Democrats’ stance against offshore drilling shifted more Saturday, with House Speaker Nancy Pelosi signaling she was willing to consider opening up more areas off the nation’s coastlines to oil and gas exploration.
In her party’s weekly radio address, Pelosi said opening portions of the Outer Continental Shelf for drilling would be a part of energy legislation House Democrats will put forward in coming weeks to address the country’s dependence on foreign oil and high gasoline prices.
House members will be able to "consider opening portions of the Outer Continental Shelf for drilling, with appropriate safeguards, and without taxpayer subsidies to Big Oil," said Pelosi, a California Democrat.
Just weeks ago Pelosi seemed resolved to block any votes to allow offshore drilling, in part because Californians have opposed drilling off their coasts since an oil spill off Santa Barbara in 1969. New oil drilling is only allowed now in federal waters in the western Gulf of Mexico and off Alaska.
Pelosi’s radio remarks were the latest to hint that the energy debate in Congress is still evolving, and that Democrats are budging on the issue.
Congress left for the August recess deadlocked over how to address $4-a-gallon gasoline. Democratic proposals to tap the nation’s petroleum reserve, curb oil speculation and force oil companies to drill on already leased federal lands were blocked by Republicans trying to force votes on offshore drilling.
Yet any vote on drilling is likely to force the Republicans’ hand, since it will likely be packaged with unpopular proposals to tap the petroleum reserve and recoup unpaid royalties from the late 1990s to pay for renewable energy projects.
"This comprehensive Democratic approach will ensure energy independence which is essential to our national security, will create millions of good paying jobs here at home in a new green economy, and will take major steps forward in addressing the global climate crisis," said Pelosi, who criticized Republicans’ "drill only" plan.
Republican leaders called Pelosi’s proposal a ruse.
"It is solely intended to provide political cover to Democrats that are losing more ground by the day on this issue," said Kevin Smith, a spokesman for House Republican Leader John Boehner of Ohio. Boehner and more than a hundred other House Republicans have refused to depart for recess in protest of Democrats’ refusal to have a vote on their proposals.
The pressure to expand offshore drilling intensified last month when President Bush lifted an executive prohibition on drilling for oil and gas on the Outer Continental Shelf. A congressional ban remains in place.
Polls have shown that voters have grown more supportive of more domestic oil production as fuel prices have climbed.
Wachovia Corp (WB.N: Quote, Profile, Research, Stock Buzz) increased its previously reported second-quarter loss to $9.11 billion to cover costs to settle a probe of auction-rate securities sales, and said it will cut more jobs as the housing market deteriorates.
The fourth-largest U.S. bank is now reporting a loss of $4.31 per share, up from the $8.86 billion, or $4.20 a share, it reported on July 22, according to its quarterly report filed on Monday with the U.S. Securities and Exchange Commission.
Wachovia also now plans to cut 6,950 jobs, 600 more than it had disclosed, with the additional cuts coming from mortgage operations, spokeswoman Christy Phillips-Brown said. The cuts affect about 5.8 percent of Wachovia’s 120,000-person workforce. Wachovia also is also eliminating 4,400 open positions.
Separately, Wachovia said the SEC may recommend civil charges against its main banking unit in connection with municipal derivatives transactions. It also said various state attorneys general have issued subpoenas over that matter. The bank said it was cooperating with the probes. Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) reported receiving its own subpoenas last week.
The quarter marks the second in a row when Charlotte, North Carolina-based Wachovia revised results to increase the size of its reported loss. Wachovia increased its first-quarter loss to $708 million from an original $393 million because of a write-down tied to life insurance policies.
Auction-rate debt has interest rates that reset through periodic auctions, typically held every seven, 28 or 35 days. Once thought safe, much of the market has been frozen since brokerages in February stopped supporting the debt.
Wachovia said it added $500 million to legal reserves to cover a possible settlement. It is in talks with regulators to resolve matters related to auction-rate debt, after regulatory settlements last week by Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) and UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz). Missouri is leading the multi-state probe. Wachovia’s brokerage unit, Wachovia Securities, is based in St. Louis.
The bank has been among the lenders hardest hit by the U.S. housing crisis, following its $24.2 billion purchase of California mortgage specialist Golden West Financial Corp in October 2006, just as the mortgage market was peaking.
Democrats shaped a set of principles Saturday that commits the party to guaranteed health care for all, heading off a potentially divisive debate and edging the party closer to the position of Barack Obama’s defeated rival, Hillary Rodham Clinton.
The party’s platform committee moved smoothly through a range of issues for the fall campaign and approved a document that will go to the Democratic convention in Denver later this month for adoption.
There was little dissent — or room for it — in the day’s meeting and a compromise on health policy took one flash-point off the table.
Obama, soon to be the Democratic nominee, has stopped short of proposing to mandate health coverage for all. He aims to achieve something close to universal coverage by making insurance more affordable and helping struggling families pay for it.
Advisers to Obama and Clinton both told the party’s platform meeting they were happy with the compromise, adopted without opposition or without explanation as to how health care would be guaranteed.
In return for the guarantee, activists dropped a tougher platform amendment seeking a government-run, single-payer system and another amendment explicitly holding out Clinton’s plan as the one to follow.
The party now declares itself "united behind a commitment that every American man, woman and child be guaranteed to have affordable, comprehensive health care."
Under any system in play, most people would still put out money for health insurance as they do now, but they would get help when needed.
That was a common feature of the plans put forward by Obama and Clinton in the primaries. But she would have required everyone to get insurance while his plan makes it mandatory only for children.
Democratic Party Chairman Howard Dean praised "the spirit of this compromise." Judith McHale, a Clinton supporter who helped to lead the platform meeting, said Obama and Clinton advisers worked collegially throughout the process.
For the 186-member platform committee, one imperative Saturday was to satisfy Clinton loyalists still sore from the often acrimonious primary fight while keeping policy firmly in sync with Obama’s campaign.
Democrats made mostly cosmetic changes to a platform draft prepared for the meeting, a process designed to showcase unity more than to air differences in the party at large on hot-button issues such as the Iraq war, abortion and health care.
Party platforms are a statement of principles that are not binding on the candidates or the next president and they are typically given little attention after they are adopted.
Even so, the party’s decision to embrace guaranteed health care is bound to become a leading yardstick by which Obama’s presidency will be measured if he wins in November.
On Iraq, the platform states that Democrats "expect to complete redeployment within 16 months," reflecting Obama’s time frame but not the tone of certainty he brought to it when he was running in the primaries.
The 51-page platform draft showed the influence of Clinton’s supporters not only in the extensive section on health care but in its assertions about the treatment of women. Some of her backers believed sexism dogged her campaign for the nomination.
An extensive section on women’s rights is included and the votes she received in the primaries are described as "18 million cracks in the highest glass ceiling."
Even so, the platform is thoroughly tuned to Obama’s proposals.
It reasserts his promise of energy rebates to struggling families, pension subsidies, a crackdown on predatory lenders, higher taxes for families earning over $250,000, tax breaks for others, billions for economic stimulus and "direct high-level diplomacy, without preconditions," in the case of Iran.
On trade, it promises a multilateral approach to improving the North American Free Trade Agreement, without saying specifically what those changes should be. Obama criticized NAFTA when campaigning in states that felt disadvantaged by it, but the platform offers no suggestion he would take unilateral action against the deal.
Instead, it says: "We will work with Canada and Mexico to amend the North American Free Trade Agreement so that it works better for all three North American countries."
Democrats typically have a strong plank in favor of abortion rights; this year’s version is stronger than usual. "The Democratic Party strongly and unequivocally supports Roe v. Wade and a woman’s right to choose a safe and legal abortion, regardless of ability to pay, and we oppose any and all efforts to weaken or undermine that right," it says.
Gone is the phrase from the past that abortions should be safe, legal and "rare."
The party also pledges to ensure access to adoption programs, prenatal and postnatal care and income support programs for expectant mothers who need the help.
The party also:
–Promises "tough, practical, and humane immigration reform in the first year of the next administration."
–Favors restoration of the ban on assault-type weapons and other "reasonable regulation" that recognizes the constitutional right to own and use firearms.
–Favors helping religious groups provide social services as long as "public funds are not used to proselytize or discriminate."
–Promises to close the Guantanamo detention center.
–Promises to double the Peace Corps.
Time Warner Inc.’s second-quarter earnings fell 26% on declining subscriber fees at its AOL online unit and lower ad revenue at the Time publishing business, the media conglomerate said Wednesday.
Time Warner (TWX, Fortune 500) affirmed its full-year financial targets after revenue rose at its film, cable and networks segments.
The company also took legal and tax steps that make it possible to split its AOL online business and sell it in parts.
The New York-based media conglomerate said net income fell to $792 million, or 22 cents per share, from $1.07 billion, or 28 cents per share, a year ago.
Excluding one-time items, profit rose to 24 cents per share from 22 cents per share last year, when gains from the sale of assets bolstered results.
That result was a penny better than analyst expectations, according to Thomson Financial.
Revenue rose 5% to $11.6 billion, surpassing Wall Street’s estimate of $11.46 billion.
AOL remained a burden on the company’s results. Subscription revenue fell 29%, pushing operating income down 36%. AOL scrapped fees for its e-mail service in favor of an ad-supported revenue model, but ad revenue rose only 2% in the quarter. The service still has 8.1 million subscribers.
The company has made no secret of its plans to sell the ailing business to focus on content production. Chief Executive Jeff Bewkes said Time Warner has "made the key decisions that will enable us to run AOL’s access and audience businesses separately beginning in 2009."
Internet service provider EarthLink Inc. (ELNK) has been named as a potential bidder for the dial-up access business. Both Yahoo Inc. (YHOO, Fortune 500) and Microsoft Corp. (MSFT, Fortune 500) are considered to be interested in AOL’s Web sites, which would boost either company’s viewer traffic and ad revenue.
Time Warner previously announced it would sell the 84% of its cable operations that it still owns to shareholders later this year. That unit delivered 7% higher revenue on increases in cable, Internet phone and video-on-demand fees. Basic cable subscribers were flat during a quarter that traditionally sees a drop-off.
Home video sales of "I Am Legend" and "The Bucket List" helped the Warner Brothers film unit post 14% higher revenue. The unit’s blockbuster Batman film, "The Dark Knight," did not hit theaters until after the quarter ended.
Higher cable subscription fees and advertising revenue pushed the Turner Broadcasting networks unit, which includes TNT and CNN, to a 9% rise in revenue.
Time Inc., the publishing unit, continued to straggle, as ad revenues fell 10%, mostly at magazines such as Time and Sports Illustrated. The magazine industry is contending with the same shift in ad spending online that has gutted the newspaper sector in recent quarters. Time Inc.’s Internet properties reported revenue growth, but online ads sell for only a small fraction of what a print ad costs.
Looking ahead, Bewkes said the company faces a "challenging economic environment," but is pleased "we’re on track to achieve our business outlook."
Time Warner still expects earnings from continuing operations between $1.07 and $1.11 per share. That forecast does not include any impact that may occur from the sale of a unit.
Democratic presidential candidate Barack Obama said Monday that he feels Americans’ pain from rising energy costs and laid out his plan to break the country’s "addiction" to oil.
Much of Obama’s energy plan had been outlined before. But some of his ideas - such as tapping the Strategic Petroleum Reserve and allowing a "limited amount" of offshore drilling - were new to his campaign.
Overall, analysts welcomed Obama’s plan, which included both short-term and long-term proposals. But they stressed that for the plan would need bipartisan support to succeed.
Obama said a short-term proposal, like selling crude oil from the Strategic Petroleum Reserve, "has lowered gas prices within two weeks" in the past.
For his proposed 10-year, $150 billion overhaul of the nation’s energy system to get bipartisan support, he’s willing to compromise on his earlier stance against offshore drilling by allowing a "limited amount" of drilling.
His proposal also includes retooling the U.S. auto industry to build more fuel-efficient cars, doubling the use of renewable resources by 2012, improving the safety and environmental impact of nuclear power and reducing the use of electricity, among other ideas.
In order to quickly bring down the price of oil and provide relief for American drivers, Obama wants to sell 70 million barrels of crude from the SPR.
Currently, the U.S. strategic reserves stand at more than 700 million barrels of oil in giant salt caverns along the Gulf of Mexico. The reserve was established in the 1970s after the first oil embargo to provide a buffer against future disruptions. Since 2001, the Bush administration has poured 70,000 barrels a day into the reserve, with the intention of expanding it to its full capacity of 727 million barrels, and possibly expanding the reserve to 1.5 billion barrels.
Peter Beutel, an analyst with energy risk management firm Cameron Hanover, downplayed the impact that Obama’s SPR release would have on oil prices. Beutel said that 70 million barrels represent only about three-and-a-half days of U.S. fuel consumption and would have a limited impact on prices, driving them down by $5 to $10 a barrel.
However, Beutel also suggests that the government could have a dramatic impact on consumer prices if it sells its oil at a substantially lower price to the refineries - in a type of deal known as a "netback."
In netback deals, the price of crude is calculated by subtracting the costs of refining, marketing, and transportation, along with profits, from the market price of the end products.
"If he sells it under a netback deal, it would fall under $100 [a barrel] very quickly, and maybe under $80," said Beutel. That kind of reduction could lead to a decline of up to 80 cents per gallon of unleaded gasoline.
Fadel Gheit, a senior energy analyst for Oppenheimer, projected a more dramatic reduction in oil prices, noting that Obama’s SPR plan could "cut prices in half."
Gheit said that prior releases from the SPR during the administrations of former Presidents Bush and Clinton during the 1990s were "knock-out punches" that caused oil prices to drop dramatically. He said that to maximize the impact, which is primarily psychological, Obama should not provide hard numbers to make it harder for speculators to project future prices.
"We should not have a limit on what we will release," said Gheit. "That is the best way to keep speculators off balance."
Analysts had a tougher time gauging the impact of Obama’s sweeping proposal to overhaul the nation’s reliance on non-U.S. fossil fuels by investing in alternative fuels. But they did praise the plan as a positive step forward.
"I think we need to implement everything [from Democrats and Republicans]," said Beutel of Cameron Hanover. "If we pick a plan and stick with it and devote ourselves to it for more than a headline cycle, then we’re going to move forward."
Analysts agreed that the best way to overhaul energy creation and consumption in America is to not abandon the long-term plan as the situation changes in America.
"We never had an energy policy," said Gheit of Oppenheimer. "We talk about [it] when energy prices are high, but we clog the highways with SUVs when energy prices are low."
Obama’s Republican rival, Sen. John McCain of Arizona, is set to discuss his energy plan on Tuesday.
The credit crisis is far from over, star analyst Meredith Whitney tells Fortune magazine in its upcoming issue.
Whitney, who audaciously - and correctly - predicted last October that Citigroup (C, Fortune 500) would have to cut its dividend, tells the magazine that banks in general today are still facing much bigger credit losses than what they’ve reported so far.
The Oppenheimer & Co. analyst warned last year - and continues to warn today - that the "incestuous" relationship between the banks and the credit-rating agencies during the real estate bubble will have a long-lasting impact on banks’ ability to recover.
For years the ratings agencies, which are paid by the issuers of bonds, gave high marks to securities backed by subprime mortgages. Many of those bonds, of course, turned out to be anything but safe.
With Moody’s (MCO) and Standard & Poor’s (MHP, Fortune 500) now trying to make up for past wrongs, the pace of downgrades on mortgage securities is quickening.
This is a problem, because every time their portfolios are hit by significant credit downgrades, banks are forced to improve their capital ratios. Often that means issuing reams of new stock, which leads to serious dilution, as shareholders at Citi, Merrill Lynch (MER, Fortune 500), and Washington Mutual (WM, Fortune 500) now know.
"You’re going to have this stealth pressure on bank balance sheets until you start to see the ratio of downgrades to upgrades change," Whitney tells the magazine. (This is an excerpt from "The Woman Who Called Wall Street’s Meltdown and What She Sees Next" in the August 18 issue of Fortune. Read the complete story.)
Whitney’s bearishness has deep roots. In fact, she was the first analyst to sound the alarm loudly about subprime mortgages, predicting back in October 2005 that there would be "unprecedented credit losses" for subprime lenders. The problem, as she saw it, was that loose lending standards and the proliferation of teaser-rate mortgage products had artificially inflated the U.S. home-ownership rate.
A lot of the new homeowners were in over their heads, she believed, and would have trouble making their monthly payments when home prices started to fall and their teaser rates got bumped up.
Whitney’s current concern is that banks aren’t slashing costs and cutting losses in their loan portfolios fast enough. On the cost side, she says, banks have yet to come to terms with the disappearance of the securitization market, which she believes will stay in hibernation for the next three years.
Why does this matter? From 2001 through 2005, for every dollar of bank capital used to make mortgage loans, ten were supplied via investors in mortgage securities. All that secondary-market capital is now sidelined, but the staffing levels of bank lending departments don’t yet reflect it.
By Whitney’s reckoning, banks have laid off about 7% of their employees; she thinks the cuts need to reach 25%.
She also argues that banks need to "get real" about how they’re valuing their problem mortgage-related debt, much as Merrill Lynch has now done. Merrill recently sold a large package of toxic mortgage debt for just 22 cents on the dollar.
Whitney’s idea of "real" is pretty drastic. Whereas most banks are estimating 20% to 25% peak-to-trough declines in housing prices, the Case-Shiller housing futures traded on the Chicago Mercantile Exchange portend a much steeper 33% decline, she points out.
In fact, Whitney thinks the actual declines will be worse - closer to 40% - because of the loss of the securitization market and the paucity of mortgage credit available. And that means more defaults: "The consumer’s ability to refinance his way out of trouble has diminished greatly."
Whitney’s critics, and there are many among bankers and analysts, contend her bearishness at this point shows she simply doesn’t know how to measure the remaining downside risk.
Her response: If she has no idea how to properly value bank stocks now, it’s because the metrics don’t work. Price-to-earnings ratios are useless when earnings are nonexistent. And valuing banks on price-to-book ratios is just as futile. Those book values - which reflect underlying assets and liabilities - are moving targets.
"Citibank has lost 50% of its book value since last year," says Whitney, who is married to pro wrestler John Layfield.
"I do not think we are near the end of write-downs," she tells Fortune, "so I continue to see capital levels going lower, capital raises diluting existing shares further, and stocks going lower."
Standard & Poor’s Ratings Services on Thursday cut its ratings for all three of the U.S.-based automakers further into junk status, citing worries about their mounting cash losses and the continued deterioration of the U.S. auto market.
S&P lowered its ratings for General Motors Corp. Ford Motor Co. and Chrysler LLC all to "B-" from "B." It also lowered its ratings on the trio’s respective financing arms - GMAC LLC, Ford Motor Credit Co. and DaimlerChrysler Financial Services Americas LLC - to "B-" from "B."
In addition, the ratings service cut its corporate credit rating on FCE Bank PLC, Ford Credit’s European bank, to "B" from "B+."
"We believe sharply lower U.S. light-vehicle demand and the recent dramatic shift in demand away from large pickup trucks and SUVs amid higher gas prices will complicate the turnaround efforts of all three automakers and reduce their currently adequate liquidity considerably over the next year and a half," S&P Credit Analyst Robert Schulz said in a statement.
"This will leave them more vulnerable to already adverse industry, economic, and credit market conditions."
S&P said it expects U.S. vehicle sales, especially those of trucks and SUVs, to continue to weaken and result in higher cash losses for all three automakers in the second half of 2008.
The outlooks on all the companies are negative.
S&P said it does not expect to change the outlooks or raise the ratings for any of the companies within the next year, in light of the current economic outlook, risks associated with their restructurings and potential pressure on their available cash.
In afternoon trading, GM (GM, Fortune 500) fell 15 cents to $11.25, while Ford (F, Fortune 500) rose 9 cents to $4.93.
Recessions are threatening to crash over the world economy in waves, as one country after another turns down a year after the onset of the global credit crisis.
Such rolling recessions pose a quandary for central bankers Ben S. Bernanke, Jean-Claude Trichet and Mervyn King: If the whole world were clearly slumping, they'd be united in cutting interest rates. Instead, with some countries still booming, they can't ignore the inflation threat. Paralyzed between slowing growth and accelerating prices, U.S. and European policy makers this week are set to fall back on keeping rates unchanged.
“We're in a peculiar situation where, a year from now, we're likely to look back and say that monetary policy makers have made a very, very serious error,'' says David Lipton, head of global country-risk management for New York-based Citigroup Inc. “The problem is, we don't know whether we're going to say they were too loose or too tight.''
A lot's at stake. If central bankers leave rates too low, they risk stoking global inflation that's already projected by the International Monetary Fund to be the fastest in nine years. Keep rates too high and the world could fall into its first recession since 2001-2002.
In the past, when the U.S. economy weakened, the rest of the world usually followed quickly, and inflation eased as demand for oil and other commodities fell. U.S. recessions in 1990-1991 and 2001 brought global growth down by half, sending fuel prices tumbling.
Slowdown Delayed
That didn't happen this time. The world expansion barely slowed last year and oil prices surged, even as the U.S. economy shrank in the fourth quarter. Only now — two years after the U.S. housing boom went bust — is the slowdown spreading worldwide and the price of oil showing signs of receding.
The world may avoid a recession, deemed by economists to be global growth of 3 percent or less, and still end up with what Allen Sinai, chief economist at Decision Economics in New York, calls a “witches' brew'' of ailments: declines in the housing and stock markets, a credit crunch and commodity-driven inflation.
The energy and credit crises may have permanently weakened the global economy by making production and investment costlier. Deutsche Bank AG economists say long-term growth may fall to 4 percent from 5 percent.
`Weaker for Longer'
While the world rebounded from its last slump to record the strongest expansion since the 1970s, Richard Berner, co- head of global economics for Morgan Stanley in New York, says that “growth will have to stay weaker for longer'' this time if central banks are to curb inflationary pressures. “Investors should consider these developments as a regime change,'' Berner says.
The U.S. risks a relapse after bouncing up in the second quarter as consumers spent some of their $91 billion in tax rebates. “I don't see recovery'' on the horizon, says Harvard University's Martin Feldstein, who serves on the National Bureau of Economic Research committee that determines when recessions start and end.
The big concern is that consumers — whose spending accounts for more than 70 percent of the economy — will cut back after their splurge. The omens aren't good: Overdue payments at the six largest credit-card lenders rose in June after falling the two previous months.
Division at Fed
Chairman Bernanke and his Fed colleagues are divided over what to do next after cutting rates to 2 percent from 5.25 percent a year ago. Some, including Dallas Fed President Richard Fisher, favor tighter credit now to contain inflation. A majority prefer to wait and see how the economy develops.
Kenneth Rogoff, a Harvard economics professor and former IMF chief economist, says Fed policy makers are “stuck.'' While they may want to raise rates to 3 percent to head off inflationary pressures, they can't for fear of upsetting still- fragile financial markets. Consequently, they'll hold borrowing costs unchanged for “an extended period,'' he says.
European Central Bank President Trichet's dilemma is similar. After dodging the U.S. slowdown last year, the 15- nation euro-area economy may have shrunk in the second quarter for the first time since the common currency's introduction in 1999. As in the U.S., housing booms in Spain, Portugal and Ireland are collapsing, while the euro's appreciation is hurting companies that export.
Recession Risk
“The risk of a recession is no longer negligible,'' says Holger Schmieding, chief European economist at Bank of America Corp. in London.
When a worldwide slump last began in 2001, the ECB cut interest rates. Not this time.
With inflation the fastest in more than 16 years, the bank raised rates to a seven-year high of 4.25 percent last month. Officials warn they'll do more if workers win big wage deals. Employees at Deutsche Lufthansa AG, Europe's second-biggest airline, last week ended a strike after winning a 5.1 percent pay increase retroactive to July 1, and an additional 2.3 percent increase next year.
“The ECB is clearly walking a tightrope,'' says Martin van Vliet, an economist at ING Bank in Amsterdam, who predicts the bank will keep its key rate unchanged until 2009. “It has to balance the lingering risk of a wage-price spiral with prospective disinflationary pressures emanating from the downturn,'' he says.
Sharp Debate
The debate is sharper at Governor King's Bank of England. The U.K. is slipping toward its first recession since 1990 as house prices slide after tripling in the past decade. With inflation almost twice the bank's 2 percent target, King's policy panel split three ways last month; the majority voted to keep rates at 5 percent.
Japan, too, is at risk of a recession. Exports fell in June for the first time since 2003 and unemployment reached 4.1 percent, almost a two-year high. The Bank of Japan has little room to act, with its benchmark interest rate of just 0.5 percent and consumer prices rising at the fastest pace in a decade.
“The fog hanging over Japan's economy will stick around for the time being,'' bank board member Atsushi Mizuno said July 24.
Even Asia's rapidly growing emerging economies are showing signs of slowing. The region's policy makers are at odds over how to react as inflation remains high.
Chinese officials suggest they may seek to bolster their economy after growth slowed in the second quarter by the most since 2005. Others remain intent on curbing inflation. India has raised rates three times since May while suffering the weakest growth in five years. Surging food and energy costs prompted Indonesia, Thailand and the Philippines to tighten credit in July.
“There's a kind of stagflation marching over the world economy,'' Sinai says. “I hope policy makers are able to figure it out and make the right decisions to fight it.''
Deutsche Bank AG’s net profit fell 64% in the second quarter as financial market turbulence from the U.S. credit crisis led to $3.6 billion in writedowns, the bank said Thursday.
Deutsche Bank (DB), Germany’s biggest, said net profit in the April through June period fell to $1 billion from $2.8 billion in the second quarter of 2007.
Total net revenues were down 39% to $8.42 billion from $13.7 billion a year ago, the Frankfurt-based bank said.
"The second quarter of 2008 proved to be another very challenging quarter for the banking industry," said Josef Ackermann, Deutsche Bank’s chief executive in a statement.
Corporate banking and securities’ loss before income taxes for the quarter were $485.2 million, the bank said. Markdowns on residential mortgage-backed securities, bond insurers, commercial real estate, and other positions amounted to $3.6 billion.
"The environment continued to affect the performance of our investment banking business, but our ’stable’ businesses again proved their resilience. Despite additional markdowns, we produced a solid profit," Ackermann said.
"Looking forward, we remain cautious for the remainder of 2008. We will continue to strictly manage cost, risk and capital and to reduce our exposures in key areas. We will continue to invest in all our core businesses, both organically and by acquisition, but we will not relax our discipline."
Ackermann was not more specific on investing in acquisitions, nor did the report offer more of an outlook for the year.
Federal regulators on Tuesday extended through mid-August a temporary order banning a certain kind of short-selling of the stocks of mortgage finance companies Fannie Mae, Freddie Mac and 17 large investment banks.
The Securities and Exchange Commission said the ban on so-called "naked" short selling will be in effect until 11:59 p.m. EDT on Aug. 12 and will not be extended.
Short sellers make a bet that a stock’s price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
"Naked" short selling occurs when sellers don’t even borrow the shares before selling them, and then look to cover positions immediately after the sale. The SEC order requires short sellers to actually borrow shares before selling them.
SEC Chairman Christopher Cox said the order was also helping prevent potential "distort and short" manipulation of stocks, which occurs when rumors and misinformation are used to drive down the price of a stock that has been sold short.
"In addition to continuing the existing order against naked short selling, the commission will continue exploring other remedies for the broader marketplace to further protect investors from ‘distort and short’ artists," Cox said in a statement.
The SEC said that extending the restrictions on short selling will allow regulators more time to collect and analyze data on the order’s impact and effectiveness.
After ban runs out, regulators will move to draw up formal rules to provide additional protections against abusive naked short selling in the broader market, while allowing legitimate short selling, the SEC said.
Advocates for smaller banks and investment firms have been urging the SEC to expand the ban on naked short selling to cover additional financial companies.
Analysts and government regulators blamed aggressive short selling for exacerbating the recent plunge in Fannie Mae (FNM, Fortune 500) and Freddie Mac’s (FRE, Fortune 500) stock, as well as that of big investment house Lehman Brothers Holdings Inc (LEH, Fortune 500).
The SEC initially announced the emergency order on July 15 after a perilous slide in shares of Fannie and Freddie, the government-sponsored companies that together hold or guarantee more than $5 trillion in home mortgages - nearly half the U.S. total.
The regulators’ move followed a 13% drop in the price of Fannie shares and a 22% plunge in Freddie’s on July 10, when a news report said the government had begun contingency planning in the event the companies failed. The next day, Freddie shares plummeted 33% at one point and Fannie stock lost 29% of its value.
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