ugly,'' said Luis I. Alfaro-Martinez, finance director for the Government Development Bank of Puerto Rico, which saw the rate it pays on $62 million of debt rise to the maximum of 12 percent set out in documents governing the bonds, from 4 percent at a Feb. 12 auction handled by Goldman. ``It's getting uglier.''

The average rate for seven-day municipal auction bonds rose to a record 6.59 percent on Feb. 13 from 4.03 percent the previous week, according to indexes compiled by the Securities Industry and Financial Markets Association.

The higher rates drove California, the biggest borrower in the municipal bond market, to decide to replace $1.25 billion of auction-rate bonds with traditional debt.

 

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U.S. Stocks Fall, Erasing Early Gains; Exxon, GE Shares Retreat

(Bloomberg) -- U.S. stocks fell after manufacturing in the Philadelphia region unexpectedly contracted the most in seven years and a drop in oil prices dragged down energy shares.

 

Exxon Mobil Corp., Chevron Corp. and General Electric Co. declined, helping erase a 76-point gain in the Dow Jones Industrial Average. The market's losses were limited by gains in technology companies after Citigroup Inc. told clients to buy shares of Cisco Systems Inc., the largest maker of computer- networking equipment.

 

 

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KKR Financial Delays Repayments, Starts Negotiations

(Bloomberg) -- KKR Financial Holdings LLC, Kohlberg Kravis Roberts & Co.'s only publicly traded fixed-income fund, delayed repaying debt a second time in six months after failing to find buyers for commercial paper backed by mortgages.

Lenders to the fund agreed to the delay as KKR Financial seeks to restructure, the San Francisco-based company said yesterday in a regulatory filing. KKR Financial, whose stock has fallen 50 percent in the past year, didn't say how much debt is affected.

The announcement rekindled concerns that the decline in the market for short-term asset-backed debt, which totaled $1.2 trillion in August, will accelerate after a rebound early last month. Assets fell to $796 billion in the week ended Feb. 13, the third weekly drop. Standard & Poor's downgraded ratings on notes issued by KKR Pacific Funding Trust last week, citing uncertain pricing on the AAA rated securities that support them.

``The picture is getting worse and worse,'' said Felix Freund, who helps manage the equivalent of $14.7 billion of fixed-income securities at Frankfurt-based Union Investment GmbH. KKR Financial's second repayment extension ``shows there is still a lot of levered investments in the credit market that we can't see.''

About half the debt will be due by March 3 instead of Feb. 15, with the rest owed on March 25, according to the filing.

The talks come less than six months after the fund received a $230 million cash infusion from investors following losses on residential mortgages in the wake of the U.S. subprime crisis. The fund, led by Chief Executive Officer Saturnino Fanlo, raised a further $270 million in a rights offering with some of New York-based KKR's own partners buying shares in it, which had $19 billion of assets at the end of December.

Repricing `Driver'

The deferral drove investors to seek the security of government debt, sending 10-year Japanese bonds to the biggest gain in two weeks while perceived corporate risk in Asia and Europe soared. Contracts on Europe's Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 26.5 basis points to 611.5 today, according to Deutsche Bank AG. A basis point is 0.01 percentage point.

``The driver behind the current repricing is KKR Financial Holdings delaying repayment of CP for the second time,'' analysts led by Mark Harmer, head of credit research at ING Groep NV, said in a note to clients today.

KKR Financial fell 30 cents, or 2.1 percent, to $14.23 at 11:44 a.m. in New York Stock Exchange composite trading. Zoe Watt, a spokeswoman for KKR in London, declined to comment.

IPO

Kohlberg Kravis Roberts, the New York-based investment firm run by Henry Kravis and George Roberts, raised $800 million in KKR Financial's initial public offering in June 2005, selling the shares for $24 apiece. The fund raised money by selling commercial paper to invest in mortgages. It sold almost half of its mortgage loans in August as prices on bonds linked to U.S. home loans started to drop, leaving it with about $5.3 billion of mortgages.

Both Kravis and Roberts sit on KKR Financial's six-member investment committee, alongside KKR Partner Scott Nuttall, KKR Financial's Fanlo and Chief Operating Officer David Netjes.

Kravis and Roberts started the firm with Jerome Kohlberg, their colleague from Bear Stearns Cos., in 1976. Kohlberg left in 1987 and started his own buyout group, Kohlberg & Co. LLC. The private-equity business owns more than 42 companies with more than $180 billion of annual revenue and about 800,000 workers around the world. The firm's investments range from Alliance Boots Ltd. in the U.K. to Texas power producer TXU Corp., now known as Energy Future Holdings Corp.

 

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Bernanke Turns Notes Into Losers as Refinancing Rises

 (Bloomberg) -- The more Federal Reserve Chairman Ben S. Bernanke cuts interest rates, the less appealing 10-year Treasuries become to investors like Doug Dachille, chief executive officer of First Principles Capital Management LLC.

Consumers taking advantage of lower borrowing costs have pushed the Mortgage Bankers Association's refinancing index to its highest level since March 2004. Ten-year notes fell 4.83 percent in April 2004 as the extra cash homeowners pocketed from replacing high-rate loans spurred bigger gains in retail sales and consumer confidence than forecast.

As then, a drop in rates may help ease the burden of consumers' monthly payments and contribute to forecasts of a rebound in the economy, diminishing the appeal of government debt. The price of the 10-year note has fallen 3.15 percent since Jan. 23, according to Merrill Lynch & Co. index data, and St. Louis Fed President William Poole said Feb. 11 that ``the best bet is that we will not have a recession.''

``There is no reason for people to bring the 10-year note yield down,'' said Dachille, 43, who manages $7 billion in assets at New York-based First Principles. Given that ``the Fed is cutting rates and the administration is providing a stimulus package, you'd expect that over the next two or three years the economy will recover.''

Policy makers slashed their target rate for overnight bank loans by 2.25 percentage points to 3 percent between Sept. 18 and Jan. 30. Bernanke indicated last week that he's prepared to cut rates further to revive the economy and encourage banks to lend.

Yields Climb

``More-expensive and less-available credit seems likely to continue to be a source of restraint,'' Bernanke told the Senate Banking Committee on Feb. 14. The Fed ``will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,'' he said.

Ten-year note yields rose 12 basis points, or 0.12 percentage point, to 3.77 percent last week, according to New York-based bond broker Cantor Fitzgerald LP. The price of the 3 1/2 percent security due in February 2018 fell 31/32, or $9.69 per $1,000 face amount, to 97 25/32. The yield climbed 9 basis points to 3.86 percent as of 9:19 a.m. in New York.

Yields are up from a low this year of 3.285 percent on Jan. 23, the day after the Fed reduced rates between policy meetings for the first time since the September 2001 terrorist attacks. They will rise to 3.89 percent by year-end, according to the median forecast of 65 economists in a Bloomberg News survey that puts a higher weighting on the most recent estimates.

A separate poll shows growth will likely accelerate to a 2.5 percent annual rate in the final three months of the year from 0.6 percent last quarter.

Past as Prologue

Mortgage refinancing applications soared ninefold between July 2001 and May 2003, according to the Mortgage Bankers trade group in Washington. The yield on the 10-year Treasury rose to 4.65 percent in the following 12 months from 3.37 percent.

The MBA's refinancing index surged to 5,103.60 on Jan. 25, its highest level since June 2003, from 1,620.90 in the week ended Dec. 28, 2007. The average rate on a 30-year fixed loan fell to 5.48 percent on Jan. 24, according to Freddie Mac. That means a homeowner would save $81.40 a month on every $100,000 borrowed now compared with June, when rates rose to 6.74 percent.

The rise in refinancings may be skewed by borrowers submitting multiple applications for loans as bankers tighten lending standards, according to Joseph Mason, an associate professor of finance at Drexel University in Philadelphia.

`Restricting Access'

``I don't see a housing market recovery right now,'' said Mason, 43, who predicts Treasury yields will fall as investors continue to buy the debt as a haven from losses in higher risk markets. ``People can't get a mortgage'' because ``banks are restricting access to credit,'' he said.

Declining property values are also making it harder for a growing number of homeowners to refinance. By year-end as many as 15 million households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc.

Even so, the drop in rates is helping homeowners with subprime adjustable-rate mortgages. Most of those loans are tied to the six-month London interbank offered rate, which has declined to 2.96 percent from last year's peak of 5.86 percent in September.

The decline in Libor will probably reduce scheduled increases through 2010 in subprime borrowers' payments to 8 percent on average, or $182, according to analysts at Wachovia Corp. in Charlotte, North Carolina. During August, the rise in Libor pointed to increases of 33 percent on average.

 

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Cadbury profits dip, shares slip on no cash return

(Reuters) - The world's largest confectionery maker, Cadbury Schweppes (CBRY.L: Quote, Profile, Research), missed analyst forecasts with a 2 percent fall in 2007 profits and its shares dipped as it warned there will be no cash return from its drinks demerger.

Cadbury also gave a cautious outlook on Tuesday for the North American soft drinks business which is to be spun off at the end of the second-quarter, with profit margins down sharply in 2007 and unlikely to start to recover until 2009.

The London-based group had intended to return cash to shareholders on the demerger but has now decided against this in order to preserve investment-grade ratings for both companies. Cadbury shares slumped 6.1 percent to 575 pence, the FTSE 100's biggest loser, by 5 a.m. EST.

"There is unlikely to be a return of cash to shareholders as we have decided to maintain both companies on investment-grade ratings," Chief Executive Todd Stitzer told a conference call.

Cadbury decided last October to spin off its 7 billion pound ($13.7 billion) drinks business -- to be called Dr Pepper Snapple Group -- and list it in New York, after a world credit squeeze derailed a lucrative sale to private-equity buyers.

The group, which makes Dairy Milk chocolate, Trident gum and Halls cough drops, reported 2007 underlying pretax profit of 915 million pounds, below an analyst forecast range of 922 to 936 million and a consensus forecast of 929 million pounds.

Cadbury is raising the 2007 dividend by 11 percent to 15.5p.

 

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Staples in 2.5 bln euro offer for Corp. Express

(Reuters) - U.S. office goods supplier Staples proposed a 7.25 euros per share offer for Dutch peer Corporate Express on Tuesday, valuing the company at around 2.5 billion euros ($3.68 billion).

Ending months of speculation about a possible bid, Staples said its all-cash offer represented a premium of around 67 percent to Corporate Express' closing price of February 4. Shares in Corporate Express jumped 33 percent on the news.

Corporate Express, one of the world's largest office products wholesalers, has been under pressure from hedge funds to put itself up for sale after losses in the United States, its key market. It was not immediately available to comment.

"Staples has high regard for the Corporate Express management team, and believes together our combined companies will create significant opportunities for all stakeholders," said Ron Sargent, Staples chairman and chief executive.

 

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Exxon open to Venezuela talks, ready to fight

(Reuters) - Exxon Mobil (XOM.N: Quote, Profile, Research) is ready to talk to the Venezuelan government to settle a dispute over the forced acquisition of its oilfields, after gaining a court order to freeze $12 billion of Venezuelan assets, a senior executive said on Monday.

But the U.S. oil major said it was also prepared to fight to assert its interests if it has to.

"We have indicated to the Venezuelan government that we're still prepared to talk, but should that not be the case, we'll protect our rights," Robert Olsen, chairman of Exxon Mobil International told Reuters in an interview at the sidelines of the International Petroleum Week conference in London.

Leftist President Hugo Chavez told foreign oil companies last year to cede a majority stake in oil projects or leave the country.

Most agreed and accepted bids for stakes in their projects from state oil company PDVSA, bids that analysts said were below market value.

But Exxon and rival oil major ConocoPhillips (COP.N: Quote, Profile, Research) opted to pull out rather than give in to government demands.

Olsen, who is also head of production for Europe, the Caspian and Russia, told the conference that resource-holding governments should stick to the terms they agree with foreign investors.

 

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Four bidders go through in Vin & Sprit auction: paper

(Reuters) - Sweden's centre-right government has chosen four bidders in its auction of Vin & Sprit that will be allowed to perform due diligence of the Absolut vodka maker, business daily Dagens Industri reported on Sunday.

The four selected bidders -- Fortune Brands Inc (FO.N: Quote, Profile, Research), Pernod Ricard SA (PERP.PA: Quote, Profile, Research), Bacardi and private equity group EQT in cooperation with investment firm Investor AB (INVEb.ST: Quote, Profile, Research) -- have been widely seen as the front-runners to buy Vin & Sprit.

The newspaper, which did not disclose its sources, said the four bidders would proceed to more closely scrutinize Vin & Sprit in a due diligence process before finalizing their offers.

Vin & Sprit is to be sold as part of Sweden's biggest-ever privatization, which also includes stakes in telecom operator TeliaSonera AB (TLSN.ST: Quote, Profile, Research), Nordea Bank AB (NDA.ST: Quote, Profile, Research), mortgage lender SBAB SBAB.UL and real estate firm Vasakronan ABVASA.UL.

 

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Qatar Buys Credit Suisse Shares, Prime Minister Says

(Bloomberg) -- Qatar is buying shares in Credit Suisse Group and plans to spend as much as $15 billion on European and U.S. bank stocks over the next year, the Gulf state's prime minister said in an interview.

``We have a relation with Credit Suisse and we bought some of the stock from the market, actually, but I cannot say what percentage because still we are in the process,'' Sheikh Hamad bin Jasim bin Jaber al-Thani, who is also chief executive officer of the Qatar Investment Authority, said in an interview late yesterday in Doha.

Persian Gulf sovereign wealth funds, whose coffers are swelling from near-record oil prices, and counterparts in Asia have been snapping up stakes in banks battered by U.S. subprime mortgage losses. Citigroup Inc. received $14.5 billion from investors including Singapore and Kuwait since mid-December.

``Subprime losses are clearly not confined to U.S. banks and European banks are seeking funding,'' Giyas Gokkent, head of research at National Bank of Abu Dhabi PJSC, said in a phone interview today. ``Gulf funds have surpluses to spend and are looking for long-term appreciation. If investments help develop their domestic financial markets too, so much the better.''

Bruno Daher, Credit Suisse's Dubai-based co-CEO for the Middle East, declined to comment when contacted on his mobile phone today, as did Zurich-based spokesman Marc Dosch. Credit Suisse jumped 1.60 Swiss francs, or 2.9 percent, to 56.60 francs ($51.33) at 1:13 p.m. in Swiss trading.

Buying Stakes

Credit Suisse said on Feb. 12 that fourth-quarter profit fell 72 percent after 1.3 billion francs of writedowns on debt and leveraged loans. The stock has fallen 31 percent since Oct. 10. Brady Dougan, CEO of Switzerland's second-biggest bank, scaled back risky investments before the debt-market slump that forced UBS AG, Switzerland's biggest bank, to report $14 billion in writedowns.

In the past six months, sovereign wealth funds made investments in Citigroup, Merrill Lynch & Co., Morgan Stanley and UBS, which is seeking shareholder approval to raise 13 billion Swiss francs from Singapore and an unidentified Middle Eastern investor through a sale of bonds convertible into shares.

Qatar's decision to buy Credit Suisse stock in the open market ``makes all the difference'' to investor confidence in the bank, according to Christof Reichmuth, CEO of Luzern-based Private Bank Reichmuth & Co.

`Sign of Strength'

``They are not selling equity or mandatory convertible bonds to boost their capital like UBS did,'' he said. ``Even though 2008 won't be a great year for Credit Suisse either, this should be read as a sign of strength rather than weakness.''

Wall Street banks have raised at least $59 billion, mostly from investors in the Middle East and Asia. Citigroup was propped up in November by a $7.5 billion investment from the Abu Dhabi Investment Authority, the world's richest sovereign fund, after losing almost half its market value.

State-managed funds in countries including Kuwait, Abu Dhabi and South Korea have ballooned to $3.2 trillion in assets. Fueled by record oil prices and rising currency reserves, sovereign fund assets may gain fourfold to $12 trillion by 2015, equal to the capitalization of the Standard & Poor's 500 Index, according to Morgan Stanley estimates.

First European Bank

Credit Suisse in March 2006 became the first European bank to get a license for the Qatar Financial Centre, a self-regulated business park designed to attract lenders to the Gulf state as part of a plan to diversify the economy away from oil and gas. The Swiss bank ``has had a long-standing relationship with Qatar,'' Joachim Straehle, head of private banking for Asia, the Middle East and Russia, said at the time.

When the Qatar Investment Authority sought to buy U.K. supermarket chain J Sainsbury Plc last year, Credit Suisse was among three European banks that agreed to underwrite $19 billion of loans to help pay for the buyout. Qatar in November abandoned the bid, citing ``deterioration'' in credit markets and demands by J Sainsbury's pension fund.

The Qatar Investment Authority is the largest shareholder in J Sainsbury, with a 25 percent stake, data compiled by Bloomberg show. The authority is the second-biggest investor in French publisher Lagardere SCA, and owns shares in Middle Eastern banks including Beirut-based BLC Bank SAL and Jordan's Housing Bank for Trade & Finance. It also bought a $205 million stake in Industrial & Commercial Bank of China Ltd. before the Beijing- based lender's 2006 initial share sale, according to a prospectus published at the time. The authority doesn't disclose holdings beyond regulatory requirements.

The Kuwait Investment Authority, which manages an estimated $250 billion for the Gulf state, is keen to buy into European financial companies ``if we are invited,'' Managing Director Bader al-Saad said last month.

 

Read more at Bloomberg

Bond insurer FGIC asks to split in two

(Reuters) - FGIC Corp, a bond insurer whose main unit has lost its top credit ratings from all three agencies, has told New York regulators it wants to split into two companies, New York Insurance Superintendent Eric Dinallo said on Friday.

 

The company would be split into a municipal bond insurer and a structured finance insurance company, in a "good-bank/bad-bank" plan that would split off the relatively safe business of insuring municipal debt from the riskier business of guaranteeing repackaged mortgages and other debt.

 

Read more at Reuters

Treasury 10-Year Notes Fall as U.S. Trade Deficit Narrows

(Bloomberg) -- Treasury 10-year notes fell for a third straight day as a government report showed the U.S. trade deficit narrowed more than forecast in December, renewing concern that inflation may accelerate.

Two-year notes yielded the least compared with 10-year debt since 2004 before Federal Reserve Chairman Ben S. Bernanke's economic testimony, in which he may signal the Fed is ready to cut interest rates further to keep the economy from dropping into a recession.

``The Fed is going to be aggressive and proactive, and with that you have to be concerned with inflationary pressures building,'' said Sean Simko, who oversees $8 billion in Oaks, Pennsylvania, at SEI Investments Co. ``Inflationary pressures will be tomorrow's problem, which is going to sell the long part of the curve.''

Ten-year note yields rose 4 basis points, or 0.04 percentage point, to 3.77 percent at 9:48 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 3 1/2 percent security due in February 2018 fell 11/32, or $3.44 per $1,000 face amount, to 97 3/4. Two-year note yields increased 2 basis points to 1.93 percent.

 

Read more at Bloomberg

Global Confidence Weakens for Third Month on Slowdown

(Bloomberg) -- Confidence in the global economy fell for a third month in February as the slowdown in the U.S. spread to Europe and Japan, a survey of Bloomberg users on five continents showed.

The Bloomberg Professional Global Confidence Index fell to 14.3 from 21.0 in January. Users in Asia were the most pessimistic about the global economy, with the index falling to 12.6 from 15.0. A reading below 50 indicates negative sentiment.

Global stocks have lost more than $6 trillion this year as credit dried up for some borrowers and the U.S. expansion stalled. After insisting Europe would weather the slowdown, European Central Bank President Jean-Claude Trichet said last week uncertainty was ``unusually high,'' while Bank of Japan Governor Toshihiko Fukui may see his interest-rate increases reversed by his successor within months.

``First credit markets collapsed and that led to a banking crisis which has affected the real economies of all regions,'' said Jose Carlos Diez, chief economist at Intermoney SA in Madrid and a participant in the survey. ``We have yet to know when the slowdown of the global economy will end and I don't expect a recovery before the summer of 2009.''

The Bloomberg Professional Confidence Survey collated the responses of 6,878 Bloomberg users from Auckland to New York on the economic health of their region and the world. The survey was conducted from Feb. 4 to Feb. 8. The investors, traders and analysts were also asked about the outlook for their currencies, bonds, stocks and rates in the next 6 months. Participants answered questions in cities including Hong Kong, Zurich and London.

Pessimistic Americans

North American users were the most pessimistic about economic growth in their region, with the index falling to 19.3 from 19.6. Home sales in the world's largest economy fell at the fastest pace since at least 1963. While users in Asia were the least pessimistic, the index suffered the sharpest deterioration, falling to 43.5 from 51.1.

``We're already getting signs that things are deteriorating, but there's fear that things are going to get worse,'' said Samra Al-Harthy, an economist at Standard Chartered Plc in London.

In Europe, sentiment toward the world economy dropped to 12.9 from 17.3. Participants there also soured on their own economy, pushing the regional index down to 26.2 from 27.3.

IMF Lowers Forecast

The International Monetary Fund in January lowered its forecast for global economic growth this year to 4.1 percent, the lowest since 2003, from 4.4 percent predicted in October. The IMF said last year's increase in credit costs resulting from defaults on mortgages aimed at borrowers with poor credit histories is hurting the rest of the economy.

Financial institutions around the world face $400 billion of write-offs as a consequence of the U.S. subprime mortgage slump, according to Group of Seven estimates, German Finance Minister Peer Steinbrueck said on Feb. 9.

UBS AG, Europe's largest bank by assets, last month posted the biggest loss ever by a bank after raising fourth-quarter writedowns to $14 billion. The world's biggest financial companies have booked more than $145 billion of writedowns and losses since the beginning of 2007, partly because of the declining value of securities backed by assets including U.S. subprime mortgages.

``The epicenter of this slowdown is clearly the U.S.,'' said Kathleen Stephansen, chief global economist at Credit Suisse in New York. Still, ``the credit crunch will be exported to Japan and, particularly, Europe.''

 

Read more at Bloomberg

MGIC Loses $1.47 Billion in Quarter, Seeking Capital

(Bloomberg) -- MGIC Investment Corp., the largest U.S. mortgage insurer, fell the most in a month after posting a record quarterly loss of $1.47 billion and said it hired an adviser to raise capital.

MGIC's fourth-quarter net loss was $18.17 a share, compared with a profit of $122 million, or $1.47, a year earlier, the Milwaukee-based company said in a statement today. Excluding investment losses, the insurer lost $18.09 a share, worse than the $8.13 average loss estimate of seven analysts compiled by Bloomberg.

Claims costs, including additions to reserves, surged sevenfold to $1.35 billion, compared with a Jan. 22 company forecast of as much as $1.3 billion. MGIC set aside money for losses on loans that served as collateral for Wall Street securitizations, whose performance ``deteriorated materially.''

``Higher loss severities and higher delinquencies had a material impact,'' Curt Culver, MGIC's chief executive officer, said in the statement. While the company expects to remain unprofitable this year, Culver said MGIC has adequate capital to meet its claim obligations.

MGIC fell $2.03, or 14 percent, to $12.15 at 10:10 a.m. in New York Stock Exchange composite trading. Earlier in the session the company fell as much as 16 percent.

Foreclosure Rates

U.S. foreclosure rates have risen to their highest since at least World War II, and defaults on privately insured U.S. mortgages rose 37 percent in December from the same month a year earlier, according to the Mortgage Insurance Companies of America trade group. Foreclosure rates rose 75 percent in 2007, according to Irvine, California-based RealtyTrac Inc. Mortgage insurers reimburse lenders when borrowers don't repay their debts.

Borrowers who couldn't make higher monthly payments after introductory rates expired propelled a jump in third-quarter claims, leading MGIC and smaller rivals PMI Group Inc. and Radian Group Inc. to report their first money-losing quarters as publicly traded companies.

Payments on about $460 billion of adjustable-rate mortgages are scheduled to be repriced this year, with an additional $420 billion expected for 2011, according to New York-based analysts at Citigroup Inc.

 

Read more at Bloomberg

Conservationists battle coal firm

(Fin24) - A legal battle is brewing between conservationists and coal exploration company DMC Coal Mining over its plans to prospect for anthracite and torbanite in one of South Africa's most important regions for rare and endangered birds.

DMC Coal Mining has obtained prospecting rights to two properties in the Wakkerstroom region in south-eastern Mpumalanga and is also attempting to get prospecting rights over a further two properties.

This region had been previously examined by another coal exploration group - Keaton Energy - which decided not to apply for prospecting rights because of the sensitivity of the area.

DMC Coal Mining's plans are now being opposed by a number of environmental organisations including Birdlife South Africa, the Wildlife and Environment Society of South Africa, WWF-SA, the Endangered Wildlife Trust and the Ekangala Grassland Trust.

Reason is the region's importance as grassland and wetland habitat hosting a number of rare and endangered birds including Wattled Crane, Rudd's Lark, Botha's Lark and Blue Crane.
 

 

Read more at Fin24

Sovereign's update a shocker

(Fin24) - Yet again we have a trading update that conceals as much as it purports to reveal, this time from chicken producer Sovereign Food Investments.

Bluntly, it says that HEPS for the year to February are expected to be 35%-45% less than last year.

Now, last year HEPS were 207c. If we take the midpoint of the expected decline, or 40%, which is usually what companies really expect, though they understandably give a margin for error, 60% of 207c is 124c. But in the six months to August, HEPS were up from 82c to 102c,  and the second half of the year is usually seasonally the better.

In fact, in the six months to February 2007, HEPS were 124c, 60% of the total. If the first-half momentum had been sustained, as there was every reason to expect from the interim report published last September, which talked of stronger pricing and higher volumes being expected in the second half, we could have looked for  second-half HEPS of 154c, instead of the actual implicit 24c.
 

Read more at Reuters

R343.8m shot for local Mittal op

(Fin24) - ArcelorMittal SA (ACL), the SA arm of the world's largest steel producer, announced on Monday that it would spend R343.8m in capital expenditure at its Newcastle works.

The company said in a statement that the capital would be used to improve the plant's production capacity as well as improve its safety, health and environmental impact by bringing the plant in line with worldwide environmental standards.

Expenditure will be split into three parts, with R103.2m spent on the Sinter Plant refurbishment, R74.6m on a Hot Metal
Desulphurisation project and R166m on the Blast Furnace mini- reline.

The projects form part of ArcelorMittal SA's capacity
expansion programme to increase its liquid steel production to 9.5m tonnes by 2011, the company said.

Construction and installation for the Hot Metal Desulphurisation project began in November 2007 with commissioning taking place in January 2008, while refurbishment work on the sinter plant and raw materials handling plant will begin in May 2008 to coincide with the mini-reline of Blast
Furnace No 5 at Newcastle.
 

 

Read more at Fin24

IMF sees sharp U.S. slowdown

(Reuters) - Economic slowdown in the United States will be significant and will last for some time, the head of the International Monetary Fund said on Monday, calling for a coordinated response to financial turmoil around the world.

While it was unclear how long the crisis facing international banks over subprime losses would last, complex financial links between regions may mean emerging economies could also be hit if the situation worsened, IMF Managing Director Dominique Strauss-Kahn said in a speech.

Uncertainties facing markets and policymakers included a possible worsening of the U.S. housing market, which would hurt consumption, and any more disclosures from European banks on losses resulting from the market turbulence.

"The problem is today we have unknown unknowns," he said at the start of a three-day visit to India.

Last month, the IMF cut its forecast for world growth this year in the face of continued stress in global credit markets, and warned that economic activity could slow even further.

The IMF chief said the main reasons for the revision were the weak growth outlook in the United States and Europe.

 

Read more at Reuters

Yahoo rejects Microsoft's bid

 (Reuters) - Yahoo Inc (YHOO.O: Quote, Profile, Research) on Monday rejected Microsoft Corp's (MSFT.O: Quote, Profile, Research) unsolicited takeover bid, currently valued at $42 billion, as too low, saying its board had unanimously concluded it was not in the best interests of shareholders.

In a statement, Yahoo said the offer "substantially undervalues" the company.

Microsoft made the half-stock, half-cash offer on February 1. It was originally worth $44.6 billion or $31 per share -- a 62 percent premium to Yahoo's stock price. Since then, Microsoft shares have fallen and the deal is now worth $41.8 billion.

 

Read more at Reuters

Cheap Gas Seen Returning 20% as Oil Meets Slowdown

 (Bloomberg) -- U.S. natural gas is the cheapest it's been relative to oil since the 1991 Gulf War, raising the prospect of a windfall for investors who sell crude and buy the other heating fuel.

Gas prices will probably rise because inventories are at a four-year low and below-normal temperatures are stoking demand, said Brian Hicks, who helps manage $1.5 billion at U.S. Global Investors in San Antonio. At the same time, he said, an increased supply of oil and a slowing U.S. economy will drag crude prices lower.

A barrel of crude has cost at least 11 times as much as 1 million British thermal units of gas for three months, compared with an average of 7.8 times in the past 10 years and 18 times in July 1991, when the Gulf War threatened oil supplies from Kuwait and Iraq. The spread, a function of oil's 54 percent surge in the past year, was as high as 13.6 times before oil peaked at $100.09 a barrel on Jan. 3. Gas has climbed just 5 percent in the year.

``In the world of hydrocarbons, natural gas is a bargain compared to crude,'' said Peter Beutel, the president of energy consulting firm Cameron Hanover Inc. in New Canaan, Connecticut. He correctly predicted oil would reach $98 a barrel last year.

Futures contracts on the New York Mercantile Exchange indicate traders are betting this year will be the first since 1993 that gas prices advance while oil declines. Consumers would pay higher household gas and electricity bills, and costs for companies such as Dow Chemical Co., the biggest U.S. chemicals maker, would climb. Profit at gas producers ConocoPhillips, biggest in the U.S., XTO Energy Inc. and EOG Resources Inc. will advance this year, according to analysts surveyed by Bloomberg.

Gas Seen Rising

Gas may increase to $9 or $10 per million British thermal units by May or June, up from $8.30 on Feb. 8, according to Neal McAtee, who was named to the All-Star Analysts Hall of Fame in 1998 by the Wall Street Journal. Oil, which ended last week at $91.77 a barrel, may go to $70 or $72, he said.

U.S. natural gas for March delivery rose as much as 15.3 cents, or 1.8 percent, to $8.454 per million Btu in electronic trading on the New York Mercantile exchange at 10:47 a.m. London time. Crude oil for March delivery traded at $91.66 a barrel, down 11 cents.

A trader who sells $10 million of Nymex oil and buys an equal amount of gas right now would come out about $4 million ahead, or 20 percent, should gas reach $10 and oil $70.

``Natural gas looks to be setting up for a bullish run going into the summer,'' said McAtee, who helps manage $18 million at Red Rock Asset Management in Memphis, Tennessee.

In the past decade, oil sold for more than 12 times natural gas in three stints prior to the latest one. Each time the gap narrowed to the average within four months.

XTO's Simpson

XTO Chief Executive Officer Bob Simpson is predicting something similar this time. Oil will sell for as little as 10 times gas next year and 8 times within five years, he said.

``There's a perceived oversupply of natural gas that's transitory and illusory,'' Simpson, 59, said in a telephone interview from the company's headquarters in Fort Worth, Texas. ``There's going to be a correcting event.''

The last such event was in August 2005, when Hurricane Katrina shut down every gas well and pipeline off the U.S. Gulf Coast. Gas prices peaked in December 2005 at $15.78.

XTO's profit will rise by 4 percent this year to $1.76 billion, according to analyst estimates compiled by Bloomberg. EOG, the Houston-based gas producer born out of Enron Corp., will post a 27 percent increase to $1.38 billion, the data show.

Hurricane Season Flopped

Natural gas represents 24 percent of U.S. energy supply, about as much as coal, according to statistics compiled by BP Plc. Oil contributes about 40 percent, and much of the rest comes from nuclear reactors and hydropower plants.

One reason not to buy gas is the unpredictable nature of weather. Amaranth Advisors LLC lost $6.6 billion on the expectation gas prices were poised to rebound in 2006, leading to the biggest hedge-fund collapse on record. When forecasts for a strong hurricane season proved incorrect, producers were able to keep output flowing from the Gulf of Mexico, the biggest domestic source of gas in the U.S.

Commercial traders such as power-plant owners had a record- large holding in natural gas at a net 81,263 contracts on Jan. 7, according to U.S. Commodity Futures Trading Commission data. As of Jan. 29, commercial traders held 24 percent more short positions than long positions on oil futures, meaning most were betting on declines in prices, and 15 percent more long positions than short positions on gas.

U.S. gas inventories fell 12 percent to 2.06 trillion cubic feet in the past 12 months, reaching the lowest for this time of year since 2004, according to Energy Department data.

 

Read more at Bloomberg

Societe Generale Plans Offer to Raise EU5.5 Billion

(Bloomberg) -- Societe Generale SA plans to raise 5.5 billion euros ($8 billion) by selling stock at a lower price than analysts estimated to replenish capital after the worst trading loss in banking history.

France's second-biggest bank will sell shares in a rights offer at 47.50 euros each, or 39 percent less than the Feb. 8 closing price, according to a statement today. Analysts had expected a discount of as much as 30 percent. Existing shareholders can buy one share for every four held.

Societe Generale fell as much as 6.3 percent in Paris trading to 72.83 euros. The offer comes less than three weeks after the bank said bets by Jerome Kerviel had led to a 4.9 billion-euro trading loss. Societe Generale said today that net income last year fell to 947 million euros from 5.2 billion euros in 2006.

``This rights issue is a matter of life or death,'' said Pierre Flabbee, an analyst at Kepler Equities in Paris, who has a ``reduce'' rating on the stock. The discount ``doesn't show great confidence in selling the shares,'' he said.

Societe Generale fell 2.60 euros, or 3.4 percent, to 75.12 euros in Paris trading as of 12:50 a.m. The shares have declined 24 percent this year, giving the company a market value of 35 billion euros.

The Paris-based bank said the rights offer will increase its Tier 1 capital ratio, a measure of its ability to cover unexpected losses, from 6.6 percent at the end of December to 8 percent. It will also use the cash for ``sustained and balanced growth,'' maintaining lending in France and expanding in Russia, Eastern and Central Europe, the Mediterranean, India and Brazil.

Earnings Fall

The bank announced the trading loss and 2.05 billion euros of writedowns linked to risky U.S. mortgages on Jan. 24, the same day it estimated that 2007 profit would be between 600 million and 800 million euros. It raised that forecast today after lifting its debt valuation.

Operating income, including the losses that Societe Generale blames on Kerviel, fell to 1.8 billion euros from 8 billion euros in 2006. Today's figures aren't audited. Full results will be announced Feb. 21.

``The net profit figure is anecdotal compared with what's at stake,'' said Benoit de Broissia, a fund manager at Richelieu Finance in Paris, which owns Societe Generale shares.

Societe Generale said the corporate and investment banking units lost 2.22 billion euros in 2007, down from a 2.34 billion euro profit the previous year. It reported gains from private banking and its French and overseas retail-banking networks.

Bouton Stays

Although Societe Generale Chairman Daniel Bouton offered to resign after the trading loss was announced, the board has twice voted to retain him. The 57-year-old, who has been chairman or chief executive officer since 1993, will only step down once the share sale and trading scandal are resolved, said Axel Pierron, Paris-based senior analyst at Celent, a financial research firm.

``They will wait until there is some return to normalcy,'' he said. ``Finding someone with Bouton's experience isn't easy.''

Societe Generale has become a takeover candidate. BNP Paribas SA, France's largest bank, has said it's considering an offer, while the country's No. 3 lender, Credit Agricole SA, appointed advisers to study a bid, people involved in the talks said. While the government has said it wants Societe Generale to remain French, it has no legal means to block a takeover.

`Staying Independent'

The increase in borrowing costs in the past six months might deter bidders from financing an offer, Pierron said.

``If this had happened a year ago it might have been different, but the lack of liquidity in the market may help Societe Generale stay independent,'' Pierron said. ``With the rights issue, it certainly has the means to stay independent.''

Societe Generale said it's aiming for an improvement in gross operating profit of at least 1 billion euros by 2010 and repeated that it will pay a dividend of 45 percent of net income from 2008 to 2010. The ``key strengths and profit-making capacities remain intact,'' it said.

The rights will trade separately on Euronext during the subscription period from Feb. 21 to Feb. 29. The new shares will carry dividend rights from the start of 2008. Each right is worth 5.9 euros, the bank estimated.

``We're going to participate,'' said Neuflize Banque fund manager Emmanuel Soupre, who owns Societe Generale shares. ``Societe Generale's client portfolio remains of high quality.''

The offering, which is guaranteed by investment banks, is lead managed by JPMorgan Chase & Co., Morgan Stanley and Societe Generale's own investment bank. Credit Suisse Group and Merrill Lynch & Co. are co-book runners.

 

Read more at Bloomberg

PepsiCo 4th-quarter profit falls

(Reuters) - PepsiCo Inc (PEP.N: Quote, Profile, Research) reported lower quarterly profit on Thursday, hurt by a higher tax rate and a decline in sales volume of carbonated soft drinks.

The company, which makes Pepsi Cola, Frito Lay snacks and Quaker oatmeal, said net income for the fourth quarter ended on December 29 was $1.26 billion, or 77 cents per share, compared with $1.83 billion, or $1.09 per share, a year earlier.

Excluding restructuring charges and tax items, the company earned 80 cents per share.

Last month Pepsi Bottling Group Inc (PBG.N: Quote, Profile, Research), the world's largest bottler of Pepsi drinks, reported flat sales volume in the United States and weaker sales of refrigerated drinks, sold at convenience stores and gas stations.

 

Read more at Reuters

Children's Place ex-CEO says could bid for company

(Reuters) - Children's Place Retail Stores Inc (PLCE.O: Quote, Profile, Research) former Chief Executive Ezra Dabah said on Thursday he was confident he could make a bid to buy the company for $24 a share, sending its shares up 18 percent in pre-market trading.

The $24 price would represent a 35 percent premium to the closing price of Children's Place shares on Wednesday. Dabah said he had received interest from private equity firm Golden Gate Capital to be a participant in the deal.

Dabah, who said in a filing to the Securities and Exchange Commission that he owns 17.2 percent of the children's clothing retailer's shares, resigned as CEO last September after an internal probe found he did not comply with the company's securities-trading policies.

The SEC filing comes the same day that Children's Place said its sales at stores open at least a year rose a better-than-expected 6 percent in January.

Wall Street on average had been expecting a same-store sales gain of 2.5 percent, according to Reuters Estimates.

Same-store sales rose 9 percent at the Children's Place brand and 2 percent at the company's Disney Store chain.

Children's Place also said it has been notified by Nasdaq that its stock was subject to delisting because of its failure to hold its fiscal 2006 annual meeting by February 3.

Last September, the company said its board was evaluating strategic options -- including a potential reorganization or an outright sale.

 

Read more at Reuters

Euro Declines as Trichet Says U.S. Slowdown May Hurt Europe

(Bloomberg) -- The euro fell for a third day against the yen and dollar as European Central Bank President Jean-Claude Trichet said the slowdown in the U.S. may curtail economic growth in Europe, signaling lower interest rates this year.

The euro extended its drop against the yen this year to 5.3 percent and erased gains against the dollar after the ECB left interest rates unchanged today. Investors have raised bets the ECB will cut interest rates by mid-year even as policy makers say inflation is accelerating. The pound fell after the Bank of England lowered rates today.

``The market is being disappointed by the ECB's stubbornness and is selling the euro,'' said Toshi Honda, a currency strategist in London at Mizuho Corporate Bank Ltd., a unit of Japan's second-biggest bank by assets. ``The ECB will have to concede to the market eventually.'' The euro may fall to $1.40 by the middle of the year, he said.

The currency dropped to 154.49 yen as of 2:14 p.m. in London, from 155.88 yesterday in New York. It declined against the dollar to $1.4523 from $1.4632, losing 2.1 percent in the past three days.

Against the pound, it rose to 74.66 pence from 74.59 pence, after policy makers at Britain's central bank cut the benchmark interest rate by a quarter-point to 5.25 percent, citing slowing global growth and tighter credit. All but two of 61 economists surveyed by Bloomberg predicted the decision.

Carry Trades

The yen gained against all of the 16 most-active currencies as European stocks dropped and the risk of the region's companies defaulting on their bonds rose, increasing demand for safer assets and reducing appetite for so-called carry trades.

The yen traded at 106.39 against the dollar, from 106.54 yesterday. It gained the most versus the rand, rising 1.6 percent to 13.63. It climbed 0.4 percent to 95.01 against the Australian dollar.

The Dow Jones Euro Stoxx 50, a benchmark for the 15 nations that share the euro, declined 2.2 percent today, after slumping to the lowest since Jan. 24 yesterday. The Morgan Stanley MSCI World Index fell 0.9 percent.

In carry trades, investors get funds in a country with low borrowing costs and invest in one with higher interest rates, earning the spread between the two. Higher currency volatility may discourage carry trades.

Implied volatility for one-month options on dollar-yen was 12.4 percent today and has declined from 12.8 percent a week ago. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options.

Citigroup Idea

Investors should sell the New Zealand dollar and buy the Swiss franc to hedge against currency losses on high-yielding assets and reduce their carry trades between the two countries, said Citigroup Inc., the largest U.S. bank by assets.

The New Zealand dollar will be among the hardest hit currencies if global economic growth slows, according to a report from a Citigroup research team led by Todd Elmer, a currency strategist in New York.

The ECB left its main refinancing rate at a six-year high of 4 percent, in line with the forecasts of all 56 economists surveyed by Bloomberg.

Trichet, speaking in a press conference in Frankfurt, said countering inflation remains the key for the central bank. Inflation in the 15 nations sharing the euro reached a 14- year high in January of 3.1 percent, overshooting the bank's 2 percent limit for a fifth month.

 

Read more at Bloomberg

Trichet Sees `Unusually High Uncertainty' on Growth

(Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled that risks to euro-region economic growth are increasing, prompting investors to raise bets on interest-rate cuts.

``As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. ``We will continue to monitor very closely all developments over the coming weeks.''

The ECB has kept borrowing costs at a six-year high, declining to follow counterparts in the U.S. and Great Britain by cutting borrowing costs as it seeks to contain inflation in the 15 euro nations. Investors predict that a slowing economy will prompt the ECB to reduce its key interest rate.

``There is a greater acknowledgment that risks to growth are on the downside,'' said David Owen, chief European economist at Dresdner Kleinwort in London. ``The ECB's not going to cut in next couple of months, but it is starting to prepare the markets for rate reductions.''

The euro weakened 0.8 percent to $1.4521 at 3:21 p.m. in Frankfurt and the yield on 10-year German bunds fell 5 basis points to 3.85 percent.

Growth Forecasts

The ECB on Dec. 6 projected the euro-region economy to expand about 2 percent this year after 2.6 percent in 2007. Trichet said today that latest data confirmed the bank's assessment that ``risks surrounding the economic outlook lie on the downside.''

The International Monetary Fund on Jan. 29 cut its 2008 euro-region growth estimate by half a point to 1.6 percent, saying that ``no one is going to be exempt from some slowdown.'' The Washington-based fund also trimmed its growth estimates for the U.S. and Japan, the world's two largest economies.

Stock markets have dropped this year on concern the U.S. economy is sliding into a recession, curbing earnings growth. Germany's benchmark DAX Index has lost 16 percent this year and the Dow Jones Stoxx 600 Index 12 percent.

The Bank of England today cut interest rates for the second time in three months, lowering the benchmark by a quarter point to 5.25 percent. The Fed last month lowered its rate by 1.25 percentage points in two reductions to 3 percent.

 

Read more at Bloomberg

Biogen Fourth-Quarter Net Rises 85 Percent on Tysabri

 (Bloomberg) -- Biogen Idec Inc., the world's largest maker of multiple sclerosis drugs, said fourth-quarter profit rose 85 percent on sales of its fastest-growing product, the MS medicine Tysabri.

Net income rose to $201.2 million, or 67 cents a share, from $108.6 million, or 32 cents, a year earlier, the Cambridge, Massachusetts-based company said today in a statement. Profit excluding certain costs beat analysts' estimates by 9 cents a share.

Revenue rose 26 percent from a year earlier to $893 million as worldwide sales of Tysabri quadrupled. Biogen said it expects 100,000 patients will be taking Tysabri by the end of 2010, which could mean $2.8 billion in annual sales at current prices, according to analysts. The MS drug was cleared in the U.S. last month for an expanded use, Crohn's disease, an inflammation of the intestines.

``It was a very good quarter, they deserve credit,'' said Michael King, an analyst with Rodman & Renshaw in New York, in a telephone interview today.

Biogen fell $2.77 cents, or 4.4 percent, to $60.52 yesterday in Nasdaq Stock Market composite trading. The stock has gained 23.7 percent in the 12 months before today.

Tysabri generated $129 million in worldwide sales in the quarter, up from $30 million a year earlier. Worldwide sales are split with Biogen's partner, Irish drugmaker Elan Corp. Biogen recorded $90 million of the Tysabri sales in the fourth quarter, the company said. About 21,000 patients worldwide were taking the drug at the end of December.

Reintroduced

Biogen and Elan pulled the drug from the market in February 2005 after two patients developed rare, fatal brain infections. A month later, the companies disclosed a third case of the disorder, progressive multifocal leukoencephalopathy. The drug was reintroduced in July 2006 after the U.S. Food and Drug Administration decided the benefits for slowing MS relapses outweighed the risk.

In December, Biogen lost more than $5 billion in market value when it abandoned a plan to sell the company, saying it didn't receive any offers. Billionaire investor Carl Icahn criticized the process last week as ``flawed,'' and nominated three people to the company's 12-member board.

Biogen reiterated its forecast annual revenue growth of 15 to 20 percent in 2008, driven by increasing prescriptions of Tysabri. Profit excluding certain costs will be $3.20 to $3.35 a share, said Chief Executive Officer James Mullen, at an investor conference in San Francisco Jan. 7.

 

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U.S. Stock Futures Rise on Productivity Report, Disney Earnings

(Bloomberg) -- U.S. stock futures rose, pointing to a rebound from the market's biggest drop in 11 months, after worker productivity grew more than forecast and earnings at Walt Disney Co. and JDS Uniphase Corp. topped analysts' estimates.

Walt Disney, the second-largest U.S. media company, gained on higher revenue from cable networks and theme parks. JDS Uniphase rallied after the maker of telecommunications testing equipment said it isn't being affected by the slowdown in the U.S. economy. Newmont Mining Corp. led metal producers higher as BHP Billiton Ltd. raised its bid for Rio Tinto Group.

``Disney and Uniphase have shown that companies are still capable of good results, despite recent carnage in the markets,'' said Jonathan Monk, a fund manager at Aerion Fund Management in London, who helps oversee about $23 billion.

Standard & Poor's 500 Index futures expiring in March climbed 4.2 to 1,347.4 at 8:48 a.m. in New York. Dow Jones Industrial Average futures gained 32 to 12,352. Nasdaq-100 Index futures increased 6 to 1,791. European and Asian stocks fell.

Fourth-quarter earnings have declined 23 percent on average at the 316 companies in the S&P 500 that reported results so far, according to data compiled by Bloomberg. Excluding financial companies, profit growth averaged 18 percent.

Productivity, a measure of employee efficiency, rose at an annual rate of 1.8 percent in the fourth quarter, the Labor Department said. Economists in a Bloomberg News survey projected a 0.5 percent gain. A gauge of labor costs climbed less than forecast.

Disney, JDS Uniphase

Walt Disney jumped $1.78 to $31.85. Net income in the first quarter was 63 cents a share, beating the 52 cent average estimate of 19 analysts compiled by Bloomberg. Sales rose 9.1 percent to $10.45 billion, surpassing the $10.1 billion average estimate.

JDS Uniphase increased $2.14 to $12.30. Profit for the first quarter, excluding costs such as stock-based compensation, was 22 cents a share, exceeding the 11 cent average estimate of analysts in a Bloomberg survey.

Newmont, Barrick Gold Corp., Freeport-McMoRan Copper & Gold Inc. and Goldcorp Inc. gained after Australia's BHP Billiton, the world's largest miner, raised its hostile bid for the U.K.'s Rio Tinto Group to $147 billion. Aluminum Corp. of China, China's biggest aluminum company, and Alcoa Inc. last week bought a stake in Rio to block the takeover attempt, which was announced in November.

Newmont climbed 90 cents to $50.38. Barrick rose 65 cents to $48.38. Goldcorp added 83 cents to $35.43. Freeport-McMoRan advanced $1.09, or 1.3 percent, to $87.

 

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Recovery for SIVs unlikely given Basel II rules-panel

(Reuters) - The troubled market for so-called structured investment vehicles (SIVs) is effectively dead and likely to stay that way given new international rules for matching banks' reserves to their risks, panelists at a bond industry conference said on Tuesday.

The new Basel II international accord, to be applied to U.S. banks with total assets of $250 billion or more, is likely to make investing through off-balance sheet SIVs less attractive for banks, which are the main sponsors of such vehicles, speakers at the American Securitization Forum conference in Las Vegas said.

SIVs are specialized funds that raise cash by issuing short-term debt and invest the proceeds in longer-dated and higher-yielding assets, including U.S. mortgages. The funds pocket the difference between what they make on their investments and the interest they pay out to investors.

The vehicles have been unable to fund themselves normally for many months amid the U.S. credit crisis and the market value of their investment portfolios has plummeted, prompting ratings downgrades and mass restructuring efforts.

But the market for SIVs may have eventually contracted anyway given the onset of Basel II, which has been seen as offering a way for banks to lower their capital reserves by linking reserve requirements to the credit quality of investments.

 

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If recession hits, dollar and Wall St may fare best

(Reuters) - Sticking with equities and buying dollars might be the best way to profit if a U.S. economic recession materializes, as investors may have already discounted the gloomiest scenario for the world's largest economy.

As the chances of a U.S. recession, typically defined as two quarters of economic contraction, increased late last year, investors executed classic investment strategies associated with recession risks -- selling stocks and buying government bonds.

World stocks, measured by MSCI, are down 15 percent from November's record highs. the S&P 500 main U.S. stock index .SPX shed more than 11 percent from all-time highs while benchmark U.S. yields have hit 4-1/2 year lows.

"The text book trade for recession is to sell equities and buy bonds. Sell cyclical and IT and buy pharmaceuticals and other sectors negatively correlated with the economic cycle. But this has been already done," said Luca Paolini, strategist at Credit Suisse in London.

"This time, in terms of equities versus bonds, the valuation story is compelling for equities. So overweighting equities will prove profitable."

 

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Apollo, Bain LBOs Lose Investors' Money, Bonds Show

(Bloomberg) -- Less than a year after Apollo Management LP paid $6.6 billion for real estate broker Realogy Corp., bond prices show the deal may be worthless.

Debt used to finance the April purchase trades at 61 cents on the dollar, and derivatives tied to the securities indicate an 80 percent chance that Parsippany, New Jersey-based Realogy will default. Apollo, the private-equity firm run by Leon Black, put up about $2 billion of cash to buy the owner of Coldwell Banker and Century 21, borrowing the rest.

The bonds show Apollo's equity in Realogy ``has no value right now,'' said Sabur Moini, a money manager in Los Angeles at Payden & Ragel, which oversees $50 billion in fixed-income securities. ``If bonds are trading in the 50s or 60s, the market is saying that these guys are headed toward bankruptcy.''

Falling bond prices are jeopardizing private-equity returns after easy access to cheap debt fueled a record $1.4 trillion of leveraged buyouts in 2006 and 2007. New York-based Morgan Stanley estimates buyout funds raised in 2003 have returned an average of 42 percent, and now Apollo, Bain Capital LLC, Cerberus Capital Management LP and their competitors may face losses.

Twenty-seven percent of the approximately $74 billion in bonds used in LBOs the last two years classify as ``distressed'' because they yield at least 10 percentage points more than Treasuries, Bloomberg data show.

Distressed Defaults

About 19 percent trade at less than 80 cents on the dollar, below the 91-cent average for high-yield bonds, Bloomberg data show. Freescale Semiconductor Inc., an Austin, Texas-based maker of chips for mobile phones, and OSI Restaurant Partners Inc., the Tampa, Florida-based owner of Outback Steakhouse, are in both categories.

Debt is 20 times more likely to default within a year once it's crossed the distressed threshold, according to research by Martin Fridson, chief executive officer of high-yield research firm FridsonVision LLC in New York.

``There's going to be some blow-ups'' as the economy slows, said Eric Bushell, the chief investment officer at Toronto-based Signature Funds, which oversees $17 billion and invests in publicly traded buyout funds. LBO firms ``paid prices that maybe weren't necessary,'' he said.

LBO firms typically seek out investors such as pension funds or university endowments to fund 32 percent of the cost of any buyout on average, according to Standard & Poor's. They borrow the rest through high-yield, or junk, bonds and loans in the target company's name. Junk bonds are rated below Baa3 by Moody's Investors Service and lower than BBB- by S&P.

 

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Pfizer, Schering HIV Drugs May Fail On Incorrect Test

(Bloomberg) -- Pfizer Inc.'s new AIDS drug and a similar pill from Schering-Plough Corp. may stop working in some patients because a test identifying who should get the medicines is sometimes inaccurate.

The pills, made by Pfizer, of New York, and Schering, based in Kenilworth, New Jersey, block a chemical entryway known as CCR5 that the virus uses to infect cells. In about 10 percent of cases, a Monogram Biosciences Inc. test incorrectly identifies patients who will benefit from the drug, scientists said this week at an AIDS meeting.

New research on Pfizer's Selzentry and Schering's vicriviroc, as well as the test's reliability, will be presented today at the Conference on Retroviruses and Opportunistic Infections in Boston. While the pills promise to fight HIV in patients who can't take older medicines, the new drugs' effectiveness depends on accurate screening.

``The test is wrong in about 8 to 10 percent of patients initially screened to see if they are candidates for a CCR5 antagonist,'' David Hardy, director of the division of infectious disease at Cedars Sinai Medical Center in Los Angeles, said in a telephone interview. ``We're waiting to see if the next-generation test from Monogram will eliminate the errors.''

Selzentry was cleared in August for patients who stopped responding to older medicines. It's the only approved CCR5 inhibitor, the first new family of AIDS medicines in a decade.

Pfizer didn't report revenue for Selzentry last year. Analysts have projected the pill could have peak annual sales of about $300 million. Vicriviroc, a similar drug, is in the third and final stage of testing usually required for U.S. regulatory approval.

90 Percent

As many as 90 percent of previously untreated HIV patients will have a strain of the virus that enters healthy cells through the CCR5 doorway, Howard Mayer, executive director of clinical research and development for Pfizer, said in an interview at the meeting in Boston.

After five years of HIV infection, about half of patients still have that strain, Mayer said. By then, most patients have higher levels of another virus version known as X4 that infects cells through a different route unaffected by drugs such as Selzentry and vicriviroc.

A new test to better determine who can benefit from the Pfizer and Schering drugs is about six months from reaching the U.S. market, Chris Petropoulos, chief scientific officer for South San Francisco-based Monogram, said in a telephone interview.

 

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Fillon's SocGen Barricades Prompt Europe Officials to Cry Foul

(Bloomberg) -- As French politicians go to the barricades to keep foreign banks from preying on a vulnerable Societe Generale SA, their European partners are left wondering just who the enemy is.

Days after France's second-largest bank announced that unauthorized bets left it with a trading loss of 4.9 billion euros ($7.2 billion), politicians led by Prime Minister Francois Fillon jumped in to preempt a non-French takeover bid.

Such economic nationalism in a country whose companies remain among the most acquisitive in the region has other Europeans crying foul. In the past year, French firms announced 317 deals in Western Europe, outside France, valued at $89.2 billion, according to Bloomberg data. In the same period, Western European businesses initiated 286 deals in France for $67.2 billion.

Whenever a potential acquisition is considered politically important, ``it is always seen in Paris as the French versus the non-French,'' says Daniel Gros, director of the Brussels-based Center for European Policy Studies. ``There is no European solidarity.''

Jean-Claude Juncker, the Luxembourg prime minister and finance minister who heads a group of his euro-area finance counterparts, said he can understand blocking a hostile bid.

``But if someone friendly comes forward with a strong economic project, why refuse it?'' he asked on Europe1 radio Jan. 31. ``Simply because it is not French?''

`Great French Bank'

Fillon, 53, provided an answer in remarks to Parliament Jan. 29. ``Societe Generale is a great French bank and will remain a great French bank,'' he said.

That sentiment is widely held.

``For the French, it is extremely important that one of our oldest banks, with a 140-year history, which was founded by its employees, not by a family, which has never been subsidized by the state, remain in French hands,'' says Patrice Leclerc, head of Societe Generale's employee-shareholders' association.

The protectionist instinct is deep-seated and draws from a political tradition that dates back to the 17th century mercantilist policies of Jean-Baptiste Colbert, Louis XIV's finance minister. Colbert established a protective system of tariffs, preventing foreigners from trading in French colonies.

All countries seek to protect strategic industries, as the U.S. did in 2005 when it blocked the sale of California-based oil company Unocal Corp. to Chinese oil producer Cnooc Ltd.

Special Protection

France's definition, though, is wider than most: In July 2005, rumors of a takeover of Groupe Danone SA, the world's largest yogurt maker, by Purchase, New York-based PepsiCo Inc. set off a national uproar. Then-President Jacques Chirac called for special measures ``to protect our key companies.'' PepsiCo, the world's second-largest maker of snacks and beverages, never made a formal bid.

``France is not unique,'' says Juan Delgado, a fellow at Breugel, a Brussels-based research institute. ``It is just that the French are noisier and more blatant.''

One explanation is the size of the French government's stake in the economy. It owns more than 80 percent each of Paris-based Gaz de France SA, owner of Europe's largest natural- gas network, and Electricite de France SA, the region's biggest power generator.

``There is often no clear division in France between the political and the economic, between a company's strategy and that of the state,'' Delgado says. While EDF frequently makes acquisitions outside France, no foreign company would be able to buy it because of the government's stake, he says.

 

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