Get Business News

Consumer electronics chain Best Buy Co. Inc. is establishing a foothold in the European market with a $2.1 billion investment in the continent’s largest cell phone retailer, allowing the American company to roll out its trademark big box stores in Europe, the companies said Thursday.
The London-based Carphone Warehouse Group PLC will put its 2,400 Carphone Warehouse and Phone House stores in Europe into the new joint venture.
In a conference call with analysts, the companies said they have been speaking for four years and have collaborated for two, developing the Best Buy Mobile concept for Best Buy stores in the U.S., and bringing Best Buy’s Geek Squad, a 24-hour computer support task force, to Europe.
“We are partnering with an incredibly powerful and incredibly successful organization,” said Charles Dunstone, chief executive of The Carphone Warehouse.
Executives from both companies declined to say how many Best Buy stores will open in Europe, or in which markets, because they didn’t want to tip off the competition. However, they did say the stores will come in a range of sizes and will start opening next year.
Brad Anderson, chief executive of Best Buy, based in Richfield, Minnesota, said they will maintain Best Buy’s reputation for aggressive price competition.
Carphone Warehouse’s current European retail management team initially will remain in place, supplemented by additional personnel from Best Buy as the joint venture develops, the companies said.
RBC Capital markets analyst Scot Ciccarelli wrote the deal offers Best Buy “an intelligent and low-risk strategy to enter the European market,” rather than starting from scratch.
He noted that Carphone Warehouse gets to keep its international business, receives an injection of cash to pay down debt and invest in operations, and will benefit from Best Buy’s consumer electronics experience. RBC rates Best Buy stock a “top pick,” its highest rating.
But Bank of America Equity Research analyst David Strasser, who has a “neutral” rating on the stock, wasn’t enthusiastic. He wrote that Best Buy is “taking on significant exposure and balance sheet risk, at a time of increasing uncertainty in both the electronics industry and the broader retail environment.”
However, he noted that the companies know each other well, and Best Buy will be entering the European market with a proven local partner. He said the accelerated rollout of Best Buy Mobile now planned for all Best Buy stores this year will be a strong improvement from Best Buy’s previous wireless program. It could hurt U.S. competitor Radio Shack Corp.
But Strasser questioned the timing of the deal.
“Buying exposure in Europe and rolling out Best Buy stores in Europe is risky, in our opinion. … (W)e believe the European consumer is heading into a U.S.-like slowdown after a robust spending period. Second, the success of U.S. retailers in Europe is pretty poor,” he wrote.
Because of the deal, Best Buy is dropping its plan to buy back $800 million worth of its shares in its current fiscal year, which began March 2. The company said it expects the joint venture to add about $5 billion to its revenues and 5 cents to 7 cents per share to earnings for the year.
The Carphone Warehouse Group will continue as sole owner of its fixed line telecoms business in the United Kingdom, which includes TalkTalk, AOL Broadband and Opal; and its share of the Virgin Mobile France joint venture.
Carphone Warehouse shares fell 3.4 percent to 289 pence ($5.65) in London. Best Buy shares fell $1.41 cents, or 3.3 percent, to $42.04 in afternoon U.S. trading.
The deal is subject to approval by Carphone Warehouse shareholders at its annual general meeting in August. It’s expected to close by the end of August.
Associated Press writer Robert Barr contributed to this report from London.
On the Net:
Carphone Warehouse: http://www.cpwplc.com
Best Buy: http://www.bestbuy.com

via AOL

LONDON - Best Buy Co. Inc., the biggest U.S. electronics retailer, is paying $2.1 billion for a 50 percent stake in Europe s largest cell phone retailer, the companies announced Thursday.

The Carphone Warehouse will place its 2,400 U.S. and European stores in the new joint venture.

The deal also includes the web and direct businesses of The Carphone Warehouse, the insurance operations, and its airtime reselling businesses.

The Carphone Warehouse will continue as sole owner of its fixed line telecoms business in the United Kingdom, which includes TalkTalk, AOL Broadband and Opal; and its share of the Virgin Mobile France joint venture.

U.K.-based Carphone Warehouse said it would use the proceeds to pay down debt, invest in broadband customer growth, infrastructure and other areas. Its current European retail management team initially will remain in place, the companies said.

Carphone Warehouse shares fell 2.4 percent to 292 pence ($5.73).

Collins Stewart analyst Mark James retained his buy recommendation on the company, saying the price of the deal gave an implied valuation of 2.2 billion pounds ($4.3 billion), ahead of the brokerage s 1.9 billion pound ($3.7 billion) valuation.

However, JP Morgan lowered The Carphone Warehouse to neutral from overweight, citing limited share price upside on a 3-6 month view.

It said the Best Buy deal raised several concerns, such as the rationale of investing in consumer electronics retailing, the potential use of proceeds, and the impact on the company s financials.

Charles Dunstone, chief executive officer of The Carphone Warehouse, said the companies had been working together for two years.

It is clear that we have very complementary cultures, skills and assets it s a perfect match, Dunstone said. It is also clear that we have a significant opportunity for incremental growth in our retail business which we can best realize with Best Buy on board.

The two companies worked on developing Best Buy Mobile, and have been collaborating to bring Geek Squad, a 24-hour computer support task force, to European markets.

We believe our combined expertise has potential to result in significant financial upside as we together attempt to transform retail in Europe through the Carphone Warehouse, Phone House and Best Buy brands, said Brian Dunn, president and chief operating officer.

The deal is subject to approval by Carphone Warehouse shareholders at the annual general meeting in August.

Best Buy is headquartered in Richfield, Minn.

via MSN

MINNEAPOLIS - Best Buy, the largest U.S. consumer electronics chain, has moved into Europe with a $2.1 billion investment in the continent’s largest cell phone retailer, the companies announced Thursday.

Best Buy’s 50 percent stake in a joint venture with Carphone Warehouse Group PLC will allow it to roll out its trademark big box stores in Europe, with the London-based company putting its 2,400 European stores into the new operation.

In a conference call with analysts, the companies said they have been speaking for four years, and have collaborated for two, developing Best Buy Mobile in the U.S., and bringing Best Buy’s Geek Squad, a 24-hour computer support task force, to Europe.

“We believe our combined expertise has potential to result in significant financial upside as we together attempt to transform retail in Europe through the Carphone Warehouse, Phone House and Best Buy brands,” said Brian Dunn, president and chief operating officer of Carphone Warehouse.

Brad Anderson, chief executive of Richfield-based Best Buy, said the companies share similar cultures and customer-related skills. He said the joint venture will allow Best Buy to grow.

Citing competition, executives declined to say how many Best Buy stores would open in Europe, or where, but did say the stores would come in a range of sizes.

The stores will also compete aggressively on prices, Anderson said.

“With the name Best Buy we have a commitment we have to live up to,” he said.

The joint venture also includes the Web and direct businesses of The Carphone Warehouse, its insurance operations, and its airtime reselling businesses.

The Carphone Warehouse Group will continue as sole owner of its fixed line telecoms business in the United Kingdom, which includes TalkTalk, AOL Broadband and Opal; and its share of the Virgin Mobile France joint venture.

It said it would use proceeds from the deal to pay down debt, invest in broadband customer growth, infrastructure and other areas. Its current European retail management team initially will remain in place, the companies said.

Collins Stewart analyst Mark James retained his buy recommendation on the company, saying the price of the deal gave an implied valuation of $4.3 billion, ahead of the brokerage’s $3.7 billion valuation.

It said the Best Buy deal raised several concerns, however, such as “the rationale of investing in consumer electronics retailing, the potential use of proceeds, and the impact on the company’s financials.”

Carphone Warehouse shares fell 3.4 percent to close at 289 pence ($5.67) in London. Best Buy shares fell $1.12, or 2.6 percent, to $42.33 in afternoon trading.

In a research note, RBC Capital markets analyst Scot Ciccarelli said the deal offers Best Buy “an intelligent and low-risk strategy to enter the European market,” rather than starting from scratch.

He noted that Carphone Warehouse gets to keep its international business, get an injection of cash to pay down debt and invest in operations, and that it will benefit from Best Buy’s consumer electronics experience.

JP Morgan lowered The Carphone Warehouse to neutral from overweight, citing limited “share price upside on a 3-6 month view.”

The deal is subject to approval by Carphone Warehouse shareholders at its annual general meeting in August.

___

Associated Press writer Robert Barr contributed to this report from London.

___

On the Net:

Carphone Warehouse, http://www.cpwplc.com/

Best Buy, http://www.bestbuy.com/

via MSN

 PARIS (AP) - NYSE Euronext said Tuesday its profit more than tripled in the first quarter, reflecting the addition of Euronext NV’s activities to those of the parent of the New York Stock Exchange last year and higher trading volumes.
The trans-Atlantic stock exchange operator said it earned $230 million, or 87 cents a share, for the three months ended March 31 from $68 million, or 43 cents a share, a year earlier.
The 2007 figure did not include the results of Euronext, operator of the Paris, Amsterdam, Lisbon and Brussels exchanges, which combined with NYSE in April 2007 to cut trading costs.
NYSE Euronext said first-quarter revenue rose to $1.29 billion from $702 million a year earlier.
The credit crisis has lifted trading volumes as traders sell and hedge positions.

via AOL

PARIS - NYSE Euronext said Tuesday net profit more than tripled in the first quarter reflecting the addition of Euronext NV to NYSE Group Inc.’s activities after last year’s merger and higher trading volumes.

The trans-Atlantic stock exchange operator said net profit in the three months to end of March rose to US$230 million (euro149 million) from US$68 million a year earlier.

The 2007 figure did not include the results of Euronext, operator of the Paris, Amsterdam, Lisbon and Brussels exchanges, which merged in April last year with NYSE to cut trading costs.

The credit crisis has lifted trading volumes as traders sell and hedge positions.

NYSE Euronext said first-quarter revenue rose to US$1.29 billion (euro830 million) from US$702 million a year earlier.

via MSN

WASHINGTON (AP) - The Federal Reserve, which began the year aggressively fighting a severe credit crunch and economic weakness, may push the pause button after delivering perhaps one more quarter-point cut in interest rates.
Fed Chairman Ben Bernanke and his colleagues began their second day of discussions on Wednesday. Financial markets widely expected that those talks would end with an afternoon announcement that the Fed will cut a key interest rate by a quarter point.
That would be the seventh reduction in the federal funds rate since the central bank began battling against the credit squeeze and the growing possibility of a recession last September.
The Fed delivered two three-quarter-point moves and one half-point cut over an eight-week period from mid-January to mid-March that represented the central bank’s most aggressive rate cuts in a quarter-century.
However, the central bank is expected to respond with a less aggressive quarter-point move at this meeting, in part because the financial turmoil seems to have eased and because there are growing concerns about inflation.
While there is some thought that the Fed might decide to forgo a rate cut, most analysts believe that the greater likelihood is a quarter-point move.
“My best guess is that they want to buy a little more insurance against an economy that looks like it is in recession,” said Lyle Gramley, a former Fed board member with the Stanford Financial Group.
The overall economy eked out annual growth at a rate of 0.6 percent in the first three months of the year, the Commerce Department reported Wednesday, matching the anemic pace turned in during the final three months of last year. Analysts said they looked for the gross domestic product to drop into negative territory in the current April-June period.
A quarter-point cut would move the funds rate to 2 percent, more than 3 percentage points below the 5.25 percent funds rate in effect before Sept. 18, when the Fed started cutting rates.
A quarter-point move would trigger a similar reduction in banks’ prime lending rate, the benchmark for millions of consumer and business loans, which now stands at 5.25 percent.
The Fed’s rate-setting Federal Open Market Committee, composed of Fed board members in Washington and regional Fed bank presidents, is split into two camps. One group is concerned that the severe credit crisis and prolonged housing slump could be pushing the country into a deep recession while a smaller faction is worried that the Fed could be running the risk of letting inflation get out of control even as the economy slows.
Whatever the Fed does at the conclusion of this week’s meeting, private economists believe it will leave the door open for further rate cuts, seeking to avoid the mistake made at the October meeting when it sent a pause signal, only to have to backtrack.
“They made a big mistake after the October meeting, implying that they would pause, and then had egg all over their face when they had to begin cutting rates aggressively because the economy weakened more than they thought and the credit crisis turned out to be more severe,” said David Jones, head of DMJ Advisors, a private economic consulting firm.
While leaving the door open this time for further rate cuts if needed, the Fed may well be done, many analysts believe, if financial markets continue to improve and the economy starts to rebound with the help of the previous Fed rate cuts and 130 million economic stimulus payments, which started showing up in Americans’ bank accounts this week.
While many economists believe the country is in a recession, the expectation is that it will be a short one ending this summer. If that turns out to be correct, the Fed may hold rates steady for the rest of this year with the next move being a rate increase sometime next year when the economy is on sounder footing.
“The Fed won’t start raising interest rates until the unemployment rate has peaked and started coming back down,” said Mark Zandi, chief economist at Moody’s Economy.com. He said he was looking for the jobless rate, now at 5.1 percent, to climb to 6 percent early next year before starting to fall.

via AOL

WASHINGTON (AP) — Battling risky economic crosscurrents, the Federal Reserve is ready to bump down a key interest rate again to brace the wobbly economy. That rate cut could turn out to be the last one for a while as zooming energy and food prices heighten inflation concerns.

Fed Chairman Ben Bernanke and his colleagues are walking a tightrope. They are trying to shore up economic growth and at the same time they are mindful that they can’t let inflation get out of hand. It’s a bit of an economic dilemma: The very rate reductions the Fed depends on to energize the economy can also sow the seeds of inflation down the road.

“It’s a very challenging environment,” said John Silvia, chief economist at Wachovia.

In a nod to those conflicting forces, the Fed probably will opt for a moderate-sized rate reduction of one-quarter percentage point this week, Silvia and other economists predict.

At its previous meeting on March 18, the Fed slashed rates by a hefty three-quarters point. The action, however, drew opposition from two Fed members who favored a smaller reduction because of concerns about a potential inflation flare-up. It was a crack in the mostly unified front the Fed often shows the public.

The Fed, which has been cutting rates since last September, turned more forceful in January and March, when housing, credit and financial problems took a turn for the worse, threatening to plunge the country into a deep recession. The Fed’s rate cuts in January and March alone marked the most aggressive Fed intervention in a quarter-century.

This time around, though, the Fed is likely to go with a smaller rate cut at the end of its two-day meeting on Wednesday.

A quarter-point reduction would drop the Fed’s key rate for influencing national economic activity to 2%. This rate, called the federal funds rate, is what banks charge each other on overnight loans and affects a wide range of interest rates charged to people and businesses.

In turn, the prime lending rate for millions of consumers and businesses would fall by a corresponding amount, to 5%. The prime rate applies to certain credit cards, home equity lines of credit and other loans. Both rates would be the lowest since late 2004.

Economists think the Fed may be inclined to leave rates at such low levels possibly through the rest of this year and maybe into next year - as long as the country is not hit with another blow to economic growth.

“We are entering the stage where it is time for the Fed to wind down and move to the sidelines,” said Greg McBride, senior financial analyst at Bankrate.com. “A quarter-point reduction is a nice segue to that transition. Short-term interest rates could stay low longer than many currently expect,” he added.

The Fed’s rate cuts - which take months to work their way through the economy and affect activity - along with the government’s $168 billion stimulus package of tax rebates for people and tax breaks for businesses - should help strengthen the economy in the second half of this year, Fed officials said.

It’s the first half of this year where damage from the housing, credit and financial debacles could be the worst. The economy may grow little, if at all, during this period and could actually shrink, Bernanke told Congress earlier this month. A recession, he said, was possible. It was Bernanke’s first public acknowledgment of such a scenario.

A growing number of economists now believe the economy probably will contract in the current April-to-June quarter. Many analysts also now think the economy will manage to eke out a barely noticeable 0.4% growth rate during the first three months of this year as opposed to falling into negative territory as some had previously thought. The government reports on the first quarter’s performance on Wednesday - the same day the Fed’s decides its next move on interest rates.

Even if the economy heals in the second half of this year and into 2009, the unemployment rate, now at 5.1%, is likely to rise, perhaps reaching close to 6% early next year, analysts said. Job losses for the first three months of this year neared the staggering quarter-million mark.

The Fed’s rate cuts ordered thus far would help to cushion the fallout.

On inflation, Bernanke said rising prices are a source of concern and must be monitored closely. Still, he is hopeful inflation will moderate in coming quarters.

Gasoline prices have shot up to record highs in recent days and could hit $4 a gallon this summer. Food prices are up 5.3% on an annualized basis in the first three months of this year, outpacing the 3.1% rise in overall inflation.

If the Fed does drop its key rate to 2% and holds it there for some time, that would still be low enough to provide relief to stressed homeowners facing a rate reset to their adjustable-rate mortgages, McBride said.

Trying to get the economy back to full throttle after its last recession in 2001, the Fed ratcheted down its key rate to 1% - the lowest in more than four decades. Then-chairman Alan Greenspan held the rate at that super-low level for a year, before the Fed began to bump it up. That action has since fueled criticism that Greenspan helped to create the very housing boom that has now gone bust, wreaking havoc on the economy. Foreclosures have surged to record highs, financial companies have wracked up multibillion losses and all the fallout has sent the economy reeling.

Even as economists predict the Fed is likely to wind down its rate-cutting campaign this year, they said the Fed would lower rates again if there were worrisome signs that the economy was faltering even more than expected.

“If the news is unremittingly bad, it will go down again. So the Fed has got plenty of ammunition if its needs it. But my guess is this will be about it,” said Bill Cheney, chief economist at John Hancock Financial Services. First Published: April 28, 2008: 4:40 AM EDT

via CNN

WASHINGTON - The Federal Reserve is expected to cut interest rates by a modest quarter percentage point on Wednesday and may suggest the rate-cutting cycle it kicked off last fall has reached an end.

The Fed will announce its decision on rates and offer an assessment of threats facing the economy at around 2:15 p.m. ET.

The statement … will make it clear that the net risk to growth is still to the downside, but that the risks have been reduced by the Fed s actions, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

The central bank s decision may be shaped in part by a government report on U.S. gross domestic product released early Wednesday, which showed the bruised U.S. economy limped through the first quarter of this year at only a 0.6 percent growth rate as housing and credit problems forced people and businesses alike to hunker down.

The country s economic growth during January through March was the same as in the final three months of last year. The statistic did not meet what economists consider the classic definition of a recession, which is a retraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if modestly.

Fed policy-makers, who opened a two-day meeting on Tuesday, confront a bleak landscape with an economy moving sideways at best, elevated prices for food and fuel, a deep housing downturn and lingering malaise in financial markets.

The Fed has cut benchmark overnight rates to 2.25 percent from 5.25 percent since mid-September.

Of 20 primary dealers participating in a Reuters poll last week, all 20 said the Fed would cut its fed funds rate target for overnight bank loans by a quarter percentage point on Wednesday.

While a further quarter point reduction is widely expected, interest rate futures prices imply a small probability that rates will be held steady.

In addition to lowering rates to spur the economy, the central bank has rolled out a series of emergency steps to pump billions of dollars of liquidity into financial markets to beat back a credit crunch. Policy-makers also will debate a new liquidity tool paying interest on bank reserves on Wednesday.

Fresh evidence of clouds over the economy emerged on Tuesday, with reports showing consumer confidence at a five-year low this month, a continued slide in existing home prices in February and a 23 percent surge in foreclosures in the first quarter.

At the same time, with gasoline prices heading toward $4 a gallon and strong global demand pushing up food prices, some Fed officials have worried openly that a desire to support the economy could lead the central bank to take its eyes off inflation.

Click for related contentThe Fed may be forced to take breather soonEconomy grows by 0.6 percent in first quarter

Two officials dissented from the central bank’s decision in March to cut rates by three-quarters of a percentage point, preferring a less aggressive move.

The Fed’s rate cuts have led to a weakening in the U.S. dollar that has pushed import prices higher, adding to inflation pressures. But Fed officials believe unemployment is likely to climb amid the economy’s weakness, making it difficult for businesses to raise their prices.

Policy-makers also expect the combined effects of the central bank’s rate cuts which act with a lag and a $152 billion fiscal stimulus package will provide a boost to the economy in months to come.

The disinflationary effect of a weak domestic economy and rising slack will ultimately dominate the inflation boosting impact of higher commodity prices and dollar depreciation, UBS economist James O’Sullivan wrote earlier this week in a note to clients.

via MSN

Motorola Inc. announced plans to separate its struggling handset business from other operations Wednesday, forming two separate publicly traded companies after months of agitation from frustrated investors.
The suburban Chicago-based cell phone maker has been under pressure from billionaire investor Carl Icahn for changes meant to revitalize its cell-phone business. The cell phone unit has seen its sales and stock price plummet with the company unable to produce second act to the once-popular Razr phone.
Motorola said the handset business will operate separately from another company that will encompass its home and networks business, which sells TV set-top boxes and modems, and its enterprise mobility solutions, which sells computing and communications equipment to businesses.
“Our priorities have not changed with today’s announcement,” Chief Executive Greg Brown said in a statement. “We remain committed to improving the performance of our Mobile Devices business by delivering compelling products that meet the needs of customers and consumers around the world.”
Schaumburg-based Motorola said it hopes the transaction will be tax-free, allowing shareholders to own stock in both of the new companies. If the deal is approved, the two units would be separated in 2009.
Brown said Motorola will launch a search for a new chief executive of the Mobile Device business as it works to regain favor with customers and its No. 2 position in the cell phone market.
Motorola lost that spot last year to rival Samsung Electof trade.
On the Net:
www.motorola.com

via AOL

Mar. 26, 2008 (Thomson Financial delivered by Newstex) —

CHICAGO (AP) - Motorola (NYSE:MOT) Inc. announced plans to separate its struggling handset business from other operations Wednesday, forming two separate publicly traded companies after months of agitation from frustrated investors.
The suburban Chicago-based cell phone maker has been under pressure from billionaire investor Carl Icahn for changes meant revitalize its cell-phone business. The cell phone unit has seen its sales and stock price plummet with the company unable to produce second act to the once-popular Razr phone.
Motorola said the handset business will operate separately from another company that will encompass its home and networks business, which sells TV set-top boxes and modems, and its enterprise mobility solutions, which sells computing and communications equipment to businesses.
‘Our priorities have not changed with today’s announcement,’ Chief Executive Greg Brown said in a statement. ‘We remain committed to improving the performance of our Mobile Devices business by delivering compelling products that meet the needs of customers and consumers around the world.’
Schaumburg-based Motorola said it hopes the transaction will be tax-free, allowing shareholders to own stock in both of the new companies. If the deal is approved, the two units would be separated in 2009.
Brown said Motorola will launch a search for a new chief executive of the Mobile Device business as it works to regain favor with customers and its No. 2 position in the cell phone market.
Motorola lost that spot last year to rival Samsung Electronics Co.
Finland’s Nokia Corp. (NYSE:NOK) is the industry leader.
‘We believe strongly in our brand, our people and our intellectual property, and expect that the Mobile Devices business will be well-positioned to regain market leadership as a focused, independent company,’ Brown said.
Wednesday’s announcement was just the latest shake-up at Motorola, which rode the success of the iconic Razr phone from 2005 to 2006, but has stumbled since amid stiff competition.
Last year, the company pulled back from developing markets, cut 7,500 jobs and CEO Ed Zander resigned.
A flock of executives have left the company this year, and more cuts and changes are likely as the new management team scrambles to retain control in the face of a revived threat from Icahn.
Icahn, who has been steadily increasing his Motorola position, disclosed in a filing this month that he now owns 142,362,000 million shares, or 6.3 percent — up from 5 percent a month ago.
Wednesday’s announcement came two days after Icahn sued Motorola, seeking documents about its executives and its cell phone business.
Icahn plans to use the material in his battle to win four seats on the Schaumburg-based company’s board, his second proxy fight in two years with Motorola. He rejected a concessionary offer of two seats from the company.
A message left with Icahn’s office was not immediately returned.
Motorola shares climbed 57 cents, or 5.8 percent, to $10.33 in premarket trading.

via CNN

Stocks headed toward a higher open Monday as investors grew upbeat over a report that Bear Stearns Cos. could fetch more money than the amount set in a buyout deal a week ago.
JPMorgan Chase & Co. was in talks to boost its offer for Bear Stearns to $10 per share from $2, according to The New York Times. The discussions were aimed at soothing Bear Stearns shareholders upset over the JPMorgan’s earlier offer, made at the behest of the Federal Reserve when the investment bank was near collapse.
While the Fed would need to sign off on any changes to the deal, any sign that Bear Stearns could fetch more than originally thought could help boost Wall Street’s mood. The session before the $2 offer arrived for Bear, the stock had finished at $30.
Bear Stearns ran into trouble with mortgage-backed securities and an evaporation of liquidity amid nervousness in the credit markets. Wall Street has faced concerns for months that troubles with soured debt and a lack of liquidity could take down banks.
Beyond the troubles of the financials, Wall Street will also be looking at the housing sector - the root of much of Wall Street’s current angst. A report expected from The National Association of Realtors on February’s sales of existing homes is expected to show sales fell compared with January, according to the median estimate of economists polled by Thomson Financial/IFR.
Dow Jones industrial average futures rose 65, or 0.53 percent, to 12,393. Standard & Poor’s 500 index futures advanced 9.30, or 0.70 percent, to 1,334.00. Nasdaq 100 index futures rose 9.80, or 0.56 percent, to 1,759.80.
The advance in futures follows a volatile but ultimately strong week for the markets. The Dow and the S&P each showed gains of more than 3 percent for the week, while the Nasdaq advanced more than 2 percent.
Bond prices fell Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.37 percent from 3.34 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell 79 cents to $101.05 per barrel in premarket electronic trading on the New York Mercantile Exchange. Oil prices declined amid speculation that a slowing U.S. economy could damp demand.
In corporate news, Tiffany & Co. said loans it made to a diamond company weighed on its fourth-quarter profit, but that earnings excluding items were in line with Wall Street’s expectations.
Overseas, Japan’s Nikkei stock average slipped 0.02 percent. Markets in Europe and in Hong Kong were closed for Easter Monday.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com

via AOL

Mar. 17, 2008 (Thomson Financial delivered by Newstex) —

NEW YORK (AP) - U.S. stocks headed for a sharply lower open Monday as Wall Street and other global markets reeled from JPMorgan Chase (NYSE:JPM PRH) (NYSE:JPM PRX) (NYSE:JPM PRK) (NYSE:JPM PRJ) (NYSE:JPT) (NYSE:JPM) & Co.’s government-backed buyout of faltering investment bank Bear Stearns Cos. (NYSE:BSC)
Dow Jones industrial average futures fell 238, or 1.99 percent, to 11,746. Standard & Poor’s (NYSE:MHP) 500 index futures fell 30.80, or 2.38 percent, to 1,262.20, while Nasdaq 100 index futures fell 42.70, or 2.48 percent, to 1,681.80.
On top of supporting the buyout, the Federal Reserve took the extraordinary step of lowering the rate it charges to loan directly to banks just two days before its scheduled meeting Tuesday. The central bank lowered the discount rate by a quarter point to 3.25 percent.
The stunning implosion of Bear Stearns stirred fear among investors worldwide that other banks had sizable exposure to troubled credit markets. Stocks fell sharply in Asia and Europe and oil prices jumped to a fresh record.
JPMorgan said Sunday it would acquire Bear Stearns for $236.2 million in a deal backed by the Fed. JP Morgan will pay $2 per share, though Bear Stearns closed at $30 per share Friday.
Bond prices rose as investors rushed for safety. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.39 percent from 3.44 percent late Friday.
The dollar fell to a record low against the euro and hit a 12 1/2 year low against the yen. Meanwhile, gold prices jumped.
Light, sweet crude fell $1.29 to $108.92 per barrel in premarket electronic trading on the New York Mercantile Exchange. Oil prices rose to a high of almost $112 a barrel Monday.
Overseas, Japan’s Nikkei stock average fell 3.71 percent, while Hong Kong’s Hang Seng index fell 5.18 percent. In afternoon trading, Britain’s FTSE 100 fell 2.69 percent, Germany’s DAX index dropped 3.65 percent, and France’s CAC-40 lost 2.99 percent.
Bear’s buyout, while perhaps reassuring in that it didn’t result in a bankruptcy filing, was nonetheless an unwelcome development as it makes clear the extent to which credit markets are struggling to operate. The pain for investors in Bear Stearns, which succumbed to soured bets on now troubled mortgages for borrowers with poor credit, will be sizable. JPMorgan is acquiring Bear, including its midtown Manhattan headquarters, for about 1 percent of what the investment bank was worth little more than two weeks ago. The 85-year-old company has 14,000 workers worldwide.
The collapse of the world’s fifth-largest investment bank comes after a short-term bailout Friday that JPMorgan led and that the Fed backed. It was the first such intervention by central bankers since the 1930s.
In another unusual move, the Fed said it set up a lending option for big investment banks to secure short-term loans.
The market’s concern wasn’t limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc. (NYSE:LEH) , according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.
Skittish investors sent Lehman shares down in early trading. The stock was down 11 percent in premarket electronic trading.
Wall Street’s worries about the financial sector come in a week in which the major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.

via CNN

It’s been almost an article of faith: Any recession this year will be mild and brief. But now the stunning meltdown of a top Wall Street investment bank and stubbornly persistent financial market turbulence has called that into question, raising fears that severe problems in housing and the nation’s bedrock financial system could cripple the economy and wallop many millions of Americans.
No less an authority than former Federal Reserve Chairman Alan Greenspan wrote this week that “the current financial crisis in the U.S. is likely to be judged as the most wrenching” since the end of World War II.
Other noted economists are also sounding alarms. Harvard professor Martin Feldstein, the former head of the National Bureau of Economic Research, said recently he believes the country is now in a recession and it could be a severe one.
While it will be many months before the bureau’s cycle dating committee, the unofficial arbiter of when recessions begin and end, makes its own ruling, a growing number of private economists already have a downturn figured into their forecasts. They are generally calling for a mild recession that will end this summer when the economic stimulus checks going to 130 million households start getting spent.
But the severe credit crisis that erupted last August - and claimed its biggest victim this past weekend with the forced sale of Bear Stearns Co. - is raising doubts about those mild forecasts.
“Bear Stearns was a clear wake-up call. It resonates with everybody and highlights the severity of the stresses in the financial system,” said Mark Zandi, chief economist at Moody’s Economy.com.
What got people’s attention was how quickly Bear Stearns, the nation’s fifth largest investment bank, could go from a stock market value of about $3.5 billion when the market closed on March 14 to being sold at the bargain-basement price of about $236 million two days later.
The Federal Reserve rushed in to take unprecedented actions. It provided a $30 billion line of credit to facilitate the sale and is employing Depression-era provisions that for the first time are providing direct Fed loans to investment banks. Most analysts said the Fed was justified and that its efforts highlighted the severity of the dangers facing the financial system.
The turmoil produced wild swings on Wall Street this week with the Dow Jones industrial average surging on Tuesday after the Fed aggressively cut a key interest rate only to plunge on Wednesday on renewed worries about the economy and then to stage a 262-point gain on Thursday. Markets were closed Friday.
More turbulence is expected in coming weeks because there remains a great deal of uncertainty about how many more victims the credit crisis will claim.
The problems began last year with rising defaults on mortgages as a housing slump intensified, but they have now spread to other parts of the credit markets with institutions growing fearful about making other types of loans.
It is the ability to get credit that makes the financial system and the economy it supports function. When banks stop lending to other institutions that, like Bear Stearns, depend on credit to conduct their day-to-day operations, the results can be catastrophic.
“We can’t afford to stagger from one day to the next without knowing what large financial institution might be the next to go down the tubes because of a lack of liquidity. That is way too dangerous a game,” said Lyle Gramley, a former Fed board member who is now an economist with the Stanford Financial Group. “It is possible that we could be entering the worst recession of the post World War II period. The threat is certainly there.”
Because of Bear Stearns, many analysts are raising the odds that a 2008 recession could be worse than expected.
“The potential freezing up of the financial system could have pretty negative ramifications on bank lending which would have negative ramifications on consumer and business spending,” said Nariman Behravesh, chief economist at Global Insight, a Lexington, Mass., forecasting firm. He said he had upped the chances of a worse-than-expected recession to 40 percent, up from 25 percent odds before Bear Stearns.
David Wyss, chief economist at Standard & Poor’s in New York, said he now has a worst-case-scenario in which the country could endure a double-dip recession in which the economy would briefly recover this summer, helped by the $168 billion in tax relief, only to quickly slip back into a downturn. Under this scenario, the economy’s total output, as measured by the gross domestic product, would drop by 2.2 percentage points, making it the third worst recession in the post World War II period.
The worst recession in recent decades, in terms of lost output, occurred in the 1973-75 period of oil shocks, when GDP fell by 3.1 percent, followed by the 1981-82 recession, when GDP dropped by 2.9 percent.
By contrast, in the last two recessions output fell by 1.3 percent in the 1990-91 downturn, and a tiny 0.3 percent in the 2001 recession, making that slump the mildest in the post-war period in terms of lost output. The 2001 downturn lasted just eight months.
Wyss’ baseline forecast calls for the 2008 downturn to trim GDP by just 0.5 percent and last for nine months, from last November until August.
Under that forecast, unemployment, which hit a low in this expansion of 4.4 percent and now stands at 4.8 percent, will rise to around 6 percent, meaning 1.5 million people will lose their jobs. Under the worst-case forecast, unemployment jumps to 7.5 percent, meaning 3 million people would be tossed out of work.
“There would be bigger drops in the stock market and in home prices than we are now anticipating and more people out of work,” Wyss said. “There would be a lot of pain all the way around.”
While they are developing worst-case-scenarios, Wyss and other economists said they still believe the balance has not tipped from their more benign main forecasts. One thing that gives them hope is the expectation that Congress and the Bush administration, having acted so quickly to pass the first stimulus package, will move quickly, especially in an election year, to pass a second package if needed.
Also, analysts said the Bear Stearns crisis, which has already prompted the Fed to move more aggressively, will also probably trigger a bigger response on the part of Congress and the administration in offering help to homeowners to keep them from losing their homes because of mortgage defaults.
“Historically, when policymakers have acted in a concerted and aggressive way, that signals that we are nearing the end of the crisis,” said Zandi. “If that occurs this time and the financial markets stabilize in the next few months, then the economy will suffer but it won’t a prolonged and severe recession.”

via AOL

A MILD RECESSION? The forced sale of Bear Stearns Co., a top Wall Street investment bank, and persistent market turbulence are raising the odds that a 2008 recession could be worse than expected.

ANALYSTS’ CONCERNS: Noted economists have sounded alarms. Former Federal Reserve Chairman Alan Greenspan wrote “the current financial crisis in the U.S. is likely to be judged as the most wrenching” since the end of World War II.

CREDIT PROBLEM: When banks stop lending to other institutions that, like Bear Stearns, depend on credit to conduct their day-to-day operations, the results can be catastrophic.

via MSN

SAN FRANCISCO (AP) - The credit crisis that has been haunting the stock market for months wasn’t enough to scare investors away from the IPO of the world’s largest credit card processor.
Overcoming the jitters that have battered many of the lenders that issue its cards, Visa Inc. sold 406 million shares at $44 apiece late Tuesday to raise nearly $18 billion and complete the most lucrative initial public offering in U.S. history.
The price topped the range of $37 to $42 per share that Visa set three weeks ago, reflecting high demand to own a piece of a company that’s promising earnings growth of 20 percent despite a credit crunch that’s choking the U.S. economy.
“This shows that all the recent financial turmoil obviously hasn’t bothered a lot of people,” said Nicholas Einhorn, an IPO analyst for Renaissance Capital of Greenwich, Conn.
Investment bankers could still exercise an option to buy another 40.6 million Visa shares during the next 30 days. If that happens, Visa’s IPO will end up raising $19.7 billion before expenses.
Visa faces another litmus test Wednesday when its shares are scheduled to begin trading on the New York Stock Exchagnge under the “V” ticker symbol. The San Francisco-based company will make its debut with a market value of about $36 billion.
Based on the strong demand among money managers who wanted a piece of the IPO, Einhorn anticipates Visa shares will quickly soar above $50.
Visa has been touting its stock as a safe haven - a message that apparently resonated with investors.
“In times like this, you generally see a flight to quality,” said Joel Greenberg, a New York attorney who has advised on other IPOs.
Unlike credit card lenders, Visa doesn’t carry any consumer debt on its books. The company makes its money from processing fees, which have been steadily rising for years, including the past two U.S. recessions in 1991 and 2001.
Since the last recession, Visa also has been able to entice consumers to use its credit and debit cards more frequently to pay for staples like groceries, gas and even utility bills. Visa estimates about 42 percent of its transactions fall into this “nondiscretionary” category, up from 27 percent in 2000.
Visa conceivably could benefit from tougher times if more cash-strapped consumers rely on their credit cards to make ends meet, said Aite Group analyst Gwenn Bezard. “And even if people can’t pay back the debt, Visa still makes money. It’s a very attractive company.”
The IPO should help bolster the wobbly financial services industry as banks write off billions of dollars in loans that have soured amid the worst housing slump since the 1930s.
More than $10 billion of the IPO proceeds are being used to buy back some of the shares owned by the banks that have helped build Visa during the past 50 years.
JPMorgan Chase & Co., Visa’s biggest customer and shareholder, is in line for the biggest payoff from Tuesday’s IPO - about $1.25 billion, based on figures provided in Securities and Exchange Commission documents.
That’s five times more than New York-based JPMorgan has agreed to pay in a proposed takeover of investment bank Bear Stearns Co., a major casualty of the credit crisis.
Other big winners in Visa’s IPO include: Bank of America Corp., expected to receive roughly $625 million; National City Corp., about $435 million; Citigroup Inc., about $300 million; and U.S. Bancorp and Wells Fargo & Co., both getting more than $270 million.
All the banks will remain major Visa shareholders.
The IPO also is expected to generate more than $500 million in fees for Visa’s team of investment bankers, led by JPMorgan and Goldman Sachs & Co.
Besides paying banks, Visa is depositing $3 billion in an escrow account to insulate its shareholders from lawsuits alleging the company profited by stifling competition.
Those legal headaches are one of the chief reasons that Visa decided to go public and pose the biggest investment risk in the IPO, Bezard said.
The IPO gives investors a chance to profit from the rise of electronic payments as more people eschew cash. The trend is expected to accelerate in the years ahead as an entire generation weaned online grow up to enter the job market and begin buying more merchandise and services on the Web, where electronic payments are standard.
Visa already dwarfs its closest competitor, MasterCard Inc., whose stock has more than quintupled since that company went public less than two years ago.
But analysts say Visa priced its IPO more aggressively than MasterCard, making it less likely that its stock will appreciate as dramatically in the months ahead.
Visa processed 44 billion transactions totaling $3.2 trillion in 2006, according to the Nilson Report, an industry newsletter. MasterCard handled 23.4 billion transactions totaling $1.9 trillion in the same year.
Hurt by legal expenses, Visa suffered an $861 million loss on revenue of $5.2 billion in its last fiscal year ended Sept. 30. Visa bounced back in its fiscal first quarter with a $424 million profit, a 70 percent increase from the previous year.

via AOL

DOW JONES NEWSWIRES

Visa Inc. priced shares for its initial public offering at $44, above the expected price of $37 to $42, according to JPMorgan Chase & Co. (JPM), one of the lead underwriters. The credit-card giant plans to sell 406 million shares in what - at $17.86 billion - will be the largest IPO in U.S. history.

If it floats its share overallotment of 40.6 million shares, the IPO could raise as much at $19.65 billion, well ahead of the $10.62 billion raised by AT&T Wireless in 2000.

Among global IPOs, the record is the $21.9 billion offering from Industrial & Commercial Bank of China Ltd. in 2006, according to data provider Dealogic Inc.

Visa’s stock is expected to debut Wednesday on the New York Stock Exchange under the symbol V.

The blockbuster IPO is oversubscribed in the face of “extreme demand,” analyst Scott Sweet of IPO Boutique said last week.

JPMorgan and Goldman Sachs Group Inc. (GS) are lead underwriters. JPMorgan would pocket about $1.1 billion by offering nearly 29 million shares as Visa’s largest-selling shareholder, according to regulatory filings. Bank of America Corp. (BAC) will sell 14 million shares, Citigroup Inc. (C) 6.8 million and National City Corp. (NCC) 10 million.

Visa is owned by some 13,000 U.S. banks. Slightly more than half of the shares are being sold to the public.

Visa’s offering comes when the stock market and share offerings are being roiled by uncertainty about everything from mortgages to consumer spending. But the business of processing credit-card transactions is expected to be better sheltered from economic blows because consumers continue to switch to plastic for more of their purchases.

Shares of rival MasterCard Inc. (MA), which went public in May 2006, have performed well from their debut through the past several months of unsteady markets. Since its IPO, priced at $39 a share, MasterCard stock is up fivefold. Shares closed Tuesday at $210.25.

By contrast, Discover Financial Services (DFS) has lost about half its value since being spun off by Morgan Stanley (MS) last year. In addition to owning a network, Discover also issues cards to consumers.

According to Visa’s prospectus filed with the SEC late last month, Visa recorded 44 billion transactions in 2006, compared with 23.4 billion for MasterCard, its largest competitor. Consumers worldwide had 1.5 billion Visa- branded cards in their wallets at the end of September, compared with 916 million MasterCard-branded pieces of plastic at the end of 2007, according to company financial reports.

Visa investors could see operating margins double by 2015 as various Visa units worldwide are combined and the company becomes a public entity, says Morningstar Inc. senior analyst Michael Kon. His firm calculates the stock should be worth $74 a share.

Visa’s IPO is unlikely to revive the market for stock offerings. In February, only four companies went public, raising $122 million. That was the smallest number since August 2003, when three companies came public, and the smallest total raised since June 2003, when IPOs generated $97 million, according to data tracker Dealogic.

-By Kathy Shwiff, Dow Jones Newswires; 201-938-5975; kathy.shwiff@dowjones.com

(Lynn Cowan and Robin Sidel contributed to this report.)

(END) Dow Jones Newswires 03-18-08 1835ET Copyright (c) 2008 Dow Jones & Company, Inc.
via CNN

The Federal Reserve announced a series of new steps Sunday to help provide relief to a spreading credit crisis that threatens to plunge the economy into recession.
The central bank approved a cut to its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans.
The steps are “designed to bolster market liquidity and promote orderly market functioning,” the Fed said in a statement. “Liquid well-functioning markets are essential for the promotion of economic growth.”
The new lending facility will be available to financial institutions on Monday.
It will be in place for at least six months and “may be extended as conditions warrant,” the Fed said. The interest rate will be 3.25 percent and a range of collateral will be accepted to back the loans.
The Fed also approved the financing arrangement announced Sunday in which JPMorgan Chase & Co. will acquire rival Bear Stearns Cos. The deal valued at $236.2 million, a stunning collapse for one of the world’s largest and most venerable investment banks. The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets.
The Fed’s actions are the latest in a recent string of unconventional steps to deal with a worsening credit crisis that has unhinged Wall Street. And, the action comes just two days before the central bank’s scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered.
The “discount” rate cut announced Sunday covers only short-term loans that financial institutions get directly from the Federal Reserve.
Even with the Fed’s aggressive moves, economic and financial conditions keep deteriorating.
The Fed in recent days has taken extraordinary steps to help banks and Wall Street investment firms survive the stresses of the credit crisis. Financial institutions have racked up multibillion-dollar losses when mortgage-backed investments soured with the collapse of the housing market.
The Fed this past week also said it would pour as much as $200 billion into big Wall Street banks and investment houses and allow them to put up risky home-loan packages as collateral. This maneuver was intended to bring sorely needed relief in the market for mortgage securities. The Fed also has offered as much as $200 billion in short-term loans to banks and large financial institutions.
AP Business writers Joe Bel Bruno and Madlen Read contributed to the report from New York.

via AOL

WASHINGTON - Staring at spreading financial dangers, the Federal Reserve announced a rescue package that would pour as much as $200 billion into banks and investment houses and allow them to put up risky home-loan packages as collateral.

Wall Street rebounded on the news Tuesday with its biggest rally of the year and hoped the Fed had even more cards to play.

The Federal Reserve s maneuver, coordinated with central banks overseas, was its latest effort to stem the global credit crisis and severe housing woes that threaten to bury the United States in its first recession since 2001. Fed Chairman Ben Bernanke and his colleagues have been stretching for new and imaginative ways to confront the situation.

They are hoping to bring relief where it is sorely needed: in the market for mortgage securities. Home loan financing has become much harder to get as nervous lenders have hunkered down.

It is a highly significant move. The Fed is innovating in a way that is going to push liquidity directly into the mortgage markets, where it is most needed, said David Jones, president of DJM Advisors.

On Wall Street, the Fed s action propelled stocks upward. The Dow Jones industrials jumped by some 416 points.

Traders will be looking for still more action. Recent stock rallies have been followed by renewed selloffs by investors who believe the economy is still headed for recession, if it isn t there already.

Assuming Tuesday s action helps to stabilize turbulent financial markets, that could reduce the chances that the Fed will order a deep, three-quarters of a percentage point cut in its key interest rate next week to further encourage lending and other economic activity. An increasing number of economists now believe the Fed is more likely to cut rates by a half-point, though that could newly roil Wall Street.

The Federal Reserve announced it would allow squeezed financial institutions including big investment houses and banks to borrow up to $200 billion in super-safe Treasury securities by using some of their more risky investments as collateral.

The Fed announced the creation of a new Term Securities Lending Facility (TSLF) to provide financial institutions with 28-day loans of Treasury securities, rather than overnight loans. The institutions would pledge other securities including federal agency residential-mortgage-backed securities, such as those of mortgage giants Fannie Mae and Freddie Mac as collateral for the loans. Fed officials said it s the first time they ll be accepting mortgage-backed securities through this type of lending program.

Firms that were having difficulty financing their mortgage positions have been thrown a lifeline, said Stephen Stanley, chief economist at RBS Greenwich Capital.

By allowing financial institutions to put up mortgage-backed securities for which there s little market appetite in return for safe securities that are in high demand, the Fed hopes to take pressure off financial companies and make them more inclined to lend to individuals and to businesses.

If the effort works, it should in time help to keep home loan rates down, especially on those backed by Fannie Mae and Freddie Mac, which are the few remaining sources of mortgage financing as credit has increasing dried up elsewhere, said Mark Zandi, chief economist at Moody s Economy.com.

via MSN

NEW YORK (AP) - Stocks tumbled Friday after a plan to alleviate a liquidity crisis at Bear Stearns Cos. touched off concerns about the severity of credit troubles. The Dow Jones industrial average gave up about 175 points.
The plan by the New York Federal Reserve and JP Morgan Chase & Co. offers Bear Stearns relief from a sudden liquidity crunch that analysts surmised could have felled the bond house. But the company’s position on the precipice of financial disaster left many investors shaken and spoiled some hopes that troubles in the moribund credit market are on the mend.
Stocks showed moderate increases in the early going after a Labor Department report showed the Consumer Price Index remained flat for February. Wall Street has been expecting inflation would show an increase. But the gains quickly disappeared after investors learned about the severity of troubles at Bear Stearns.
“This is another chapter in a book rather than a one-act play,” said Phil Orlando, chief equity market strategist at Federated Investors. He said the market is worried that further trouble in the credit markets will emerge and that the ramifications of the credit strains and a slowing economy could result in recession.
“Investors thought they are probably more than norm than the exception and maybe this is the tip of the iceberg,” he said, referring to Bear Stearns. “Our sense is that this is sort of an amoeba here and this is sort of a broadly spreading situation.”
In the final half hour of trading, the Dow fell 175.85, or 1.45 percent, to 11,969.89. The Dow had been down as much as 313 points.
Broader stock indicators also declined but pulled off their lows. The Standard & Poor’s 500 index fell 25.22, or 1.92 percent, to 1,290.26, and the Nasdaq composite index fell 45.64, or 2.02 percent, to 2,217.97.
The Russell 2000 index of smaller companies fell 14.24, or 2.10 percent, to 665.47.
Bond prices jumped as stocks retreated. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.43 percent from 3.54 percent late Thursday.
Elisa Parisi, economic analyst at RGE Monitor.com, contends the bond market has recently shown more concern about the economy.
“The stock market is increasingly catching up with signals from the bond market. Somehow the stock market could delude itself into thinking that they have nothing to do with the mortgage fallout,” she said.
Comments from the Fed might have helped corral some of investors’ nervousness Friday. The central bank said it voted unanimously to sign off on the arrangement between JP Morgan and Bear Stearns and that it is ready to provide further resources to stave off further credit troubles. Fed Chairman Ben Bernanke also said Friday he would do what was possible to aid struggling homeowners.
Still, investors remained nervous. The Chicago Board Options Exchange’s volatility index, known as the VIX, and often referred to as the “fear index,” jumped 18.7 percent.
Declining issues outnumbered advancers by about 7 to 1 on the New York Stock Exchange, where volume came to 1.19 billion shares.
“The Bear Stearns news reversed the early positive sentiment from the inflation data,” said Peter Cardillo, chief market economist at Avalon Partners. “There had been nervousness about Bear Stearns for some time and now the market’s concerns about the company have been proven true.”
Friday’s stock market pullback comes a day after an anxious stock market rebounded from an early plunge following a Standard & Poor’s prediction that financial companies are nearing the end of the massive asset write-downs that have pummeled the stock and credit markets for months. The S&P projection had given investors some hope that the seemingly unrelenting losses from the mortgage and credit crisis could have been bottoming out.
Bear Stearns’ woes rekindled investors’ nervousness about the troubles in the financial sector. The company’s shares skidded $23.83, or 42 percent, to $36.58, while JP Morgan fell $1.16, or 3 percent, to $36.95.
Other financial names declined as well. Lehman Brothers Holdings Inc. fell $5.45, or 11.9 percent, to $40.54 and Merrill Lynch & Co. slid $2.30, or 5 percent, to $43.96.
Stock market investors Friday were also eyeing the dwindling dollar and events in the soaring commodities market. Gold prices touched another fresh record Friday.
Light, sweet crude, which set a fresh record Thursday, fell 12 cents to $110.21 per barrel on the New York Mercantile Exchange. Oil came close to its record of $111 set Thursday.
The market’s fall Friday caps a big week for the markets. On Monday, stocks continued a sell-off from last week, falling more than 1 percent as oil again moved into record territory. Then, on Tuesday, stocks surged after the Fed said it would put up $200 billion to loosen tight credit markets. The Dow surged nearly 417 points, its biggest one-day percentage gain in five years. Stocks posted more modest losses and gains Wednesday and Thursday as investors speculated over how much help the Fed’s plan would ultimately provide.
On top of Friday’s concerns, Wall Street remains anxious for Tuesday’s Fed meeting at which the central bank is still expected to lower interest rates. While Wall Street would welcome cheaper access to cash to help consumers and businesses, the freer flow of money could would likely fan inflation concerns and could further weaken the dollar.
Overseas, Japan’s Nikkei stock average finished down 1.54 percent. Britain’s FTSE 100 closed down 1.07 percent, Germany’s DAX index fell 0.75 percent, and France’s CAC-40 lost 0.82 percent.
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com

via AOL

NEW YORK - Bear Stearns Cos., one of the most venerable names on Wall Street, turned to a rival bank and the federal government for a last-minute bailout Friday to prevent it from collapsing.

The Federal Reserve responded swiftly to pleas from Bear Stearns that its coffers had “significantly deteriorated” within a 24-hour period as rumors about the bank’s situation fueled the Wall Street version of a run on the bank. Central bankers tapped a rarely used Depression-era provision to provide loans, and said they were ready to provide extra resources to combat an erosion of confidence in America’s biggest financial institutions.

Nearly half the value of Bear Stearns, or about $5.7 billion, was wiped out in a matter of minutes as investors felt the bailout signaled that the credit crisis has reached a more serious stage, and now threatens to undermine the broader financial system _ and the U.S. economy.

“My guess is by next week, there will be rumors of other large, familiar institutions” that might be in financial trouble similar to Bear Stearns, said Anil Kashyap, a professor at the Graduate School of Business at the University of Chicago.

No one has disclosed how large the financing offered to Bear Stearns is.

Bear Stearns, the nation’s fifth-largest investment bank, made its fortune dealing in opaque mortgage-backed securities _ a strategy that backfired amid the worst housing slump in a quarter century. The bank has racked up $2.75 billion in write-downs since last year, and releases first-quarter results on Monday that could show more losses.

Alan Schwartz, Bear Stearns’ chief executive, said the bank had enough money to keep operating at the start of the week. However, market speculation swelled Thursday _ leading investors, customers and lenders to withdraw their business or rescind credit lines.

By that night, Schwartz said the bank recognized that the pace of withdrawals could outstrip the company’s resources. He then contacted JPMorgan Chase & Co. _ the third-largest U.S. commercial bank _ for help.

JPMorgan, which has been hurt far less by the mortgage morass than other investment banks, is providing secured funding to Bear Stearns for 28 days, and those loans will in essence be insured by the Federal Reserve. Schwartz said this will buy Bear Stearns time _ allowing it to “convince customers and counterparties that we have the ability to fund ourselves every day, to do business as usual.”

Schwartz confirmed, as many on Wall Street suspected, that Bear Stearns could now be up for sale. He told analysts during a conference call that the short-term funding “is a bridge to a more permanent solution.” Bear Stearns is working with investment bank Lazard Ltd. to explore its options.

Top executives from Bear Stearns and JPMorgan were discussing the outright sale of Bear Stearns to JPMorgan, according to a person familiar with the talks who was not authorized to speak on the record.

The next 28 days could provide JPMorgan with the time needed to complete due diligence on Bear Stearns before buying the company, giving detail about how much risk is on the books.

JPMorgan is considered to have one of the strongest balance sheets among Wall Street banks, and is not already involved in a rescue like Bank of America’s purchase of Countrywide. In a memo sent to employees, Schwartz said the temporary financing would allow the company to “get back to business as usual.”

Bear Stearns, which has about 14,000 employees worldwide, has struggled since two hedge funds under its control lost billions of dollars after investing heavily in securities backed by pools of subprime mortgages.

“They were the dominant firm for repackaging mortgages,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC. “That’s where all earnings came from. They had the least diversified earnings stream of all of Wall Street securities firms, and as a result, they’re paying the price today.”

As delinquencies and defaults swelled among subprime mortgages _ given to customers with poor credit history _ investors shied away from purchase securities backed by the troubled loans. Those fears expanded to encompass all but the safest bonds and securities, forcing investment banks to significantly reduce the value of their holdings and drying up liquidity throughout the market. The broader financial services sector has amassed nearly $160 billion in write-downs since the middle of last year.

JPMorgan Chase said the financing would not expose its company to any material risk, though its shares dropped 3.6 percent, or $1.37, to $36.74. Bear Stearns plummeted 39 percent, or $22.50, to $34.50. The news rattled investors around the world, pushing the Dow Jones industrial average down about 225 points and pulling other indexes lower.

___

AP Business Writers Madlen Read in New York and Martin Crutsinger in Washington contributed to this report.

via MSN

NEW YORK (AP) - The dollar fell against most major currencies on Wednesday, including a new low against the euro, which fetched $1.55, as skepticism grew over the latest U.S. Federal Reserve Bank plan to restore calm to jittery global credit markets.
The Fed on Tuesday unveiled a rescue package that would direct as much as $200 billion into banks and investment houses. The action was in concert with help from the European Central Bank and central banks in Britain, Switzerland and Canada.
But the Fed action was overshadowed by U.S. economic struggles, halting the dollar’s rise and pushing the euro to a record high of $1.5559, surpassing its previous record of $1.5495 set Tuesday.
Late Wednesday, the 15-nation euro fell back to $1.5526 - still above the $1.5319 it bought in New York late Tuesday.
“The positive dollar impact of yesterday’s coordinated central bank operations is already proving unsustainable as the U.S. currency falls across the board,” said Ashraf Laidi, the chief foreign exchange strategist for CMC Markets in New York.
Traders also weighed a report from Zawya Dow Jones that said the United Arab Emirates was deciding whether to continue pegging its currency to the plummeting U.S. dollar.
In January, Qatari Prime Minister Sheikh Hamed bin Jassem Al Thani said his country was also reconsidering its link to the dollar.
The British pound rose to $2.0243 from $2.0029 even after British Treasury Chief Alistair Darling cut forecasts for domestic growth when he delivered his first annual budget against the backdrop of the worst global economic conditions for a decade.
In other late New York trading, the dollar dropped to 102.04 Japanese yen from 104.17 yen and to 1.0182 Swiss francs from 1.0337 Swiss francs it traded Tuesday. Meanwhile, the dollar edged up to 1.0096 Canadian dollars from 1.0067 Canadian dollars.

via AOL

FRANKFURT, Germany (AP) — The dollar sank to a new low Friday against the euro, and neared a three-year low against the Japanese yen, after data showed U.S. job cuts hitting the biggest monthly number in five years.

The U.S. Labor Department said American employers cut 63,000 jobs in February - the starkest sign yet that the United States is heading toward a recession or in one already.

Those fears pushed the 15-nation euro to $1.5463, its first-ever rise above $1.54. It marked the latest in a string of record highs before it settled back slightly to $1.5413 in afternoon European trading - still above the $1.5370 it bought late Thursday in New York.

Also pushing up the euro were comments Thursday by European Central Bank president Jean-Claude Trichet, who made plain the ECB is more worried about inflation in the euro zone than the fallout from the rising euro.

That suggested the ECB’s benchmark interest rate will remain at 4% for the coming months, even as the U.S. Federal Reserve and, possibly, the Bank of England cut their key rates.

“The euro-dollar has taken another significant level this morning, having breached $1.5400,” said James Hughes of CMC Markets in London. “Although this may be initiating a degree of profit-taking in the short term, many will remain mindful of Trichet’s hawkish stance and tacit acceptance of a stronger euro at yesterday’s ECB rate-setting meeting.”

European businesses say they are starting to feel the pinch, notably from U.S.-based buyers who assert that the high euro makes European goods more expensive.

Pound above $2. Also Friday, the British pound traded above the $2 mark for a second day, buying $2.0185 - above the $2.0092 it bought in late New York trading the previous night. Like the euro, it jumped higher Thursday after the Bank of England kept its own interest rate unchanged at 5.25%.

The dollar fell to 101.99 Japanese yen from 103.09 yen on Wednesday, putting it at almost three-year lows.

“The prolonged silence from the Japanese camp in the face of the yen’s gains is not only historic but rather conducive to its ascent,” Ashraf Laidi, the chief foreign exchange analyst at CMC Markets in New York.

“The Federal Reserve’s persistent reiteration to take on the economic slowdown as its main priority over inflation will make the 100 yen figure an inevitability,” he said.

That could happen “as early as this month, especially if the Fed opts for a 75 basis point easing on March 18,” he said.

Lower interest rates can jump-start a nation’s economy, but can weigh on its currency as traders transfer funds to countries where they can earn higher returns. 

via CNN

TOKYO (AP) — The dollar plunged to a three-year low against the Japanese yen and another all-time low against the euro on Friday, amid growing fears about a weak U.S. economic outlook.

The dollar drifted as low as 102.45 yen early in the session before rebounding to 102.68 yen in afternoon trading. The dollar was at 103.09 yen late Thursday in New York.

The euro on Friday exceeded $1.54 for the first time, after the European Central Bank left its benchmark rate unchanged a day earlier and signaled that rate cuts are not expected in the near term.

That sentiment pushed the euro to a new high in European morning trading; it reached $1.5429 before dropping back slightly to $1.5395, above the $1.5370 it bought in New York late Thursday. It was the latest in a string of records for the 15-nation euro this week.

“The euro-dollar has taken another significant level this morning, having breached $1.5400, and although this may be initiating a degree of profit-taking in the short term, many will remain mindful of Trichet’s hawkish stance and tacit acceptance of a stronger euro at yesterday’s ECB rate-setting meeting,” said James Hughes of CMC Markets, referring to ECB president Jean-Claude Trichet.

European Union businesses said they were starting to feel the pinch, notably from U.S.-based buyers who assert that the high euro makes European goods more expensive.

Meanwhile, the British pound stayed above the $2 mark for a second day, buying $2.0132 in European trading, above the $2.0092 it bought in late New York trading the night before. Like the euro, it jumped higher after the Bank of England kept its own interest rate unchanged at 5.25%.

The Asian and European markets are waiting for the release of U.S. non-farm payrolls data later in the day.

“If jobs results are better than expected, they could give the dollar a temporary break from its downturn, but the larger dollar-selling trend is very strong and is unlikely to change any time soon,” said Masashi Matsuzawa, a senior dealer at Mizuho Corporate Bank.

Economists polled by Dow Jones Newswires predict U.S. non-farm payrolls for February to stay flat following a 17,000 decline in the previous month.

Expectations of further interest rate cuts by the Fed are also weighing on the dollar.

The Bank of Japan unanimously voted to keep interest rates unchanged for the fourth straight meeting, while Japanese Prime Minister Yasuo Fukuda announced his proposals for the position of the new central bank governor and deputy governors.

The dollar was mixed against other regional currencies, rising to 40.78 Philippine peso from 40.40 the previous session, while falling to 1.3862 Singapore dollar from 1.3878. 

via CNN