All Eyes on the Gulf
After inching close to $100 per barrel on Nov. 21, oil prices turned tail and fell about 10% in a week. That was enough for OPEC's ministers, meeting in Abu Dhabi on Dec. 4 and 5, to shy away from pumping more oil despite anguished pleas from Washington and other governments. OPEC, which produces about 40% of the world's crude, will meet again on Feb. 1 to take another look. The main reason crude has slid to the $90 range is that Western economies show signs of a slowdown. But geopolitics also played a role as a new U.S. intelligence estimate opined that Iran is not trying to build nuclear weapons, which reduces the prospect of more conflict in the Mideast.
See "Why the Hot Money's on Cheaper Oil"
A New Chief at Motorola
Somewhere, Carl Icahn is smiling. Motorola (MOT) CEO Ed Zander hung up on his job on Nov. 30. During his four years at the top he introduced the smash-hit Razr. Zander's failure to intuit what the market wanted next marred the last year and a half. A comeback journey, especially with investors such as Icahn baying for his hide, must have seemed unappealing. Motorola will look to current COO Greg Brown for resurrection. He'll have to do it without up- and-coming Chief Technology Officer Padmasree Warrior, who bolted to Cisco (CSCO) on Dec. 4 amid a reorganization of Motorola's tech ranks.
See "Motorola: The End of the Zander Era"
Mideast Money Dance
A $100 million deal? Don't bother. A few hundred million? Maybe you have a chance. That's the price of admission these days to the investment funds of the Persian Gulf, which are swimming in petrodollars and are getting more choosy about which supplicants they'll bother to see. Corporate titans of all stripes are making pilgrimages to the sheikdoms—and the rush has spawned a dandy business for those who can open doors.
Look Out, iTunes
Buy a phone, get a year's worth of unlimited music downloads. That's the shot Nokia (NOK) fired across Apple's (AAPL) bow on Dec. 4. Universal Music Group has already agreed to provide its stable of artists to the service, and Nokia is negotiating with other majors to join its challenge to iTunes. The new venture is part of Nokia's campaign to translate its domination of the handset business into Internet clout—while containing Google's (GOOG) bids to encroach on mobile turf.
See "Nolia Won't Play iPhone's Tune"
3.3 BILLION: Number of cell phone accounts worldwide, a figure equal to half the world's population
Quick—name a company with a loftier p-e than Google. One unlikely answer: Monsanto (MON), which just five years ago was deep in the red and under attack from activists and scientists. Back then, the future of food biotechnology and genetically modified organisms was in question. Now the company is booming, and the planting of GMO crops has steadily spread. Here's how Monsanto did it.
The Fall of Zoe Cruz
Subprime has cast down one of Wall Street's highest-ranking women: Morgan Stanley (MS) Co-President Zoe Cruz was given walking papers on Nov. 29. Cruz had survived many upheavals at the New York investment bank and was seen as the likely successor to CEO John Mack. But revelations of some $3.7 billion in losses on her watch proved to be her downfall. Her co-president, Bob Scully, will join a new office of the chairman, and two new co-presidents, Walid Chammah and James Gorman, were named.
Citadel Investment seems to have found its calling: dumpster diving. Going where others wouldn't dare, the hedge fund on Nov. 29 agreed to pump $2.55 billion into fast-sinking E*Trade Financial (ETFC) in return for $3 billion in mortgage-related debt, high-yield notes, and a nearly 20% equity stake in the online broker. That same day, E*Trade CEO Mitch Caplan left. The investment echoed how Citadel picked up assets from two hedge funds that imploded last summer. Citadel's money didn't steady E*Trade, however. Its shares resumed their slide and are down 85% in 2007.
See "E*Trade's Bailout Draws Boos"
Whither the Fed?
By now, Federal Reserve officials had hoped, the credit crunch would be easing and they could stop cutting rates. No such luck—banks are more skittish than ever about lending, even to other banks. So most traders expect the Federal Open Market Committee to cut its target rate for federal funds on Dec. 11, possibly even by half a point to 4%. The Fed may also encourage banks to borrow directly from it by making an extra-big cut in the discount rate.
Ford's No-Sale Sign
Well, never mind, we're not selling Volvo after all. For lack of a suitable suitor, Ford (F) on Dec. 3 said it won't unload its Swedish unit but instead will focus on making it more cost-competitive. It'll also push the brand upscale to compete more evenly against Lexus and Mercedes-Benz (DAI) while guarding its rep for safety and Scandinavian design. Meantime, Ford reversed a yearlong sales slide in the U.S. by inching up 1% in November. GM slid 11%, Chrysler 2.1%, while Japanese automakers used incentives to boost sales. Ford and GM are trimming production estimates for the first quarter because of the economic slowdown. And GM is bidding for a "significant stake" in Russian carmaker OAO Avtovaz.
A Game Giant Is Born
This team may have the weaponry to beat the boss. Vivendi said on Dec. 2 it will acquire a controlling stake in Activision, merging it with Vivendi Games in an $18.9 billion deal to create a fearsome rival to the world's largest video game publisher, Electronic Arts (ERTS). The new venture, to be called Activision Blizzard, will bring under one roof popular console titles such as Tony Hawk and Guitar Hero with online PC game World of Warcraft, which alone will generate revenues of $1.1 billion in 2007. Analysts say more deal magic could soon beam out from the booming games industry.
See "Activision-Vivendi's Game-Changing Deal"
Cerberus Walks Again
Another deal that won't happen: the sale of H&R Block's Option One to Cerberus Capital Management, which agreed to buy it back in the innocent days of April. With the subprime lending unit flooded in red ink, the private equity firm thought better, and the two companies said on Dec. 4 that they've agreed to call it quits. Block will shutter the mortgage origination unit and try to sell the part of the business that services loans.
Greenhouse Gas Parley
As it opened on Dec. 3, the U.N.'s 190-nation climate change meeting altered the environment of Bali, Indonesia. It featured polar-bear-costumed demonstrators, marching denizens from sinking island nations, and a dust-up over skyrocketing greenhouse gas emissions from India and China. The 10,000-strong confab aims to sketch out a new accord to slow global warming in advance of the expiration of the Kyoto agreement in 2012. The White House's messengers are widely expected to continue obstructing binding promises to cut emissions.
Washington Wades In
Can the Bush Administration save some of the 1.8 million subprime borrowers in danger of losing their homes? The President was expected to unveil on Dec. 6 the details of a controversial plan to stave off foreclosures. Treasury Secretary Henry Paulson has been working with loan companies like Countrywide, Citigroup, and Washington Mutual, as well as investors in mortgage-backed securities, to figure out which homeowners will qualify for the do-over, which will extend their monthly payments at the initial teaser rate for up to five years on loans due to reset between January, 2008, and July, 2010. House Democrats, in the meantime, are backing a bill by Michael Castle (R-Del.) to protect the companies that make or service mortgage loans from being sued. The fear? A wave of litigation from investors who could lose out on the deal, or from unhappy homeowners who don't qualify.
Who in their right mind would take out a subprime loan if they could qualify for a conventional one? Plenty of people, as it turns out. A study commissioned by The Wall Street Journal reveals that at the peak of the subprime boom in 2005, 55% of such loans went to borrowers with credit scores above 620, traditionally the line between subprime and prime. Aggressive marketing by lenders is partly to blame. But here's the good news: Because these households are in better shape to withstand the double whammy of falling home prices and reset mortgage rates, the crisis may be milder than some fear. (wsj.com)
Befuddled in Florida
In Florida's public schools, they now spell risk "S-I-V." That's because much of a $14 billion state investment fund for schools and local government was invested in structured investment vehicles—in this case, bonds backed by subprime mortgages and other iffy ventures. BlackRock (BLK), the investment firm hired by Florida officials to assess the value of the fund, said on Dec. 4 that some of the mortgages are so troubled that it can't determine a value, prompting Florida to limit how much municipalities can withdraw. And Florida isn't alone. In California, Orange County officials said that about 14% of the $6 billion in short-term investments the county holds are also in SIVs that look shaky, and Montana has a quarter of its $2.25 billion in short-term assets in SIVs.
Facebook's Faux Pas
Less than a month after unveiling its ad strategy, Facebook has egg on its face. The hot social network's Beacon program posts notices about people's purchases on other sites to their Facebook pages, in some cases without their approval. Activist group Moveon.org launched a petition asking Facebook to stop the program, and some participating advertisers such as Overstock.com opted out for now. On Nov. 30, Facebook said it will modify the system to require explicit approval by members of the notices. The brouhaha didn't stop Hong Kong tycoon Li Ka-shing from ponying up $60 million for a 0.4% sliver of Facebook, according to news reports.
Dell's New Ad Agency
WPP Group (WPPGY) just landed a new account—worth a cool $4.5 billion. On Dec. 2, Dell (DELL) said it chose the conglomerate to handle all its advertising tasks for the next three years, ditching the hundreds of agencies worldwide that it has used. WPP will form a new group to serve the PC giant, which spends about $1.5 billion a year on ads. Dell wants to sharpen and simplify its marketing, which has been marred by inconsistent messages.
See "Dell: Confounded by Costs"
Big Pharma keeps getting smaller. Bristol-Myers Squibb (BMY) is the latest member of the club to announce downsizing: It said on Dec. 5 that it will cut 10% of its 43,000 employees and close half its plants, saving $1.5 billion in costs. Abbott Labs (ABT), Pfizer (PFE), and Merck (MRK) are already trying to slim down.
Warner Bros., home to such hits as the Harry Potter series, has become the prettiest girl at the party as studios from the rival HD DVD and Blu-ray camps try to win it over. Studios are eager to sell consumers on the sharper images in the new DVD technology to offset slowing sales of existing DVDs, but Hollywood is split between the HD DVD format pushed by a Toshiba (TOSBF)-led group and the Blu-ray team in which Sony (SNE) is a major player. Early indications are that Sony, after losing out to HD DVD this summer when Paramount and DreamWorks joined the rival camp, may be making headway.
Temasek Looks to China
One of the world biggest sovereign investment funds is flexing its muscles again. The Wall Street Journal reported on Dec. 5 that Temasek, the gigantic investment vehicle of Singapore's government, is putting up a cool $1 billion as half of a new private equity fund run by Goldman Sachs' partner in China, Fang Fenglei. The new fund aims to acquire stakes in state-owned Chinese companies.
Tremors Shake the City
Britain and the U.S. have long shared a special relationship. Unfortunately, that bond appears to extend to dodgy American mortgages. Faced with mounting losses from subprime-backed investments, British banks are laying off workers and tightening the lending spigot. That's bad news for the British economy, since the City has powered some 30% of overall growth over the past three years. Some outfits are forecasting that growth will slow to 1.4% in 2008, the lowest since 1992. (The Economist)
Putin Si, Chávez No
Maybe Hugo Chávez needs to take lessons in strongmanship from Vladimir Putin. On Dec. 2, 64% of Russian voters gave the nod to their President's party in an election that observers called anything but free and fair. The mystery now is what Putin will do with his mandate, since he has to step down as President in March but clearly intends to retain power. Chávez, in contrast, narrowly lost a Dec. 2 referendum on proposals that would have let him remain President of Venezuela indefinitely and exercise even more sweeping powers than he already has.
See "Russia Election Raises New Questions" and See "Behind Chavez's Defeat in Venezuela"
New York Attorney General Andrew Cuomo, like his predecessor, Eliot Spitzer, has his eye on the Street. This time the AG is looking at the role investment banks played in fueling the explosion of subprime lending. On Dec. 5, The Wall Street Journal reported that Cuomo's office has sent subpoenas to firms including Merrill Lynch (MER), Bear Stearns (BSC), and Deutsche Bank (DB). The Journal says the subpoenas seek info about marketing mortgage-backed securities, including the role of credit-rating agencies.
Let 100 B-Schools Bloom
The first MBA programs began cropping up in China only 16 years ago. Today there are 230, and more are on the way as the government has set a goal of boosting MBA enrollment by 24% next year. The December issue of BusinessWeek China highlights the best MBA programs, based on a survey of 253 recruiters from companies such as General Electric, Huawei, and Nokia. Top honors go to China Europe International Business School, a venture of the Shanghai municipal government and the European Union. The companies polled also reported a marked increase in the overall quality of new grads, with 34% rating the supply of top talent as "excellent" or "good," vs. 19% the previous year.