Stocks ended with modest losses Thursday, fighting off a bigger decline that surrounded the latest worries about Greece’s debt crisis and weaker-than-expected reports on the economy.
The Dow Jones industrial average (INDU) lost 53 points or 0.5%. The S&P 500 index (SPX) fell 2 points, or 0.2%. The Nasdaq composite (COMP) lost 2 points or 0.1%.
Stocks tumbled out of the gate after both Standard & Poor’s and Moody’s said they may have to cut Greece’s debt rating if the country doesn’t implement its so-called austerity measures, meant to rein in its deficit.
But after a bigger selloff through the early afternoon, stocks cut losses heading into the final hour of the session.
Greece has said it will raise the retirement age and have civil servants take bonus cuts, among other measures. A workers’ strike Wednesday added to questions about the nation’s ability to cut its debt. Investors are concerned about the broader implications for other euro zone countries, and the euro, should Greece default.
"It seems like the market doesn’t know how worried it should be about Greece, which is why we’re rallying off the lows of the day," said Ryan Atkinson, market analyst at Balestra Capital.
While the Greek debt situation is a serious one for the market, it’s probably going to come in waves over the next six to nine months, Atkinson said. "Maybe they’ll cut a deal initially [with officials], but longer term there are going to be more issues."
He said that investors were likely just as concerned about the day’s economic news, including worse-than-expected reports on jobless claims and factory orders.
Market breadth was mixed. On the New York Stock Exchange, losers and winners were roughly even on volume of 1.15 billion shares. On the Nasdaq, decliners topped advancers five to four on volume of 2.1 billion shares.
Greece: The threat of a Greek default rattled global markets earlier in the month, pushing U.S. stocks to three-month lows and causing the S&P 500 to lose over 9%, just shy of the technical definition of a correction.
Investors worried that Greece’s problems could reflect a broader euro zone debt crisis that could impact Portugal, Spain, Ireland, Italy and other debt-challenged European nations.
But European officials said earlier this month that they were ready to step in and help Greece if need be, and that seemed to calm investors for a few weeks. S&P and Moody’s downgrade talk revived the worries.
In addition, stocks have been rising for the last two weeks, setting the market up for a little pullback, particularly in the aftermath of last year’s big rally.
Bernanke: Federal Reserve Chairman Ben Bernanke told Senators Thursday that the central bank is looking into whether Goldman Sachs and other big banks worsened Greece’s debt crisis.
News reports have said that Goldman and other banks helped arrange deals that may have disguised the extent of Greece’s debt problems. In addition, the banks have made bets that Greece will default on loans it took from U.S. financial institutions, according to a New York Times article.
Bernanke spoke before the Senate Banking Committee Thursday in his second day of Congressional testimony on the economy payday loans.
On Wednesday he told a House committee that while the economic recovery is chugging along, the job market remains weak. Against that backdrop, interest rates will stay low for the foreseeable future. That seemed to reassure investors worried about the outlook for the economy and stocks rallied Wednesday.
Jobs: The number of Americans filing new claims for unemployment jumped last week to 496,000 from a revised 474,000 the previous week. Economists surveyed by Briefing.com expected 460,000 new claims.
Claims have jumped 12% over the past two weeks, due in part to the impact from the severe winter storms on the east coast.
Durable goods orders: Orders for big-ticket items meant to last three years or more jumped in January, with aircraft demand fueling the rise.
Durable goods orders rose 3% in January, the biggest increase since last summer and better than the 1.5% jump forecast by economists. Orders rose 1.9% in the previous month.
Orders excluding transportation fell 0.6% after rising 2% in December. Economists expected a rise of 1%.
Coke: Coca-Cola (KO, Fortune 500) said it will buy the North American operations of its biggest bottler, Coca-Cola Enterprises (CCE, Fortune 500) (CCE) in a deal that would cut costs and give it more control of its distribution.
The multi-layered deal has Coca-Cola giving up its 34 percent stake in CCE, worth about $3.4 billion, and taking on $8.88 billion in debt.
Additionally, the companies agreed that CCE will buy Coke’s bottling operations in Norway and Sweden for $822 million and that it has the right to buy Coke’s 83% stake in its German bottling operations.
The deal comes as rival PepsiCo (PEP, Fortune 500) is about to close a $7.8 billion deal to buy Pepsi Bottling Group and PepsiAmericas, its largest bottlers.
Coke shares plunged 4% and CCE shares rallied 33%.
Palm: Palm (PALM) said it expects revenue to fall far below current forecasts due to worse-than-expected sales of its new smartphones. Shares plunged 19% on the forecast.
Health care: The Obama administration’s health care summit was underway Thursday, with Republican and Democratic leaders from both houses of Congress debating ways to reform the system.
The president said that both sides agree that costs need to be contained, but they remain bitterly divided over whether to press through with the current bill or start over.
World Markets: In overseas trading, major European and Asian markets ended lower.
The dollar and commodities: The dollar gained versus the euro after seesawing versus the European currency throughout the session. The greenback fell versus the yen.
U.S. light crude oil for April delivery fell $1.83 to settle at $78.17 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose $11.30 to settle at $1,108.50 per ounce.
Bonds: Treasury prices rallied, lowering the yield on the 10-year note to 3.63% from 3.69% late Wednesday. Treasury prices and yields move in opposite directions.
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India’s credit rating may be raised from junk if Finance Minister Pranab Mukherjee provides a comprehensive plan to roll back fiscal stimulus and cut the budget deficit this week, Moody’s Investors Service said.
“If we think the exit path is well articulated and well executed, the local currency rating could be upgraded,” Aninda Mitra, a Singapore-based sovereign analyst at Moody’s, said in a telephone interview on Feb. 19. India’s long-term local currency debt is placed at Ba2 by Moody’s, two levels below the investment grade and at par with Armenia and Turkey.
Mukherjee has an opportunity to narrow the budget shortfall as accelerating economic growth boosts tax revenue and a stronger political mandate after last year’s elections paves the way to resume asset sales. Rating changes have less impact on India than other countries like Greece, which borrow more from abroad. India’s foreign borrowings make up only about 4 percent of government debt compared with 83 percent for Greece, according to Citigroup Inc.
Stocks, Bonds Gain
“India has lived with a budget deficit for so long, and with a high growth rate you can run a deficit,” said Andrew Michael Spence, a Nobel prize-winning economist and professor emeritus at Stanford University’s Graduate School of Business. “You don’t want the credit rating to go too low. It’s more signaling rather than anything else.”
India’s budget deficit may narrow to 5.5 percent of gross domestic product in the financial year starting April 1 from 6.8 percent of GDP in the previous year, Chakravarthy Rangarajan, Prime Minister Manmohan Singh’s top economic adviser, said on Feb. 19. Mukherjee is scheduled to unveil the budget in parliament in New Delhi on Feb. 26 at 11 a.m.
Stocks snapped a two-day decline while the yield on India’s benchmark 10-year note fell the most in more than four weeks after Moody’s comment. The rupee gained the most since Feb. 15.
India’s Sensitive Index rose 1.1 percent to 16,369 on the Bombay Stock Exchange and the rupee appreciated 0.3 percent to 46.14 per dollar. Bond yields fell four basis points to 7.84 percent as of 1:24 p.m. in Mumbai.
Indian government debt accounts for about 80 percent of the gross domestic product. Standard & Poor’s and Fitch Ratings have a BBB-, the lowest investment grade rating, on Indian local currency debt.
Positive Outlook
“Although the debt level is high relative to other emerging markets, the fact remains that it’s not increasing sharply,” Mitra said. “It’s hovering around 80 percent of the GDP. So, that’s a reasonably good outcome and which is why we shifted towards the positive outlook,” in December 2009.
Mukherjee, who allowed the budget deficit to widen to provide fiscal stimulus to the economy amid a global recession, is relying on asset sales and faster growth to spur tax collections in next year’s budget.
India’s $1.2 trillion economy may grow 7.2 percent in the current fiscal year through March, accelerating for the first time since 2007, the statistics office said Feb. 8.
Singh’s government plans to reduce stakes in 68 companies including NMDC Ltd., the nation’s largest iron-ore producer, and NTPC Ltd., the biggest electricity provider, after he returned to power in May without the help of communist parties, who as part of the previous coalition had opposed the policy.
Inflation Risk
The government may borrow a net 3.8 trillion rupees in the year starting April 1, compared with 3.97 trillion rupees this year, said Abheek Barua, an economist at the Mumbai-based HDFC Bank Ltd.
Central bank Governor Duvvuri Subbarao last month urged the finance ministry to cut borrowings to support the monetary policy’s goal to contain inflation. Subbarao raised the proportion of deposits lenders need to maintain as cash reserves to 5.75 percent from 5 percent and said monetary policy alone won’t be effective in curbing price-gains unless Mukherjee rolls back fiscal stimulus.
“The growth has rebounded and at the same time there is a risk of inflation,” Mitra said. “Inflation expectations need to be anchored better, either through higher policy rates or if that process could be helped by lower government borrowing and spending.”
India’s inflation accelerated to 8.56 percent in January, the most in 15 months.
“India in on the cusp of a new tryst, which is fiscal destiny, and I hope they will take it,” Mitra said.
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Boeing Co. said commercial orders will pick up by 2012, after dropping to the lowest level since 1994 last year, as an economic recovery boosts air-travel demand and airlines return to profit.
"We’re starting to see the economy turn around after a really difficult year last year in terms of traffic," Randy Tinseth, Boeing’s marketing chief, said. Growth in travel and cargo shipments this year will translate into airline profits and "then we can start to see an increase in demand for new airplanes in 2012," he said.
Boeing had 142 net orders last year after 121 cancellations, the Chicago-based company said in a statement Thursday. That’s the fewest since 125 orders in 1994, according to spokesman Jim Proulx. The total also trails the 194 that rival Airbus SAS reported as of Nov. 30.
Boeing’s orders fell from 662 in 2008, when Airbus had 777, and from a record high of 1,413 in 2007.
"On a gross-order basis we’re probably in the same ballpark, but clearly we had challenges with some of our programs," with 83 cancellations for the delayed 787 Dreamliner, Tinseth said. The two rivals have generally split the market in the past few years and "I don’t see any major trends in terms of orders this year," he said easy online payday loans.
Airbus also kept the lead in deliveries, which are when planemakers get the bulk of payments. Boeing said it delivered 481 planes in 2009, while Airbus shipped 498, according to a person familiar with the Toulouse, France-based company’s production who declined to be identified because its figures won’t be released until Tuesday. Airbus has held the lead every year since 2003.
Boeing’s deliveries in 2009 rose from 375 in 2008, when factories had been shuttered during a two-month strike by machinists. Even with the recession, Boeing and Airbus combined built a record number of aircraft last year as the long lead time for jets and the threat of penalties for last-minute cancellations protected manufacturing rates.
Both companies are scaling back now to better match demand after airlines pushed back hundreds of delivery dates because of the global economic crisis.
Treasury Secretary Timothy Geithner said the government is unlikely to recoup its investments in insurer American International Group Inc. or the automakers General Motors Co. and Chrysler Group LLC.
Geithner, in testimony today before the Congressional Oversight Panel, also said he chose to extend the $700 billion Troubled Asset Relief Program to give the Obama administration more time to unwind its bank-rescue efforts. The economy faces “significant headwinds,” and housing markets remain dependent on government support even as they are stabilizing, he said.
Still, U.S. financial and economic conditions have improved, Geithner told the panel in Washington. The Treasury now expects to make money on its banking investments, if not on its efforts to stabilize the automobile and insurance industries.
“It’s unlikely that we will be repaid for all of our investments in AIG, G.M. and Chrysler,” Geithner said.
The Government Accountability Office yesterday said that U.S. taxpayers will lose $30.4 billion from the auto-industry bailout, down from a prior estimate of $43.7 billion. The GAO report predicted a similar loss of $30.4 billion in AIG, down from a previous estimate of $31.5 billion.
Bank Repayment
Asked about future repayment by the largest banks still with government investments, Geithner said it is “generally desirable” that they raise all the money they need to repay in equity offerings.
“Cleaner exit is better than a staged exit,” he said. “I’m not sure that is going to be possible in every circumstance.”
While he didn’t discuss Citigroup Inc.’s efforts to extricate itself from the TARP, Geithner did note Bank of America Corp.’s repayment, which came yesterday. “I got a check for $45 billion,” he said, adding that was a “good thing.”
Under questioning by panelists, Geithner defended the government’s handling of last year’s AIG rescue, which has come under fire because banks were given the full value on credit- default swaps purchased from the New York-based insurer. Geithner was president of the New York Federal Reserve at the time and had a leading role in the bailout.
“You cannot selectively default on contractual obligations without courting collapse,” Geithner told the panel, explaining why the government paid banks 100 cents on the dollar. “There is no other way in the context of that storm to protect the economy from that failure.”
Extend TARP
The Treasury chief also faced skepticism about his decision to extend the TARP until next October.
The program is “essentially a blank check to finance any macroeconomic stimulus initiative that the executive branch can imagine, to the tune of hundreds of billions of dollars,” said panel member Paul Atkins, a former Republican member of the Securities and Exchange Commission easy payday loans.
“The economy would not be growing again without TARP,” Geithner said.
The U.S. economy expanded at a 2.8 percent annual rate in the third quarter after shrinking for a year. The economy will expand 2.6 percent in 2010, according to the median forecast of 58 economists surveyed by Bloomberg News this month. The jobless rate will average 10 percent next year.
Assisting AIG
While assisting AIG and the auto companies will cost taxpayers, the Treasury predicts a $19 billion profit on its banking investments, Geithner said.
Long-term TARP costs will be no higher than $140 billion, the Treasury said. The ultimate return will depend on how the economy fares, Geithner said.
The Treasury expects “substantial income” from sales of TARP warrants, received as part of the government’s investment in banks, in coming weeks, Geithner said. He said that auctions will often bring the highest returns for the government.
Banks that pay back their capital injections must also dispose of the warrants that the Treasury received, either by repurchasing them or allowing the department to sell them. Goldman Sachs Group Inc. redeemed its warrants for $1.1 billion, while JPMorgan Chase & Co. opted to allow the government to auction its warrants after the Treasury rejected an appraisal as too low.
Personnel Shift
Geithner appeared before the panel, led by Harvard law professor Elizabeth Warren, as it prepared for a personnel shift. Representative Jeb Hensarling, a Texas Republican, resigned yesterday.
Hensarling, who is being replaced by Dallas attorney Mark McWatters, has repeatedly criticized the bailout. George Rasley, a spokesman for the congressman, said Hensarling had agreed to stay on the panel for the expected duration of the TARP. The effort was set to expire Dec. 31 until Geithner extended it yesterday.
In his testimony, Geithner told the panel that the Treasury can’t force small banks to participate in initiatives aimed at stimulating small-business lending. He said these programs have been less successful than hoped because banks have been wary of submitting to the extra regulation that comes with taking TARP aid.
Geithner said parts of the securitization markets are “still impaired,” especially for securities backed by commercial mortgages. He also hailed improvements in the markets for asset-backed securities, which he said are no longer as dependent on publicly supported markets like the Federal Reserve’s Term Asset-Backed Securities Lending Facility.
Shares in Exxon Mobil Corp, the world’s largest publicly traded oil company, could rise more than 20 percent to $90 next year if energy prices increase as expected, Barron’s reported on Sunday.
Exxon shares have lagged rivals in the stock market rally this year, falling about 10 percent, but futures contracts anticipate higher energy prices next year that would be a major boost to the company, according to Barron’s November 16 edition.
The Irving, Texas-based company could earn $6.50 a share in 2010 if the higher oil and natural-gas prices materialize, compared to its expected 2009 profit of $4 a share, the newspaper said. Exxon earned a record $8.69 a share in 2008 when oil prices peaked.
Analysts have criticized Exxon for weak production growth, but it has an impressive record for getting a high return on its investments, according to Barron’s. It replaced more than 100 percent of its production in each of the last 15 years and, between 2004 and 2008, its finding costs of $7 a barrel on average were below its peers, Barron’s said.
In addition, Exxon has a relatively low dividend yield of 2.3 percent, which is below several of its rivals, but analysts estimate the dividend could rise another 5 percent or more in 2010, Barron’s reported.
Exxon shares closed at $72.47 on the New York Stock Exchange on Friday.
(Reporting by Elinor Comlay; Editing by Leslie Adler)
Bonuses at financial firms worldwide will increase by an average of 40% this year, according to an annual report released Monday.
Options Group, a New York-based executive search and compensation consultancy, said near-record revenues from fixed-income, commodities and foreign exchange trading will help push bankers’ bonuses back up after a slump in 2008.
The report, which was based on data from 300,000 industry professionals worldwide, also showed that bonuses are increasingly being offered in the form of multi-year stock options.
Even with this year’s projected rebound, however, bonuses are expected to remain below the record levels of 2007.
Among the financial firms that are expected to increase bonus pay this year are big U.S. banks such as Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500) and Citigroup (C, Fortune 500).
Last week, Goldman Sachs and Morgan Stanley said they stand to spend $35 billion combined this year on employee compensation.
Wall Street’s compensation practices have been heavily criticized by lawmakers and the public for encouraging the risky behavior that helped cause last year’s financial meltdown.
Indeed, many of the banks that are now planning to raise bonus payments this year received taxpayer-funded bailouts in 2008.
To help prevent a repeat of last year’s crisis, the Federal Reserve is preparing to force big U payday cash advance.S. banks to abide by longstanding rules banning excessive or inappropriate banker pay.
The Fed said last month that a review of bank pay practices will "focus on whether compensation arrangements provide employees incentives to take excessive risks that could threaten the safety and soundness of the banking organization."
The rebound in bonus pay comes as banks around the world have returned to profitability after last year’s crisis forced the collapse of many long-standing investment firms.
The Options Group study revealed that bonuses will be largest for employees who were able to take advantage of rallies in key markets during 2009.
"The areas where professionals will receive largest bonuses are commodities, high-yield and investment grade credit, and equity derivatives," said Michael Karp, co-founder of Options Group.
However, the uptick in bonus pay is partly a reflection of much lower headcounts at many global banking and investment firms.
After last year’s "unprecedented consolidation" in the banking industry, "bonus pools will actually go further this year," according to the report.
Gas prices are up slightly from two weeks ago — despite a decline in the price of oil, according to a survey published Sunday.
The average price nationwide for a gallon of self-serve regular is $2.68, up 3 cents from Oct. 23, the Lundberg Survey found.
"This is not from the price of crude, which actually backed off slightly in the past few days," said publisher Trilby Lundberg. "Instead, that small rise came from a bounce-back in the gasoline retailers’ margin, which had been squeezed into single digits in October."
The margin retailers take per gallon is generally about 10 to 14 cents, she said. In October, it averaged between 7 and 9 cents. "This is a normalization," Lundberg said, "because (the margin) had been abnormally low."
The price is 39 cents higher than it was a year ago — the first time a year-to-year increase has been seen this year, she said. "Last year, prices peaked in early July and they crashed all the way through the rest of the year at varying speeds … but now, with the 18-cent rise between Oct. 9 and Oct. 23 plus this additional 3 cents … these two lines in the graph, as it were, have crossed."
It’s likely, however, that the current price represents a peak, and prices will begin to slip, absent a rise in crude oil prices, Lundberg said bad credit payday loans. Demand is down for a number of reasons, chief among them the unemployment rate.
"It is the work commute that causes that gallon to be sold much more than anything else," she said. In addition, fewer daylight hours and the approach of winter weather leave people driving less this time of year.
The highest average price for a gallon of self-serve regular was in Anchorage, Alaska, at $3.30 for a gallon of self-serve regular, Lundberg said. The lowest was in Tucson, Ariz., at $2.36. Interactive map: Gas prices state by state.
A look at prices in some other cities:
- Honolulu, Hawaii — $3.20
- San Francisco, California — $3.04
- Houston, Texas — $2.49
- Atlanta, Georgia — $2.58
- Des Moines, Iowa — $2.62
- Boise, Idaho — $2.70
- Burlington, Vermont — $2.78
- Chicago, Illinois — $2.88
- Sacramento, California — $2.91
- Boston, Massachusetts — $2.70
- Long Island area, New York — $2.85
- Los Angeles, California — $2.97
A U.S. House of Representatives panel approved a bill on Thursday to create a Consumer Financial Protection Agency to oversee mortgages and other financial products while strengthening the pro-consumer Federal Trade Commission.
The House Energy and Commerce Committee voted 33 to 19 to create the new consumer agency. The House Financial Services Committee passed a similar measure last week, with expectation of a full House vote next month.
Lawmakers on the House Energy and Commerce Committee voted to make two major changes to the agency. First, it changed its structure to a five-member commission, with a limit of three commissioners from any particular political party. This would give the new agency the same structure as the Federal Trade Commission or Federal Communications Commission.
Rep. Barney Frank reacted immediately to this move. “Going from a single executive able to act promptly and efficiently to a five-member commission with staggered terms will weaken the capacity of the agency to provide consumer protection,” he said in a statement.
In committee debate on Thursday, Rep. Joe Barton, who opposes the bill, said the creation of a new agency was nothing more than “shuffling the deck chairs” and would do little or nothing to stop criminals whose goal is to perpetrate fraud.
Rep. John Dingell praised the bill as “a powerful and necessary tool” to protect consumers.
Lawmakers have said an independent agency needed to be created because bank regulators have done a poor job protecting consumers from risky financial products, such as the subprime loans that were a major factor in the financial crisis.
The House bill does not go as far as the administration’s original proposal because it exempts many businesses, either in full or in part, including auto dealers, credit, mortgage and title insurers, banks with less than $10 billion in assets, and credit unions with less than $1 low fee payday advance.5 billion in assets.
Rep. Henry Waxman noted these exceptions in his opening remarks, saying, “I am concerned that too many exemptions and exclusions were put into the bill.”
Waxman said he would not seek to change those exceptions at the markup, but added: “I will want to examine them closely as we move toward consideration on the floor.”
Frank, chairman of the House Financial Services committee, has also said he will seek modifications to the exemptions during the floor debate, especially the one for auto dealers.
Business groups in particular oppose a portion of the amendment approved on Thursday that would allow the FTC to pursue a possible violation of the law at the same time that the new agency would do so.
The original bill had required the FTC to recommend that the new agency act, but the FTC was not allowed to move unless the CFPA failed to act within 120 days.
“While this (creation of the new agency) has been touted as a consolidation, it’s really about duplication,” said Ryan McKee, senior director for the Chamber of Commerce’s Center for Capital Markets, who noted that both agencies could potentially investigate the same issue.
The bill itself includes a measure to make it easier for the FTC to enact rules, overturning a law passed in the 1970s. Amendments to cut this from the bill were defeated.
A U.S. congressional panel is expanding its probe of credit rating agencies to look at why securities regulators ignored warnings from former Moody’s Corp executives about the company’s weak compliance department and ratings process.
Rep. Edolphus Towns, chairman of the House Oversight and Government Reform Committee, criticized the U.S. Securities and Exchange Commission for failing to investigate allegations Moody’s managers were eager to curry favor with customers by assigning favorable ratings to their products.
“I am concerned by the SEC’s inaction after receiving Mr. McCleskey’s letter containing serious allegations of wrongdoing at Moody’s,” Towns said, referring to Scott McCleskey, who was dismissed as Moody’s senior vice president of compliance in 2008. McCleskey sent the SEC a letter in March 2009 detailing his concerns.
“Mr. McCleskey’s allegations indicate troubling behavior that requires oversight by the SEC,” Towns said.
Top executives from the largest credit agencies — Standard & Poor’s, Fitch Ratings and Moody’s — were to testify later on Wednesday at a House Financial Services subcommittee hearing. The panel is considering legislation that would curtail rating companies’ practices and expose them to greater liability.
The rating firms “played a starring role in the collapse of the financial system last year,” because they failed to capture the true risk of securities linked to poorly written mortgages, Towns said.
Moody’s has born the brunt of criticism recently. Its stock has lost roughly one-fourth of its value in the past two weeks and shares were down 6 percent to $19.55 in late morning trade on the New York Stock Exchange.
McCleskey testified at the hearing, flanked by another former Moody’s executive, Eric Kolchinsky, and by Moody’s current chief credit officer, Richard Cantor. The three men sat at the same table and Cantor stared straight ahead as his former colleagues described their concerns to the lawmakers.
McCleskey said Moody’s ignored his warnings that the company failed to properly monitor municipal bond ratings. The company also spurned his suggestion to erect a firewall between the compliance department and its revenue-generating units, he said.
Kolchinsky, a recently suspended managing director at Moody’s, told lawmakers that Moody’s compliance group was understaffed and lacked independence. Kolchinsky alleged that the firm knowingly issued misleading ratings on complex securities and that analysts were “bullied” by managers who overrode their decisions to protect revenue.
“Kolchinsky tried to tell the SEC about his concerns but his calls were not returned,” according to a memo prepared by Republican members of the committee and obtained by Reuters.
Cantor told lawmakers that Moody’s recently hired an independent law firm to review Kolchinsky’s allegations.
ANOTHER BLACK MARK FOR SEC?
Allegations that the SEC ignored the whistleblowers’ concerns could be another black mark against the regulator, which is still reeling from its failure to uncover Bernard Madoff’s $65 billion investment scam.
An SEC spokesman has said the agency has established an examination program for credit rating agencies that includes reviews of disclosures, policies, and procedures regarding municipal securities ratings.
Whether or not you’re personally convinced that the recession is just about over, those in the big buck mergers-and-acquisitions game are believers.
Biotechnology stocks, for example, have made dramatic gains because investors consider them ripe for picking. Big drug companies want innovative products in place for an economic revival.
Bristol-Myers Squibb recently bought biotech group Medarex Inc. for $15 a share, or $2.4 billion, about a 100 percent premium for Medarex shareholders.
"There are all these biotechnology companies out there that have been dying throughout the recession and unable to get capital or funding," observed Richard Bove, banking analyst with Rochdale Securities of Stamford, Conn.
Other deals include Walt Disney Co. buying Marvel Entertainment Inc., PepsiCo Inc.’s purchase of Pepsi Bottling Group Inc. and, in energy, Baker Hughes Inc. acquiring BJ Services Co.
In pharmaceuticals, there’s been the Pfizer Inc. deal for Wyeth and Merck & Co. acquisition of Schering-Plough. In technology, there’s the Adobe Systems Inc. deal for Omniture Inc. and Oracle Corp. purchase of Sun Microsystems Inc. In candy, Cadbury Plc has been in play since Kraft Inc.’s hostile bid.
"It’s all a sign you can’t keep a good capitalist down, and eventually greed will overcome fear," said James Paulsen, chief investment officer for Wells Capital Management, Minneapolis. "People are saying, ‘Gee, not only are we not going to have a depression, but it looks like we’re actually going to have a recovery.’"
Stock is still available at a "30-percent-off sale price," and there is excess cash lying around, said Paulsen. "That boatload of cash is on hand at so many companies because nine months ago everyone was saying cash was king — even though they were earning nothing on it," he said.
While he doesn’t expect a red-hot M&A market the rest of this year, he thinks it will continue to noticeably improve.
"It seems like a lot is happening because finally, after the whole economic crisis, some deals are actually getting done," said Jonathan Marino of the M&A Journal in New York. "It’s not driven by availability of money because credit markets are just as frozen as they were in May, but many acquirers have cash on their balance sheets."
Cash lets firms avoid issuing stock or paying high loan costs, he said.
"Some of these deals are tacit indication that the companies can’t grow their businesses much beyond what they are now, so they’re looking to fill some holes with key partnerships," said Paul Nolte, director of investments for Hinsdale Associates in Hinsdale, Ill. "Certain companies reach a ceiling where they are limited in how fast they can grow their revenue organically."
Firms aren’t using their traditional sources of financing, said Nolte. In the case of Kraft, financing for the deal was lined up well in advance of an offer being made.
"It’s really a broad spectrum this year," he said. "We’ve seen deals in the food industry, entertainment, technology and oil industry."
There will be windfalls for some investors. Greatest gains typically fall to those holding shares of the company being bought, especially if there are several competitors due to a hostile bid. Meanwhile, the acquiring firm’s stock often suffers on worries over whether the merger is logical or could stretch finances too thin.
Investors are buying a variety of shares in the likely target industries. Much of the acquisition activity will take place in digestible smaller firms, along with some larger companies if they have strong product lines.
The fact that mining company BHP Billiton has built up $18 billion in cash, for example, has investors looking at its possible acquisition of Freeport-McMoRan Copper & Gold Inc., Potash Corp. or Anglo American Plc.
Nonetheless, everyone is still into low risk these days. Lenders aren’t over-lending, individuals aren’t overpaying for houses, most firms aren’t expanding their business, and assets are still priced for "the depression that wasn’t," Paulsen said.
The 2009 merger environment is "high risk and high reward," according to a recent report by the Transaction Services unit of PriceWaterhouseCoopers. It believes a number of deal makers, including private equity firms, are eager to get back to business. While some companies will merge for survival, others will simply decide it is a good time to combine with a partner to prepare for an uptick in the economy.
Here are the sectors best-positioned for mergers and worthy of monitoring by investors, according to the PriceWaterhouseCoopers partners:
— Technology is "poised for another wave" of consolidation because many of its companies have mature business models and healthy balance sheets.
— Energy is experiencing greater stabilization in crude oil prices. This industry features excellent cash flow and growth prospects that make it a "consolidation hot spot."
— Pharmaceuticals and health care are now in the merger "spotlight," no matter what type of reform may be passed in Washington. Drug companies are seeking to fill their product pipelines through acquisitions, while some health care companies will be realigning their business models to take advantage of a new industry environment.
— Financial services consolidation will be "rampant," driven by mergers of necessity based on the distressed circumstances of some competitors. There will a flight to quality banks in the top one-fourth of the banking industry because they aren’t so hamstrung by government oversight.
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