Financial life in a big town

TOKYO–Shares of Sony Corp slid nearly 9 per cent to a five-year low after Goldman Sachs cut its rating on the electronics maker on concerns over the outlook for its flat TV, mobile phone and digital camera businesses.

The Goldman downgrade came on top of a rating cut on Tuesday by JP Morgan, which also cited worries over the profitability of its liquid crystal display (LCD) TV business and a stronger yen.

Shares of Sony, which also makes PlayStation game consoles and Vaio PCs, closed down 8.7 per cent at 3,270 yen, wiping out about $3 billion in market value. During the session the stock fell as low as 3,210 yen, a level last seen in May 2003.

It was the worst one-day tumble since the "Sony shock" in April 2003, when a huge qunomies in Western countries as well as emerging markets like China and Latin America.

A sluggish performance at its mobile phone joint venture with Sweden's Ericsson and a firmer yen had triggered a 39.5 per cent fall in Sony's profit in the April-June quarter.

JPMorgan cut Sony on Tuesday to "neutral" from "overweight" and lowered its price target to 4,000 yen from 5,450 yen.

It said Sony would likely miss its profit forecasts as it copes with a stronger-than-expected currency and sluggish sales of digital cameras and video recorders easy quick payday loans. Continued losses on LCD TVs may also weigh on its earnings.

"We think Sony can achieve its annual sales target of 17 million LCD TVs, but we are not sure if the firm can make the business profitable," JPMorgan analyst Yoshiharu Izumi told Reuters on Thursday.

Goldman Sachs cut its annual operating profit forecast for Sony to 385 billion yen and JPMorgan forecast it would be 416 billion yen, both sharply lower than the company's 470 billion yen target for the business year to next March.

That compares with a 443 billion yen profit forecast in a poll of 21 analysts by Reuters Estimates.

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St. Louis area casinos saw business climb 4.8 percent in August, according to figures released this week by Missouri and Illinois gaming regulators.

Local gamblers spent $91.3 million at the region’s six casinos, up from $87.2 million in the same month last year payday loans. As has been the case all year, much of the gain was driven by the new Lumi

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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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." 

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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. 

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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. 

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Malaysia's exports rose at the slowest pace in three months in June as shipments of electronics to the U.S. and European Union declined.

Overseas sales increased 18.4 percent from a year earlier to 58.2 billion ringgit ($17.8 billion), the Trade Ministry said in a statement in Kuala Lumpur today. That matched the median estimate of 14 economists in a Bloomberg News survey.

Slowing growth in the U.S., Asia's largest export market, is crimping demand for made-in-Malaysia Intel Corp. computer chips and other electronics. The pace of expansion in Malaysia's $151 billion economy may ease to about 5 percent this year from 6.3 percent in 2007, the central bank said last month.

“You've got an electronics slowdown,'' said Joseph Tan, a senior market strategist at Fortis Bank SA in Singapore. “Invariably there will be a slowdown from the growth that we had last year, because the U.S. is still a very major trading partner for Malaysia.''

Shipments to the U.S. fell 5.8 percent to 7.07 billion ringgit in June from a year earlier on lower exports of electrical and electronics products, the trade ministry said. Sales to the EU slipped 1.7 percent.

The U.S., No. 1 buyer of Malaysian products last year, has fallen behind Singapore in the first six months of 2008.

Economic growth may moderate in the next 12 months, Bank Negara Malaysia said last week. The central bank broke with its inflation-fighting Asian neighbors when it kept rates unchanged at 3.5 percent on July 25, saying its immediate concern was to “avoid a fundamental economic slowdown.'' Inflation jumped to a 26-year high of 7.7 percent in July.

Palm Oil

Overseas sales may weaken further in coming months as easing prices reduce the gains made by Malaysia's palm oil and energy exports so far this year low fees payday loan. Malaysia is Southeast Asia's second-largest oil and gas producer and the world's No. 2 palm oil seller.

“Signs are emerging that this commodity boom may soon come to an end as a slower world economy and sky-high prices damp global demand for commodities,'' said Azrul Azwar Ahmad Tajudin, an economist at Bank Islam Malaysia Bhd. in Kuala Lumpur.

Crude oil in New York has slipped more than 14 percent from a record $147.27 a barrel on July 11, and palm oil produced by Sime Darby Bhd. and other Malaysian planters closed below 3,000 ringgit a ton on July 29 for the first time since December.

Exports of palm oil jumped 82.8 percent in June from a year earlier, though they fell 4.2 percent from May. Sales of crude oil climbed 50.2 percent from a year ago, the slowest pace in six months. Shipments of liquefied natural gas rose 60.1 percent.

Sales of Unisem Bhd. semiconductors and other electrical and electronics goods rose 6.5 percent from a year earlier, the smallest gain in three months. Such goods accounted for 38.5 percent of total exports in June, down from 40.4 percent the previous month.

Imports expanded 12.1 percent in June, leaving a trade surplus of 12.97 billion ringgit.

Exports increased 15.5 percent in the first six months from a year earlier. Imports rose 8.3 percent in the same period, leaving a trade surplus of 67.59 billion ringgit.

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Moody’s Corp (MCO.N: Quote, Profile, Research, Stock Buzz), the parent of Moody’s Investors Service, said quarterly profit fell 48 percent, as the global credit crisis caused demand to shrink for mortgage bonds and collateralized debt obligations.

Though results topped forecasts, Moody’s shares gave up some early gains after Connecticut Attorney General Richard Blumenthal said he plans to sue Moody’s and its main rivals, McGraw-Hill Cos (MHP.N: Quote, Profile, Research, Stock Buzz) Standard & Poor’s, and Fimalac SA’s (LBCP.PA: Quote, Profile, Research, Stock Buzz) Fitch Ratings, for alleged “deceptive and unfair practices costing taxpayers millions of dollars.”

Second-quarter net income for New York-based Moody’s, whose largest investor is Warren Buffett’s Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz) (BRKb.N: Quote, Profile, Research, Stock Buzz), fell to $135.2 million, or 54 cents per share, from $261.9 million, or 95 cents, a year earlier.

Moody’s said profit excluding items was 51 cents per share cash till payday. On that basis, analysts on average expected 47 cents per share, according to Reuters Estimates. Revenue fell 25 percent to $487.6 million, topping the average $465.7 million forecast.

“They beat the numbers in pretty much all categories,” said Edward Atorino, an analyst at Benchmark Co in New York. “I think we’re bouncing along the bottom. The third quarter is starting pretty slow, but we’re at the bottom of a trough.”

Results were weakened by a 56 percent plunge in revenue from CDOs and other structured products, including such asset classes as residential mortgage-backed securities, commercial real estate finance and credit derivatives. In the United States alone, structured finance revenue fell 67 percent.

Expenses declined 10 percent as Moody’s cut jobs and reduced incentives and stock-based compensation.

CRITICISM 

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Plane maker Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) has seen a string of order deferrals in the United States this year as the airline industry battles challenges such as high fuel costs, a senior executive said on Wednesday.

Randy Tinseth, Boeing Commercial Airplanes Vice President for Marketing, said the delays also featured one total cancellation, but the issue was limited to the U.S market — which accounts for 10-11 percent of its sales.

“We have seen deferrals in the U.S. market as the airlines look to make significant capacity reductions, but we are pleased to have regional diversity .. We have not seen deferrals in other regions,” he told reporters.

Boeing shares were up 0.5 percent at $66.45 at 12:08 p.m. EDT.

Airline fuel costs have soared this year alongside record oil prices above $140 a barrel, forcing several airlines to cut capacity and hike fuel charges protect margins.

But Tinseth said Boeing did not expect the tough climate to last — predicting the value of the new plane market to grow in the long term.

Bowing said the group now valued the market for new commercial planes at $3.2 trillion to 2027 cash advance. That is up from a $2.8 trillion 20-year forecast provided last year.

“The forecast takes into account the industry’s near term challenges, including a slowing worldwide economy (and) surging fuel prices .. This year’s forecast is rooted in today’s realities, but also recognizes the nature of a long term outlook,” Tinseth said. 

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Hewlett-Packard, the world’s biggest computer maker, launched a new generation of touchscreen PCs designed to lift user-friendly computing out of its expensive niche and bring it to a wider market.

The TouchSmart All-in-One allows users to work with photos, music, video, the Internet and television by tapping or swiping the screen, and will be priced at $1,299, HP said at the launch in Berlin on Tuesday.

HP’s Personal Systems group of PCs, notebooks, workstations and handheld devices has transformed itself over the past few years from a largely commoditized volume business to a far more successful one that emphasizes product design.

The group’s executive vice president, Todd Bradley, told Reuters he aimed to set a trend and create a new market.

“We don’t think about this as a niche no fax payday loans. We think about it as a global product that will inspire demand and drive desirability,” Bradley said in a telephone interview.

“Our ability to lead is very important,” he added, declining to speculate on what size the market for such PCs might reach.

HP’s announcement came a day after Apple announced a new version of its ground-breaking iPhone, the original version of which brought touchscreens to public attention and sparked a host of imitators.

Bradley denied that HP was following Apple, pointing out that HP had been developing touch technology for some time. But analyst Crawford del Prete of research firm IDC said: “I don’t think Apple’s impact can be underestimated.” 

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