Hope Drives U.S. Stocks, Another Housing Plan

123jump.com Staff
12 Feb, 2008
New York City

U.S. stocks rallied after Warren Buffett made a low offer to support municipal bond reinsurance portfolio of $800 billion from three largest bond insurance companies. The U.S. also released a plan along with six major home lenders to help people who are on the brink of foreclousre, however the effort appears to be driven by political considerations. General Motors reported losses on the declining market share in the U.S.

[R]12:30PM New York – U.S. stocks rallied after an offer from Buffett and rising oil prices.[/R]

U.S. stocks rallied after three hours of trading led by a rise in financial and energy stocks.

The Warren Buffett offer to invest up to $5 billion and reinsure municipal bonds portfolio from the three troubled bond insurance companies, lifted stocks in morning trading.

The U.S. along with six major home mortgage lenders released a plan to help struggling homeowners under the name “Project Lifeline”. The plan was dubbed by the U.S. Treasury and Housing Development Secretary as a mechanism to keep people in homes with loan modifications who are likely to lose their properties otherwise. Henry Paulson the Secretary and Alphonso Jackson from HUD dubbed the plan will help people who are on the brink of insolvency by extending loan terms and relaxing certain measures of financing.

Bank of America, Countrywide Financial, Washington Mutual, Wells Fargo, Citigroup, and JP Morgan are part of the new alliance forged by the administration.

General Motors reported a loss in the fourth quarter and for the year 2007 on the continued challenges in the U.S. market. International markets delivered rising sales and earnings. The losses related to subprime market also affected the performance of GMAC.


Earnings News

Marsh & McLennan ((MMC)), insurance company, reported for the fourth quarter ended on December 2007 net revenue increased 8.1% to $2.93 billion from $2.71 billion in the prior-year quarter.Net earnings were $85 million or 16 cents per share compared to net earnings $226 million or 40 cents per share, for last year.

Credit Suisse ((CS)), Swiss bank and financial services company, reported that net revenue in the quarter was 9.4 billion francs ($8.5 billion), a decline of 13% from the 10.8 billion francs in the same period of 2006.

Net revenue for the year increased 6% to 40.9 billion francs ($37.2 billion) from 38.6 billion francs a previous year. Net income in the fourth quarter decreased 1.32 billion Swiss francs ($1.2 billion), or 1.21 francs a share.

For the full year, net income was 8.5 billion francs ($7.7 billion), decreased 25 % from 11.3 billion francs in 2006.

Teradata Corporation (TDC) said revenue surged 10% in the fourth quarter of 2007 of $1.702 billion, from $1.547 billion in 2006. Net income in the quarter was $79 million, or $0.43 per diluted share, compared to $62 million, or $0.34 per diluted share, in the fourth quarter of 2006.

Banco Itau Holding Financeira S.A. (ITU), Brazilian private bank reported earnings in the fourth quarter net income increased to $1.13 billion and posted net profit of 2.03 billion, from 1.28 billion in the same period in 2006.

Asian Markets Indexes

In Tokyo Nikkei 225 Index closed higher 4.72 or 0.04% to 13,021.96, in Hong Kong Hang Seng index increased 305.56 or 1.35% closed to 22,921.67. Australia ASX 200 index increased 70.50 or 1.27% to close 5,608.10.

In South Korea Kospi Index increased 2.62 or 0.16% to close at 1,643.29, in Thailand SET index closed higher 13.34 or 1.66% to 817.49 and Indonesia JSE Index edged increased 2.69 or 0.10% to 2,592.07. Sensex index in India decreased 22.90 or 0.14% to 16,608.01.



11:30AM New York – General Motors reported rising sales and earnings in foreign markets but the domestic market continue to plague the company in the face of stiff competition and shrinking market.[/R]

General Motors Corp. ((GM)) reported $181 billion in revenues for 2007, declined from $206 billion in 2006. Fourth quarter net loss was $722 million, or $1.28 per share, compared with a net income of $950 million in the same quarter year-ago.

2007 calendar-year adjusted net loss, excluding special items, of $23 million, or $.04 per diluted share. This compares to adjusted net income of $2.2 billion, or $3.84 per diluted share in 2006, as gain in automotive business was offset by large losses at GMAC, recently sold financing arm of the company.

Including special items, the company reported a loss of $38.7 billion, or $68.45 per diluted share, compared to a reported loss of $2 billion, or $3.50 per diluted share in 2006. The loss is almost entirely attributable to the non-cash $38.3 billion special charge in the third quarter related to the valuation allowance against deferred tax assets.

GM''s core automotive business generated record revenue of $178 billion in 2007, a $7 billion improvement over 2006, aided by growth in emerging markets and favorable foreign exchange against a weaker U.S. dollar.

In total, GM generated $181 billion in revenue in 2007, compared with $206 billion in 2006, the decrease in revenue in the last year is due to the non- consolidation of GMAC revenue, following GM''s sale of 51% of GMAC in November of 2006.

In the fourth quarter 2007, GM posted adjusted net income of $46 million or $.08 per diluted share, compared to adjusted net income of $180 million, or $.32 per diluted share in the year-ago period.

Including special items, the company reported a net loss of $722 million, or $1.28 per diluted share in the fourth quarter 2007, compared to net income of $950 million, or $1.68 per diluted share in the year-ago period. The fourth quarter results reflect a $1.6 billion tax benefit in continuing operations.

Special Charges

Special charges recorded in the fourth quarter totaled $768 million, including an $805 million adjustment principally related to a favorable tax item related to the gain on the sale of Allison Transmission, which was offset by $622 million in charges associated with GM''s support of Delphi''s restructuring efforts, $552 million for pension benefits provided to Delphi employees and retirees and $290 million in other restructuring-related charges.

Automotive Operations

GM reported revenue of $47.1 billion in the fourth quarter versus $50.8 billion in the year ago period, with the decline more than accounted for by the exclusion of GMAC revenue starting December 1, 2006.

Revenue from automotive operations totaled $46.7 billion in the quarter, a $3 billion increase over the prior year and a new quarterly revenue record, reflecting strong growth in Latin America, Asia Pacific and Eastern Europe.

GM''s global automotive operations posted adjusted earnings before tax of $553 million in 2007 (reported loss of $1.9 billion), compared to an adjusted loss before tax of $339 million in 2006 (reported loss of $6.1 billion). In the fourth quarter 2007, GM''s automotive operations had an adjusted loss before tax of $803 million (reported loss of $1.2 billion), compared to adjusted earnings before tax of $8 million in the year-ago quarter (reported loss of $111 million).

GM''s worldwide vehicle sales increased 3%, or 277,000 units, to 9.4 million vehicles in 2007, marking the second best year in units sold in the company''s 100-year history.

For the third consecutive year, a majority of the company''s sales - almost 60% - were outside of the U.S.

GM North America (GMNA) posted an adjusted loss before tax of $1.5 billion for 2007 (reported loss of $3.3 billion), compared to a loss before tax of $1.6 billion in the year-ago period, excluding special items (reported loss of $7.5 billion). GMNA had an adjusted loss before tax of $1.1 billion in the fourth quarter (reported loss of $1.3 billion), compared to an adjusted loss before tax of $129 million in the fourth quarter 2006 (reported loss of $30 million).

Losses for the year in GMNA were largely attributable to a softer U.S. market, and the reduction in dealer inventory by approximately 150,000 units and lower sales of daily rental vehicles by about 110,000 vehicles in the U.S.

GM reached its structural cost reduction target of $9 billion in North America in 2007 versus 2005, a key part of reducing global automotive structural cost as a percent of revenue from 34% in 2005 to 29.7% in 2007.

GM expects to derive additional structural cost savings of $4 billion to $5 billion by 2010 in the U.S. as it fully implements the 2007 GM-UAW contract, including the independent healthcare trust. These savings will help GM reach its goal to reduce structural cost as a percent of revenue to 25% of revenue by 2010, and further to 23% of revenue by 2012.

GM Europe (GME) posted its second consecutive year of adjusted profitability in 2007 with earnings before tax of $55 million (reported loss of $524 million), down from earnings before tax of $357 million in 2006, excluding special items (reported loss of $297 million).

For the fourth quarter GME posted an adjusted loss before tax of $215 million (reported loss of $445 million) versus an adjusted loss before tax of $12 million in the year ago period (reported loss of $154 million). The decline in calendar year and fourth quarter earnings were attributable primarily to a markedly softer German market as well as unfavorable foreign exchange rates.

GME sales were up 8.9% in 2007 to a record 2.2 million units, led by Chevrolet, up 34%, Opel/Vauxhall, up 4.3% and Cadillac up 31%. Demand for GM vehicles in the United Kingdom, Ukraine, Italy, Greece and Russia - where sales doubled to 260,000 units was strong.

With a 19% increase in sales to a record 1.2 million units in 2007, GM Latin America, Africa, Middle East (GMLAAM) achieved a record $1.3 billion in adjusted earnings before tax for the year (reported income of $1.3 billion), up 140% over 2006 adjusted earnings of $561 million (reported income of $518 million). GMLAAM also set a sales record in the fourth quarter with 341,000 units, up 18% year over year, generating $424 million in adjusted earnings before tax (reported income of $424 million), up from $76 million in the fourth quarter of 2006 (reported income of $76 million).

GMAP posted adjusted earnings before tax of $744 million in 2007 (reported income of $681 million) compared to $403 million (reported income of $1.2 billion) for 2006. GMAP adjusted earnings before tax for the fourth quarter were $72 million (reported income also $72 million), compared to $105 million in fourth quarter of 2006 (reported income of $29 million).

GMAP had continued strong performance in China, where domestic sales grew 18.5% in 2007 and GM, with its local partners, became the first global automotive manufacturer to sell more than 1 million vehicles. In addition, GM sales in India rose 74%, and export sales of the GM Daewoo products built in Korea increased by 30% to 870,000 vehicles.

On a standalone basis, GMAC Financial Services reported a net loss of $2.3 billion in 2007, compared with net income of $2.1 billion in 2006. Profitable results in the global automotive and insurance businesses were more than offset by the significant loss at Residential Capital, LLC (ResCap).

In the fourth quarter, GMAC reported a net loss of $724 million, compared to net income of $1.0 billion in the fourth quarter of 2006. The effect on ResCap of the continued disruption in the mortgage, housing and capital markets was the primary driver of adverse performance.

GM reported a $1.1 billion net loss attributable to GMAC, as a result of its 49% equity interest and preferred dividends received for the full year 2007, and a $394 million reported net loss for the fourth quarter.

GM estimates that if the U.S. market volume returns to trend levels in 2009 and beyond, which would be an increase of 1 million units, the change would generate additional pre-tax income to GM in the range of approximately $1 billion to $1.5 billion annually. GM also expects to reduce a substantial portion of the cost premiums it has historically paid to Delphi for systems and components over the next three to five years. The savings will be offset by various labor and transitional subsidies of $300-400 million per year under Delphi''s plan of reorganization, however GM expects to achieve annual net savings over the mid-term of approximately $500 million.

11:00AM New York – Credit Suisse Earnings suffer on losses related to subprime loans.[/R]

Marsh & McLennan ((MMC)), insurance company, reported for the fourth quarter ended on December 2007 net revenue increased 8.1% to $2.93 billion from $2.71 billion in the prior-year quarter.Net earnings were $85 million or 16 cents per share compared to net earnings $226 million or 40 cents per share, for last year.

Credit Suisse ((CS)), Swiss bank and financial services company, reported net revenue for the quarter was 9.4 billion francs ($8.5 billion), declined 13% from the 10.8 billion francs in the same period of 2006.

Net revenue for the year increased 6% to 40.9 billion francs ($37.2 billion) from 38.6 billion francs a previous year. Net income fourth-quarter 2007 was decreased 1.32 billion Swiss francs ($1.2 billion), or 1.21 francs a share.

For the full year, net income was 8.5 billion francs ($7.7 billion), decreased 25 % from 11.3 billion francs in 2006.

Teradata Corporation (TDC) said revenue surged 10% in the fourth quarter of 2007 of $1.702 billion, from $1.547 billion in 2006. Net income in the quarter was $79 million, or $0.43 per diluted share, compared to $62 million, or $0.34 per diluted share, in the fourth quarter of 2006.

Banco Itau Holding Financeira S.A. (ITU), Brazilian private bank reported earnings in the fourth quarter net income increased to $1.13 billion and posted net profit of 2.03 billion, from 1.28 billion in the same period in 2006.



[R]10:00AM New York, 7:30PM Mumbai – December industrial production index declined to 7.6% from 13.4% in the year ago period.[/R]

Market Sentiment

India markets ended weak for the second day in a row with the 30-share BSE Sensex declining 0.1% or 22.90 at 16,608.01 and broader index CNX Nifty fell 0.4% or 18.75 at 4,838.25.

Buying was evident in banking and oil & gas stocks. Technology stocks dropped.

Of the Sensex share, 22 stocks fell while the remainder advanced. On the BSE traded stocks 443 advanced 2,237 declined, and 32 stocks remained unchanged.

Daily turnover on the BSE was 5,276 crore while turnover on the National Stock Exchange was at 13,801 crore rupees.

Reliance companies dominated the most active lists. Reliance Power was the most active stock with the highest turnover of 821.72 crore rupees on BSE. Reliance Capital, Reliance Natural Resources, Reliance Energy and Reliance Industries were also active.

Economic News

Dismal performance by manufacturing, mining and electricity sectors has pushed down the industrial growth rate to 7.6% in December 2007 from 13.4% in the corresponding month in 2006, government statistics show.

The index of industrial production in December declined on account of the manufacturing sector growth rate, which decelerated to 8.4% cent from 14.5% in the corresponding period last financial year, showed the quick estimates of IIP released on Tuesday.

The mining and electricity sectors too performed poorly during the month, recording growth rates of 3.5% and 3.8% respectively as compared to 6.1% and 9.1% in December 2006.

The cumulative industrial growth rate (April-December 2007) also declined to 9% from 11.2%. The nine-month growth rate for manufacturing sector declined to 9.6% from 12.2%.

The growth rates for mining and electricity sectors worked out to be 4.9% and 6.6% respectively, compared to 4.4% and 7.5% during the corresponding period of 2006-07

Gainers and Decliners

Larsen & Toubro fell 1.3% to 3,269.05 rupees.

TCS slipped 4.3% to 864.8 rupees, Mahindra & Mahindra shed 3.0% to 579.05 rupees, , ACC fell 2.6% to 718.25 rupees, and Tata Steel declined 2.2% to 710.45 rupees.

Ranbaxy Laboratories gained 1.2% to 370.25 rupees, Bharti Airtel rose 0.8% to 855.8 rupees and State Bank of India surged 0.6% to 2,057.4 rupees.

ICICI Bank rose 2.7% to 1,063.75 rupees, Axis Bank jumped 6.6% to 989.8 rupees, Kotak Mahindra Bank jumped 2.5% to 818.55 rupees, Andhra Bank gained 2.3% to 86.05 rupees.

TCS fell 4.3% to 864.8 rupees, HCL Technologies shed 2.5% to 249.25 rupees, Satyam Computer declined 0.7% to 420.9 rupees, Infosys Technologies fell 0.9% to 1,545.4 rupees and Wipro fell 0.4% to 421.8 rupees.

Debutant J Kumar Infraprojects settled at 102.70 on the BSE, a discount of 6.6% over IPO price of 110 rupees. The stock was listed at 100 rupees on the BSE, a discount of 9.1% from the initial offer price.

Reliance Update

Reliance Power fell 4.8% to 354.55 rupees on volume of 2.30 crore shares on BSE. On Monday the stock had debuted at 547.8 rupees, a premium of 21.7% over the IPO price of 450 rupees.

Reliance Industries rose 2.2% to 2324.15 rupees, Reliance Communication declined 2.5% to 575.7 rupees and Reliance Energy slid 2.9% to 1535.75 rupees.


[R]9:20AM New York – Buffett makes a low-ball offer to purchase municipal bonds liabilities from bond insurance companies.[/R]

Warren Buffett offered for $5 billion municipal bond liabilities of three bond insurance companies worth $800 billion.

U.S. stocks futures rose ahead of market opening after a report that Warren Buffett, chairman of Berkshire Hathaway Inc offered to reinsure municipal bonds insured by three largest bond insurance companies, FGIC, MBIA, and Ambac Financial Group.

The offer first reported on CNBC television network and later on quoted in Bloomberg news was turned down by one insurer and still under consideration by the other two.

The offer from Buffett includes a plan to inject $5 billion in capital guarantee to insure bond liabilities worth $800 billion. The new capital from Berkshire will secure a rating of AAA from the rating agencies and protect the bond holders from future downgrades of securities.

The offer does not include the sub-prime loans that are at the center of credit market malaise.

It is not clear why will bond insurers bite such an offer. The Buffett offer only includes the healthy part of the business and will also be thinly capitalized. To cover $800 billion liabilities with less than 0.6% of capital in the current market environment may not calm financial markets.


Separately, bond insurers can also spin-off these liabilities as a separate subsidiaries and protect cash flow and secure higher bond ratings on these bonds that are relatively stable and credit loss free.

[R]6:00Am New York, 6:00PM Hong-Kong – In subdued trading stocks recovered on rising metals and oil prices. Foreign reserves increase to $160 billion.[/R]

Stocks in Hong Kong rose in cautious trading led by resurgent oil and rising commodity prices as metal production in China remains disrupted on weather conditions. Trading volumes also remained depressed as the China A-share market remains closed.

Market Sentiment

In Hong Kong trading the benchmark Hang Seng Index advanced 1.4% or 305.56 to 22,921.67, and the China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, climbed 1.6 %, or 206.09 to 12,736.69.

Daily turnover on main-board was HK$67.2 billion compared to HK$76.4 billion yesterday.

Forex Reserves Rise

The Hong Kong Monetary Authority announced on its website yesterday that the country’s official foreign currency reserve assets reached $159.9 billion at the end of January.

According the authority, including unsettled forward contracts foreign currency reserve assets also stood at $159.9 billion from $152.7 billion at the end of December.

“The $7.2 billion increase in settled foreign currency assets in the month of January was due mainly to the purchase of foreign currencies with Hong Kong dollars and an increase in Certificates of Indebtedness, reflecting the seasonal demand for banknotes around the Lunar New Year,” said HKMA.

Cumulative foreign currency reserve assets at $159.9 billion represents 38% of Hong Kong dollar M3 money supply.

China and Indonesia trade volumes Increase

China People’s Daily online reported today Indonesian ambassador to China Sudrajat said that trade volumes between Indonesia and China rose 30% to $25 billion exceeding the target of $20 billion set for 2008.


Gainers and Losers

Energy and commodity stocks gained on rising prices of crude oil and metals.

Crude oil for March delivery rose 2% to $93.59 per barrel and copper futures gained to $3,599 per pound. Energy stocks PetroChina and CNOOC Limited gained 2.8% and 2.4% respectively.

Aluminum Corp of China advanced 2.1% to HK$11.82 and Jiangxi Copper jumped 3.5 % to HK$14.80 among commodity stocks.

New Media soared 111.7% from its IPO price at HK$1.44 after the company raised HK$87.61 million in Hong Kong.

China Mobile Limited, the country’s biggest mobile telecommunications company, also rose by 1.8% to HK$1140.70, and HSBC Holdings gained 1% to HK$110.30.

Insurer Ping An however slumped 0.3% to HK$54.05 after brokerage Goldman Sachs slashed its rating on the stock from “buy” to “neutral”.

Company News

The Standard online edition reported today that Cheung Kong Holdings will sell Rmb8 billion luxury residential project in Beijing in the middle of the year as prices of high-end accommodation rise. The entire project will be developed in five phases until 2013.

The first phase, with 400 villas, semi-detached and detached houses will be completed in 2010 and presales will be launched before the Olympics in August.


[R]5:00AM New York, 7:00PM Tokyo - Commodities and energy stocks leads Tokyo’s gain. Sumitomo Heavy Industries makes 58 billion yen buyout proposal for U.S. chip manufacturer Axcelis Technologies.[/R]

Japan stock averages edged higher despite rising metals and oil prices in the region. Metals especially copper gained after China forecasted difficult weather conditions and investors estimated weeks of disrupted production.

Market Sentiment

In Tokyo trading Nikkei 225 edged 0.04% higher or 4.72 to 13,021.96, and the broader Topix Index declined 0.1% or 1.04 to 1,286.10.

In the first section of the Tokyo Stock Exchange 10 billion shares worth 1 trillion yen were traded and in the second section 490 million shares valued at 3.5 billion yen changed hands.

Of the Nikkei 225 stocks 98 gained, 121 fell, and 6 were unchanged. Inpex Holdings led gainers with a rise of 8.74% after crude oil prices for March delivery advanced 2% to $93.59 per barrel.

AIG Weaknesses

American International Group Inc, the world’s largest insurer, declined yesterday after it reported in a regulatory filing with the Securities and Exchange Commission that auditors have discovered a “material weakness” in the way the company values its senior credit-default swaps.

The company changed the method how it uses calculation of losses in these swaps and increased its estimate of losses by $4.9 billion to $5.9 billion at the end of November 2007. The company also cited that it cannot value these complex securities at this time. Separately its independent auditors PriceWaterhouseCoopers said that company has material weakness in valuing these securities.

The company said it will need to alter the way it values its credit default swaps involving collateralized debt obligations, adding that earlier estimates had included an adjustment for cash flow diversion. AIG stock fell 12% dragging other insurance companies with it.

Looming LNG shortages

Yomiuri news on line reported yesterday that a final agreement between Indonesian state run Pertamina and six other Japanese companies, including Kansai Electric Power, on reduction of liquefied natural gas imports to Japan is expected on February 19.

The two parties have agreed to reduce the amount of annually imported gas from 12 million tons to 2 million tons but its price is still negotiated.

Reduction of LNG imports from Indonesia, which supplies 22% of the fuel, will most likely result in the increase in fees for electricity and gas.

Gainers and Losers

Inpex Holdings led advancers of the Nikkei 225 index shares with a gain of 8.74% followed by rises in Fujitsu Limited of 8.16%, in TDK Corp. of 5.55%, in Pioneer Corp of 5.52%, and in Shimizu Corp. of 5.46%.

Inpex Holdings gained after the crude oil prices edged up 2% to $93.58 per barrel yesterday.

Commodity stocks rose helped by metal price increases that are being caused by output constraints in China as inclement weather is likely to hamper production for weeks. Mitsui & Co advanced 4.58% and Mitsubishi Corp. rose 2.72%.

Shipbuilders gained on higher fuel prices. Kawasaki Kisen gained 3.65% and Mitsui O.S.K. Lines jumped 4.58%.

Exporters gained as the yen weakened 0.45% from 107.05 to 107.07 against the dollar. Toshiba climbed 1.94% and Toyota Motor Corp edged up 1.53%.

Nippon Light Metals led decliners of the Nikkei 225 index shares with a drop of 17.34% followed by losses in Daiwa Industries of 14.17%, in Mitsui Sumitomo Insurance of 6.36%, in Chiyoda Corp of 6.35%, and Furukawa Electric of 6.25%.

Mitsui Sumitomo Insurance declined on reports by AIG that the auditors had found weaknesses in the way it values credit default swaps. Other insurance companies were sold as well. Millea Holdings shed 5.69% and Sompo Japan Insurance fell 5.44%.

Company News

The Nikkei news online reported today that Sumitomo Heavy Industries said Monday it has made a proposal to buy U.S. chip manufacturer Axcelis Technologies Inc for 58 billion yen. The chipmaker is also listed on the Nasdaq stock market.

Separately, the online publication of Japan Post Holdings, which boasts of 24,000 post offices, will today sign a tie-up agreement with Lawson Inc in order to boost business efficiency. Lawson closed up 2%.

Asian Markets Indexes

In Tokyo Nikkei 225 Index closed higher 4.72 or 0.04% to 13,021.96, in Hong Kong Hang Seng index increased 305.56 or 1.35% closed to 22,921.67. Australia ASX 200 index increased 70.50 or 1.27% to close 5,608.10.

In South Korea Kospi Index increased 2.62 or 0.16% to close at 1,643.29, in Thailand SET index closed higher 13.34 or 1.66% to 817.49 and Indonesia JSE Index edged increased 2.69 or 0.10% to 2,592.07. Sensex index in India decreased 22.90 or 0.14% to 16,608.01.