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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