U.K. to Back Northern Rock Debt in Plan to Spur Sale

(Bloomberg) -- The U.K. government, struggling to find a buyer for Northern Rock Plc, said it will guarantee a sale of bonds backed by the bank's home loans and gave bidders two weeks to come forward with proposals.

The mortgages, consumer loans and some investment-grade securities of the Newcastle, England-based bank would be packaged as debt and sold to investors, the Treasury said today. Bids based on the new funding plan must be submitted by Feb. 4.

Northern Rock rose as much as 55 percent in London trading on speculation the proposal will revive interest among potential buyers such as Richard Branson's Virgin Group Ltd. Northern Rock sparked the first run on a U.K. bank in a century when it sought aid from the Bank of England in September. Borrowings have since swollen to about 24 billion pounds ($47 billion), hampering a sale and forcing the government to consider nationalization.

``It seems a very reasonable solution for Northern Rock,'' said Simon Maughan, an analyst at MF Global Securities Ltd. in London who has a ``neutral'' rating on the stock. ``The problem comes when the competition cries foul.''

Northern Rock rose 21.75 pence, or 34 percent, to 86.25 pence by 12:35 p.m., valuing the bank at 363 million pounds.

Brown, Darling

U.K. Prime Minister Gordon Brown and Chancellor of the Exchequer Alistair Darling have been accused of ``dithering'' by opposition lawmakers for failing to prevent the run on Northern Rock. The U.K. regulatory framework, designed while Brown was running the Treasury, hampered the central bank's ability to head off the bank run, lawmakers, economists and the Bank of England's governor, Mervyn King, have said.

Brown's government has also been criticized for not making a decision earlier on the future of the bank. Darling will make a statement today on the plan and possibilities for a private sale.

``It's precisely because Gordon Brown and Alistair Darling couldn't make a decision that we are looking at public subsidy for five years to come, with no guarantee the government is going to get its money back,'' George Osborne, who speaks on finance for Britain's Conservative Party, said in an interview on BBC Radio 4's Today program.

Northern Rock, a formerly customer-owned building society whose roots date to 1850, is the U.K.'s third-biggest mortgage lender. The company, which sold shares in 1997, has 76 branches and relied mainly on money markets to finance mortgage lending.

The bank sought the government's help after the U.S. subprime mortgage crash rattled credit markets, choking off its financing. The government guaranteed the bank's customer deposits and will also back the bond sale.

Weighing Options

Northern Rock is weighing private solutions, including a bid by Virgin and a reorganization plan of its own. At the same time, concern has grown the bank may have to be nationalized as bidders struggle to secure financing to repay the Bank of England debt.

Northern Rock welcomed the authorities' preference ``to reach agreement on a private sector solution for the company,'' the bank said in a statement today. The lender said it would work with bidders and the government to develop their proposals and its own standalone plan.

A sale will have to be agreed upon in time to enable a restructuring plan to be submitted for approval to the European Union by March 17, the government said. Pending approval by the EU, the Bank of England's loans would be repaid under the plan, which was devised by Goldman Sachs Group Inc.

 

Read more at Bloomberg

Across Asia, food is the new oil as prices surge

(Reuters) - From India to Indonesia, governments across Asia are scrambling for solutions as it dawns on them that sky-high food prices might not fall any time soon.

With food accounting for a third of China's consumer price basket and even more in some other countries, the high prices are a ticking time bomb for the region, where fuel increases periodically touch off sometimes violent protests.

"If the inflation problem gets out of hand, it could have devastating implications for not only economic but also political stability," said Yiping Huang, an economist with Citigroup in Hong Kong.

In Pakistan, where the government has blamed a shortage of flour on smugglers and hoarders, paramilitary troops have begun escorting wheat trucks to deter thieves.

Malaysia briefly rationed cooking oil this month before the government boosted supplies of subsidized oil.

In China, where inflation is at an 11-year high, the government has taxed grain exports to boost local supplies and resorted to command economy-style price controls.

 

Read more at Reuters

"Help Wanted" highlights skills drain in U.S

(Reuters) - Only half the machines are running at precision parts maker Hamill Manufacturing, nestled in the Allegheny Mountains just east of Pittsburgh, once the booming center of the U.S. steel industry.

But the factory's overcapacity is the result not of a shortage of business -- it has more orders than it can fill, despite a slowing U.S. economy -- but because of a shortage of skilled workers.

"I'd hire 10 machinists right now if I could," said John Dalrymple, president of the company, which makes high-end parts for military helicopters and nuclear submarines. "That's eight to 10 percent of our workforce."

While millions of jobs making everything from textiles to steel have moved to new powerhouses like China in recent years, precision manufacturing remains a crucial niche in the United States, one that is overworked and chronically understaffed.

And, in a bad sign for the United States and its declining economic might, that shortage of skilled workers is likely to get worse as Baby Boomers retire -- with no younger generation of manufacturing workers to take the baton.

"Our workforce is an aging workforce," said Chief Executive Jeff Kelly, whose father founded Hamill nearly 60 years ago. "There isn't a queue of people lining up to come into the industry."

Some 20 percent of small to medium-sized manufacturers -- those with up to 2,000 workers -- cited retaining or training employees as their No. 1 concern, according to a survey by the National Association of Manufacturers. The survey was carried out in 2007 but has not been published yet.

 

Read more at Reuters

U.S. Stocks Fall on Intel Forecast, Extending Global Tumble

(Bloomberg) -- U.S. stocks declined after Intel Corp.'s sales forecast stoked concern over technology profits and deepened a decline in global markets that's wiped out $2.58 trillion in value this year.

Intel, the world's largest computer-chip maker, dropped the most in five years in Nasdaq Stock Market trading after saying first-quarter sales will be as much as 6.9 percent below analysts' estimates. Exxon Mobil Corp. and Chevron Corp. led energy shares lower on the New York Stock Exchange as oil prices retreated below $90 a barrel for the first time in four weeks.

The Standard & Poor's 500 Index lost 12.7, or 0.9 percent, to 1,368.25 at 11:04 a.m. in New York, below its Aug. 16 trading low. The Dow Jones Industrial Average slipped 75.43, or 0.6 percent, to 12,425.68. The Nasdaq Composite Index sank 47.9, or 2 percent, to 2,369.69. Asia's regional benchmark fell to its lowest since August, while European shares slid to a 16-month low. Indexes in Russia, Japan and Hong Kong all dropped by more than 3 percent.

``It's obviously treacherous out there, and Intel did no favors with their earnings announcement,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``There's not a whole lot of places to hide, and the consumer looks weak right now.''

The S&P 500 has dropped 6.8 percent so far this year, while the Dow average is down 6.3 percent and the Nasdaq Composite has lost 11 percent. Technology shares, which helped lead the market higher last year, have retreated 12 percent as a group in 2008 for the worst performance among 10 industries.

Losses were limited today as JPMorgan Chase & Co. and Wells Fargo & Co. posted results that topped analysts' estimates and Oracle Corp. agreed to buy BEA Systems. Four stocks retreated for every three that rose on the NYSE.

Consumer prices rose at a slower pace in December, signaling inflation may decelerate after rising in 2007 by the most in 17 years.

Intel Forecast

Intel tumbled $2.86, or 13 percent, to $19.83. First- quarter sales will rise to as little as $9.4 billion, the chipmaker said yesterday after the close of trading, less than the $10.1 billion estimate of analysts surveyed by Bloomberg. Lehman Brothers slashed its price estimate on the stock by 23 percent to $23.

Advanced Micro Devices Inc., the second-largest maker of computer processors, lost 16 cents to $5.96.

Apple Inc. dropped $10.23 to $158.81. The shares slumped for a second day after new products failed to impress investors yesterday.

Oil fell below $90 a barrel for the first time in four weeks in New York after a Energy Department report showed supplies rose more than expected.

Oil Drops

Exxon, the largest U.S. oil company, declined $2.79 to $86.23. Chevron Corp., the second-biggest, lost $2.74 to $85.53. ConocoPhillips, the second-largest U.S. refiner, retreated $2.66 to $77.95.

Ambac Financial Group Inc. plunged $6.05, or 29 percent, to $15.09. The second-largest bond insurer will slash its dividend 67 percent and raise more than $1 billion in new capital to preserve its AAA credit rating. Ambac and rival MBIA Inc. are under scrutiny by ratings companies and regulators after their guarantees on collateralized debt obligations and bonds linked to subprime mortgages began plunging in value.

Oracle Corp., the world's third-biggest software maker, slid 4 cents to $21.27 after agreeing to buy BEA Systems Inc. for $8.5 billion. Oracle will buy the San Jose, California-based software maker for $19.38 a share in cash, 24 percent above yesterday's closing price. Oracle capitulated to BEA's board's demands for a higher price after BEA rejected a $17 bid in October. BEA added $2.97 to $18.55.

 

Read more at Bloomberg

Ambac Will Cut Dividend, Raise $1 Billion in Capital

(Bloomberg) -- Ambac Financial Group Inc. ousted its chief executive officer, slashed the dividend 67 percent and will raise more than $1 billion to preserve its AAA credit rating after announcing the biggest-ever writedowns by a bond insurer.

The New York-based company fell as much as 28 percent on the New York Stock Exchange, extending a 76 percent decline in the past 12 months. Ambac will report a loss after reducing the value of securities it guarantees by $3.5 billion, according to a statement today.

Chairman and CEO Robert Genader, 60, will leave after presiding over the company's first ever losses and a decline in shares that wiped out $7.8 billion in market value. Ambac's writedowns, which exceeded those announced last week by larger rival MBIA Inc., failed to convince investors that the worst is over. Ambac and MBIA remain under scrutiny by ratings companies and regulators after their guarantees of bonds linked to subprime mortgages began plunging in value.

``The perception is that their underwriting standards were insufficient and they weren't on top of their business,'' Janet Tavakoli, president of Tavakoli Structured Finance in Chicago, said in an interview. ``This announcement still just says `We're a black box. Deal with it'.''

Ambac, which put its AAA stamp on $556 billion of securities, probably will end up needing more capital because the credit quality of the debt it guarantees will decline, Tavakoli said. Standard & Poor's yesterday changed the way it reviews subprime securities to increase its assumptions for losses, indicating it may further lower credit ratings.

Shares Fall

Board member and former Citigroup Inc. executive Michael Callen, 67, will become chairman and interim CEO, Ambac said.

The reduction in the quarterly dividend to 7 cents from 21 cents reverses a commitment made just three weeks ago to retain the payout. Ambac said it will report a net loss of $32.83 a share for the quarter, equating to more than $3 billion based on the company's 101 million shares outstanding.

Ambac declined $5.79 to $15.35 at 10:35 a.m. in New York after earlier falling as low as $15.12. MBIA dropped $1.91, or 12 percent, to $14.14.

``It's one thing to have a plan and another to have a plan that is credible and will be a long-term fix,'' said Donald Light, an analyst with Boston-based consulting firm Celent. ``Is this just a down payment in what's going to be a series of payments of uncertain length?''

`Clock Ticking'

Ambac is under pressure to come up with enough capital to satisfy Fitch Ratings, which threatened to cut the company's AAA rating unless it raised $1 billion. The bond insurers are under scrutiny from Fitch, Moody's Investors Service and S&P to increase their capital after a slide in credit ratings of the debt they guarantee.

The loss of the AAA stamp of Ambac, MBIA, FGIC Corp. and other insurers would throw into doubt the ratings of $2.4 trillion of municipal and structured finance debt that the companies guarantee. It would also cripple their ability to keep underwriting new bonds.

``The clock is ticking for all these companies,'' Robert Haines, an analyst with New York-based bond research firm CreditSights Inc., said in an interview before the announcement.

The infusion of capital, which may include the sale of shares and convertible stock, will satisfy Fitch, Ambac said in the statement today. Ambac said it may also reinsure more of its bonds or sell debt securities to shore up capital.

 

Read more at Bloomberg

Airbus posts record 2007 orders

(Reuters) - Airbus confirmed 2007 as a record year for planemakers on Wednesday by posting orders for 1,341 aircraft while boosting cost savings aimed at catching archrival Boeing Co.

Boeing took top spot with 1,413 orders and has suffered less from a weakened dollar than Airbus, which has launched its Power8 cost-savings drive in response.

"These are enormous numbers; it was a staggering year. Now it becomes a question of how we manage the backlog," Airbus chief Tom Enders told journalists.

"Power8 delivered cost savings very considerably ahead of schedule in 2007. The official version is more than 300 million euros; I can tell you it is close to 500 million," he said.

The planemaker aims to cut 10,000 jobs and sell plants to lower its costs. It said it had achieved 30 percent of its planned reduction in overhead positions in 2007, or 3,000 jobs, equally split between Airbus and its suppliers.

Yet despite the reductions achieved mainly through attrition, Airbus still needs to hire production workers and skilled engineers to deliver ambitious new projects.

The overall Airbus headcount of around 55,000 fell slightly in 2007, Chief Operating Officer Fabice Bregier said.

 

Read more at Reuters

Tiger: 'Blatant profiteering'

(Fin24) - The Competition Commission - on Wednesday slammed the bread price increases, saying the "blatant profiteering is an insult to the nation".

Bread maker Tiger Brands (TBS) on Monday implemented price increases on its Albany bread brand - soon after the Competition Commission hit it with a R99m fine for admitting a role in bread price-fixing cartel.

"This blatant profiteering is an insult to the nation, particularly the poor. It demonstrates that either the collusion is continuing or the cartel members are acting to maintain the artificially high margins they achieved by acting unlawfully," said Shan Ramburuth, Competition Commissioner.

The Commission has requested an explanation.

Tiger Brands is the only company that has implemented price hikes. Its peers Pioneer Foods, Premier Foods and Foodcorp, which are also implicated in the bread cartel scandal, are expected to follow suit.

"Should evidence show that the collusive behaviour is continuing we are able to withdraw the immunity we've granted to other players. We are also prosecuting the remaining cartel members, Pioneer and Foodcorp. Perhaps most shockingly, we have received new allegations of other anti-competitive behaviour by these parties, which we are vigorously pursuing," said Ramburuth.

Tiger Brands has denied that prices increases were implemented to plug the gap on the R99m, but has cited higher wheat prices.

Wheat prices - which make about 20% of bread input - nearly doubled in the past year to trade around 3 000 rand per ton as the world's wheat inventories shrunk due to threats of crop failure in the world's top wheat exporters.
 

Read more at Fin24