Financial life in a big town

Oil prices ended lower Thursday, reversing an early spike, as traders sized up a potentially devastating blow to production from Tropical Storm Gustav and reacted to a decline in natural gas prices.

U.S. crude for October delivery rose as much as $2.35 a barrel to touch $120.50 in early trade before retreating to settle at $115.59 a barrel, or $2.56 lower.

The Department of Energy said it is monitoring the situation in the Gulf and stands ready to dip into the Strategic Petroleum Reserve, an emergency repository of 700 million barrels of oil that the government controls.

"The Strategic Petroleum Reserve is a key safeguard to provide an added layer of protection for the American people during the event of a severe disruption of oil supply," the agency said in a statement.

Oil platforms in and around the Gulf of Mexico account for more than a quarter of U.S. oil production.

If production rigs are damaged by the storm, crude oil supply would be pinched. Andrew Lebow, an energy analyst at MF Global, said he believes the government would step in to mitigate any short-term supply loses. "The government will be a lot quicker to release crude oil out of the strategic petroleum reserve, should we lose any production."

Such a move from the government would bring comfort to the markets, said Lebow.

Natural gas: Tumbling natural gas prices also weighed on crude prices. Natural gas prices were down more than 8% after the Energy Information Administration reported natural gas supplies in storage jumped by 102 billion cubic feet in the week ended Aug. 22, putting supplies of natural gas 2.6% above the five year average of supplies in storage. Natural gas settled down more than 6%.

The report "sent natural gas down and crude is following," said Amanda Kurzendoerfer, commodities analyst at Summit Energy. "We have seen sometimes they do move together."

The natural gas report "is highlighting that we are going to have ample natural gas for this winter," said Lebow. In some cases, natural gas can be used in exchange for petroleum-based products, said Lebow.

Jim Rouiller, senior energy meteorologist at Planalytics, a firm that predicts how weather will impact businesses, said crude prices were ready to fall because they had already been pushed higher Wednesday in anticipation of the storm.

Another factor in Thursday’s price decline was a stronger dollar.

Watching Gustav: Oil prices zig-zagged as the market watched the path of Gustav, according to Neal Dingmann, senior energy analyst at Dahlman Rose & Co.

The majority of crucial rigs are located between the Houston Shipping Channel and New Orleans, and so the price of oil moved quickly as traders anticipated where Gustav would hit land, he said.

"As the projected path inwards changes," said Dingmann, "you have people’s bets change." The last week in August is a popular vacation week, and so light trading volume also pushes the price of oil around more dramatically, said Dingmann.

Meteorological forecasters said it was too soon to know the storm’s exact path. But the National Hurricane Center’s projection models show Gustav heading toward Louisiana through the oil-rich region of the Gulf of Mexico by Sunday afternoon.

Gustav, once a Category 1 hurricane, weakened after it passed over Haiti and the Dominican Republic. The storm now threatens to intensify and become a hurricane again.

It doesn’t necessarily take destructive hurricanes to cause major disruptions to oil drilling in the Gulf, however.

"The makeup of a storm can have all the difference," said Alaron Trading senior market analyst Phil Flynn easy payday loan. "Slow moving storms have a tendency to churn up underground pipelines, so you don’t need a Category 5 to do a lot of damage."

Evacuations: Already on Wednesday, Royal Dutch Shell PLC (RDS) evacuated 400 staff from its off-shore oil rigs, according to Robin Lebovitz, a spokesperson for the company. It plans on bringing 270 more personnel ashore Thursday and it said it would complete a full evacuation by Saturday.

Shell said it expects that production at its east and west Gulf of Mexico platforms will be hampered as early as Thursday.

On Thursday, Shell asked consumers to conserve fuel because "during a hurricane, temporary and sporadic supply interruptions may be unavoidable." In a statement, the company assured customers that it is prepared for the inclement conditions, but Shell asked consumers to "maximize fuel supply."

In addition, a recorded message on an information hotline at British Petroleum (BP) said the company was evacuating non-essential personnel from their offshore oil rigs.

ConocoPhillips (COP, Fortune 500) will remove 20 non-essential personnel from a platform in the central Gulf of Mexico, according to a statement. The company plans to remove another 58 personnel from the platform by Saturday, as Gustav approaches.

Timeline: The average hurricane halts oil drilling production for more than a week, according to the American Petroleum Institute. Rig workers are forced to evacuate two to three days before the storm hits, and as soon as it’s safe to return, they have to check for damage before they can restart production.

The U.S. Department of the Interior estimates that 3,050 of the Gulf of Mexico’s 4,000 platforms and 22,000 of the 33,000 miles of Gulf pipelines were in the direct path of Hurricanes Katrina and Rita in 2005. The cyclones, both of which reached Category 5 strength, destroyed 113 offshore oil and natural gas platforms and damaged 457 pipelines.

Since then, the industry began making changes to the structures. The Interior Department in April 2008 imposed more stringent design and assessment criteria for both new and existing structures located within particular Gulf of Mexico areas.

For example, drilling rigs moored to sea floor in the Gulf had been attached with eight lines, and are now required to be moored with 12 to 16 lines. New rigs are built higher out of the water than ones that were built previously, and old rigs were strengthened, according to Andy Radford, a policy advisor at API.

"We have learned from Katrina and Rita," said Lebow. "The infrastructure is a little bit stronger."

Refineries: While the oil rigs have been strengthened, however, refineries are vulnerable. The last new U.S. refinery was built in 1980, according to Lebow.

Oil refineries clean and process crude into usable products, like gasoline and heating oil. With 41% of the nation’s refinery capacity in the Gulf Coast region, according to Lebow, a storm has real potential to disrupt distribution of gas and send prices at the pump higher.

Damage to refineries could create more long-term problems. "Refineries are a lot more complex," said Lebow. "It can take many days, sometimes weeks to get a refinery working again" after significant damage. "Some refineries took years to get back online after Katrina." 

Source

Lehman Brothers Holdings Inc. shares bounced from its lows Thursday after an analyst upgraded his rating on the investment bank to "Buy," and believes it now has become a "hostile takeover candidate."

Ladenburg Thalmann analyst Richard X. Bove believes that Lehman Brothers (LEH, Fortune 500) management values the company at a premium, and would be willing to sell at the right price. He believes that a "deep pocket buyer" could emerge to buy the nation’s fourth-biggest investment bank.

"So the market is at a stand-off," Bove said in a note to clients. "Investors are unwilling to accept any positive view of the company; management is unwilling to sell out at a deeply distressed value. The stage is set for a hostile bid to take over the whole company."

Immediately after the note was published, Lehman Brothers shares - down about 6% earlier in the session - bounced higher. Shares of the company were down 9 cents at $13.64 in afternoon trading. The stock has traded between $12.02 and $67.73 over the past year.

Before the opening bell in New York, shares were initially under pressure after another analyst increased his third-quarter loss estimate and slashed his price target for the investment bank, projecting yet another tough quarter of write-downs.

In a note to clients issued Wednesday night, Citi Investment Research analyst Prashant A. Bhatia also said he saw a "lower probability" that the New York-based investment firm would sell its Neuberger Berman business or raise capital in the near term.

Several Wall Street analysts have been speculating about a possible sale of all or a portion of Lehman’s asset-management business.

"Even under the potentially more stringent rating agency guidelines related to the amount of preferred securities in the capital mix, we anticipate that Lehman can absorb over $3 billion of after-tax losses without adding more common equity," Bhatia wrote in a research note.

He lowered his third-quarter estimates on Lehman, predicting a "difficult operating environment, characterized by lower client-related trading volumes and losses on hard-to-sell assets."

Bhatia widened his projection of a quarterly loss to $3.25 per share from a previous forecast of a loss of 41 cents per share free credit reports. Wall Street analysts expect a profit of 12 cents per share, according to a poll by Thomson Reuters.

The analyst also axed his price target to $35 from $50. Nevertheless, he rates Lehman Brothers as a "Buy."

Bhatia said he expects Lehman to take fresh asset related write-downs of $2.9 billion during the most recent quarter.

"Based on further deterioration in several indices, we expect further write-downs, primarily related to mortgage assets," he wrote.

Investment banks have been struggling with mounting losses and write-downs on bonds and debt backed by mortgages. As mortgages increasingly have defaulted over the past year, the value of bonds backed by the troubled loans has declined.

Banks have been forced to cut the value of their holdings or sell their investment at losses. 

Source

Partial payments for people claiming that the withdrawn painkiller Vioxx caused heart attacks will go out starting Aug. 28, under the $4.85 billion settlement between drugmaker Merck & Co. and plaintiffs’ lawyers, the claims administrator said Wednesday.

Those payments will amount to about 40% of each plaintiff’s estimated total payout, but it’s unclear how many people will be receiving checks from the first batch going out.

The settlement, meant to end the bulk of personal injury lawsuits against Whitehouse Station, N.J.-based Merck, was reached last November. Merck had pulled Vioxx from the market on Sept. 30, 2004, after its own research showed the once-blockbuster arthritis pill doubled the risk of heart attack and stroke.

During the monthly status conference with the New Orleans federal judge who is coordinating most of the massive Vioxx litigation, Orran Greer of claims administrator BrownGreer PLC said 49,954 eligible claimants have now registered for a settlement. That amounts to more than 97% of claimants eligible for the settlement - well above threshold levels the company required for the deal to proceed - and most of the others cannot be located by their attorneys, Greer told U.S. District Judge Eldon Fallon.

Greer said Merck waived its right to walk away from the settlement on Aug. 4 and, over the next 2 days, deposited $500 million in an escrow account and gave the claims administrators a letter of credit worth up to $4.1 billion to cover payments to claimants.

His firm is now painstakingly reviewing millions of pages of documents submitted by claimants, electronically or on paper, for accuracy and to make sure that no documents - particularly those releasing Merck from any future legal liability - are missing or incomplete.

Lynn Greer, also of BrownGreer, said 44,680 claimants have submitted at least some of the required materials, and those missing items are being notified free credit report .com. She said 3,441 claimants have reached the stage where administrators are determining how many points they get toward a settlement amount - decided by a complicated formula that factors in how serious a claimant’s injury was, how much Vioxx was taken and how many health risk factors the person had.

"Our projected value of each point [is] in excess of $1,900," she said, adding, "it is unprecedented that claims can begin going out in an 8-month period" since the complex settlement process began.

The 4-year legal saga begun when Merck yanked Vioxx off the market, triggering tens of thousands of lawsuits, damaging Merck’s once-spotless reputation and forcing out its then-chief executive.

Settlement amounts can run from the minimum of $5,000 up to a couple of million dollars, but the federal government is arranging to be reimbursed for care provided to Vioxx users under the Medicare and Medicaid programs. Likewise, private insurers are seeking reimbursement, although Fallon has ruled that their claims cannot hold up interim payments to claimants.

Payments to Vioxx users who suffered strokes are set to start in February 2009.

Merck (MRK, Fortune 500) still faces about 260 potential class-action suits, alleging either harm or financial losses related to Vioxx, that still must be resolved, plus 2 cases already certified as class actions in Canada.

The Vioxx case has cost Merck at least $7 billion, including more than $1.74 billion through July 31 on legal costs for defense research and individual trials, most of which it has won.

Vioxx, which was launched in 1999, brought Merck revenue of $2.5 billion at its peak in 2003 and a total of at least $11 billion. 

Source

The American banking system has become a melting pot in recent years as financial institutions from all over the world have set up shop in the United States.

Now more Chinese banks, bolstered by a booming economy and recently forged alliances with big Western players, are eyeing a stateside presence.

Earlier this month, the Federal Reserve gave the go-ahead to Industrial and Commercial Bank of China, China’s largest lender, to open a wholesale banking operation in New York - a sign that some experts say could herald a wave of other Chinese banks entering the United States.

"This is an acknowledgement that they are on the way," said Henry Fields, a partner at the law firm Morrison & Foerster whose practice has centered around assisting foreign banks looking to establish operations in the United States.

China’s ICBC is hardly the first foreign financial institution to put down roots in the United States. This year alone, a number of banks from such far-flung countries as Azerbaijan and India were approved by the Fed to establish representative branches here in the United States.

ICBC is the second Chinese bank to set up shop in the United States over the past year. China Merchants Bank won similar approval from the Fed in November. Currently, only a handful of Chinese banks are chartered domestically.

Under the Fed authorization, ICBC will be able to finance trade and support the increasing number of its clients doing business in the United States.

ICBC will not be able to take in FDIC-insured deposits, but the start of a commercial branch is often considered to be the first step for a foreign bank looking to expand into the United States.

"Foreign banks have traditionally come through wholesale branches and then the banks usually expand into retail banking if there is a strategic reason to do so," said Fields.

Indeed, Chinese banks are enjoying a period of robust growth. Last year, the country’s four largest financial institutions experienced a surge in loan growth, reporting double-digit percentage profit increases or better. Combined, ICBC and China Construction Bank collected close to $20 billion in profits in 2007, based on the latest figures compiled for the Global Fortune 500.

That’s a sharp contrast to a decade ago when many of those same banks lost money at an alarming rate after after doling out funds to poorly-run government businesses only to find themselves on the hook for those same troubled loans.

Given that growth, Chinese banks would seem to be ideal candidates to expand overseas - except for the fact that many of these financial institutions are still quite unsophisticated.

Currently, most of their investments are financed through retained profits, and their lending, credit card and risk management practices remain largely outdated, notes Edmund Harriss, a London-based investment director for Guinness Atkinson who helps run three Asia Pacific-focused funds.

"Chinese banks are really still learning how to run a fully commercial operation," said Harriss.

Hoping to catch up with the rest of the financial services world, a number of China’s biggest banks have sold stakes or partnered with some of the top global financial firms, including HSBC (HBC), Goldman Sachs (GS, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and Merrill Lynch (MER, Fortune 500).

Until then, banks in China are looking inward for growth.

With the industry experiencing further government deregulation and rapid domestic growth, more Chinese banks are teaming up to build out their branch networks domestically, notes Richard Gao, the lead portfolio manager of the Matthews China Fund, which has about $1.4 billion of assets under management and invests primarily in companies located in China.

"Right now they see that the home market is rapidly growing," said Gao.

While Chinese banks from are making the necessary moves to enter the U.S http://pay-day-home.com. market, most experts believe it will be several years before one opens a branch on Main Street or becomes a Wall Street player.

A representative at ICBC’s offices in New York declined to comment on whether the company had plans to expand further within the United States.

Breaking out into the U.S. retail banking market, for instance, would require buying a U.S. bank or establishing their own branch network - both of which would require further approval from top U.S. banking regulators, including the Federal Reserve.

And certainly a greater stateside presence by a Chinese bank would raise eyebrows among lawmakers in Washington.

The Chinese state-run oil company, China National Offshore Oil Corp., or Cnooc, sparked a storm of controversy in 2005 when it made a bid for the U.S. oil and gas producer Unocal Corp. Cnooc ultimately dropped its bid in the face of congressional opposition.

Having learned from this experience, Chinese financial institutions, many of which are still majority owned by the China’s government, will exercise plenty of caution in the face of those U.S. protectionist fears, notes Fields.

"There is a lot of xenophobia about China," he said. "They [Chinese banks] have to be careful about their profile politically in the U.S." 

Source

As proposed buyouts sweep through the drug sector, Pfizer’s failure in recent years to buy another big rival has surprised many investors, some of whom say its too late for a big acquisition to rescue the No. 1 drugmaker.

Investors had long expected Pfizer to acquire another large drugmaker or sizable biotechnology companies to gain rights to new medicines before it loses U.S. patent protection on its Lipitor cholesterol fighter in 2011.

“The hole created by generic forms of Lipitor will be so gapingly big that it’s hard to argue convincingly for an acquisition,” said Scott Richter, a portfolio manager with Fifth Third Asset Management. He noted that other Pfizer drugs will also lose patent protection soon after Lipitor.

The company, which rakes in $13 billion a year for Lipitor, also badly needs new products to offset sales declines for drugs already facing generic competition.

Pfizer, which became the industry leader by buying Pharmacia Corp and Warner-Lambert Corp over the past decade, is trading at 11-year-lows because its laboratories have failed to produce important drugs payday advance low fees. Pfizer edged up 1 cent to $19.85 on the New York Stock Exchange on Monday.

Richter said other drugmakers are facing similar problems, including a poor record of developing new drugs or getting them approved. “So Wall Street would be super-skeptical about the success of bringing two problem children together.”

Moreover, Richter said, Pfizer would probably need to repatriate many billions of dollars in overseas profits to finance a big deal. That would greatly raise its tax rate, he cautioned.

Pfizer’s inaction has been underscored in recent weeks by Roche Holding AG’s (ROG.VX: Quote, Profile, Research, Stock Buzz) $44 billion offer for all outstanding shares of its U.S. partner, Genentech Inc (DNA.N: Quote, Profile, Research, Stock Buzz), and Bristol-Myers Squibb Co’s (BMY.N: Quote, Profile, Research, Stock Buzz) $4.5 billion bid for cancer-drug partner ImClone Systems Inc (IMCL.O: Quote, Profile, Research, Stock Buzz). 

Read more

News and information publisher Thomson Reuters Corp reported slower revenue growth in its key Markets division as the U.S. credit crisis forced layoffs and budget cuts at global investment banks, sending its shares down 4.5 percent.

The company affirmed its 2008 outlook — citing resilience in the Professional division that sells databases and tools to accountants, lawyers, tax, health and other professionals — but investors worried that the real test would come when customers set their 2009 budgets.

Second-quarter pro forma revenue rose 11 percent from a year earlier to $3.4 billion, compared with the first quarter’s 12 percent increase to $3.3 billion.

The pro forma results assume Thomson and Reuters had been operating as one company in the second quarter of last year.

Markets division revenue rose 12 percent to $2.1 billion, but the closely watched organic growth rate — which excludes the impact of currency exchange fluctuations and acquisitions — was 7 percent, slower than the first quarter’s 9 percent.

Analysts had been looking for organic growth of 7 percent to 8 percent in the Markets division as the U.S http://payday-badcredit.com. subprime mortgage crisis and credit crunch have led to thousands of layoffs among firms that are Thomson Reuters’ clients.

“The results were not great. The market was pricing in half-decent figures and that’s what it got,” said Manoj Ladwa, a derivatives trader at TradIndex.

Thomson Corp of Canada bought London-based Reuters Group Plc in April this year for about $16 billion in cash and stock, aiming to expand its market beyond North America. For Reuters, the deal reduced its exposure to financial markets. 

Read more

McDonald’s Corp (MCD.N: Quote, Profile, Research, Stock Buzz) posted July sales that beat many analysts’ forecasts as its key U.S. market posted its largest gain in five months with offers like $1 beverages appealing to cash-strapped consumers.

Shares of the world’s largest restaurant chain rose to an all-time high on Friday after it reported an overall 8 percent increase in sales at stores open at least 13 months.

The United States, where McDonald’s derives about 45 percent of its sales, has been under pressure as consumers cut back on spending due to rising food and fuel costs.

But $1 beverage offers and marketing focused on the company’s Big Mac hamburger sandwich helped lift same-store sales in the United States to a 6.7 percent increase, the largest since an 8.3 percent rise in February when sales were helped by an additional day for the leap year, the company said.

Analysts had been expecting a July same-store sales increase of 4.5 percent to 6.4 percent globally and 4 percent to 4.5 percent in the United States, according to three analysts’ research notes.

The company has also benefited as U.S easy payday loans. consumers trade down from casual dining chains when they do eat outside the home. Casual dining has been particularly hard hit by the U.S. slowdown, as evidenced by the bankruptcy of Bennigan’s and other chains.

“There probably is some continuing trading down,” John Owens, restaurant analyst at Morningstar, said. “I think that they are also gaining share in the fast-food space as well.”

Owens noted that McDonald’s also appeals to consumers because of the ubiquity of the chain. 

Read more

Personal income rose slightly in June after surging the previous month on the first wave of economic stimulus checks, the government reported Monday.

The Commerce Department said individual income increased by 0.1% in June after a revised 1.8% jump in May. Economists polled by Briefing.com were expecting a 0.1% decrease in June.

Personal spending in June increased by 0.6%, which was more than the 0.5% increase that economists polled expected.

However, the spending jump was driven by inflation. Individual spending, when adjusted for inflation, actually fell by 0.2% following a 0.3% increase in May, according to the report.

"Inflation is taking a pretty big bite out of the actual dollars," said Adam York, economic analyst at Wachovia. "It means that we are spending more dollars on gas, food, and things that are increasing in cost."

Another measure in the report that tracks prices that consumers pay on goods and services, excluding food and energy, rose by 0.3% over the previous month.

In addition, the core personal consumption expenditures index - a year-over-year inflation gauge that excludes food and energy - rose to 2.3% from 2.0% a year earlier. Core PCE was 2.2% in March, April and May. The Federal Reserve is widely believed to prefer that core PCE stay in a range of 1% to 2%.

While personal income rose in June, disposable income fell by 1.9%, after spiking up by 5.7% in May low fee cash advance. And in inflation adjusted dollars disposable income decreased by 2.6% after jumping 5.2% in May.

Disposable income is what consumers have left over after they pay taxes.

The drop-off in disposable income tracks a monthly decline in the amount of economic aid distributed by the federal government.

The Treasury Department sent out $48.1 billion in economic stimulus payments in May and $27.9 billion in June.

"The pattern of changes in income reflect the pattern of payments associated with the Economic Stimulus Act of 2008," according to the report.

Excluding stimulus rebate payments, disposable personal income actually increased by 0.3% in June after increasing by 0.4% in May.

"There is no way that the underlying trend increase could make up for the decline in the tax rebate payments," said York. 

Source

The nation’s employers continue to put jobs on the chopping block at a steep rate as the economy struggles, according to a new report.

Challenger, Gray & Christmas, an outplacement consultancy firm, said Monday that planned job cuts announced by employers in July jumped 26% to 103,312 from 81,755 announced in June. That’s up 141% from a year ago, when employers announced planned job cuts totaling 42,897.

The July figure marks the second-highest number of planned job cuts this year, rivaling the May reading that showed 103,522.

"We have seen job cuts increase in the majority of industries that we track," John Challenger, chief executive of Challenger, Gray & Christmas, said in a statement.

Monday’s report indicates that the downturn in the housing and financial sectors, "has spread throughout much of the economy," Challenger said.

Indeed, the report showed job cuts in the works increasing from a year ago in 17 of the 25 industries tracked by Challenger.

Employers in the transportation industry announced the largest number job cuts on the horizon, at 17,051 for the month pay day advance.

Planned job cuts in the transportation sector were dominated by airlines, which have struggled with soaring fuel costs and declining ticket sales due to softening consumer confidence, according to Challenger.

Transportation was followed by the financial services sector, where employers announced 15,517 job cuts on the block.

Financial firms remained led the year, having already announced 100,775 planned layoffs through July, the report showed.

Employers in the retail and automotive industries also ranked high on the list.

The Challenger report follows a Labor Department report Friday that showed the nation’s unemployment rate climbing to a four-year high of 5.7%. It was the worst reading since March 2004, and slightly worse than economists’ forecast of 5.6%.

But there was a bright spot in the government’s report. The economy lost 51,000 jobs lost in July, which was much lower than the 75,000 loss that economists had expected.  

Source

Lehman Brothers Holdings Inc is expected to follow in Merrill Lynch & Co Inc’s footsteps and sell a lot of risky assets at a loss. But shedding the assets may create another headache for Lehman — the need to raise large amounts of new capital, including common equity.

Any capital raise would be painful for Lehman and its shareholders, given that the company just raised $6 billion in June and trades at a significant discount to its book value, or the net accounting value of its assets.

But Lehman, the fourth-largest U.S. investment bank, may have little choice as it wrestles with roughly $65 billion in mortgage-related assets, particularly after Merrill Lynch agreed to shed $30.6 billion in toxic assets at a fire-sale price of 22 cents in the dollar, analysts said.

“Lehman’s caught between a rock and a hard place. They’re getting more and more pressure from regulators and investors to add reserves or mark these things down,” said David Hendler, an analyst at independent research firm CreditSights in New York.

“In normal times, they could wait it out, but the market wants it done now,” Hendler added.

The New York Post reported on Friday that Lehman was talking to potential buyers about selling $30 billion in assets payday loans. CNBC television reported Friday that Lehman was in talks with BlackRock Inc to sell mortgage securities and other assets. Both Lehman and BlackRock declined to comment.

Lehman’s chief financial officer told Merrill analyst Guy Moszkowski recently that the investment bank was willing to sell assets at a loss if the deal materially reduced risk, the analyst said in a report.

Lehman had roughly $65 billion in mortgage and real estate-related assets on its balance sheet as of May 31. 

Read more