GM Leads U.S. Stocks, Sallie Mae Deal in Trouble

123jump.com Staff
26 Sep, 2007
New York City

Stocks in New York trading closed higher afer General Motors and its labor union agreed on preliminary details of healthcare fund. GM is likely to seed the fund with cash and securities worth more than $30 billion and potentially remove the liability of future expenses from its books. In economic news August durable spending fell 4.9%. Tech and financial stocks rallied in New York and Europe. Asian markets closed higher. Oil recovered and gold and copper fell. India closed record high.

[R]4:30PM New York, 10:30PM Frankfurt, 2:00AM Mumbai – General Motors preliminary agreement with the union helped indexes to advance. Sallie Mae purchase is likely to fall through in the wake of credit market turmoil.[/R]

Dow Jones Industrial Average increased 99.59 or 0.72% to 13,878.15, Nasdaq gained 15.58 or 0.58% to 2,699.03, and S&P 500 added 8.21 or 0.54% to 1,525.42. In Toronto TSX Composite gained 0.29% or 40.02 to close at 14,037.64.

In Brazil, iBovespa Index closed 1.40% higher or 823.32 to 59,681.10 and in Mexico Bolsa index fell 0.09% or 26.23 to close at 30,268.54.

In London FTSE 100 Index in London gained 36.10 or 0.56% to 6,433.00, in Paris CAC 40 index added 0.87% or 49.18 to close at 5,690.77, and in Frankfurt DAX index increased 0.45% or 34.71 to close at 7,804.15. In Zurich trading SMI added 0.35% or 30.56 to close at 8,859.71.

In Tokyo stock market Nikkei 225 index jumped 0.21% or 34.01 to close at 16,435.74, in Hong Kong Hang Seng market was closed but yesterday closed down 0.46% or 121.65 to 26,430.29, in Australia ASX 200 closed down 0.02% or 1.60 to 6,481.40, and in India Sensex closed up 21.80 or 0.3% to a record close of 16,921.39.

Bond Yields were unchanged on 10-year U.S. bonds to 4.63% and 30-year bond declined to close at 4.899%.

Crude oil gained $0.97 to close at $80.30 per barrel for a front month contract but still up 32% for the year so far, natural gas added 6 cents to $6.42 per mBtu, and gasoline futures declined 1.05 cents to close at 202.74 cents per gallon.

Gold declined $3.30 in New York trading to close at $735.50 per ounce, silver closed down 7 cents to $13.54 per ounce, and copper for front month delivery in London lost $41.00 to $8,036.00 per pound.

Dollar gained to close at $1.41423 to a euro and to 115.60 yen. For the year the dollar is down 7.0% against euro and 3.5% against yen.

Of the 30 stocks in Dow Jones Industrial Average 4 closed lower, 26 closed higher, and none was unchanged. General Motors soared 9.4% to $37.64 and led the gainers in index followed by a rise of 4% in Alcoa, 1.4% in Pfizer, 1.3% in Disney. McDonalds, Proctor & Gamble, Verizon added 1%.

Of the stocks in S&P 500 351 stocks closed higher, 141 fell, and 8 closed unchanged. Twenty five stocks in the index added more than 3%. After General Motors, Bear Stearns added 7.7% and led the gainers in the index followed by a rise of 6.6% in Ford Motor, 5.4% in Office Depot, 5.2% in CME Group, 5% in Whole Foods, 4.75% in Goodyear Tire, and 4% in Alcoa and Wyndham.

Pulte Homes led the decliners with a loss of 8% followed by a loss of 5.8% in Newmont Mining, 4.2% in MEMC Electric Materials and Robert Half, 4.0% in Lennar and KB Home, and 3% in D R Horton and Ambac Financial.

In New York stocks opened and closed higher. In the morning trading durable goods orders and preliminary agreement between GM and UAW affected trading sentiment. August durable goods order fell 4.9% raising speculation that another rate cut may be necessary. However, the sharp decline in spending may not bode well for the economy. General Motors and UAW have agreed to set up a union controlled fund to pay for healthcare benefits of retirees and remove the future liability from the books of GM in the exchange of job security. The news lifted GM stock by 10% and other auto stocks between 4% and 6%.

By the mid-day three popular indexes were up on strength in tech stocks and firm price in energy markets. European markets closed higher led by financial stocks and revised bid from OMX from Dubai Borse. In the late afternoon trading, as the news spread in the market that Bear Stearns is talking to potential investors including Warren Buffett, the financial and brokers stocks firmed. As the market traded in the final minutes the news of potential deal troubles came in.

Sallie Mae ((SLM)) said in a statement today the buyout group led by a private equity group J C Flowers and banks J P Morgan and Bank of America may not complete the purchase of the company. The deal was agreed at $60 per share or $25 billion. The buyout group alleged that the new legislation and weaker economy justifies lower value of the company. The company said that it plans to pursue all legal remedies to prevent the group from walking away. The company had said that soon to be signed new law will lower the core earnings annually by 2.1% over the next five years. After the news the stock fell 10% but managed to recover to a loss of 2.68% at the close.

Children’s Place ((PLCE)) forced out its chief executive after company investigation discovered violations of improper stock distributions. Mr. Ezra Dabah ‘resigned’ after the company’s internal investigation found that he ‘violated the company code of conduct’. Chuck Crovitz, the current board member will act as an interim chief executive.

Bear Stearns ((BSC)) jumped during the session above 10% but settled 7.6% higher on the news that the company is discussing with several investors including billionaire investor Warren Buffett.

European markets close higher led by rising financial stocks. Spain with a rise of 1.4% led the gainers in the region followed by increases of 0.9% in France and Italy, 0.8% in the Netherlands, and 0.6% in the UK, and 0.5% in Germany, and 0.4% in Switzerland. Borse Dubai offered revised its offer for OMX by 15% and Northern Rock rose 12% on the news that the company has received takeover interest. Unicredit in Italy added 1.6% on the growth in emerging markets and Deutsche Borse added 3.5% on revised price target from Credit Suisse. Hennes & Mauritz jumped 3% after the company reported earnings increase of 25%.

In the overnight trading Asian markets closed higher with India closing at a record high. Indonesia led the region with a rise of 1.32% followed by a gain of 1.1% in Thailand, 1.1% in Philippines, 0.7% in Singapore, and 0.5% in Korea.

In Latin Markets trading Brazil and Argentina led the gainers with a rise of 1.5% followed by increase of 0.5% in Chile, and 0.03% in Mexico. Of the 63 stocks in iBovespa index 48 gained, 15 lost, and none closed unchanged. Gafisa led the gainers in the index with a rise of 4% followed by 3.7% in Banco Itau, 3.6% in Cyrela and Bradesco, and 2.4% in Banco Do Brasil.

[R]3:00PM New York, 8:00PM London – Financial stocks in London advance as banks did not need to participate in BoE bond auction at a higher rate.[/R]

The UK shares closed up 0.56% as the financial companies lifted the index. Northern Rock led the gainers on a sharp increase of 11.6% on news that the troubled bank is negotiating with potential investors. The bank has also confirmed it has cancelled 59 million pound divided to shareholders.

In London trading FTSE 100 was up 0.56% or 36.10 to 6,433.00 as the financial stock led the gainers. There was renewed investor confidence in the London trading after Northern Rock announced that it was in negotiations with potential investors. Other financial stocks that led the risers on the FTSE 100 were Ivesco, Hibos, ICAP Plc and British Land. Of the London shares, 73 rose, 26 eased while 3 remained unchanged.

The U.K banks did not participate in the Bank of England's three-month bond auction after a drop in market interest rates enabled them to borrow in the interbank and other markets.

BoE had set aside 10 billion pounds for liquidity support to banks during the height of the global financial turmoil .No bids were made by financial institutions on funds that the London bank has offered. BoE perceived as a lender of last resort is sought by financial institutions during emergency lending but may have to pay a penalty rate 1% more than market rate.

The Office of the National Statistics Wednesday the UK economy marginally grew in the second quarter, higher than what was projected in the first half of the year. The Office said gross domestic product increased 0.8% in the second quarter higher that its 0.7% estimates. This meant the UK economy rose at an annual rate of 3.1% in the April-June period instead the rate of 3% projection announced last month.

A new survey by the BoE reveled that companies lenders may tighten credit conditions Lenders surveyed by the Bank said they had already tightened lending conditions for companies but lending conditions for households would probably remain generally unchanged. The survey was conducted between August 20th and September 13th.

Of the FTSE 100 shares Northern Rock was the top gainers with a surge of 11.6% followed by a rise in Invesco at 5.55%, in HBOS at 5.12%, in ICAP Plc at 4.38% and British Land at 4.39%. British Land said tougher lending conditions and falling property prices may present it with acquisition opportunities. British Land CEO Stephen Hester his company will consider acquisitions next year, when sellers will probably be more realistic in their price expectations.

Smiths Group Plc appointed Philip Bowman, as the new chief executive officer. Smiths stock rose as much as 6.3 percent, the most in eight months. By close of trade yesterday it gained 3.02%.

Of the index stocks DSG international led the decliners with a loss of 3.7% followed by losses in Carphone Warehouse of 2.1%, in Experian of 2.09%, in Xstrata of 1.44%, and in Wolseley of 1.41%.

[R]1:00PM New York, 10:30PM Mumbai – Sensex closed at a record level for the third day in row. RBI is likely to lower rates in the next meeting in October.[/R]

Sensex in Mumbai closed with small gains on selective buying in the index shares. It opened higher on speculation that the U.S. may cut interest rates for the second time in as many months after lowering rates by 0.5% last week.

The BSE Sensex was up 0.3% or 21.8 at 16,921.39 and managed to reach an intra-day high of 17,073.80. The CNX Nifty advanced 0.03% or 1.6 to 4,940.50. Of the Sensex shares, 16 advanced while the rest slid. Satyam Computer led the gainers in the Sensex with a rise of 5% to 432 rupees and Reliance Energy led the decliners with a loss of 5.3% to 1,030 rupees.

Of the stocks traded on the Bombay Stock Exchange 1,485 gained, 1,244 fell and 60 remained unchanged. Daily turnover on BSE amounted to 7,786 crore rupees up from to 7,491 crore rupees in previous session.

The Finance Minister Chidambaram said that the Reserve Bank of India could be forced to intervene if there is a disorderly movement in the exchange rate. He said while the rupee is stable against other global major currencies, it has appreciated 10.5% in the nine months. The Reserve Bank of India is expected to lower rate at the next meeting on October 31st.

Separately Reserve Bank of India raised its limit to $500 million from $400 million for prepayment of commercial loans to private corporations. All other prepayments will require RBI approval.

Of the Sensex shares, IT stocks, recovered from previous losses after the Reserve Bank of India relaxed the norms for outbound investments by mutual funds and raised the limit for companies to prepay their external loans.

Refineries stocks gained after the news that the government is planning to issue bond worth 12,000 crore rupees to cover the losses from selling fuel at below cost. Hindustan Petroleum jumped 4.5% to 277 rupees, Indian Oil closed 7% to 470 rupees, and Bharat Petroleum increased 6% to 369 rupees.

Wipro soared 4.8% to 456 rupees after receiving an order of $130 million from UK based uitility company Thames Water. Of the other IT stocks, Infosys gained 3.1% to 1,826 rupees and TCS jumped 4.5% to 1,047 rupees.

Reliance group stocks fell after a steady rise in the last five trading sessions. Reliance Industries slid 3% to 2325 rupees on 11.63 lakh shares. Reliance Communications fell 0.9% to 589 rupees, Reliance Natural Resources shed 3.32% 91 rupees, IPCL down 1.91% to 462 rupees, Reliance Capital shed 2.7% to 1505 rupees and Reliance Petroleum which closed weaker at 2.6% to 155 rupees. Reliance Retail is likely to close its operations in Noida, Gaziabad, and Uttar Pradesh. The closure is likely to lead a loss of 1,050 jobs.

Housing Development Corporation soared 3.5% to 2,478 rupees after reaching an intra-day high of 2,538 rupees in anticipation of lower rates. Bank stocks advanced as well. Vijaya Bank led the gainers with a rise of 5.7% to 68 rupees followed by 5% gain to 145 rupees in Indian Overseas Bank, and 3% to 102 rupees in Allahabad Bank.


[R]12:00 PM New York – Auto stocks rallied in New York after a tentative agreement between GM and Union.[/R]

At Mid-day trading in New York Dow Jones increased 76.90 to 13,856.90, Nasdaq added 22.14 to 2,705.41 and S&P500 advanced 8.95 to 1,526.16.

General Motors ((GM)) and the UAW have reached a preliminary agreement covering 74,000 auto workers. The deal will lead to a creation of healthcare fund operated by the union which GM will help to start. While pension costs of retirees are required to be funded by the company, labor laws do not require General Motors to set aside funds for the health care costs.

The agreed fund, likely to be named Voluntary Employees’ Beneficiary Association or VEBA, will be responsible for healthcare liabilities of the retired workers. Retiree medical expenses at Ford, Chrysler, and General Motors have exceeded $100 billion in 2006 and these expenses are growing at 6%. With the agreement, if approved by the members will take liability off the balance sheet of General Motors and remove large, growing, and uncertain future medical costs. The new flexibility will help GM to seek better debt alternatives and possibly focus on building vehicles that will help it to improve its competitive standing.

The agreement is likely to provide General Motors and to the industry a cost visibility and free management to tackle international competition. The details of the contract are sketchy but from talks with the Union and GM representatives, it appears that the future staff reductions are tied to the cash flow and unit volumes at the company. In the negotiations GM is looking for cost management and ability to decrease staff and the Union is looking for job security for its members and guarantee in health care costs in the adverse business conditions.

It appears that GM has been able to link future hiring and layoff with the future unit sales and the Union has convinced GM to fund retiree health expenses regardless of the business fluctuations. The agreement is a step that will link GM, the Union members, and shareholders to the market conditions. A much needed step in the right direction.

General Motors ((GM)) after the news jumped 4% or $1.60 to $36.02 and Ford Motor ((F)) added 4% or 36 cents to $8.70.

[R]1:00PM London , 8:00AM New York - European equity markets opened higher on Wednesday, lifted by rallying financial stocks and following gains in Asia.[/R]

The FTSE Eurofirst 300 was up 0.5% to 1,536.54, Frankfurt’s Xetra Dax added 0.4% to 7,798.65, the CAC 40 in Paris gained 0.4% to 5,664.45 and London’s FTSE 100 climbed 0.6% to 6,434.8.

In London trading stocks were higher at mid-day trading as banks rallied. By mid morning, the benchmark FTSE 100 was up 59.9 points, or 0.9%, to 6,456.1, while the mid-cap FTSE 250 added 24.1 points, or 0.2%, to 10,877.3. At mid-day trading 85 stocks in the Index were trading higher.

Northern Rock led the gainers with a rise of 12% to 182p, after saying it had received a number of requests. Northern Rock confirmed on Tuesday that it has cancelled £60m dividend payout and added today that the bank has been approached by several parties about ”a variety of potential transactions” that may, or may not, lead to a takeover.

Royal Bank of Scotland rose 0.7% to 514p after it said its consortium with Fortis and Santander had increased its stake in Dutch takeover target ABN Amro to more than 8%. Elsewhere in the financial sector, Invesco, the Anglo-US fund manager, rose 5.4% to 665p after it proposed moving its primary listing to New York.

In Frankfurt trading DAX index at mid-day increased 0.47% or 36.81 to 7,806.25. Of the 30 stocks in index 21 are trading higher and 9 are lower.

Deutsche Börse, the German stock market operator, jumped 3 per cent to €96.20 after Credit Suisse lifted its target price from €107 to €115 and kept its ”outperform” rating after the company reported strong trading volumes throughout September. The note added that German exchange operator had boosted efficiency by restructuring and the new valuation reflected this, while traders share buyback announcements, and merger and acquisitions in the sector.

Further north, the spotlight was on Nordic bourse operator OMX. Borse Dubai and Nasdaq said they had agreed with key shareholders of OMX on a revised higher offer and secured nearly 48 percent of OMX shares through ownership and options.

Dubai increased its offer by 15% to SKr 32 billion or pay SKr265 per share higher than previous offer of SKr 230. Dubai with a stake of nearly 48% in OMX needs additional 2% to consume its deal to purchase the exchange. Largest shareholders Investor AB an Nordea have agreed to sell their stake in the exchange to Dubai.

Anglo Irish Bank, recently sold off over concerns about the economy, was the best performing of the eurozone lenders, up 2.5 percent to €12.40.

ASML, the Dutch maker of chip manufacturing equipment, rose 2.3 percent to €23.67 after confirming that none of its creditors had opposed its proposed €2.04-a-share capital repayment and reverse stock split. The company said the move was scheduled for September 28.


[R]6:00AM New York, 7:00PM Tokyo – Stocks in Tokyo rise. August trade surplus surges.[/R]

Japan stocks gained propped by forecast beating trade surplus figures for August. Financial companies also weighed in on gains on expectations weakening U.S. housing and retail markets will force a further rate cut.

In Tokyo trading Nikkei 225 rose 0.21% or 34.01 to 16,435.74. Retailer Dowa Holdings led the gainers with a rise of 7.35%.

According to the Finance Ministry August trade surplus soared to 743.2 billion yen on surging car and steel exports to Europe and the Middle East. Exports rose 14.5% compared to 11.5% in July. However, imports rose at 5.7%, sharply lower than rate 15% in July. The surplus quadrupled from a year ago.

Exports to the U.S. gained 4.6% and to the European Union also edged up by 15.6% from 13.1% in July. Shipment to China gained 23.8% from 20.6% in July led by a sharp rise of 88% in auto shipments.

The yen fell against the dollar at 114.83 from 114.78. The yen has risen more than 7% against the dollar since the end of June. Oil prices slipped 1.8% to $79.53 per barrel, the biggest fall since August 17. Metal prices also retreated. Zinc shed 0.6% and nickel declined 1.7%.

Of the Nikkei 225 stocks, Dowa Holdings led the gainers, climbing 7.32%, followed by a rise of 6.12% in Mitsubishi UFJ Nicos, 5.71% in GS Yuasa Corporation, 5.03% in Hitachi Zosen and 4.71% in Yokohama Rubber. Kajima Corporation led decliners with a loss of 7.58%. Inpex Holdings lost 5.83%, followed by NTT Docomo down 3.6% and Tokyo Dome Corp fell 3.15% respectively. Toyo Seikan slipped 2.77%.

Toshiba Corp jumped 4.2% ahead of earnings release and recent surge in nuclear reactor makers around the world.

Hino Motors close, 50% owned by Toyota, closed up 4%, after it raised its half year profit forecasts on rising demand from construction booms in Middle East and South America. Operating profit is estimated to rise 12% to 24 billion yen for the first six months ending September 30. Previously the company expected a 20% drop. Half year sales forecasts increased 9% to 66.5 billion yen.

Banks and realty groups closed higher on expectations that rate may be lowered in the U.S. after the October Federal Reserve meeting. Traders are expecting that interest rate may be lowered by 0.25%. The sentiment helped financial stocks to recover. Sumitomo Mitsui jumped 2.6%, Mizuho added 1.1%, and Sumitomo Realty increased 2.4%. Credit card processing service provider Aeon Credit Service soared 8.9%.

Retailers were in focus today after the news that Yamada Denki agreed to acquire Kimuraya Select and also raised its holding in Best Denki. Market has been expecting a consolidation in the industry.

[R]5:30AM New York, 5:30PM Sydney – Sydney stocks consolidated after a record close. BHP Billiton revised its projection of god find.[/R]

In Sydney trading ASX 200 Index lost 1.6 or 0.02% to 6,481.40. Australia's S&P/ASX 200 index traded intra-day record high riding on the increases in metals prices. The concerns on possibilities of demand for metal weakening had been heightened by a strong run-up on the resource market.

The world's largest miner, BHP Billiton Ltd, which indicated early this week that it had discovered the biggest gold find, announced that it had revised upwards by 75% its estimates of copper, gold and uranium resources at Australia's Olympic Dam mine. It further indicated that metal prices are likely to remain high. The amount of metal that could be profitably mined was pegged at 6.7% with a possibility of upward revision if the company decides to go two kilometers below the surface.

An expansion of the mine is considered in order to satisfy China's growing demand for raw materials. Chinese economy grew at 11.9% in the second quarter.

Indications were that BHP could double its copper production and increase its uranium production capacity by three months. The Mining giant indicated that it estimates that Olympic Dam copper production of 182,500 tons, gold at 91,700 ounces, 814,000 ounces for silver, and 3,486 tons of uranium during the fiscal year 2007.

The Australian dollar climbed traded at $0.8726 from $0.8618.

Of the ASX 200 index shares, Murchison Metals led the gainers with a rise of 6.26% followed by increases in Newcrest Mining of 4.14%, in Fotescue Metals of 3.97% in Lihir Gold Ltd and Pan Australian Resources Ltd up 3.97% and 3.80% respectively. Of the index stocks Futuris Corp Ltd led the decliners with a fall of 3.11% followed by declines in BHP Billiton of 3.23%, in Ramsay Health of 3.42%, in Aquarius Platinum of 3.56%, in Nufarm Ltd of 7.11%.