Shares in Swiss bank UBS AG took a new tumble on Monday, falling further than a hard-hit banking sector after reports it will have to write down another $5 billion on its risky investments in the second half of the year.
News that lack of liquidity had forced U.S. investment bank Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) to file for bankruptcy protection dragged down financial sector stocks worldwide.
Without quoting sources, Swiss paper Sonntags Zeitung said UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz), Europe’s hardest hit bank in the financial market turmoil, would have to write down another $5 billion on its risky investments in the second half.
The paper said it expected UBS to update the market before an October 2 shareholder meeting. UBS declined to comment.
“The bad news is that the banking crisis is not over and that there are still lots of bad credits around,” Claude Zehnder, head of research for technical trading at Zuercher Kantonalbank, said.
“Also, the possibility has arisen this weekend of further writedowns,” he added.
UBS announced last month writedowns had climbed a further $5 billion in the second quarter to top $42 billion, and said it was splitting the investment bank that had dragged it into the red from its core wealth management business.
UBS shares were down 10.1 percent at 21.14 Swiss francs at 0815 GMT, underperforming the DJ Stoxx European banks index , which was down 5.8 percent http://fcrwizard.com. UBS shares had rallied recently after losing two-thirds of their value in the last year.
The U.S. Federal Reserve on Sunday launched a series of emergency measures to calm financial markets and ease any trading disruptions that could arise from a collapse of investment bank Lehman Brothers.
One of the biggest changes the Fed made was to accept equities as collateral for cash loans at one of its special credit facilities, the first time that the Fed has done so in its nearly 95-year history.
The Fed’s actions and an agreement by 10 of the world’s biggest banks to set up a $70-billion borrowing facility were intended to make sure market participants have ample access to cash while Lehman’s affairs are wound down in markets over coming weeks or months.
Analysts said the Fed was increasingly making itself the lender of last resort for sorely stressed investment banks and seemed fearful the financial system was at risk of a meltdown as problems that originated in the U.S. subprime mortgage sector spread.
“There is little doubt that the Fed believes systemic risk is becoming closer to really landing on shore,” said Tom Sowanick, chief investment officer for Clearbrook Financial LLC in Princeton, New Jersey.
The steps were the latest in a series of aggressive actions from the Fed dating to last August aimed at keeping markets liquid and trading at a time mounting defaults on U.S free credit report and score. mortgage debt were leading banks to recoil from providing credit.
In March, the central bank put up cash to facilitate JPMorgan Chase’s takeover of Bear Stearns, concerned that letting the troubled investment bank collapse could trigger a system-wide crisis.
This time, however, the central bank — in three days of crisis talks at the New York Federal Reserve Bank — declined to put taxpayer funds on the line to prop up Lehman. Instead, it moved aggressively to ensure any unwinding of Lehman’s affairs would be as orderly as possible.
Shoppers have come to expect significant discounts these days as retailers struggle to attract customers in a sluggish economy. And while customers can count on big promotions this holiday season, there might be less merchandise to choose from.
The reason: Many retailers are reducing their inventories to avoid the staggering markdowns they were forced to make last year when shoppers cut back on purchases. Retailers are hurting from reduced sales so far this year, and those big discounts will further slam their margins and profitability.
"Everybody is on the same page. It will be a difficult holiday for retailers. And it won’t be good for consumers, either," said Erin Armendinger, managing director of the Jay H. Baker Retailing Initiative at the Wharton School of the University of Pennsylvania. "Smart retailers are trying to control their inventory so there won’t be massive markdowns."
Shoppers would be wise to buy items when they first see them, Armendinger said, because that merchandise might not be around if they wait for deeper discounts.
Armendinger’s advice follows disappointing back-to-school sales figures, a bad omen for holiday shopping. August retail sales fell 0.3 percent, following a drop of 0.5 percent in July, the Commerce Department said Friday. Excluding cars, purchases were down 0.7 percent, the most this year. The figures showed a drop of 1.5 percent in purchases at department stores, the biggest decline since April 2007.
The Commerce Department also said business inventories rose in July at the sharpest rate in four years, another sign that consumers are reluctant to spend.
Meanwhile, the International Council of Shopping Centers predicts that back-to-school purchases made from July through September — the biggest retailing season after Christmas — may climb only 1 percent, to $38.5 billion. That would be the slowest growth since 2001.
"Back-to-school was a total bust," said Armendinger.
Although Wal-Mart Stores Inc.’s August sales exceeded expectations, many other retailers, including midpriced merchants, saw declines in same-store sales. Kohl’s Corp., for example, reported August same-store sales fell 5.8 percent, and J.C. Penney Co. said they fell 4.9 percent.
In a statement, Penney said, "The company continues to expect that total inventory will be below last year’s level at the end of the back-to-school shopping season."
Although retailers already had been reducing inventory ahead of the back-to-school season, they still had to mark down merchandise, experts said.
Discounts were 10 percent deeper at mall-based apparel stores than a year ago, despite a drop of 10 percent to 15 percent in inventories, according to Dan Hess, founder and chief executive of the New York research firm Merchant Forecast.
That means consumers can expect to see less merchandise for the holiday season, said Tom Krause, director of strategic consulting for Fenton-based Maritz Research’s retail group.
"Last year retailers got burned with excessive inventory," Krause said cash til payday loan. "They know they will lose customers if they don’t have the selection, but retailers say it’s better than getting stuck with inventory."
However, Scott Krugman, a spokesman for the Washington-based National Retail Federation, said retailers are doing a good job of managing inventories. He didn’t anticipate any merchandise shortages.
"Reductions in inventories will affect last-minute shoppers the most," he said. "We’re conditioned to wait … most people wait, because we’re a nation of procrastinators."
Macy’s also believes there will be ample merchandise, said Ellen Fruchtman, a Macy’s spokeswoman in Atlanta. "Macy’s stores will be fully stocked, but the inventories will be managed," she said. "We’re working very hard to have an assortment that’s compelling enough that when a shopper sees just the right item, she won’t want to wait."
Macy’s Atlanta-based division oversees the St. Louis region.
A big question, according to some experts, is whether retailers can come up with merchandise that will be compelling enough to get people to open their wallets.
"There is no ‘it’ product this year. There is no ‘have-to-have,’" said Armendinger. "No one is looking for a shift in fashion. We’re past that point now, the economy is so bad."
But some retailers expect to have a good holiday season, particularly those that offer hard-to-find, sought-after items.
Among them is Jeff Glik, chief executive and president of Glik’s, the Granite City-based apparel specialty chain that has 52 stores primarily in rural and small-town locations. He said the chain expects holiday comparable-store sales to rise 1.1 percent.
The chain sticks to national brands, particularly those with limited distribution that can’t be found at retailers like Penney’s or Macy’s. Glik’s engages in very little promotional activity, so its margins are higher.
"People are staying closer to home," Glik said, "and we are reaping the benefit of that."
At the other end of the retail spectrum, Drea Ranek, one of the owners of Clayton’s upscale Lusso at 165 Carondelet Plaza, also expects strong end-of-the-year sales. The store’s unique merchandise is the key to its success, she said.
"We haven’t felt anything adverse," Ranek said about the store, which sells designer and one-of-a-kind clothing, home accessories and jewelry.
"Keeping it special is keeping us going," she said. "People are pickier about what they’re buying, but luckily, they’re still buying."
gappleson@post-dispatch.com | 314-340-8331
Gasoline prices rose for the first time in 10 days as Hurricane Ike bears down on the Texas coast, according to a nationwide survey of gas station credit card swipes.
The average price of regular unleaded gasoline rose 1.6 cents to $3.668 a gallon from $3.652 a day earlier, motorist group AAA said Wednesday. The last time gas prices rose was Aug. 31 as Hurricane Gustav forced workers to abandon offshore oil rigs ahead of that storm.
Forecasters are currently predicting Ike will hit Texas late Friday or early Saturday as a major Category 3 hurricane but the storm remains unpredictable.
Gas prices jumped 1.7 cents to $3.532 a gallon in Texas. Prices also popped higher in Alabama, Mississippi, Georgia, Louisiana, Florida and the Carolinas. Nationwide, Alaska and Hawaii remained the two states with gas prices still tracking above $4 a gallon.
The cheapest gas continues to be found in New Jersey, where prices averaged $3.421 a gallon payday advance lender. Crude prices have trended lower amid heightened concern about weakening demand and in reaction to the slew of storms and hurricanes.
Oil prices continue to hover around their lowest level in five months. On Tuesday, crude futures for October delivery tumbled more than $3 a barrel to $103.26 — their lowest close since April 1.
Early Wednesday, prices were little changed at $103.30 as nervous investors awaited the government’s latest reading on oil and gas supplies and following OPEC’s announced production cuts.
Meanwhile, gas remains about 11%, or 44 cents, below the record high average of $4.114 that AAA reported on July 17, but they are still 85 cents above this time last year.
Lehman Brothers put itself on the block Wednesday as part of a last-ditch effort to rescue the investment bank from bad bets on real estate-related holdings that have already laid low other storied Wall Street firms.
The 158-year-old company’s chief executive Dick Fuld, known as "the gorilla" for his bloody-minded approach to investment banking, outlined a plan to sell off Lehman’s well-respected investment management unit and spin off its commercial real estate assets after it reported an almost $4 billion third-quarter loss.
"If anybody came with an attractive proposition that was compelling for shareholder value, it would be brought to the board, discussed with the board, and evaluated," Fuld said on a conference call. "We remain committed to examining all strategic alternatives to maximize shareholder value."
For investors, the strategy Fuld presented seemed long on hope and short on details, and raised questions about timing and execution, analysts said. Investors had hoped to see a solid plan in place to offset nearly $6.5 billion of losses during the past two quarters.
"This is agonizing for shareholders," said Mark Williams, a professor of finance at Boston University School of Management. "Fuld was supposed to have a war room started in March, when Bear Stearns nearly collapsed, to solve these problems, and at this point he has failed miserably."
The nation’s fourth-largest investment bank plans to sell a 55 percent stake in its investment management division, which includes its prized Neuberger Berman asset management unit. Lehman said it is in advanced talks with several bidders, but refused to give a timeline about when a deal would take place.
Investors were discouraged that no buyer had been named. Lehman began pitching a deal to private-equity firms two months ago. Analysts believe the sale could fetch about $3 billion.
Further, the firm is also taking a big bet that a spinoff of its commercial real estate assets will get a strong market reception early next year payday loans. The new entity will be called Real Estate Investments Global and will be run by an independent management.
Global banks have lost more than $300 billion from write-downs since the housing slump evolved into a full-blown credit crunch. Many on Wall Street believe another major bank failure is probable.
Compounding anxiety is that Lehman, unlike smaller rival Bear Stearns, might not be able to count on a lifeline from the government. Any Fed intervention on behalf of Lehman would heighten concern about the central bank’s role in encouraging so-called "moral hazard," where financial firms would be inclined to take extra risks because they believe the government will bail them out of their messes.
Lehman Brothers’ current crisis came to a head on Tuesday, when its shares plunged almost 50 percent after reports that the head of South Korea’s financial regulator said talks about a possible investment had ended. Fuld had been in negotiations with state-owned Korea Development Bank for several weeks about a capital infusion.
There are some who think Fuld will live up to his nickname and muscle through the firm’s rescue, although Lehman could be a much smaller firm than it is now.
Brad Hintz, an analyst with Sanford C. Bernstein and a former Lehman chief financial officer, said he is confident the company has enough capital, or that Fuld "would be selling his office furniture on eBay if he had to." He said his former boss has no intention of giving up the helm, and that the plan will keep Lehman in business.
"They are getting rid of the risk positions and keeping the company together because Dick Fuld knows his franchise is good," Hintz said.
Africa may be a needy continent but this need offers rich rewards for businesses that are daring, innovative and flexible enough to grapple with poor infrastructure, underdeveloped markets and volatile politics.
This is the premise of a new book, “Africa Rising: How 900 Million African Consumers Can Offer More Than You Think” (Wharton School Publishing, $29.99).
Author Vijay Mahajan, who holds the John P. Harbin Centennial Chair in Business at McCombs School of Business, University of Texas at Austin, debunks traditional stereotypes about a continent that is starting to beep ever louder on the radars of global investors.
His book, published this month, is built around interviews with African and expatriate business people across the continent, including producers of consumer goods, alcohol, soft drinks, airline firms and retailers.
“(Many entrepreneurs) were tired of the media reporting too many negative stories about Africa .. faxless payday loans. if something happened in one country, all Africa was on fire. They were saying ‘how come our story doesn’t get out?’” he told Reuters in an interview.
High commodity prices, greater political stability in many countries, fewer wars, better communications and economic growth of around 6.5 percent have helped lure new investment, often from China and other emerging countries, primarily for resources such as oil and gas.
Mahajan says Africa’s 900 million plus people in 53 countries offer much as a market — they need to eat, they need clean water, clothing and medicine and they want cell phones, bicycles and computers.
If Africa were a single country, according to World Bank data, it would have had $978 billion total gross national income in 2006, placing it ahead of India.
Global investment company Pala Investments Holdings Ltd. is making an unsolicited $85.7-million cash offer to acquire Rockwell Diamonds Inc., a Vancouver company with operations in Africa.
The 36-cents-per-share offer represents a premium of about 84.6 per cent over Rockwell’s TSX closing price on Monday, Pala said yesterday.
The company, which already owns about 19.9 per cent of Rockwell, has been trying to buy the firm for months.
Joseph Belan, managing director of Pala Investments AG, adviser to Pala, said the offer "is the culmination of our efforts in recent months" to convince Rockwell’s management and board to pursue "value-enhancing options, including Pala’s recent friendly offer to acquire the company direct payday loan cash advance.
"No action was taken on any of these options, leaving us with no alternative but to take this offer directly to Rockwell shareholders," he said.
The offer expires Nov. 10 and is conditional on Pala acquiring two-thirds of Rockwell and a due diligence review.
With its unprecedented takeover of Fannie Mae and Freddie Mac this week, the U.S. government may have also bailed out Asia’s markets by staunching a heavy flow of equity capital out of the region.
This is significant. Fund managers had been moving money out of the region and Asia Inc had been slowing down its overseas borrowings in what amounted to early signs of the first capital outflow since the Asian financial crisis a decade ago.
Now, in one fell swoop, Washington has taken over half of all U.S. mortgages, so removing one of the big question marks in investors’ minds that for the last six months had made them flee Asia’s high growth, yet high risk, stock markets.
Of course, the financial crisis is not over as a slump in Lehman Brothers’ shares has shown.
But Fannie and Freddie hold outstanding debt of $5 trillion, of which about 20 to 22 percent is held by countries like Japan, China, Russia, and South Korea electronic check payday advance. So having the risk on that debt effectively cut to zero greatly eliminates the chance of a wave of global losses on the companies’ bonds.
“This is a watershed in the market because it reduces risk aversion. Risk has been transferred from the private to the public sector,” said Dariusz Kowalczyk, chief investment strategist with CFC Seymour Ltd in Hong Kong.
Since mid May, the MSCI Asia-Pacific ex-Japan stocks index .MIAPJ0000PUS has fallen 26 percent to its lowest level in almost two years.
The money can start to flow back in to Asia, Kowalczyk says. He expects an upward trend for the rest of the year as fund managers reduce the cash element of their portfolios and fill up on equities.
OTTAWA–The value of building permits rose 1.8 per cent to $6.4 billion in July, mainly due to multi-family dwelling permits in Central Canada and industrial construction intentions in Saskatchewan.
The value of building permits rose 2.7 per cent in the residential sector, to $3.7 billion, largely on increases in the value of multi-family dwelling permits in Ontario, Quebec and Manitoba.
Statistics Canada reports the value of building permits edged up 0.6 per cent in the non-residential sector, to $2.7 billion.
An increase in industrial construction intentions more than offset declines in both commercial and institutional permits.
Municipalities issued $1.5 billion worth of permits for multi-family housing in July, up 9.6 per cent from June, after two straight monthly declines.
At the same time, single-family permits declined 1.4 per cent to $2.2 billion, with Ontario accounting for more than half the decline.
Municipalities approved 19,518 new residential dwellings in July, up 12 per cent.
Following a volatile pattern, the value of industrial permits increased 26.3 per cent to $503 million, following a 29.4 per cent decline in June.
Construction intentions for commercial buildings declined 3.7 per cent to $1.5 billion.
After three straight monthly increases, the value of institutional permits decreased 4 per cent to $759 million.
That drop was blamed mainly on declines in permits for health buildings in Ontario, Alberta and Quebec.
The value of building permits increased in six provinces in July no fax payday loans. The most significant increases were in Quebec (up 13.2 per cent to $1.3 billion).
The Canadian Press
Don’t look now, but bank stocks are in the midst of a big rally.
Notwithstanding Thursday’s painful broader market selloff, shares of some of the largest names in banking are up significantly since mid-July when fears about the health of mortgage giants Freddie Mac and Fannie Mae and institutional failures were at a fever pitch.
Shares of Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) have risen more than 20%. Others like regional banks Wells Fargo (WFC, Fortune 500) and U.S. Bancorp (USB, Fortune 500), which are both mentioned frequently by analysts as being among the better-managed banks during the credit crunch, have gained close to 40%.
And even beaten down shares of Wachovia (WB, Fortune 500) have recovered nicely, gaining 71% since July 15.
Two of the most closely watched measures of the industry’s performance - the KBW Bank Index and the S&P Bank Index - are up 35% and 43% percent respectively as of Thursday.
Of course, bank stocks as a group still remain about 50% below their 52-week highs.
At the same time, not every bank has taken part in the recovery. Shares of institutions perceived to be still in a very tough spot, such as savings and loan Washington Mutual (WM, Fortune 500), have only enjoyed a modest bounce.
Still, shareholders owe a debt of gratitude for the recent rally to fellow investors who covered their short positions and bargain hunters who swooped in in mid-July when bank stocks were at some of their lowest levels in about a decade.
But other factors were also at work.
Assurances by the Treasury Department that it would prop up Freddie and Fannie should the twin mortgage buyers need to be rescued helped restore some confidence in bank stocks. Better-than expected second-quarter results from the industry also has pushed bank stocks higher.
There’s also been renewed speculation about industry consolidation, most notably chatter about a takeover of investment bank Lehman Brothers (LEH, Fortune 500). That’s given bank investors something to cheer even though many analysts remain skeptical that any big mergers will be announced anytime soon.
"People felt a little more secure," said Clarence Woods Jr., chief equity trader with Baltimore-based MTB Investment Advisors, which oversees about $15 billion in assets and owned shares of JPMorgan Chase as of the end of July.
But this late summer rally isn’t the first time that bank investors breathed a sigh of collective relief only to watch their shares get hammered again later.
Earlier this year, shares of many bank stocks rallied by roughly 20% following a rough end to 2007 only to decline steadily thereafter, bottoming out following the implosion of Bear Stearns in March.
The industry staged another double-digit recovery shortly thereafter, climbing 14% between mid-March through May, only to sink to new lows by mid-July.
Bank stocks could indeed tip back to early summer levels, warn experts like Michael Morris, a senior equity analyst and portfolio manager at Delaware Investments in Philadelphia no teletrak payday loans. But what is different about this recovery, Morris noted, is that it may be more grounded in reality rather than previous run-ups.
Banks no longer suffer the drastic swoons in stock price when, for example, the S&P/Case-Shiller national home price index reveals a double-digit percentage decline in home prices, as it did late last month.
"I think a lot of the housing stuff is priced in based on how some stocks are reacting to news on the housing front," said Morris, whose firm oversees more than $135 billion in assets. "Earlier in the year they were trading as much as 20% [lower] on those announcements."
What bank investors may not be taking into account, however, is the state of commercial lending and the consumer.
As a group, banks have experienced an uptick in the number of bad loans in both categories in recent months as businesses and consumers struggle to meet their payment obligations.
But with increasing signs that the economy is in the dumps, including a sizable jump in U.S. unemployment in August, banks could see further deterioration in the health of their credit card and auto loan portfolios.
"That is the big question: ‘Are non-performing assets going to accelerate from these levels?’ " said Ralph Cole, a portfolio manager at the Portland, Ore.-based Ferguson Wellman Capital Management, which owned shares of a number of financial services firms including Wells Fargo and Bank of America as of the end of June.
Right now, analysts widely expect the industry to disclose some of those very same problems when banks start reporting their third-quarter results a month from now. Financial services firms in the S&P 500 are expected to report a 54% decline in profits from a year ago, according to Thomson Reuters.
As a result, traders are making plenty of bets, notes MTB’s Woods, signaling that bank stocks volatility is here to stay at least for the near term.
"We have a lot going on over the next six weeks which will be very crucial to financials," said Woods. "People are playing heavy on both sides."
Fearing that the recovery could be later rather than sooner, Cole is sitting this rally out.
"How can you buy now when the economy is not going to get better for the next three to six months?" he said. "We are staying back - we just don’t have the conviction that this is sustainable."
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