Chicago, IL – November 18, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: American Express Co. (AXP), Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Capital One Financial Corp. (COF).

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Here are highlights from Tuesday’s Analyst Blog:

Mixed News for Credit Card Issuers

U.S. credit card issuers have reported a drop in the default rate for October, though delinquencies are rising as a result of continuing stress on consumers. While a decrease in the default rate reflects a decline in late payments in the first half of the year, the increase in delinquencies is bad news for the sector as it implies that the companies could experience more charge-offs in the coming quarters.

Consumers remain under stress as a result of the weakness in the housing market, combined with job losses. Recently, Fitch has also expressed its concern about the credit card issuers in the U.S. Fitch expects U.S. credit card issuers’ earnings to remain challenged over the near term as a result of soaring unemployment, bankruptcies and losses.

The default rate (or charge-off rate) has improved in October from the prior month. For American Express Co. (AXP) it was down 60 basis points (bps) to 7.8%, while for Bank of America Corp. (BAC) the rate dropped 103 bps to 13.22% in October. The situation was the same for JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Capital One Financial Corp. (COF). JPMorgan’s default rate declined 10 bps to 8.02%, Citigroup’s defaults fell 136 bps to 8.79% and Capital One's charge-off rate decreased 73 bps to 9.04%.

However, we are concerned about the rise in delinquencies which increased 34 basis points to 5.72% in October at Capital One, 26 bps to 4.95% at JPMorgan and 6 bps to 7.59% at Bank of America. However, delinquencies remain unchanged at American Express.

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Chicago, IL – October 28, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: DryShips, Inc. (DRYS), Capmark Financial Group Inc. (CPFNG), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS).

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Here are highlights from Tuesday’s AnalystBlog:

DryShips Beats, Results Hurt

DryShips, Inc.’s (DRYS) third-quarter earnings of 27 cents per share were 6 cents ahead of the Zacks Consensus Estimate. This excludes a loss of $39.3 million or 15 cents per share associated with the valuation of the company’s interest rate swaps. However, earnings were down substantially from $3.53 per share in the prior-year quarter.

GAAP net income for the quarter came in at $35.6 million or 12 cents per share, compared to $180.0 million, or $4.13 per share in the prior-year quarter.

The better-than-expected earnings were aided primarily by the performance of drilling and drybulk units at high utilization rates.

Capmark Seeks Bankruptcy Protection

Capmark Financial Group Inc. (CPFNG), one of the key commercial real-estate lenders in the U.S., along with some of its subsidiaries has filed Chapter 11 protection. The filing adds to the lingering concern that the commercial real-estate market is still struggling.

The company seeks to be allowed to continue to pay its vendors and salaries, and protect the businesses with its customers and partners.

Capmark was created in March 2006 through a leveraged buyout of the commercial real estate assets of General Motors' finance arm GMAC. Earlier this year also, the company had indicated that it might file for bankruptcy due to deteriorating conditions in the financial and commercial real estate markets and capital inadequacy.

Capmark is currently negotiating the terms of the bankruptcy with its creditors, which include Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) among others.

Capmark reported a hefty loss of $1.62 billion in the second quarter of 2009 and has ever since been trying to raise cash through targeted sales and plans to sell its mortgage and loan servicing business. Capmark listed $20.1 billion in assets and $21 billion in liabilities as of Jun 30, 2009 in the bankruptcy filing in U.S. Bankruptcy Court in Wilmington, Delaware.

Several funds, including Kohlberg Kravis Roberts & Co, Goldman Sachs Group Inc. (GS), Goldman Sachs Capital Partners and Five Mile Capital owned about 75.0% of shares in Capmark, while GMAC LLC owned 21.3%, and Capmark employees and directors owned the remainder.

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Bove of Rochdale Securities said earnings at Well Fargo (NYSE:WFC) were helped by mortgage-servicing fees rather than improving business trends, and trimmed his rating on the bank to “sell" from “hold."  However, Well Fargo and Morgan Stanley (NYSE:MS), which reported its first quarterly profit in a year, were behind the market’s strength earlier in the session.  Bove also cited accelerating loan losses at the firm for the downgrade.  After Bove’s cut, FBR slashed its rating on the firm to "underperform," questioning Well Fargo's earnings quality.

The Dow Jones industrial average fell below the psychologically important 10,000 level, declining 92.12 points, or 0.9%, to close at 9949.36.  Earlier in the session, the index had risen to as high as 10,119.47.  The broader S&P 500 index declined 9.66 points, or 0.9%, to 1081.40 and the tech-laden Nasdaq was off 12.74 points, or 0.6%, to 2150.73.  The Treasury’s 10-year note fell 12/32, to 101 31/32. The yield rose to 3.39%, from 3.34% late Tuesday.

Meanwhile, China said its economy grew 8.9% during the third quarter, up from 7.9% in the second quarter and 6.1% in the first.

Eight of the ten S&P500 sectors finished lower, led by declines in consumer services (-1.8%), financials (-1.8%), health care (-1.4%) and industrials (-0.9%). Utilities remained flat, and telecommunications edged up 0.01%.  Selling was broad-based.  The weakness in financial sector saw shares of JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp. (NYSE:BAC) and Goldman Sachs Group Inc. (NYSE:GS) each declining at least 2.9%.  Merck & Co. (NYSE:MRK) led the Dow average lower, declining 3.1% to $32.68. 

The greenback fell to fresh 12-month lows against a basket of currencies, falling through $1.50 against the euro for the first time in 14 months.  The greenback's fall sent crude prices higher, with prices touching an intraday high of $82 yesterday, its highest since October 9, 2008.  Government inventory figures showed a large drawdown in US gasoline stockpiles to 2.3 million barrels last week - more than the 800,000 anticipated.  Price cuts from Wal-Mart (NYSE:WMT) also dampened holiday sales hopes.  Wal-Mart declined 2.1% to $50.63.

Today's calendar covers another heavy dose of corporate reports including before-the-open releases from: 3M (NYSE:MMM), Black & Decker (NYSE:BDK), Bristol-Myers Squibb (NYSE:BMY), Dow Chemical (NYSE:DOW), McDonald's (NYSE:MCD), Schering-Plough (NYSE:SGP), and UPS (NYSE:UPS). Also reporting are American Express (NYSE:AXP), Amazon.com (NASDAQ:AMZN), and AT&T (NYSE:T).

Chicago, IL – October 22, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Eli Lilly & Co. (LLY), Wells Fargo (WFC), Bank of America Corporation (BAC), Citigroup, Inc. (C) and JPMorgan Chase & Co. (JPM).

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Here are highlights from Wednesday’s AnalystBlog:

Eli Lilly Beats, Raises Guidance

This morning, Eli Lilly & Co. (LLY) reported strong third quarter financials. The company’s earnings per share of $1.20 surpassed the Zacks Consensus Estimate of $1.02 and 98 cents reported in the year-ago period. Revenues recorded a 7% year on year increase to $5.56 billion, driven by an increase in both volume and prices, partially offset by unfavorable impact of foreign exchange.

Of total revenues, while product sales were $5.4 billion (an increase of 6%), collaboration and other revenues accounted for the remaining $176.5 million (an increase of 51%), primarily due to the inclusion of Erbitux revenue as a result of the ImClone acquisition.

The company’s other products recorded robust growth during the quarter compared to the year-ago period – Zyprexa (3% growth to $1.2 billion), Cymbalta (10% growth to $790.2 million), Humalog (16% growth to $500 million), Alimta (47% growth to $462 million).

Wells Fargo Surprises Yet Again

Before the market opened Wednesday morning, Wells Fargo (WFC) reported third quarter 2009 diluted earnings of 56 cents per common share, compared with 57 cents in the second quarter 2009 and 49 cents in the third quarter 2008.

Net income applicable to common shareholders came in at $2.6 billion, almost flat compared with the prior quarter and up 61.1% year-over-year. The results were substantially ahead of the Zacks Consensus Estimate of 35 cents per share.

Results were aided by strong top-line growth across all key business segments, strong deposits and a robust loan growth rate. Unlike its major peers, Wells Fargo witnessed strong growth in its traditional banking operations, especially in its mortgage business acquired from Wachovia. Net interest income of $11.7 billion climbed 83.1% year-over-year.

However, credit quality deteriorated further and losses rose sharply during the quarter. The bank expects credit losses and non-performing assets to increase further, though some moderation was visible. Net charge-offs rose to $5.1 billion (2.50% of average loans) from $4.4 billion (2.11%) in the prior quarter and $2.0 billion (1.96%) in the prior-year quarter. Non-performing assets grew to $23.5 billion (2.93% of loans) from $18.3 billion (2.23%) in the prior quarter and $6.2 billion (1.53%) in the prior-year quarter.

Credit-loss provisions were $6.1 billion, up 144.9% from a year earlier and 20.2% from the prior quarter. The allowance for credit losses totaled $24.5 billion at Sept. 30, 2009, compared with $23.5 billion at June 30, 2009 and $8.0 billion at Sept. 30, 2008.

Large banks including Wells Fargo, Bank of America Corporation (BAC), Citigroup, Inc. (C) and JPMorgan Chase & Co. (JPM) have suffered from the increase in loan losses which were offset by strong growth in trading operations.

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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The company said the impairment charge would not impact its ownership interest in the project and it would continue to be the property manager and leasing agent of the asset.

In a separate development, Cousins announced a public offering of 32 million common shares and an underwriter option to purchase an additional 4.8 million shares. The company plans to use the proceeds to repay its debt under the revolving credit facility and for general corporate purposes. J. P. Morgan of JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Morgan Stanley (MS) are the joint book-running managers for the offering.

Cousins acquires, finances, develops, manages and leases office, retail and industrial properties throughout the U.S., including Atlanta, Charlotte, Austin, San Francisco, Los Angeles and Washington DC. The company also provides leasing and management services to third-party investors.

Market fundamentals are deteriorating for office and retail landlords throughout the country due to the continued economic downturn. With high market vacancies and no job growth, rental rate growth on new leases will also be non-existent for some time. Consequently, with no short-term growth indicators, we expect continued volatility in the sector.

JPMorgan Securities Inc., a non-banking subsidiary of JPMorgan Chase & Co. (JPM), is acting as the sole book-running manager for the offering. D.A. Davidson & Co. and McAdams Wright Ragen are acting as co-managers. The underwriters will probably get a 30-day option to purchase up to an additional 15% of the shares offered to cover overallotments, if any.

The secondary market for subprime and other non-conforming mortgage loans collapsed during the recent market volatility and housing slump and most companies with an exposure to such loans reported massive losses.

Although Washington Federal has not been immune to the downturn, it suffered less than many of its peers due to better underwriting standards. Its strong net worth also remained a key factor. Moreover, declining deposit rates helped relieve funding concerns to a great extent.

However, the major concern for Washington Federal is the quality of its asset portfolio that deteriorated significantly during the last few quarters. Though the majority of its loan portfolio comprises high-quality, single-family residential loans, we are concerned about its sizable exposure to land acquisition and development and construction loans. Going forward, we expect the increase in non-performing assets and net charge-offs to continue until the housing market begins to recover.

The saving lines are available in a range of maturities from three months to five years. The Federal Deposit Insurance Corporation (FDIC) will insure these saving lines by up to $250,000.

Failing financial institutions have significantly stretched the regulator's deposit insurance fund. The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. As of June 30, the fund corpus had touched $10.4 billion, the lowest since 1993, from $13 billion in the prior quarter.

Like other credit card issuers, American Express has traditionally arranged its funding through credit card asset-backed securities. But of late, funding from credit card asset-backed securities has been hurt by the financial crisis. As a result, the company needed an alternative source of funding.

American Express is also not strong with respect to retail deposits to fund its operations. This is a competitive disadvantage for the company as many of its peers like JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and Citigroup Inc. (C) hold a strong retail deposit base.

In the second quarter, 22% of American Express' funding came from short-term debt, short-term and long-term retail deposits and institutional deposits. The company estimates those sources to represent up to 55% percent of its funding needs in the coming years.

Though the last few quarters benefited from successful re-engineering efforts and a diversified business model, American Express experienced continued weakness in card-member spending and high levels of loan losses. We expect continued benefits from the company's diversification and cost-cutting efforts, but the ongoing global crisis and a strong US dollar will continue to impact the results in the coming quarters. However, the new funding initiative will bring some stability to the company's funding options.

The IOUs will only be accepted into accounts opened before Aug. 31, 2009 and third-party registered warrants will not be accepted. This accommodation for clients will not include correspondent banks, money service businesses or any client engaged in purchasing or consolidating registered warrants for deposit. The bank will also advise customers on redeeming the papers directly with the State Treasurer’s Office.

Last week, Bank of America (BAC) and Wells Fargo (WFC) said they will also start accepting the warrants, after discontinuing the practice in early July. These actions by three major banks would make it easier for individuals and businesses to deposit IOUs.

To conserve declining cash during its recent budget crisis, the state of California had issued the IOUs, or registered warrants, at a coupon rate of 3.75% to taxpayers, vendors and local governments on July 2. Through Aug. 31, the state issued 457,238 IOUs worth more than $2.37 billion.

At first, banks had refused to take part in the delayed payouts but began participating once California assured to start redeeming the warrants earlier than anticipated.

Between Sept. 21-23, California plans to sell $10.5 billion professed revenue anticipation notes (RANs) to raise money for the state government’s cash-flow needs.

Recently, JPMorgan Chase & Co. (JPM) bought $1.5 billion of California’s short-term, “interim" revenue anticipation notes in terms of a lending agreement with the state. The amount will help the state to make timely interest payments.

Chicago, IL – August 28, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: JPMorgan Chase & Co. (JPM), Banco Bilbao Vizcaya Argentaria (BBV), BB&T Corp. (BBT), Hewlett-Packard Co. (HPQ) and AMR Corp. (AMR).

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Here are highlights from Thursday’s Analyst Blog:

Thrifts Defy Troubles

Thrifts are required to have at least 65% of their loans as mortgages and other consumer loans, which makes them particularly vulnerable to the housing downturn. But banks have no such compulsion. However, the banking industry is likely to face further special assessments as more institutions fail during the recession.

The OTS supervised 794 thrifts as well as 459 holding company enterprises at the end of the quarter. The agency said that three thrifts had failed during the second quarter.

A total of 81 federally insured banks have failed so far this year. This includes several large thrifts. The failure of Seattle-based Washington Mutual Inc. last year was the biggest US bank failure ever. Washington Mutual, that involved thrifts, was acquired by JPMorgan Chase & Co. (JPM).

Among the others, recently, Guaranty Bank failed and was sold to BBVA Compass, the US arm of Spain’s second-largest bank Banco Bilbao Vizcaya Argentaria (BBV). The banking operations of Colonial were sold to BB&T Corp. (BBT).

HP Gets American Airlines Deal

Good news continues for Hewlett-Packard Co. (HPQ). After delivering modest third quarter results, the company won a deal with American Airlines parent AMR Corp. (AMR). According to the agreement, Hewlett-Packard will be developing a system for AMR, which will take care of pricing, reservations, flight information and check-in.

We believe this will improve the overall travel experience of American Airlines customers. This will specifically help the company in efficient baggage transfer, which will ultimately lead to lesser lost baggage, passengers getting updated information about cancelled or rescheduled flights and user-friendly check in process. The process may take around 4 to 5 years to set up. The pricing of the deal was not declared.

We believe that if Hewlett-Packard can execute this project efficiently, this experience will take the company a long way in winning similar projects from other major players in the airlines industry. Although the airlines industry is going through the doldrums as a result of the global economic downturn, every other carrier is looking to streamline their operations and we believe Hewlett-Packard can cater to that need.

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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Chicago, IL – August 28, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: General Electric (GE), JPMorgan Chase & Co. (JPM), United Technologies Corp. (UTX), Tyco International (TYC) and Precision Castparts Corp. (PCP).

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Here are highlights from Thursday’s Analyst Blog:

GE to Sell Security Business

General Electric (GE) is arranging to sell its security business, which makes alarms, surveillance systems and other safety products, and hopes to attract bids in the range of $2 billion for the unit. This move represents GE’s strategy of exiting from non-core businesses.

GE has hired JPMorgan Chase & Co. (JPM) to sell the portion of its business that makes security products. The business has drawn interest from GE’s rivals United Technologies Corp. (UTX) and Tyco International (TYC).

Security assets have traditionally attracted private equity buyers, but due to the difficult economic environment and an expressed interest by GE in selling these assets to a strategic buyer, bid amounts could be depressed for such a product portfolio. It remains in question whether acquirers will be interested in GE Security’s full portfolio of products, or only bits and pieces of the business.

Precision Castparts Strengthens

Yesterday, Precision Castparts Corp. (PCP) announced its decision to acquire Carlton Forge Works and related entities for $850 million. Carlton, with one facility in Paramount, CA, is a leading manufacturer of seamless rolled rings for critical aerospace applications. Carlton is a key supplier for Boeing 787 and Airbus XWB.

Precision Castparts will also acquire Arcturus Manufacturing Corporation, a hammer forging operation, as a part of this transaction. The acquisition, which is expected to be completed in the third quarter of fiscal 2010, will further strengthen PCP’s forging capabilities. The transaction is expected to be immediately accretive to the company’s earnings.

Precision Castparts derived 43.6% of its fiscal 2009 revenue from the Forged Products segment. The company is one of the leading manufacturers of forged components for the aerospace and power generation markets. The company has been expanding its Forged Products business through regular acquisitions. The previous acquisition was that of Hackney Ladish Holding Corp. a leading producer of forged pipe fittings for critical energy infrastructure and related applications, in fiscal 2009.

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About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Contact:
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Web Content Editor
312-265-9380
Visit: www.zacks.com

Although results for the quarter showed some improvement, overall performance of the industry remained uneven. Troubled assets at thrifts accounted for 3.52% of the industry's assets, up from 3.35% in the previous quarter. However, total value of troubled assets fell to $38.6 billion from $41 billion in the earlier quarter.

"Problem thrifts" on the agency's list are those which have significantly low capital reserves and other deficiencies. Their number rose to 40 from 31 sequentially and from 17 in the year-ago quarter.

According to the Office of Thrift Supervision (OTS), the uneven financial picture reflects the nation's weak job market and a generally depressed economic environment. Thrifts continued to set aside large amounts of money to protect against deteriorating loans. Though loan loss provisions declined slightly to $4.7 billion during the second quarter, it was the sixth-highest on record. We expect provisions to remain elevated until the housing and job markets stabilize.

New mortgage loans by thrifts fell sharply to $70.5 billion from $96.1 billion in the prior quarter and $128.3 billion in the prior-year period.

Thrifts are required to have at least 65% of their loans as mortgages and other consumer loans, which makes them particularly vulnerable to the housing downturn. But banks have no such compulsion. However, the banking industry is likely to face further special assessments as more institutions fail during the recession.

The OTS supervised 794 thrifts as well as 459 holding company enterprises at the end of the quarter. The agency said that three thrifts had failed during the second quarter.

A total of 81 federally insured banks have failed so far this year. This includes several large thrifts. The failure of Seattle-based Washington Mutual Inc. last year was the biggest US bank failure ever. Washington Mutual, that involved thrifts, was acquired by JPMorgan Chase & Co. (JPM).

Among the others, recently, Guaranty Bank failed and was sold to BBVA Compass, the US arm of Spain’s second-largest bank Banco Bilbao Vizcaya Argentaria (BBV). The banking operations of Colonial were sold to BB&T Corp. (BBT).

Chicago, IL – August 25, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Procter & Gamble Co. (PG), Forest Laboratories (FRX), Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Credit Suisse (CS).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Monday’s Analyst Blog:

P&G Finds Buyer for Drug Business

Warner Chilcott, a specialty drug maker, recently announced plans to acquire Procter & Gamble Co.’s (PG) prescription drug business for about $3 billion.

Last December, P&G had announced its intention to restrict making new investments in the pharmaceutical division and divest its interest in the healthcare brands. It decided to focus more on over-the-counter products such as Pepto Bismol, Prilosec, Vicks cough medicines and other personal care brands. Management stated that the pressure from generics was also one of the reasons for it to consider divestiture of this business.

Warner Chilcott, which makes birth control, female hormone therapies and dermatological products, believes this acquisition will be a strategic fit to its existing business. The deal is expected to expand its market share in the women’s health market. Warner Chilcott will run the newly acquired business as its 100% subsidiary.

Private equity firm Cerberus Capital Management and drug maker Forest Laboratories (FRX) had also shown their interest in purchasing P&G’s prescription drug business.

Several banks, including Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Credit Suisse (CS), among others, are expected to provide about $4 billion in financing for the deal. Out of this, Warner Chilcott will use $3 billion for the acquisition and the remaining $1 billion for refinancing its existing debt.

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Last December, P&G had announced its intention to restrict making new investments in the pharmaceutical division and divest its interest in the healthcare brands. It decided to focus more on over-the-counter products such as Pepto Bismol, Prilosec, Vicks cough medicines and other personal care brands. Management stated that the pressure from generics was also one of the reasons for it to consider divestiture of this business.

Earlier in fiscal 2008, P&G sold its Folgers coffee business to J.M. Smucker Inc. (SJM) and added beauty and grooming businesses to its portfolio. The company’s prescription drugs division comprises products such as Actonel for osteoporosis (which generates more than $1 billion in revenue) and Enablex for the treatment of overactive bladder.

Warner Chilcott, which makes birth control, female hormone therapies and dermatological products, believes this acquisition will be a strategic fit to its existing business. The deal is expected to expand its market share in the women’s health market. Warner Chilcott will run the newly acquired business as its 100% subsidiary.

Private equity firm Cerberus Capital Management and drug maker Forest Laboratories (FRX) had also shown their interest in purchasing P&G’s prescription drug business.

Six banks, including Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Credit Suisse (CS), Citigroup (C), Morgan Stanley (MS) and Barclays (BCS) are expected to provide about $4 billion in financing for the deal. Out of this, Warner Chilcott will use $3 billion for the acquisition and the remaining $1 billion for refinancing its existing debt.

The deal is the largest leveraged loan transaction so far this year, providing an indication of reviving credit markets and a positive development in the loan market, especially after the collapse of Lehman Brothers.

Chase, the US consumer and commercial banking brand of JPMorgan Chase & Co., now has a total of 239 branches and 1,025 ATMs in Florida.

Chase also upgraded products and technology to connect the former WaMu branches in Florida and six other states with its own network, giving customers full service at 4,200 Chase branches in 21 states.

So far this year, Chase has converted and rebranded 1,037 former WaMu branches in 11 states. By the end of 2009, about 1,800 former WaMu branches across the country will be operating under the Chase brand and on the Chase computer system, allowing customers to conduct their business at more than 5,100 Chase branches in 23 states.

After Washington Mutual was declared bankrupt last September, JP Morgan acquired its banking operations (minus unsecured debt or equity claims) from the Federal Deposit Insurance Corp. (FDIC) for $1.9 billion.

Chicago, IL – July 8, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Discover Financial Services (DFS), American Express Co. (AXP), Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Bank of New York Mellon Corp. (BK).
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Here are highlights from Tuesday’s Analyst Blog:

Discover Offers $500m in Stock

Discover Financial Services (DFS) announced a $500 million common stock offering late Monday.

The credit card issuer plans to use a portion of the proceeds to buy back preferred stock issued to the U.S. Treasury under the Capital Purchase Program. Earlier this year, Discover received $1.2 billion from the Treasury under the Troubled Asset Relief Program (TARP).

Discover said that the proceeds may also be utilized to boost the capital of subsidiary Discovery Bank as well as for investment in company’s businesses.

The company has granted the underwriters an option to buy up to 15% of the stock offering in case of over-allotments. Discover also stated that it plans to offer senior notes in the near future depending on market conditions.

Last month, the US treasury allowed 10 financial majors including American Express Co. (AXP), Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Bank of New York Mellon Corp. (BK) to repay $68 billion in TARP funds.

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Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks
 
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment
Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
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The credit card issuer plans to use a portion of the proceeds to buy back preferred stock issued to the U.S. Treasury under the Capital Purchase Program. Earlier this year, Discover received $1.2 billion from the Treasury under the Troubled Asset Relief Program (TARP).

Discover said that the proceeds may also be utilized to boost the capital of subsidiary Discovery Bank as well as for investment in company’s businesses.

The company has granted the underwriters an option to buy up to 15% of the stock offering in case of over-allotments. Discover also stated that it plans to offer senior notes in the near future depending on market conditions.

Last month, the US treasury allowed 10 financial majors including American Express Co. (AXP), Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Bank of New York Mellon Corp. (BK) to repay $68 billion in TARP funds.

Financial companies have been striving to pay back the funds as soon as possible in an effort to liberate themselves from stringent government regulations, particularly those related to executive compensation.

Meanwhile, Discover’s recent performance has been affected amid the economic downturn and rising levels of unemployment. The company’s net charge-off rate, which is the gross loan amount charged off as bad debt, for the fiscal second-quarter jumped 280 basis points year over year to 7.79%.

The total-market Russell 3000 Index has seen some sizable changes in its sector weightings, although the top 10 remain very much the same. Figure 1 shows the new 2009 sector weightings according to the Russell sector classification system. Not surprisingly, financial services is no longer the largest sector: It now takes second place to technology, which is weighted at 16.19% versus financials at 15.27%. In 2008, those sectors were reversed, with financials at 17.24% and tech at 14.19%.

Health Care saw its weighting increase to 13.41% from 11.52%, popping it up to the third position from No. 5. It displaced energy, which fell from the third slot to the fourth, declining to 11.97% from 13.42%; presumably, declining oil prices had something to do with that. Consumer discretionary also fell: It was the fourth-largest sector after the 2008 rebalance, at 12.94%, but is now the fifth-largest, with a weighting of 11.86%. Producer durables, consumer staples, utilities and materials & processing maintained their same positions (six through 10, respectively).

The top 10 stocks in the Russell 3000 are by and large the same, except for one: ConocoPhillips was displaced by JPMorgan Chase & Co.—a financial company, of all things. Of course, JP Morgan did acquire two former giants in the field of finance last year: Bear Stearns and Washington Mutual. And it has been one of the least-scathed of the financial services companies.

While the other members of the top 10 remained largely the same, some of their positions did not. ExxonMobil is still at the top of the heap, like it was last year, but General Electric fell from the second-largest weighting in the Russell 3000 to the tenth-largest, with a weighting of 1.27%. Microsoft moved up from the third slot to the second, with a weighting of 1.87%. And Johnson & Johnson jumped to No. 3, befitting its strong performance.

Russell 2000

In the Russell 2000, financial services is still the top sector, increasing its weight to 21.10%. A surprising result, perhaps, but the sector was boosted by having hard-hit banks move out of the Russell 1000 and into the smaller index. Technology claims the second-largest slot, with a 16.75% weighting, displacing consumer discretionary, which falls to the No. 3 position, with a 14.68% weighting. That’s down from 17.65% in 2008. Energy only fell one spot, to No. 9, and saw its weighting nearly halved, falling from 8.60% to 4.52%, further emphasizing the differences between the large- and small-cap worlds.

Shares of Lear Corp. (LEA) slumped more than 30% on Friday after reports claimed that the auto parts maker was expected to file for bankruptcy as early as June 30.

The Southfield, Michigan-based company must make a $38 million interest payment on two of its bonds by Tuesday or agree with lenders to restructure its debt. Lear has been trying to negotiate a deal with creditors for months now and is reportedly prepared to file for Chapter 11 bankruptcy protection if talks fail next week.

Citing people familiar with the matter, the Wall Street Journal said that Lear has $500 million in debtor-in-possession financing with its lenders, including JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C).

Auto parts suppliers have been teetering on the brink of collapse since a large number of their customers have succumbed to the credit crisis. After the Obama administration rejected a request for additional bailout funds to suppliers, a number of these companies might have to head for bankruptcy courts. Lear's progress in that direction now almost looks certain to industry insiders.

Shares of the company were trading down nearly 28% to 39 cents at noon. In the last one year, the stock has traded between 27 cents and $18.31.

This from Money Morning:

While the U.S. government’s plan to invest $250 billion into U.S. financial institutions has been billed as a strategy that will bolster the health of the banking system and also jump-start lending, the recapitalization plan is likely to have a secondary effect – one that whipsawed U.S. taxpayers likely won’t be…

“There has been a lot of talk recently about Embarq wanting to be acquired,” Kagan told MarketWatch.com. “However, the financial crisis that is on the front page every day made finding a partner difficult. That may have lowered the price Embarq hoped to get. CenturyTel saw an opportunity and jumped in to acquire Embarq. Timing was on CenturyTel’s side in this deal.”

The all-stock deal – announced yesterday (Monday) – calls…

“Once the global economy emerges from the current financial crisis, which it will, the countries that do well on our index are those that are best prepared to bounce back and perform well in the longer term,” Jennifer Blanke, director of the WEF’s global competitiveness network told The Financial Times.

And the United States is at the top. That’s the good news.

The bad news is that the safety of U.S. banks dropped to 40th this…

The newly created Money Market Investor Funding Facility (MMIFF) will help money market funds meet redemption needs and keep from “breaking the buck” – dropping below the normal $1 in net asset value – as The Reserve Primary Fund (RFIXX) did after the collapse of Wall Street investment-banking giant Lehman Brothers Holdings Inc. (OTC: LEHMQ). Struggling money-market funds that have seen more than $500 billion in redemptions since Lehman’s demise.

“The short-term debt markets have been under considerable strain in recent…

This from Money Morning:

Late last year, when it became clear that the LIBOR market was seizing up, I wasn’t surprised, given all the credit problems in the banking system.  After all, if the market perceived banks as suddenly riskier, you would expect the differential between three-month LIBOR and three-month Treasury bills to widen, as lenders demand higher rates from the newly riskier banks.

However, you…

"The Kazakh government is ready to step in,'' Kazakhstan's Prime Minister Karim Masimov said this morning in a telephone interview with Bloomberg "The Kazakh banking system with the support of the government and central bank will fulfill all obligations to international investors.....We have our own specific plan to survive without any external support....I don't think we need support from the International Monetary Fund or overseas.''

Ranked as the ninth largest country in the world by size, it is also the world's largest landlocked country, with a territory of some 2,727,300 km² (which is greater than the whole of Western Europe). It is bordered by Russia, Kyrgyzstan, Turkmenistan, Uzbekistan and China. On the other hand, and despite its enormous size, Kazakhstan has a comparatively small population. No one actually has an exact idea of the actual size of the Kazakhstan population (not to mention the thorny issue of just how many foreign migrants live and work there), but the US Census Bureau International Database list the current population of Kazakhstan as 16.763 million, while sources drawing their data from the United Nations (like the IMF which I have relied on for the chart below) give a 2008 estimate of 15.135 million. In any event the current population level, after falling in the early 1990s as ethnic Russians left, has now stabilised, and is virtually stationary. This virtually stagnant population constitutes, as we will see, a significant problem for a country with such a massive resource base, and such enormous economic and development potential as Kazakhstan would seem to have.

Record Oil Revenue Boom

Kazakhstan is the biggest energy producer in Central Asia and the country's $100 billion economy has in fact grown at an average of 10 percent a year rate since 2000 (see chart below), in particular as the price of oil has surged. This rapid GDP growth produced a rapid increase in per capita income as well as national creditworthiness, and these in turn sparked in their wake a substantial construction boom. Indeed it has precisely been the bursting of this boom in the autumn of 2007 - on the back of the seize-up in global wholesale money markets which followed August's financial turmoil in the USA - which lies at the heart of Kazakhstan's current growth slowdown. Kazakhstan's economy expanded at a 'mere' 5.3 percent rate in the first quarter of 2008, half the pace achieved in the same period a year earlier, following a dramatic curtailment in bank lending, and if Kazakhstan is still able, despite all the problems we will see below, to maintain some sort of growth momentum at this point it is undoubtedly the result of the oil and other commodity resources which the country has at its disposal, and indeed as part of its initial response to the present crisis the country increased crude production by an annual 6.3 percent in the first four months of the year, according to official government data.




Now one of the most curious details about the present slowdown in Kazakhstan, has been the fact that at the very same time as the economy started to lose velocity the central bank found itself busy struggling to curb an inflation rate which was steadily shooting onwards and upwards towards the outer stratosphere, as revenue from record oil prices pushed up domestic demand, and the resulting construction and consumption boom drove up wages far beyond normal "productivity-gain" rates of increase (remember, there are not THAT many people in the country, and much of the population is rural and unskilled in relation to the needs of a modern technological and services economy). In fact inflation hit year-on-year rates of increase approaching 20% in the autumn of last year (see chart below), although it had dropped by to an annual 18.2% by September.




So, as well as containing the property bust, the Kazakh authorities have also had to conduct an inflation fight (more details below). So far from lowering rates like the US Federal Reserve has been able to do, Karakhstan's central bank was forced to raise the key interest rate to 11 percent in December 2007, at a time when annual inflation was riding at almost 19 percent, the highest for the country in over eight years. The refinancing rate was then maintained at the 11% level until it was finally lowered to 10.5% at the last central bank meeting in July.



Not Just Energy - Vast Resource Potential

The fact that Kazakhstan's industrial output growth has lost a lot of momentum in 2008 as the slowdown in the building industry provoked a slump in cement and other materials production should not take our minds too far away from the fact that the underlying potential in Kazakhstan is enormous. In fact while industrial output growth was reduced to an annual 3.8 percent growth rate in the January-June period, it was at least still growing.

The low point seems to have been hit back in January, when cement production which, not surprisingly, was among the hardest hit sectors, was down 26 percent year on year, the sharpest January fall in five years, as growth in the construction industry stalled, brought to a halt by the fact that the Kazakh banks, who had been struggling to borrow from abroad following the collapse of the U.S. subprime mortgage market, virtually stopped lending to homebuyers and builders.

Copper and rolled-iron output also declined an annual 13 percent in January while output from oil refineries and manufacturing industry decreased an annual 2.9 percent as the problems rolled in. Thus there is evidence of a very sharp shock initially hitting the local economy. On the other hand, since the country is resource rich and the given that first half of 2008 saw a very significant global commodities boom, there were other economic sectors to fall back on, and mining production was up 6 percent from a year earlier in the first quarter, bolstered by an increase in natural gas and coal output, which climbed 15 percent and 11 percent respectively. At the same time crude oil production went up by an annual 5.4 percent.

Apart from oil and gas Kazakhstan has a huge array of potential resource reserves just waiting to be tapped. Among these there is copper. London-listed Kazakhmys accounts for the bulk of Kazakh copper output - and this was down 17.5 percent year-on-year in January-April. Industrial output in Karaganda region, home to Kazakhmys and Arcelor Mittal mines and smelters, declined 5.5 percent year-on-year in January-April.

Kazakhmys reported that their first-quarter output fell 9.9 percent on "severe winter weather'' and repairs at its Balkhash smelter. Production of finished copper plates, or cathodes, from the company's ore fell to 75,500 metric tons, from 83,800 tons a year earlier. These drops in output are, of course not entirely associated with the credit crunch, but they do give an idea of the challenging and volatile environment in which the mining and extraction industries work in Kazakhstan. Realistically speaking it seems quite likely that output in these sectors will return to more normal levels during the second-half of 2008, having alreadt rebounding significantly from the low point reached in the first-quarter.

On the other hand industrial output in capital Astana and commercial hub Almaty, where most construction activities are based, was down 13.2 percent and 8.6 percent, respectively, in January-April, and this activity may well take much longer to recover.

Kazakhstan has also had to cut its 2008 oil production forecast to 67.6 million tonnes (1.35 million barrels per day) from a previous estimate of 70 million tonnes citing maintenance works and transport bottlenecks. The country is able to produce a lot of oil, but it does have a large problem getting that oil to the places where people want it. Three major pipeline routes - the Atyrau-Samara and Caspian Pipeline Consortium (CPC) links to Russia, and the Atasu-Alashankou pipeline to China - carry Kazakh crude off towards its end destinations, but none of these are proving sufficient to the demands on them.

"It is impossible to transport crude out of Kazakhstan without some difficulties," Senior Associate Klara Nurgaziyeva from law firm Dewey & LeBoeuf told an oil and gas conference last week in the Kazakh financial capital Almaty.

In a smoke-filled bar in the Kazakh financial capital Almaty, the laughter of Scottish ex-pats is loud and boisterous. More than three thousand miles (5,491 km) separate the Scottish Highlands and the Central Asian steppe, but a mutual interest in oil and gas has created a surprising alliance. Residents estimate that around 400 Scots live in ex-Soviet Kazakhstan, a resource-rich country roughly the size of western Europe.

Most come from Aberdeen, Britain's northeastern oil hub, and they bring with them their technical expertise."We're going to try attract Kazakhs to Aberdeen over the next few years and look at initiatives, and create further investment in Scotland from Kazakhstan," Lord Provost Peter Stephen of the Aberdeen City Council told an energy conference last week in Almaty. He said over 100 companies from in and around Aberdeen are active in Kazakhstan, and the Scottish oil town even has a Kazakh consulate to serve the hundreds of Kazakhs who go to Scotland to train up for the oil business. The Kazakh-British technical university, set up by a group of Scottish universities seven years ago, occupies a grandiose columned building in the centre of leafy Almaty, which housed parliament before the capital was moved to Astana.

Prices for residential property soared 30.2 percent in 2007, reaching a record average mid-year high of 161,300 tenge ($1,338) per square meter, up from 123,900 tenge in 2006, according to the Astana-based state statistics agency. In the financial capital, Almaty, the average price was 345,200 tenge.

The drop in prices from these peaks and the sudden drying up of credit has caused numerous problems for would.be buyers, and Bank TuranAlem, Kazakhstan's second-biggest bank by assets, received $81.2 million last December from the state emergency investment program simply to finance the completion of unfinished construction projects.

The most recent government bailout of the construction sector was announced during the summer - just two weeks before the celebrations of Nazarbayev's 68th birthday and the 10th anniversary of the founding of the new capital Astana on July 6 - following the announcement by a group representing people who had purchased apartments in the unfinished buildings that they were planning a protest march to be held in Astana bang in the middle of the official festivities.

The Industry and Trade Ministry have said that there were 939 residential buildings, with 45,130 apartments pre-paid by homebuyers, under construction as of last January. Minister Edil Mamytbekov said in July that the cases of 4,558 homebuyers in 18 buildings "remain problematic'' because of conduct for which the builders in question had been "charged with crimes.'' The Kazakh Prosecutor General's Office said 123 construction companies that received 104 billion tenge ($865 million) in pre-payments from homebuyers were behind schedule or haven't even begun work on new apartment buildings.

Assets of "careless construction companies,'' including buildings and vehicles, have been seized to compensate lost investments of homebuyers and the government, according to the Prosecutor General's Office. Criminal investigations have been opened into eight companies. A total of 285 companies are building 407 residential projects in Kazakhstan and have received 231 billion tenge in pre-payments from more than 50,000 individuals and companies, prosecutors said. Of 200 ``problem'' projects delayed by at least six months, 110 are located in the capital Astana and 42 in Almaty.

The July rumpus was provoked by the fact that at the start of the summer the Kazakh government had spent only 51 billion tenge to complete stalled residential projects, a fraction of the bailouts promised by Prime Minister Karim Masimov in the autumn of 2007, according to data made public by the Ministry of Industry and Trade on June 23. The government had said on Nov. 14 2007 that it would spend $1 billion by the end of 2007 and another $3 billion in 2008 to "provide economic stability and growth'' by supporting the real estate market and small and medium-sized businesses. Following publication of this data, and some international press coverage, Masimov said that his original emergency investment program was in the process of being expanded, and his government announced plans to spend 17.2 billion tenge to complete residential projects in Astana.

President Nursultan Nazarbayev instructed the state to step in and finish projects, ``which have no source of financing,'' to ``help to reduce social tension,'' according to Edil Mamytbekov, a deputy minister of industry and trade, on June 20. President Nursultan Nazarbayev also said it was necessary to take ``tough measures against careless builders". As a result the Almaty mayors office announced on July 26 that another 46.4 billion tenge had been allocated to support residential projects in Almaty. The state had already invested 22.4 billion tenge and was going to spend the remaining 24 billion tenge by year's end, according to the announcement.

In April, however, the government had announced that the state development holding Kazyna would distribute 59 billion tenge to commercial banks during 2007 to finish 131 buildings in Almaty. Sergei Kuyanov, spokesman for Almaty Mayor Akhmetzhan Yesimov, declined to comment on the discrepancy between the numbers when question by journalists in July.

Whatever the complications of the present situation and the ins-and-outs of putting the construction and banking problems straight, we should not lose sight of the fact that Kazakhstan has, large financial resources which will surely help it weather the current situation. Official foreign currency assets totaled $46 billion in early June, comprising NBK reserves of $21 billion and oil fund (NFRK) assets of $25 billion. Commercial banks also have foreign assets of which about $3.5 billion are thought to be liquid. Total foreign assets broadly match foreign liabilities when the intracompany debt of the oil sector is excluded, while liquid foreign currency assets comfortably cover potential short-term foreign currency drains.


Favourable Demographics But Migrants Needed, And With Them Modern Citizenship Rights


The chart you will find below is known as a “heat chart”. It depicts the ongoing changes in Kazakhstan's age structure. Each dot represents the number of people in any given age group at any given point in time. A dark red dot represents the largest concentration of people, by age, in a particular year while deep blue dots show the lowest concentrations. A single dark red dot is the equivalent of almost 406,000 people while each deep blue dot represents nearly 23,000 people.


In the upper left-hand corner of the chart the bright reds and yellow areas depicts the population boom that started in the mid 1970s and lasted until the late 1990s. The remnants of that boom extend downward from left to right across the chart. The band also narrows as this population segment ages. This is simply a reflection of the reduction in the total numbers in the population bulge cohorts as out-migration has taken its toll.

Many ethnic Germans and Russians, for example, left Kazakhstan during the years following the end of the Cold War. In the lower left-hand side of the chart there is a preponderance of dark blue dots, indicating a relatively small number of people over the age of 60 years. Over time these dark blue dots are replaced by light blues and greens, a pattern reflecting a gradual but steady increase in the number of elderly people.

The strong budget position in Kazakhstan has provided scope for the government to use fiscal policy to support the economy as growth has slowed. We believe that the increase in spending in the recent supplementary budget is appropriate, and that the automatic fiscal stabilizers should be allowed to work, with any revenue shortfalls due to a weakening economy being accommodated in the near future rather than offset with expenditure cuts to meet budget targets. Going forward, the government's recently announced three-year budget plan maps out a transparent path for fiscal policy over the medium-term. We believe, however, that it is important that the government not commit to further large increases in public sector wages and pensions in future years given uncertainties about budget revenues—particularly from the oil sector—and the stage of the macroeconomic cycle in two or three years time.

Kazakhstan has large financial resources to help it weather the current situation, and medium-term economic prospects remain favorable. Official foreign currency assets, comprising central bank (NBK) reserves and oil fund (NFRK) assets, reached $48 billion at end-September, well above the mid-2007 level. The current account balance has strengthened significantly this year, and oil production is set to increase substantially in the years ahead.

As at the time of the Article IV consultation discussions in April, we believe that in the short-term policies should remain focused on managing risks to the outlook and setting the stage for the resumption of strong and sustained growth. Since our last visit, the authorities have continued to skillfully handle the difficulties the economy has faced, and we welcome the policy steps that are being taken in the monetary, fiscal, and supervisory areas to strengthen the resilience of the Kazakhstani economy. Nevertheless, considerable challenges remain, and these have been heightened by the renewed bout of global financial market volatility.

Bear in mind that each new economic report, earnings statement, news report or trading session represents a new opportunity for fear and uncertainty to reemerge.

Fortunately, next week’s economic calendar remains quite light, although retailers may just weigh in with “doom-and-gloom” holiday predictions.  Earnings season may be weak as well (with even more pessimistic outlooks), so investors should not overreact even if Texas Instruments Inc. (TXN), Halliburton Inc. (HAL), Amazon.com Inc. (AMZN) and others fail to meet expectations.  Volatility should continue and…

Weaker price gains and a shortage of money in the banking system have allowed the central bank to shift its focus from fighting inflation to stimulating an already slowing economy. The Reserve Bank of India on Thursday lowered the amount of deposits that lenders need to set aside for the second time in a week to ease the worst cash shortage in the economy since 2000. The central bank reduced its cash reserve ratio to 6.5 percent from 7.5 percent, a move which will add 400 billion rupees ($8.2 billion) to the financial system. India also accelerated loan payments to banks and doubled the overseas investment limit in corporate bonds to shore up the rupee from near a record low. Until the reduction in the cash reserve ratio which started just over a week ago now the Reserve Bank had increased its repurchase rate by 3 percentage points to 9 percent since 2004 and the cash reserve ratio by 4 percentage points since December 2006. The central bank's next monetary policy statement is due to be released in Mumbai on Oct. 24.

India thus joined Brazil and Russia in injecting funds into commercial banks to tackle the global credit crunch, this is viewed to be a less riskier route at this point than intrioducing interest rate-cuts, and it is hoped it may also prove to be a more effective way of getting liquidity quickly through to the corporate sector.

India has injected one trillion rupees ($21 billion) through reserve requirement cuts since Oct. 11 as call money rates surged and mutual funds sought government help to meet the highest redemptions by investors this year. The central bank's moves to inject liquidity helped push down India's call rates to 7 percent today from an 18-month high of 16 percent hit on Oct. 10.

Finance Minister Palaniappan Chidambaram also increased interest rates on deposits by non-resident Indians and doubled the overseas investment limit in corporate bonds to $6 billion to shore up the rupee from near a record low.

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries fell 17 basis points to 6.06 percentage points, according to JPMorgan Chase & Co.'s EMBI+ index. The yield on bonds rises, as the value of the underlying bond falls.

Oil and Commodities Continue To Fall

Oil prices recovered some ground Friday, rallying above $71 a barrel on speculation that OPEC could slash output in an effort to stop crude's downward spiral. But pump prices kept falling and appeared poised to drop below $3 a gallon nationally — a level not seen in eight months. Light, sweet crude for November delivery rose $2 to settle at $71.85 a barrel on the New York Mercantile Exchange after earlier rising as high as $74.30. On Thursday, prices lost $4.69 to settle at $69.85 a barrel. Despite Friday's modest rally, oil is still down $75 — or 51 percent — since catapulting to a record high of $147.27 on July 11.




Commodity prices fell during a volatile week, with the Reuters/Jeffries CRB Index of 19 raw materials from coffee to silver, dropping 3.6 per cent amid concerns that the global economy was heading into recession. The abrupt falls in commodities - the RJ-CRB index hit its lowest level in four years - engulfed gold , which ended yesterday at a one-month low of $775 a troy ounce,



Steel prices as also falling rapidly, as industrial and construction demand drops sharply. Tata Steel Ltd., India's biggest steelmaker, has announced itwon't raise prices for six months or cut output if the government imposes an import tax and scraps levies on exports of the metal.

Companies are seeking 15 percent import duty and scraping of the export levy as demand weakens, Minister Ram Vilas Paswan told reporters after meeting executives in New Delhi today. They also want excise tax to be lowered to 8 percent from 14.4 percent.

Slowing demand from manufacturers and builders is driving down steel prices and forcing producers including ArcelorMittal, and Corus, the U.K. unit of Tata, to consider output cuts. Global steel production and consumption may slump 5 percent in 2009, Research & Consulting Group AG said Oct 9.

Foreign Exchange Reserves


India's foreign exchange reserves fell $9.94 billion during the week ending October 10, 2008 to $274 billion mainly because the Reserve Bank of India continued to sell dollars to try to contain the steep depreciation of the rupee.Forex reserves fell by another $9.93 billion (to $274 billion) during the tumultous week ended October 10, 2008 following the $7.8 billion fall of the previous week. .

India — the fourth largest holder of foreign exchange reserves in Asia after China, Japan and Taiwan — has seen reserves sliding since the start of this fiscal year. Since hitting a peak of $316.17 billion during the week ending May 23 this year, reserves have dropped by $42.17 billion. , forcing policymakers to unveil measures such as higher investment limit for foreign institutional investors (FIIs) in corporate debt and allowing banks to offer higher rates on NRI deposits to boost inflows. The situation now stands in stark contrast to the same period a year ago, when reserves rose by $57 billion.


The revaluation of the foreign currency assets also contributed to the steepest-ever weekly fall. In the previous week foreign exchange reserves had declined by $7.8 billion, which was also a weekly record. Overall, reserves have fallen by nearly $18 billion in a fortnight.


In rupee terms, India's foreign exchange reserves, however, rose by Rs 2,258 crore during the week ending October 10 to Rs 13,33,424 crore. In the financial year, the increase is to the tune of Rs 95,459 crore. India's merchandise exports, which were estimated at $250 billion in 2007-08 are, for the time being, well covered.

In recent months, foreign institutional investors (FIIs), which are facing financial pressures at home , have been selling in the Indian markets and repatriating money. In calendar 2008 so far, FIIs have been net sellers of $10.83 billion in the equity market. FII sales have put pressure on the rupee, which has dropped 22.96 per cent against the dollar since January. This has prompted RBI to intervene heavily in the forex markets.





Stocks Fall

Indian stocks fell, with the benchmark Sensitive Index declining to its lowest in more than two years on speculation that overseas funds faced with redemptions are selling the nation's equities. Reliance Industries Ltd. tumbled 6.2 percent to its lowest since March 16, 2007. Infosys Technologies Ltd., the software developer that gets more than half its revenue from the U.S., fell 4.8 percent to its lowest in three years.

The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 606.14, or 5.7 percent, to 9,975.35, its lowest since June 20, 2006. The benchmark posted its fourth weekly decline, falling 5.3 percent. All 30 stocks in the index dropped. The S&P CNX Nifty Index on the National Stock Exchange dropped 194.95, or 6 percent, to 3,074.35. The BSE 200 Index lost 5.1 percent to 1,201.95.

India's MCSI Core Stock Index was down 4.45% on the day on Friday, after falling 26.7% so far this month, and 63.44% so far this year. But India is far from alone here, since the MSCI Emerging Markets Index plunged by 28 percent this month, with Russia's Micex Index alone falling 42 percent.





Overseas investors sold a net 8.41 billion rupees ($172 million) of Indian equities on Oct. 15, increasing the outflow this year from stocks to a record $11.1 billion, according to India's stock market regulator.


The Rupee


India's rupee fell to a six-year low as the benchmark equity index slid below 10,000 for the first time since June 2006, stoking concern capital outflows will quicken. The currency completed a 10th weekly loss. The rupee in part dropped on concern measures taken by global central banks and governments won't be enough to stave off the credit crisis.

The currency fell back0.8 percent this week to 48.8825 a dollar at the 5 p.m. close in Mumbai. That is the lowest since June 2002. The currency's 10-week losing streak is the longest since December 2005. The rupee has fallen 19.4 percent this year, the most since a balance-of-payments crisis in 1991 forced the nation to pawn its gold with the International Monetary Fund to pay for imports. It is poised for the first annual loss since 2005 as overseas investors pulled out almost two-thirds of the record $17.2 billion they invested in Indian equities in 2007.



Disclosure Statement: Edward Hugh is a macroeconomist who maintains a premier set of blogs at Global Economy Matters and is a featured analyst at Emerginvest. Edward Hugh provides non-partisan information about world stock markets, and does not have any holdings in foreign equities. The information stated above should not be construed as investment advice, and Edward Hugh is not liable for any actions taken on said materials.

Weaker price gains and a shortage of money in the banking system have allowed the central bank to shift its focus from fighting inflation to stimulating an already slowing economy. The Reserve Bank of India on Thursday lowered the amount of deposits that lenders need to set aside for the second time in a week to ease the worst cash shortage in the economy since 2000. The central bank reduced its cash reserve ratio to 6.5 percent from 7.5 percent, a move which will add 400 billion rupees ($8.2 billion) to the financial system. India also accelerated loan payments to banks and doubled the overseas investment limit in corporate bonds to shore up the rupee from near a record low. Until the reduction in the cash reserve ratio which started just over a week ago now the Reserve Bank had increased its repurchase rate by 3 percentage points to 9 percent since 2004 and the cash reserve ratio by 4 percentage points since December 2006. The central bank's next monetary policy statement is due to be released in Mumbai on Oct. 24.

India thus joined Brazil and Russia in injecting funds into commercial banks to tackle the global credit crunch, this is viewed to be a less riskier route at this point than intrioducing interest rate-cuts, and it is hoped it may also prove to be a more effective way of getting liquidity quickly through to the corporate sector.

India has injected one trillion rupees ($21 billion) through reserve requirement cuts since Oct. 11 as call money rates surged and mutual funds sought government help to meet the highest redemptions by investors this year. The central bank's moves to inject liquidity helped push down India's call rates to 7 percent today from an 18-month high of 16 percent hit on Oct. 10.

Finance Minister Palaniappan Chidambaram also increased interest rates on deposits by non-resident Indians and doubled the overseas investment limit in corporate bonds to $6 billion to shore up the rupee from near a record low.

The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries fell 17 basis points to 6.06 percentage points, according to JPMorgan Chase & Co.'s EMBI+ index. The yield on bonds rises, as the value of the underlying bond falls.

Oil and Commodities Continue To Fall

Oil prices recovered some ground Friday, rallying above $71 a barrel on speculation that OPEC could slash output in an effort to stop crude's downward spiral. But pump prices kept falling and appeared poised to drop below $3 a gallon nationally — a level not seen in eight months. Light, sweet crude for November delivery rose $2 to settle at $71.85 a barrel on the New York Mercantile Exchange after earlier rising as high as $74.30. On Thursday, prices lost $4.69 to settle at $69.85 a barrel. Despite Friday's modest rally, oil is still down $75 — or 51 percent — since catapulting to a record high of $147.27 on July 11.




Commodity prices fell during a volatile week, with the Reuters/Jeffries CRB Index of 19 raw materials from coffee to silver, dropping 3.6 per cent amid concerns that the global economy was heading into recession. The abrupt falls in commodities - the RJ-CRB index hit its lowest level in four years - engulfed gold , which ended yesterday at a one-month low of $775 a troy ounce,



Steel prices as also falling rapidly, as industrial and construction demand drops sharply. Tata Steel Ltd., India's biggest steelmaker, has announced itwon't raise prices for six months or cut output if the government imposes an import tax and scraps levies on exports of the metal.

Companies are seeking 15 percent import duty and scraping of the export levy as demand weakens, Minister Ram Vilas Paswan told reporters after meeting executives in New Delhi today. They also want excise tax to be lowered to 8 percent from 14.4 percent.

Slowing demand from manufacturers and builders is driving down steel prices and forcing producers including ArcelorMittal, and Corus, the U.K. unit of Tata, to consider output cuts. Global steel production and consumption may slump 5 percent in 2009, Research & Consulting Group AG said Oct 9.

Foreign Exchange Reserves


India's foreign exchange reserves fell $9.94 billion during the week ending October 10, 2008 to $274 billion mainly because the Reserve Bank of India continued to sell dollars to try to contain the steep depreciation of the rupee.Forex reserves fell by another $9.93 billion (to $274 billion) during the tumultous week ended October 10, 2008 following the $7.8 billion fall of the previous week. .

India — the fourth largest holder of foreign exchange reserves in Asia after China, Japan and Taiwan — has seen reserves sliding since the start of this fiscal year. Since hitting a peak of $316.17 billion during the week ending May 23 this year, reserves have dropped by $42.17 billion. , forcing policymakers to unveil measures such as higher investment limit for foreign institutional investors (FIIs) in corporate debt and allowing banks to offer higher rates on NRI deposits to boost inflows. The situation now stands in stark contrast to the same period a year ago, when reserves rose by $57 billion.


The revaluation of the foreign currency assets also contributed to the steepest-ever weekly fall. In the previous week foreign exchange reserves had declined by $7.8 billion, which was also a weekly record. Overall, reserves have fallen by nearly $18 billion in a fortnight.


In rupee terms, India's foreign exchange reserves, however, rose by Rs 2,258 crore during the week ending October 10 to Rs 13,33,424 crore. In the financial year, the increase is to the tune of Rs 95,459 crore. India's merchandise exports, which were estimated at $250 billion in 2007-08 are, for the time being, well covered.

In recent months, foreign institutional investors (FIIs), which are facing financial pressures at home , have been selling in the Indian markets and repatriating money. In calendar 2008 so far, FIIs have been net sellers of $10.83 billion in the equity market. FII sales have put pressure on the rupee, which has dropped 22.96 per cent against the dollar since January. This has prompted RBI to intervene heavily in the forex markets.





Stocks Fall

Indian stocks fell, with the benchmark Sensitive Index declining to its lowest in more than two years on speculation that overseas funds faced with redemptions are selling the nation's equities. Reliance Industries Ltd. tumbled 6.2 percent to its lowest since March 16, 2007. Infosys Technologies Ltd., the software developer that gets more than half its revenue from the U.S., fell 4.8 percent to its lowest in three years.

The Bombay Stock Exchange's Sensitive Index, or Sensex, fell 606.14, or 5.7 percent, to 9,975.35, its lowest since June 20, 2006. The benchmark posted its fourth weekly decline, falling 5.3 percent. All 30 stocks in the index dropped. The S&P CNX Nifty Index on the National Stock Exchange dropped 194.95, or 6 percent, to 3,074.35. The BSE 200 Index lost 5.1 percent to 1,201.95.

India's MCSI Core Stock Index was down 4.45% on the day on Friday, after falling 26.7% so far this month, and 63.44% so far this year. But India is far from alone here, since the MSCI Emerging Markets Index plunged by 28 percent this month, with Russia's Micex Index alone falling 42 percent.





Overseas investors sold a net 8.41 billion rupees ($172 million) of Indian equities on Oct. 15, increasing the outflow this year from stocks to a record $11.1 billion, according to India's stock market regulator.


The Rupee


India's rupee fell to a six-year low as the benchmark equity index slid below 10,000 for the first time since June 2006, stoking concern capital outflows will quicken. The currency completed a 10th weekly loss. The rupee in part dropped on concern measures taken by global central banks and governments won't be enough to stave off the credit crisis.

The currency fell back0.8 percent this week to 48.8825 a dollar at the 5 p.m. close in Mumbai. That is the lowest since June 2002. The currency's 10-week losing streak is the longest since December 2005. The rupee has fallen 19.4 percent this year, the most since a balance-of-payments crisis in 1991 forced the nation to pawn its gold with the International Monetary Fund to pay for imports. It is poised for the first annual loss since 2005 as overseas investors pulled out almost two-thirds of the record $17.2 billion they invested in Indian equities in 2007.



Disclosure Statement: Edward Hugh is a macroeconomist who maintains a premier set of blogs at Global Economy Matters and is a featured analyst at Emerginvest. Edward Hugh provides non-partisan information about world stock markets, and does not have any holdings in foreign equities. The information stated above should not be construed as investment advice, and Edward Hugh is not liable for any actions taken on said materials.

• Visa Inc. (V) and MasterCard Inc. (MA) have settled an antitrust suit with Discover Financial Services Inc. (DFS) rather than go to trial, sending Discover shares up almost 13% yesterday (Tuesday). Discover had filed a lawsuit against the two credit card processors seeking $6 billion in damages. The suit alleged that MasterCard and Visa prevented member banks from issuing Discover cards, Reuters reported.

• Daimler AG (DAI) yesterday (Tuesday) announced it would cut 3,500 jobs and close two North American plants in response to declining sales growth. The German automaker also plans to discontinue its Sterling-brand truck line, MarketWatch reported. The plant closures will affect Daimler’s St. Thomas, Ontario and Portland, Oregon plants.

• Apple Inc. (AAPL) will for the first time sell a MacBook for less than $1,000 during the coming holiday season, Chief Executive Officer Steve Jobs announced yesterday (Tuesday). “Demand is going to be good,” Jobs said of the MacBooks, Bloomberg News reported. “We’re making a lot of them.”

• Johnson Controls Inc. (JCI) yesterday (Tuesday) projected a 16% decline in earnings over the next fiscal year. The Milwaukee-based company manufactures car batteries and seats and has suffered as auto sales declined in the United States and abroad. “While we believe recent economic weakness was clearly partly priced in, our sense from management is that automotive on both sides of the Atlantic is proving much tougher than expected,” JPMorgan Chase & Co. (JPM) analyst Himanshu Patel said in a research note Tuesday, The Wall Street Journal reported.

• Light, sweet crude for November delivery yesterday (Tuesday) fell $2.56 to settle at $78.63 on the New York Mercantile Exchange, amid signs of dwindling world energy demand. Gasoline prices have followed oil’s precipitous decline, falling 23% from the record average of $4.14 a gallon reached July 17 to $3.163, according to auto club AAA.

• The Bush administration said yesterday (Tuesday) that the deficit for the budget year ended Sept. 30 was $454.8 billion – more than double the $161.5 billion recorded in 2007. It surpassed the previous record of $413 billion set in 2004. Some analysts believe that next year’s deficit could easily top $700 billion, according to The Associated Press.

• PepsiCo Inc. (PEP) said yesterday (Tuesday) that it would eliminate 3,300 jobs and close down six plants in an effort to save $1.2 billion over the next three years, The Associated Press reported. The announcement came as the company reported a 9.5% drop in third-quarter profit. The job cuts equate to roughly 1.8% of Pepsi’s global work force of about 185,000 employees.

SOurce: Global Investing Roundups Wednesday, October 15th, 2008

"Government owning a stake in any private U.S. company is objectionable to most Americans - me included," U.S. Treasury Secretary Henry Paulson said announcing his decision to effectively nationalize the nation’s banking sector. “Yet, the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

A government investment of $250 billion amounts to about 25% to 30% of the market capitalization for publicly traded banks, Rajiv Sobti, chief investment officer at Nomura Global Alpha, a unit of Nomura Asset Management U.S.A. told BusinessWeek.

The $250 billion investment will be allocated as follows:

• Citigroup Inc. (C) JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) each get $25 billion.
• Wells Fargo & Co. (WFC) will receive between $20 billion and $25 billion.
• Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) each get $10 billion.
• The Bank of New York Mellon Corp. (BK) and State Street Corp. (STT) receive between $2 billion and $3 billion apiece.

The remainder, between $124 billion and $131 billion, will be dispersed among smaller banks and thrifts.

Each bank will issue preferred stock to the U.S. government that will pay special dividends at a 5% interest rate, which will increase to 9% after five years. Additionally, the government will receive warrants worth 15% of the face value of the preferred stock.

Participating banks will also have to accept limits on executive pay, the abolition of so-called golden parachutes and improper bonuses, and may be forced to reduce or eliminate dividends.

The government, so far, has insisted that the banks will not have to cut their dividends, nor will any executives be forced to resign. The chief executives of Royal Bank of Scotland Group PLC (ADR: RBS), HBOS PLC (OTC: HBOOY), and Lloyds TSB Group PLC (ADR: LYG) were all forced to resign Monday during the British government’s nationalization process.

While the original U.S. bailout plan indicated that banks would be encouraged to participate on a volunteer basis, the chief executives of the nine largest U.S. banks were summoned to Washington and convinced to take part in the recapitalization effort, as a way to avoid stigmatizing any one bank.

Had any one bank asked for help, it would have been a signal to the world that it couldn’t survive, said Daniel Clifton, an analyst for institutional broker Strategas Research Partners.

Therefore, the Treasury had little choice but to "jawbone them into taking the money in a coordinated fashion all at the same time.”

“These are healthy institutions, and they have taken this step for the good of the U.S. economy,” Paulson said of the financial firms.

Afterwards, Paulson further elaborated on the role these institutions must play in restoring liquidity to the market.

“The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Paulson said.

In addition to $250 billion recapitalization effort, the U.S. Federal Reserve will start a program to become the buyer of last resort for commercial paper and the Federal Deposit Insurance Corp. (FDIC) will offer an unlimited guarantee on bank deposits in accounts that do not pay interest. The government will also expand deposit insurance to cover all small business deposits.

Over the past several months, small businesses, which typically maintain balances well above insurance limits, have been withdrawing their money in record amounts. The Fed initially tried to solve this problem by raising its deposit insurance limit from $100,000 to $250,000, but that only extended coverage to about 68% of all small business deposits, according to financial services consulting firm Oliver Wyman Group.

Abolishing deposit insurance limits for small businesses altogether would cover the remaining 32%, the New York Times reported.

“Imposing unlimited deposit insurance doesn’t fix the underlying problem, but it does reduce the threat of overnight failures,” Jaret Seiberg, a financial services policy analyst at the Stanford Group in Washington, told the NY Times. “If you reduce the threat of overnight failures, you start to encourage lending to each other overnight, which starts to restore the normal functioning of the credit markets.”

Source: Paulson Announces New Plans to Buy Equity Stakes in Banks and Revive Credit Markets

"Government owning a stake in any private U.S. company is objectionable to most Americans - me included," U.S. Treasury Secretary Henry Paulson said announcing his decision to effectively nationalize the nation’s banking sector. “Yet, the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

A government investment of $250 billion amounts to about 25% to 30% of the market capitalization for publicly traded banks, Rajiv Sobti, chief investment officer at Nomura Global Alpha, a unit of Nomura Asset Management U.S.A. told BusinessWeek.

The $250 billion investment will be allocated as follows:

• Citigroup Inc. (C) JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) each get $25 billion.
• Wells Fargo & Co. (WFC) will receive between $20 billion and $25 billion.
• Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) each get $10 billion.
• The Bank of New York Mellon Corp. (BK) and State Street Corp. (STT) receive between $2 billion and $3 billion apiece.

The remainder, between $124 billion and $131 billion, will be dispersed among smaller banks and thrifts.

Each bank will issue preferred stock to the U.S. government that will pay special dividends at a 5% interest rate, which will increase to 9% after five years. Additionally, the government will receive warrants worth 15% of the face value of the preferred stock.

Participating banks will also have to accept limits on executive pay, the abolition of so-called golden parachutes and improper bonuses, and may be forced to reduce or eliminate dividends.

The government, so far, has insisted that the banks will not have to cut their dividends, nor will any executives be forced to resign. The chief executives of Royal Bank of Scotland Group PLC (ADR: RBS), HBOS PLC (OTC: HBOOY), and Lloyds TSB Group PLC (ADR: LYG) were all forced to resign Monday during the British government’s nationalization process.

While the original U.S. bailout plan indicated that banks would be encouraged to participate on a volunteer basis, the chief executives of the nine largest U.S. banks were summoned to Washington and convinced to take part in the recapitalization effort, as a way to avoid stigmatizing any one bank.

Had any one bank asked for help, it would have been a signal to the world that it couldn’t survive, said Daniel Clifton, an analyst for institutional broker Strategas Research Partners.

Therefore, the Treasury had little choice but to "jawbone them into taking the money in a coordinated fashion all at the same time.”

“These are healthy institutions, and they have taken this step for the good of the U.S. economy,” Paulson said of the financial firms.

Afterwards, Paulson further elaborated on the role these institutions must play in restoring liquidity to the market.

“The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it,” Paulson said.

In addition to $250 billion recapitalization effort, the U.S. Federal Reserve will start a program to become the buyer of last resort for commercial paper and the Federal Deposit Insurance Corp. (FDIC) will offer an unlimited guarantee on bank deposits in accounts that do not pay interest. The government will also expand deposit insurance to cover all small business deposits.

Over the past several months, small businesses, which typically maintain balances well above insurance limits, have been withdrawing their money in record amounts. The Fed initially tried to solve this problem by raising its deposit insurance limit from $100,000 to $250,000, but that only extended coverage to about 68% of all small business deposits, according to financial services consulting firm Oliver Wyman Group.

Abolishing deposit insurance limits for small businesses altogether would cover the remaining 32%, the New York Times reported.

“Imposing unlimited deposit insurance doesn’t fix the underlying problem, but it does reduce the threat of overnight failures,” Jaret Seiberg, a financial services policy analyst at the Stanford Group in Washington, told the NY Times. “If you reduce the threat of overnight failures, you start to encourage lending to each other overnight, which starts to restore the normal functioning of the credit markets.”

Source: Paulson Announces New Plans to Buy Equity Stakes in Banks and Revive Credit Markets

Both stocks have been hammered year-to-date, with Ford shares having plunged over 63% and GM shares down a staggering 74%. Declining sales have seen the automakers’ stocks touch lows not seen in decades.

Waning U.S. consumer spending and high oil prices have hit domestic automakers that have long relied on large trucks and sport-utility vehicles (SUVs) as the cornerstones of their product offerings. U.S. firms have been slower than their foreign counterparts, such as Toyota Motor Corp. (ADR: TM), in adopting the now popular fuel-efficient hybrids and smaller car models.

But both GM and Ford have said that bankruptcy is not an option they will consider. The automakers are aggressively pursuing two different paths to try to return to profitability. While GM seeks out a potential merger, Ford is selling off assets.

GM and Chrysler in Talks: WSJ

The Wall Street Journal reported over the weekend that GM has had talks with private-equity firm Cerberus Capital Management LP over a possible sale of the hedge fund firm’s 80.1% stake in Chrysler LLC. In addition to its marquee Chrysler brand, the automaker produces the Dodge and Jeep lines.

However, Chrysler is the weakest of Detroit’s “Big Three” and its line of Dodge Ram pick-ups and Jeep SUVs have been poor sellers in the current economic environment, which casts doubt on the validity of that report.

“Ford and even GM have been trying to shed unprofitable brands, so why would CEO Rick Wagoner go out and purchase brands that are struggling?” David Silver, an analyst at Wall Street Strategies Inc. (OTC: WSSSQ), told MarketWatch. “Chrysler is burning through cash at an alarming rate, and that coupled with GM’s cash burn would just push GM closer to disaster.”

Efraim Levy of Standard & Poor’s Equity Research agreed that a merger might not be the best route to take for beleaguered GM.

“Given the marketplace and restructuring challenges faced by the automakers, we think a merger would be counterproductive," Levy said, MarketWatch reported. “On the other hand, if GM would get access to Cerberus’s capital, we could see positives for the automaker.”

Labor unions have also expressed their discomfort with a possible deal between GM and Chrysler would be beneficial.

“We have not had any discussions formally with any of the companies,” United Auto Workers President Ron Gettelfinger said yesterday on Detroit radio station WWJ, Bloomberg News reported. “I personally would not want to see anything that would result in a consolidation that would mean the elimination of additional jobs.”

But with U.S. auto sales at 15-year lows, job cuts at automakers are likely to occur with or without a potential merger, which could lead to eventual capitulation from the union.

“I think you could convince them,” David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, said of the unions, Bloomberg reported. “Profitability over the long term is the only job security these guys have.”

Another Ford Divestiture

GM approached Ford about a potential merger, as well, according to news reports, but the company founded by automobile pioneer Henry Ford is determined to go it alone.

After having already sold Land Rover and Jaguar to Indian carmaker Tata Motors Ltd. (ADR: TTM) for $2.3 billion, Ford is now shopping its one-third stake in Japan’s Mazda Motor Corp. (PINK: MZDAF). Ford owns approximately 33.4% of Mazda and would like to sell a 20% share of the Japanese automaker.

And the buyer is likely to be one of Japan’s own, as Mazada’s main bank Sumitomo Mitsui plans to “do whatever they can to prevent this from happening” if Ford selects an unwelcome buyer, according to Credit Suisse Group AG (ADR: CS) analyst Koji Endo, BusinessWeek reported.

Two leading Japanese trading houses, Sumitomo Corp. and Itochu Corp., are the most interested bidders at the moment. It seems likely one of the two will come out on top as the winner for the Mazda stake.

Ford could certainly use the cash and the sale could also have benefits for Mazda, according to Takaki Nakanishi, JPMorgan Chase & Co. (JPM) analyst. Nakanishi feels the sale will allow Mazda more freedom in decision-making, while mainting its close ties to Ford.

“The synergy between the two companies is very significant, but we think they can produce this synergy without the management control inherent in its parent-subsidiary relationship,” Nakanishi said in a research note dated yesterday, Reuters reported.

Source: GM and Ford Choose Different Routes to Return to Profitability

Both stocks have been hammered year-to-date, with Ford shares having plunged over 63% and GM shares down a staggering 74%. Declining sales have seen the automakers’ stocks touch lows not seen in decades.

Waning U.S. consumer spending and high oil prices have hit domestic automakers that have long relied on large trucks and sport-utility vehicles (SUVs) as the cornerstones of their product offerings. U.S. firms have been slower than their foreign counterparts, such as Toyota Motor Corp. (ADR: TM), in adopting the now popular fuel-efficient hybrids and smaller car models.

But both GM and Ford have said that bankruptcy is not an option they will consider. The automakers are aggressively pursuing two different paths to try to return to profitability. While GM seeks out a potential merger, Ford is selling off assets.

GM and Chrysler in Talks: WSJ

The Wall Street Journal reported over the weekend that GM has had talks with private-equity firm Cerberus Capital Management LP over a possible sale of the hedge fund firm’s 80.1% stake in Chrysler LLC. In addition to its marquee Chrysler brand, the automaker produces the Dodge and Jeep lines.

However, Chrysler is the weakest of Detroit’s “Big Three” and its line of Dodge Ram pick-ups and Jeep SUVs have been poor sellers in the current economic environment, which casts doubt on the validity of that report.

“Ford and even GM have been trying to shed unprofitable brands, so why would CEO Rick Wagoner go out and purchase brands that are struggling?” David Silver, an analyst at Wall Street Strategies Inc. (OTC: WSSSQ), told MarketWatch. “Chrysler is burning through cash at an alarming rate, and that coupled with GM’s cash burn would just push GM closer to disaster.”

Efraim Levy of Standard & Poor’s Equity Research agreed that a merger might not be the best route to take for beleaguered GM.

“Given the marketplace and restructuring challenges faced by the automakers, we think a merger would be counterproductive," Levy said, MarketWatch reported. “On the other hand, if GM would get access to Cerberus’s capital, we could see positives for the automaker.”

Labor unions have also expressed their discomfort with a possible deal between GM and Chrysler would be beneficial.

“We have not had any discussions formally with any of the companies,” United Auto Workers President Ron Gettelfinger said yesterday on Detroit radio station WWJ, Bloomberg News reported. “I personally would not want to see anything that would result in a consolidation that would mean the elimination of additional jobs.”

But with U.S. auto sales at 15-year lows, job cuts at automakers are likely to occur with or without a potential merger, which could lead to eventual capitulation from the union.

“I think you could convince them,” David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, said of the unions, Bloomberg reported. “Profitability over the long term is the only job security these guys have.”

Another Ford Divestiture

GM approached Ford about a potential merger, as well, according to news reports, but the company founded by automobile pioneer Henry Ford is determined to go it alone.

After having already sold Land Rover and Jaguar to Indian carmaker Tata Motors Ltd. (ADR: TTM) for $2.3 billion, Ford is now shopping its one-third stake in Japan’s Mazda Motor Corp. (PINK: MZDAF). Ford owns approximately 33.4% of Mazda and would like to sell a 20% share of the Japanese automaker.

And the buyer is likely to be one of Japan’s own, as Mazada’s main bank Sumitomo Mitsui plans to “do whatever they can to prevent this from happening” if Ford selects an unwelcome buyer, according to Credit Suisse Group AG (ADR: CS) analyst Koji Endo, BusinessWeek reported.

Two leading Japanese trading houses, Sumitomo Corp. and Itochu Corp., are the most interested bidders at the moment. It seems likely one of the two will come out on top as the winner for the Mazda stake.

Ford could certainly use the cash and the sale could also have benefits for Mazda, according to Takaki Nakanishi, JPMorgan Chase & Co. (JPM) analyst. Nakanishi feels the sale will allow Mazda more freedom in decision-making, while mainting its close ties to Ford.

“The synergy between the two companies is very significant, but we think they can produce this synergy without the management control inherent in its parent-subsidiary relationship,” Nakanishi said in a research note dated yesterday, Reuters reported.

Source: GM and Ford Choose Different Routes to Return to Profitability

The rally was sparked by commitments from the major financial nations to cooperate in getting the credit markets functioning again, and by news that U.S. officials were putting the finishing touches on Washington’s version of a rescue plan under which the U.S. Treasury Department will invest an estimated $125 billion in nine major U.S. banks, and another $125 billion in smaller financial institutions, Bloomberg News reported early this morning (Tuesday).

The White House announced that U.S. President George W. Bush would meet at 7:30 a.m. EDT today with members of his financial markets working group. He’ll make a statement about the plan at 8:05 a.m. U.S. Treasury Secretary Henry M. “Hank” Paulson Jr., U.S. Federal Reserve Chief Ben S. Bernanke and Federal Deposit Insurance Corp. Chair Sheila C. Bair will discuss the plan during an 8:30 a.m. news conference, MarketWatch.com and Bloomberg both reported.

“These are tough times for our economies, yet we can be confident that we can work our way through these challenges and America will continue to work closely with the other nations to coordinate our response to this global financial crisis,” President Bush told reporters yesterday following a meeting with Italy Prime Minister Silvio Berlusconi at the White House.

After an eight-day losing streak – the worst for the Standard & Poor’s 500 Index since 1996 – those dramatic worldwide developments were enough to spawn a rally of historic proportions in U.S. shares. The S&P 500 rebounded from its worst week in 75 years with an 11.6% advance, jumping 104.13 points to close at 1,003.35. The Dow zoomed 936.42 points, or 11%, to close at 9,387.61 – eviscerating the previous record of 499 points, set in March 2000, and posting its best percentage gain since 1933.

The Nasdaq Composite Index climbed 194.74, or 12%, to 1,844.25. Sixteen stocks gained for each that fell on the New York Stock Exchange.

Last week’s 18% declines pushed both the S&P 500 and Dow down more than 40% from their peaks last October.

The S&P 500 ended the trading day Friday at 17 times reported earnings of its companies, the cheapest valuation in more than a year. Yesterday’s really boosted the Price/Earnings ratio to 19.2. The S&P 500 is still down 32% this year, positioning it for its worst yearly loss since 1937.

“The worst of the immediate danger is past,” Bruce McCain, chief investment strategist at Key Private Bank (KEY) in Cleveland, which manages $30 billion, told Bloomberg, the well-known financial news service.“It’s always easier when you’ve got markets going up and you’re not having to talk clients back in off the ledge.”

Kevin Divney, chief investment officer at Putnam Investments in Boston, told Bloomberg Television that “the real catalyst is the levels of valuation.”

But not everyone was quite so sanguine. Money Morning Investment Director Keith Fitz-Gerald cautioned that one strong day in the markets – even a record one – doesn’t necessarily mean there’s a full-fledged rebound in store.

“The real economic growth rates in the financial sector are unclear,” Fitz-Gerald said in an interview. “To say that it’s an accounting nightmare is an insult to the Hollywood honchos who actually make their living transforming nightmares into movies. Fiction writers could not concocted a better horror story than the one that’s rocked world financial markets since last November. Despite all the mergers and acquisitions, and the emergency bailouts, that we’ve seen to date, Wall Street hasn’t even begun to address the underlying business prospects – on anything more than a superficial level – of the lion’s share of the companies that are being bailed out.” [For Fitz-Gerald’s full take on yesterday’s market action – including some insights on how he believes investors should navigate the uncertainty – check out his special market commentary that appears elsewhere in today’s issue.]

All 10 industries in the S&P 500 added more than 7%. Monday’s worldwide rally – which ranged from Tokyo to New York – sent the MSCI World Index up 9.5 %, the biggest gain since the gauge was created in 1970, MarketWatch reported.

The bond market was closed for the Columbus Day holiday. The dollar fell the most in three weeks against the euro.

Details of a Bailout/“Rescue” Plan

On Sunday, the major European Union nations committed more than $2.3 trillion to safeguard their banks and financial system, according to The Associated Press.  Global efforts to rescue the international banking system gathered force yesterday, with Europe leading the way to provide money to shore up its financial sector and calm traders, and the U.S. hinting it’s on board with its own rescue plan, MarketWatch reported. [For details of the sweeping European rescue plan, check out this related report elsewhere in today’s issue of Money Morning.]

U.S. bankers were summoned to the Treasury Department yesterday, as the U.S. government prepared additional measures to stabilize markets, reported the U.S. shortwave broadcasting service, The Voice of America.

Over the weekend, Treasury Secretary Paulson had called the heads of the five biggest U.S. banks to come to Washington for face-to-face talks about the rescue plan, according to people briefed on the matter. Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd C. Blankfein, Morgan Stanley (MS) CEO John J. Mack, Citigroup Inc. (C) CEO Vikram Pandit, JPMorgan Chase & Co. (JPM) CEO Jamie Dimon and Bank of America Corp. (BAC) CEO Kenneth D. Lewis were all asked to attend, according to The AP.

The CEOs had been in Washington this past weekend to meet with international finance officials at the annual meetings of the International Monetary Fund (IMF) and World Bank. This group of U.S. banking sector leaders met with Paulson and Fed Chairman Bernanke for about three hours yesterday, several news sources have said.

When asked for precise details about the plan that’s to be unveiled early today, U.S. Treasury officials remained mum. Indeed, sources would only say that it would include a “series of comprehensive actions to strengthen public confidence in our financial institutions and restore functioning of our credit markets.”

However, after the CEO meetings, some details began to leak out. Industry insiders speculated late yesterday that the Federal Reserve and Treasury Department had outlined a plan to inject as much as $250 billion of the $700 billion rescue plan into top U.S. banks.

In addition, to jumpstart “Interbank” lending, the FDIC would actually insure new senior preferred debt for three years.

The Treasury Department would take the equity stakes in banks using authority it was granted under the $700 billion bank rescue plan enacted two weeks ago.

“We’re talking about making investments in these banks in a way that doesn’t necessarily punish existing shareholders,” Charles Bobrinskoy, vice chairman of Ariel Investments LLC, which manages $13 billion, said on Bloomberg TV. “Most of the bank actions to date in the U.S. have been good for bondholders but terrible for common stockholders.”

Government actions this year to prevent bankruptcies at investment bank Bear Stearns Cos., mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE) and insurer American International Group Inc. (AIG) resulted in near-total losses for the firms’ shareholders.

The collapse of New York-based Lehman Brothers Holdings Inc. (LEHMQ) on Sept. 15 precipitated the latest chapter of the 14-month-old credit crisis, causing banks to stop lending to each other out of concern they may not get their money back.

Direct investments of this magnitude represent a new approach for Treasury Secretary Paulson, who initially advocated a bailout targeted at illiquid mortgage-related assets. When the markets didn’t respond positively to earlier plans, the Treasury Department shifted gears – in a big way.

“They’ve decided they need to do something drastic and this is drastic,” Gerard S. Cassidy, a bank analyst at RBC Capital Markets (RY) in Portland, Maine, told Bloomberg.

The proposed cash injections in exchange for preferred shares are said to be destined for Citigroup, Goldman Sachs, Wells Fargo & Co. (WFC), JP Morgan Chase & Co., Bank of America Corp., Merrill Lynch & Co. Inc. (MER), Morgan Stanley, State Street Corp. (STT), and Bank of New York Mellon Corp. (BK).

“The government has gone to ‘Plan B’ and it packs a big wallop,” Frederic Dickson who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon, told the financial news service.

The Treasury plans to spend $25 billion each for stakes in Citigroup and JPMorgan, people said. Another $25 billion will be divided between Bank of America and Merrill, which agreed last month to be acquired by Bank of America. Wells Fargo is to get at least $20 billion, Goldman and Morgan Stanley will each get $10 billion, and State Street and Bank of New York will get about $3 billion each, people said.

The government will obtain its stakes with a type of security designed not to dilute the value of common shares.

None of the nine banks getting government money was given a choice about it, said people familiar with the plans. All of the banks involved will have to submit to compensation restrictions as mandated by Congress, people said.

The remaining $125 billion will be used to recapitalize other financial institutions around the country, the people said. Neel Kashkari, the U.S. Treasury official overseeing the rescue of the financial system, yesterday said the equity purchases would be aimed at “healthy” firms.

Source: Dow Zooms to Record Gain Yesterday on Reports The Government Will Reveal Banking Bailout Plan Details Early Today