U.S. Stocks Sideways, EU Rules on MasterCard

123jump.com Staff
19 Dec, 2007
New York City

U.S. stocks tunred negative in the afternoon trading after scaling higher in the morning. Morgan Stanley reported wider than expected loss on the account of more losses in the sub-prime lending business. The brokerage firm also reported an investment of $5 billion from sovereign fund controlled by China. The European Commission ruled that MasterCard should stop its interbank fees within six months for the cross border transactions.

[R]12:00PM New York – U.S. stocks turned negative after opening higher.[/R]

Market averages opened higher in the face of weaker than expected earnings from Morgan Stanley and Palm. Stock market appears to welcome the decision by a sovereign fund controlled by China to invest $5 billion in Morgan Stanley.

Dow Jones Industrial Average lost 35.20 to 13,195.45, Nasdaq added 0.89 to 2,596.54, and S&P 500 decreased 2.68 to 1,452.30.

Morgan Stanley ((MS)) reported fourth quarter loss of $5.8 billion compared to a gain of $2.65 billion. Diluted earnings per share swung to a loss of $3.61 billion from profit of $1.97 in the prior year.

For the year the brokerage firm reported revenue decline of 6% to $28.1 billion and earnings declined 62% to $3.44 billion. Diluted earnings per share fell 58% to $2.98.

The brokerage firm continued to reel from current malaise in the credit market. The additional $5.7 billion write-down of U.S. subprime, and other mortgage related exposures in November, and the $3.7 billion write-down as of October 31 (as announced on November 7), result in a total fourth quarter write-down of approximately $9.4 billion. In total, these write-downs reduced full year earnings per diluted share from continuing operations and the return on average common equity from continuing operations by approximately $5.80 and 19 percentage points, respectively.

China Investment Corporation also invested $5 billion in Morgan Stanley, however no details were available at what stock price the stake was sold to China.

Hovnanian Enterprises reported wider than expected loss as housing market continued to weaken. For the fourth quarter ending on October 31st the company reported a loss of $7.42 per share compared to a loss of $1.88 per share a year ago. Total loss in the quarter increased to $412 million from $115 million from a year ago. For the fiscal year 2007 the company reported a loss of $627 million compared to profit of $149 million or earnings per share swung to a loss of $10.11 from a profit of $2.14.

The Company delivered 13,564 homes with an aggregate sales value of $4.6 billion in fiscal 2007, down 24.4% from 17,940 home deliveries with an aggregate sales value of $5.9 billion in fiscal 2006. In the fourth quarter, the Company delivered 3,969 homes with an aggregate sales value of $1.3 billion in fiscal 2007, a decline of 22.0% in sales value from the fourth quarter in fiscal 2006.

The European Commission ruled that MasterCard Inc. cross border charges on cross border are incompatible with European Union rules and must drop these fees within the next six months. The Commission dictated the fine of 3.5% of daily global revenues if the fees are not removed in the required period.

MasterCard competitor Visa entered into an agreement with European Commission limiting the charges. EU is in the process of replacing country by country payment system with a Single Euro Payment System by the year 2008.


[R]6:00AM New York, 8:00PM Tokyo - Japan lowered economic growth to 1.3% from 2.1% for the current fiscal year.[/R]

Stocks in Japan snapped earlier gains after a government report slashed the economic growth forecast from 2.1% to 1.3% for the fiscal year ending March 2008.

In Tokyo trading Nikkei 225 declined 1.77% or 1,777.35 o 15,030.51 while the broader Topix Index declined 12.98 to 1,456.79.

In the first section of the Tokyo Stock Exchange 8 billion shares worth 977 billion yen were traded and 296 million shares valued at 7.3 billion yen changed hands in the second section.

Of the Nikkei 225 stocks 45 gained, 174 declined, and 6 were unchanged. Nippon Kayaku led decliners with a fall of 11.21% after the company cut its net income forecast by 30% to 6.7 billion yen for the year ending March 31.

Japan Cabinet Office lowered its annual economic growth for the current year to 1.3% from the earlier projection of 2.1%. The construction slow-down from the new Building Standards Law in June hurt the overall growth. Analysts forecast that the housing slowdown would erase 0.6% or 3 trillion yen from growth this year.

According to the report, housing investment would fall 12.7% in the year ending March 2008 but would rebound 9% next year as the industry catches up with the backlog in the activities.

In addition, private consumption growth is expected to remain unchanged at 1.3% in the fiscal 2008, while capital investment is expected to increase to 3.3% in the fiscal 2008 from 0.9% in the fiscal 2007.

Industrial production is projected to rise 2.2% in 2008 from 2.4% in the current fiscal year. Exports are estimated to gain by 6.4% from 8.9% in the current year and imports are expected to rise 5.9% next year from 7.8% this year.

The GDP deflator, which gauges price changes, is expected to increase by 0.1%, while a 2.1% growth is expected in nominal terms for the next fiscal year.

Unemployment is also forecasted to fall to 3.8% from 3.9% this year.

Bloomberg news reported today Economic and Fiscal Policy Minister Hiroko Ota said in Tokyo today revenue from taxes could start falling as a result of slower economic growth.

Japan’s Finance Minister Fukushiro Nukaga also told reporters that the government still wants to balance the budget by the year 2012. Economists forecast that the country’s debt will still remain at 1.8 times the size of the economy.

Jasdaq Securities Exchange Chief Executive Takashi Tsutsui said today the exchange is in talks with the Bombay Stock Exchange to lure listings from Indian companies and shore up trading volumes. Tsutsui added that a formal agreement might be reached as early as next month. Bloomberg News reported the development and later was confirmed by sources at the Bombay Stock Exchange.

Jasdaq is also seeking to forge an alliance with India’s National Stock Exchange to swap information including trading systems.

Japan may increase its wheat prices by 30% from next April due to increased costs. Last price increase was in October of 10%. Deputy Manager of the grain trading division at the Ministry of Agriculture, Forestry and Fisheries Hirotaka Mori added that price for domestic millers would rise between 20% and 30% by next April.

The yen edged 0.19% from 113.28 to 113.23 to the dollar at the close.

Of the Nikkei 225 index shares, Taiyo Yuden Company led advancers with a rise of 4.40% followed by gains of 3.90% in NSK Limited, of 3.78% in IHI Corp, of 3.05% in T&D Holding Incorporated, and 2.61% in Inpex Holdings.

Nippon Kayaku led decliners in the Nikkei 225 index shares with a fall of 11.21% followed by losses in Denki Kagaku of 6.15%, in Fujikura Limited of 5.45%, in Nippon Oil Corp of 4.89%, and Mitsubishi Electrical Corporation of 4.34%.

Canon fell 0.55%, Komatsu Limited slipped 3.93%, and Sony Corporation retreated 1.13%.

Nippon Kayaku fell sharply after lowering its net income forecast by 30% to 6.7 billion yen. The company now expects sales to plummet by 7.2% from the initial projections to 148.5 billion yen.

Financial stocks slumped after an earlier rally spurred by speculation that the European Central Bank’s $500 billion injection into the euro zone would help ease the global credit crunch. Nikkei News reported earlier that Japanese financial institutions would reject a request by the U.S to contribute to sub-prime financial bailout fund.

Mitsubishi UFJ Financial Group slipped 0.39%, Mizuho Financial Group declined 1.31% and Mitsui Sumitomo Financial Group tumbled 1.97%.

The Nikkei online news reported today Nippon Steel Corp is considering closer ties with Sumitomo Metal Industries and Kobe Steel Limited, adding that the company would spend 50 billion yen to buy more shares of the rivals and increase its stake in Sumitomo Metal Industries to nearly 10%. Nippon Steel Corp rose 0.16%, Sumitomo Metal Industries plunged 0.44% and Kobe Steel Limited fell 0.58%.

The online edition separately reported that Nikko Cordial shareholders had approved the plan to become a wholly owned unit of U.S. lender Citigroup through a share swap under a triangular merger.

[R]5:00AM New York, 9:00PM Sydney – ASX 200 Index in Australia declined by 0.3% on the weakness in financial stocks.[/R]

ASX 200 index declined 0.3% or 20.5 to close at 6,216.40. Preliminary market turnover was 1.78 billion worth $7.25 billion, with 676 stocks up, 578 down and 355 unchanged.

Commonwealth Bank of Australia closed down 2.5%, Australia and New Zealand Bank declined 1.4%, National Australian Bank declined 0.4% and Westpac Banking Corp shed 3.5%.

Exxon Mobil Corporation approved the development of a project at its Kipper natural gas field in Australia at estimated cost of $1.1 billion. The project in partnership with BHP Billiton and Santos is expected to start in 2011.

Energy and Resources Minister Peter Batchelor for the state of Victoria was reported to have indicated that construction of the field would start in the second half of 2008. The field would be the largest known undeveloped gas reservoir in southeastern Australia.

According to BHP the first phase, which would cost about $1.1 billion, involves work on onshore processing systems as well as the offshore field. BHP estimated its share of cost to be $500 million.

The field holds about 620 billion cubic feet of gas and 30 million barrels of condensates and gas liquids enough to power a city of one million people for 15 years.

Santos said today it was going to invest about $140 million (U.S$121 million) and will hold 35% stake in the field while BHP and Exxon would shoulder the majority of the cost related to construction of systems.

Demand for natural gas in the southern states has been on the increases following a drought through much of eastern Australia, which has led to shortage of water for hydropower plants, and for cooling at coal-fired stations.

Australia''s second-biggest shopping-mall owner, Centro Properties Group started trading today but indicated that it may have to sell some of its assets to pay-off its debts.

The Group lost more than 85% of its value this week after downgrading its full-year distribution guidance and said it would not pay a first-half distribution.

The Group has been struggling to refinance A$3.9 billion ($3.4 billion) of debt, but it managed to extend the date of repayment till February, 2008.

Centro, which owns 700 U.S. shopping centers, rose in Sydney trading today after saying external advisers examined its cash flow and the business remains viable. Centro was up 50% at the close of trading while its trust, Centro Retail Group gained 15%.

Civil cases against six former directors and officers of wheat exporter, AWB Ltd that are being instigated by the Australian Securities and Investments Commission have started in the Supreme Court of Victoria. Each director faces a maximum penalty of $200,000.

The dollar firmed today but still weighed down by the global credit crunch and liquidity concerns. At the close the Australian dollar was trading at $0.8624/28, up from yesterday''s close of $0.8587/93.

Of the ASX 200 index shares, Centro properties led the gainers with a rise of 49.7% followed by increases in Centro Retail Retail Group by 15.4%, in Macmahon Holdings by 12.9%, in Goodman Group by 11.4%, and in Wotif.Com Holding by 9%.

Of the ASX 200 index stocks Allco Finance led the decliners with a fall of 7.5% followed by losses in SP Ausnet by 4.4%, Macquarie Count by 4%, in Allesco Corporation Limited by 4%, and in Australand Properties by 3.8%.

Rio Tinto closed up 0.7%. In the banking sector St George Bank shed 2.6% despite reaffirming its earnings growth target for fiscal 2008 and saying its credit quality remains strong despite the fallout in global debt markets.

In the energy sector, Oil Search was lower at 0.2%, Woodside Petroleum dropped 1.9% and Santos shed 3.5%.

In the gold sector Newcrest Mining was up 0.6%, Lihir shed 0.6% and Copper and gold miner Oxiana lost 2.8% after the company approved the $310 million (A$361.2 million) development of the Martabe gold and silver mine in Indonesia.

The retailers were mixed with David Jones gaining 0.2%, Wesfarmers losing 0.2%, Woolworths falling 2.2% and Harvey Norman shedding 1.7%.