Financial life in a big town

UBS AG said a government bailout is helping to stem client money outflows but warned that it could take a 6 billion Swiss franc ($5.20 billion) hit in the fourth quarter due to accounting effects.

The world’s largest wealth manager had already reported most of its third-quarter figures, including a small profit, last month when it announced it was getting a 6 billion franc capital injection from the government and was also unloading $60 billion of risky assets into a central bank fund.

UBS, one of the European banks hit hardest by the financial crisis, said on Tuesday it had seen some improvement in client flows since the central bank deal. It reported net outflows of 83.6 billion francs in the third quarter.

“Whilst the situation was very difficult at the start of October, there have been encouraging signs for net new money flows following the announcement,” it said.

UBS shares were up 0.2 percent to 18.99 Swiss francs at 1040 GMT, compared with a 2.2 percent stronger Dow Jones index of European bank stocks. The stock is down nearly 60 percent since the start of the year, slightly underperforming the European index which is 52 percent lower this year.

“Management claims the trends after the settlement with the Swiss National Bank have been encouraging, but we have seen these statements before,” said Dirk Becker, analyst at brokerage Kepler Capital Markets.

“Our impression is that it might take a while before UBS gets back to meaningful inflows.”

The Swiss bank, which suffered massive damage to its reputation in the subprime crisis and is under pressure at home to return executive bonuses, said it expected market conditions to remain “challenging” and shrinking client assets to affect fees cash til payday loan.

UBS, which has changed its top management this year and is undergoing a massive restructuring, will give an update on client flows at an extraordinary shareholder meeting on November 27, Chief Financial Officer John Cryan told an analysts’ call.

Q4 HIT BY CHARGES, REVERSAL OF CREDIT GAINS

Cryan said the bank was sticking to its goal of returning to profit in 2009 while continuing to reduce its huge balance sheet. But he said he expected it to take a 2 billion Swiss franc hit in the fourth quarter if its funding costs remain at current levels.

UBS also expects a charge of about 4 billion francs on equity sold to the central bank fund in the fourth quarter.

“The total loss is about 6 billion Swiss francs. It cannot be offset by new revenues. They will show a loss in the fourth quarter,” Georg Kanders, an analyst with WestLB, said.

Cryan said UBS will also be affected by goodwill and restructuring charges in the fourth quarter.

UBS confirmed on Tuesday it had made a third-quarter net profit of 296 million Swiss francs ($256.3 million), helped by a gain on its own credit of 2.2 billion francs, plus a tax credit of 913 million francs. 

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OTTAWA–Prime Minister Stephen Harper leapt on the news that Canada created a record 107,000 new jobs last month as evidence his government has the right policies for the economy.

The massive number – the largest since Statistics Canada began tabulating labour statistics in this manner in 1976 – shocked economists who had been forecasting a modest pick-up in the 12,500 range.

"When I say that notwithstanding the challenges our fundamentals are strong, let me repeat we’ve had GDP (gross domestic product) numbers up dramatically, we’ve had employment numbers up dramatically," Harper told a rally in Brantford, Ont.

However 90 per cent of last month’s new jobs – 97,000 – were part-time, and the official unemployment rate remained at 6.1 per cent because more Canadians were looking for work.

"It seems like everyone has a paper route these days," commented CIBC World Markets economist Avery Shenfeld. "How else to explain how Canada created 97,000 part-time jobs in a single month, during a period of severe economic strain across the country?"

The Canadian Labour Congress said the "low-quality" new jobs offer "an omen of tough economic times."

But Finance Minister Jim Flaherty said the numbers show the government has handled the economy properly, including by cutting taxes last October to stimulate activity.

He noted that the International Monetary Fund predicts Canada will top the G7 in growth next year with a modest 1.2 per cent advance.

With most economists judging the economy is in or near a recession, the September job increase may be seen as a correction of the 55,000 lost jobs in July, which also threw economists for a loop.

BMO Capital Markets economist Douglas Porter noted the latest numbers come from a survey in mid-September, "just as financial turmoil began to gather serious momentum," and may already be old news. But they show the domestic economy "carried much firmer momentum heading into the storm than many other nations."

Statistics Canada concedes the survey of 53,000 households has an error factor of plus or minus 43,500 jobs from the 107,000 number, 90 per cent of the time.

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South Korea's department store sales increased at the fastest pace in almost three years in August as outlets lowered prices to attract shoppers.

Sales at the three biggest chains rose 14 percent from a year earlier, more than double July's 5.9 percent gain, the Ministry of Knowledge Economy said in Gwacheon today. Last month's increase was the biggest since December 2005.

Retailers including Lotte Shopping Co. held discount sales in August to woo customers, while shoppers also bought more televisions and sporting goods during the Beijing Olympics. Confidence among consumers rebounded last month from an eight- year low thanks to a drop in oil prices.

“Stores are holding more promotional events to get consumers to open their wallets,'' said Lee Sang Jae, an economist at Hyundai Securities Co. in Seoul. “But it's still premature to say consumer spending has recovered as concerns about economic growth slowing and financial markets linger.''

Sales of sports goods climbed 12.7 percent in August from a year earlier, today's report showed. Sales of luxury goods at department stores jumped 38.7 percent easy fast cash.

“The jump in sales of luxury goods show there's a bipolarization of income and spending,'' Hyundai's Lee said. “People with higher income seem to be less affected by what's going on in the economy.''

Economic Growth

The pickup in spending may be temporary as renewed turmoil on global financial markets shakes confidence. The Kospi stock index has dropped 23 percent this year and the currency has slumped 22 percent against the dollar.

Asia's fourth-largest economy expanded 4.8 percent last quarter, the weakest pace in more than a year, as spiraling living costs prompted consumers to cut spending.

Shares in Lotte Shopping, the nation's largest department store operator, have fallen 31 percent in 2008, and those in Hyundai Department Store Co., the second biggest, have dropped 26 percent.

Sales at discount stores rose 1.1 percent last month from a year earlier, moderating from a 2.1 percent gain in July, today's report showed.

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Ailing Washington Mutual Inc. moved into a better position to find a reprieve or rescue from its mounting loan problems Wednesday after a major investor removed a potential stumbling block to a sale or another infusion of capital.

The concession by the private equity group TPG came as government regulators tried to arrange a sale of the nation’s largest thrift, reflecting their worries about another possible bank failure that would drain the already depleted Federal Deposit Insurance Corp.

TPG could have stymied that process because of protection that it got as part of a $7 billion investment made in April. A clause in its investment agreement could have required a buyer or another major investor to pay TPG hundreds of millions, if not billions, of dollars in addition to whatever money was injected into WaMu.

But TPG agreed to waive its anti-dilution clause, according to a Securities and Exchange Commission filing, potentially making it easier for WaMu (WM, Fortune 500) to raise more money or for nervous banking regulators to push for a sale of the Seattle-based company.

"It became clear that it would be in the best interests of Washington Mutual and our investors to waive the … provisions," Fort Worth, Texas-based TPG said in a statement. "Our goal is to maximize the bank’s flexibility in this difficult market environment."

The government’s efforts to find a buyer, though, are being complicated by uncertainty about the magnitude of losses still lurking in Washington Mutual’s home loan portfolio.

"No one knows what’s in their books," said a person briefed on the talks between regulators and banks. The person spoke Wednesday on the condition of anonymity because of the sensitivity on the matter.

Citing unidentified sources, the New York Post said the potential buyers include JPMorgan Chase & Co. (JPM, Fortune 500), Wells Fargo & Co. (WFC, Fortune 500), HSBC Holdings PLC cashadvance. (HBC)

The banks all declined to comment.

After losing $6.3 billion in the past three quarters, Washington Mutual believes it is slowly healing under a new chief executive, Alan Fishman, who will receive an $8 million bonus if he can keep the nation’s largest thrift alive through 2009.

"I think people do know what is in our books and we’ve been pretty transparent," WaMu spokeswoman Olivia Riley said Wednesday, pointing to a financial update that the company released late last week. Those figures suggested WaMu’s loan problems are becoming less severe compared to recent quarters, giving some analysts hope that the company can still be salvaged.

Nonetheless, analysts still expect the company to sustain a loss of about $1.8 billion in the current quarter ending Sept. 30. And investors are showing little confidence in WaMu. The company’s shares fell 31 cents to $2.01 Wednesday, leaving the stock price with a decline of about 85% so far this year.

"Something needs to happen soon because WaMu is twisting in the wind," said Bert Ely, an Alexandria, Va. banking consultant. "It’s a detrimental situation that has become corrosive to the franchise."

Assuming that Washington Mutual either can’t find a buyer or doesn’t want to be sold at the price being offered, the thrift could raise more money to fatten its cushion against the losses that are still expected to come.

In a Monday research note, Keefe, Bruyette & Woods analyst Frederick Cannon estimated Washington Mutual probably needs to raise at least $5 billion in additional capital to protect itself from upcoming losses. Cannon thinks Washington Mutual’s credit costs could run as high as $28 billion through 2009. 

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The Toronto stock market slipped more than 200 points after the opening bell Thursday as fears of continued credit problems in the United States multiplied, rather than abated, sending every sector lower.

The drop followed investor unease about U.S. investment bank Lehman Brothers' recovery plan and speculation about whether oil prices could move below $100 a barrel before the end of the session.

Toronto's S&P/TSX composite index fell 233.58 points to 12,546.99 after gaining 350.39 points on Wednesday.

The Canadian dollar was at 93.13 cents US, down 0.35 of a cent after Statistics Canada said that the country's trade surplus with the rest of the world fell to $4.9 billion in July from a revised $5.6 billion in June.

Exports continued to rise, up 2.2 per cent to $44.3 billion in July with volume up 1.7 per cent and prices half a per cent.

The energy sector dropped 1.8 per cent as oil prices slipped lower despite hurricane Ike's march toward oil platforms in the Gulf of Mexico.

The light, sweet crude September contract slid six cents to US$102.52 a barrel on the Nymex.

Concerns have centred around whether hurricane Ike could harm refinery operations in the Gulf of Mexico, falling U.S. crude inventories and an OPEC decision to cut production by 500,000 barrels a day.

Ike, coming on the heels of last week's hurricane Gustav, was expected to blow ashore early Saturday somewhere between Corpus Christi and Houston, with some forecasts saying it could become a Category 4 storm.

On Wall Street, the Dow Jones industrial average fell 146.80 points to 11,122.12.

Investors latest concern about the financial sector follows Lehman Brothers Holdings Inc.'s announcement Wednesday that it plans to sell its investment management unit and spin off its commercial real estate assets guaranteed cash advance. The company is seeking to raise cash after making bad bets on holdings tied to real estate.

The Nasdaq composite index lost 35.30 points to 2,193.40, while the S&P 500 index slid 18.11 at 1,213.93.

The U.S. Labour Department reported that jobless benefit applications fell less than expected to 445,000, down by 6,000 from the prior week.

In earnings, Vancouver-based sportswear retailer Lululemon Athletica Inc. (TSX: LLL) posted a profit of just over US$11 million in the second quarter on higher revenues.

But the revenue figure, which was 48 per cent higher than a year ago, fell below analyst expectations. Shares in the company were down four cents to $19.19.

Canadian companies expected to report later Thursday include Transcontinental Inc. (TSX: TCL.A) and Sobeys supermarket chain owner Empire Company Ltd. (TSX: EMP.A).

Overseas, Britain's FTSE 100 fell 1.66 per cent, Germany's DAX index fell 1.72 per cent, and France's CAC-40 lost 1.52 per cent.

Asian markets fell sharply Thursday as the troubles at Lehman Brothers fanned fears of more credit-market losses and drove down financial company shares across the region.

Japan's key stock index sank to its lowest in nearly six months as investors dumped banks and brokerages. The Nikkei 225 closed down 1.98 per cent to 12,102.50 – its lowest closing level since March 18.

In Hong Kong, the Hang Seng Index shed 3.1 per cent to 19,388.72, its worst finish since March 20 last year.

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Raytheon Co. said Friday it has received a $85.3 million U.S. Army contract to produce its Excalibur projectiles for U.S. and Australian forces.

The Excalibur artillery, jointly produced by Raytheon and BAE Systems Bofors of Sweden, is used in howitzer weapons systems for long range targets payday loans application.

Waltham-based Raytheon (NYSE: RTN) will manufacture the ammunition through its Raytheon Missile Systems business unit based in Tuscon, Ariz.

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Euro area inflation fell in August from a record high, offering some relief as economic confidence plunged to the lowest level in five years, the European Commission said Friday.

Inflation dropped to 3.8 percent in August, down from a record high of 4 percent in June and July when prices for fuel and food rose sharply from a year ago, the EU statistics agency Eurostat said.

But businesses are gloomy about prospects ahead for the 15 nations that share the euro. Economic confidence fell again in August to 88.8 with industry, the construction sector and retailers more worried than they were last month.

The European economy is slowing as prices at the gas pump and grocery store soar and amid tight borrowing conditions triggered by the global credit crisis as well as a slowdown in major trading partners, Britain and the United States.

The EU figures add pressure on the European Central Bank to hold off an interest rate increase that would make borrowing more expensive and risk hurting a fragile economy payday loans lenders. It raised rates from 4 percent to 4.25 percent in June to try to contain rocketing inflation. 

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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). 

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An emergency move by U.S. securities regulators this week aimed at curbing manipulative short-selling in some major financial firms should be expanded to all publicly traded banks, or it could erode confidence in the banking industry, a top trade group said.

A letter from the American Bankers Association to the Securities and Exchange Commission this week stressed that banks could be vulnerable as they are suffering from the financial turmoil stemming from the downturn in the U.S housing market.

“The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country’s banking industry,” ABA President Ed Yingling said in a Thursday letter to the SEC.

“As the commission is aware, it would be an understatement to say that short interest in financial services companies has greatly increased over the year,” Yingling said.

On Friday the SEC, the U.S. markets watchdog, amended its action from earlier in the week but limited the protection to 19 firms including U.S. housing finance giants Fannie Mae and Freddie Mac whose shares plunged on concerns they were undercapitalized.

The rule also applies to the stocks of 17 Wall Street firms, primary dealers that have access to the Federal Reserve’s discount window, such as Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) and Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz).

Short selling is a legitimate strategy where the investor arranges to borrow shares they consider overvalued and sell them in hopes of profiting when the price drops payday loan low fee. A naked short occurs when an investor sells stock that has not yet been borrowed.

Wall Street, which was thrown off guard when the SEC announced the emergency rule on Tuesday, and U.S. stock exchanges applauded the rule modifications and guidance. But the ABA wanted the SEC protection expanded to all banks and their holding companies that are publicly traded. 

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CALGARY–Fertilizer producer Agrium Inc. says it is looking forward to record profits as "unprecedented demand for crop inputs."

The Calgary-based company said it expects second-quarter earnings of US$2.80 to $3 per share, up from previous guidance of $1.92 to $2.22, "due to very strong results from both our retail and wholesale operations."

Agrium's results are "particularly impressive given that the North American spring application season has been hampered by excessively cold and wet weather this year," president and CEO Mike Wilson said in a release.

"Continued strong global crop prices have created unprecedented demand for crop inputs and we foresee an extended demand-driven cycle."

The company said its forecast assumes there is no unfavourable financial impact from its Egyptian nitrogen facility EAgrium, at which construction was halted in April“due to permitting and other delays created by the Egyptian government."

A syndicate of banks providing financing for the project has requested the suspension of future draws on a credit facility and says the loan is in default no qualifying payday advance.

Agrium said it expects government approval but has "concerns these issues may not be resolved in the near term, in which event EAgrium's shareholders would be exposed to the loss of their total equity commitment."

Agrium has $165 million invested in the project with a total equity commitment of $280 million.

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