The Primaries: It Isn't Over
For Senator John McCain, it truly was a Super Tuesday. The Arizona Republican scored decisive wins in Feb. 5 primary voting that spanned the nation. Now the maverick becomes the front-runner, and former Massachusetts Governor Mitt Romney will have a tougher time building momentum. By Feb. 6 the delegate count, as tallied by the Associated Press, had McCain with 703, Romney 269, and former Arkansas Governor Mike Huckabee 190. On the Democratic side, the contest became even more muddled as both Senators Hillary Clinton and Barack Obama won in key states. The AP count put Clinton ahead, 1,000 to 902, largely on the strength of "super delegates," or party officials who are not bound by any primary votes.
See "Is John McCain Good for Business?"
Ballmer's Big Bet
Microsoft (MSFT) is pushing more chips into the Internet pot—a whole lot more chips. Having spent billions trying to build a Web business to catch up to rival Google (GOOG), the software king admitted that it's not getting the job done by making an unsolicited $44.6 billion bid on Feb. 1 for Yahoo! (YHOO) The Web pioneer has rebuffed advances in the past, but Microsoft CEO Steven Ballmer figures a 62% premium may sway shareholders. If it does, his work will be just beginning. Microsoft will need to win over regulators and meld operations while trying not to alienate crucial Yahoo employees, all while trying to eke out $1 billion in efficiencies.
Bush's Last Budget
There will be a new President in office in 2009, but whoever it is will have to deal with the fallout from the budget war starting now. President George W. Bush on Feb. 4 unveiled a $3.1 trillion budget for 2009, which would raise the federal deficit to a near-record $407 billion. (It also projects $410 billion for 2008.) Although the budget is usually the starting point for negotiations between the White House and Congress, this year's document may matter less than most, given Bush's lame-duck status and Democrats' unwillingness to give him victories in an election year.
More Recession Fears
Et tu, services? On Feb. 5 the Institute for Supply Management said its services index sank to 41.9 in January, the lowest level in nearly five years, from 54.4 in December. Anything under 50 means activity is contracting. That was enough to make the "R" word loom even larger, and investors pounded the Dow down 370 points, about 3%.
CSI: Wall Street
Those suits you see prowling New York's financial canyons these days may be G-men, not bankers. Investigators are probing Société Générale (SCGLY) in connection with stock sales by a U.S. board member that preceded the French bank's announcement of a $7.1 billion trading loss and a big subprime writedown. And the FBI says it is pursuing criminal inquiries of 14 companies in connection with the mortgage crisis. Prosecutors are known to be looking at whether UBS (UBS) misled investors about the value of mortgage bonds, and the SEC is looking into possible mispricing of mortgage securities by UBS and Merrill Lynch (MER).
The Fight for Rio Tinto
Well, O.K., will $147 billion do? That's the price offered by mining giant BHP Billiton (BHP) on Feb. 6 for rival Rio Tinto (RTP), which had sniffed at BHP's original bid—and quickly rejected this one. The 13% boost came days after Chinese aluminum maker Chinalco and Alcoa (AA) paid $14 billion for a 12% stake in Rio. Now, BHP hopes to persuade 50% of Rio's shareholders and get regulatory clearance from Australia and the EU.
See "BHP's Higher Bid Doesn't Sway Rio Tinto"
An Empire at Risk
Tycoons across the country are watching anxiously as a New York skyscraper empire is buffeted by high winds. Last February, Macklowe Properties paid $50 million of the $7.1 billion price tag to buy seven New York office buildings, borrowing the rest from Deutsche Bank (DB) and Fortress Investment Group (FIG). Now those loans are coming due, and the father-son team of Harry and William Macklowe, unable to refinance, is scrambling for cash to stave off creditors. The Macklowes have put the GM Building, their prize holding, on the block.
The Credit Chase
Mortgages aren't the only form of loans keeping consumers up at night. Now it's time for the credit-card squeeze. With delinquencies rising and Wall Street less likely to buy pools of risky loans, banks are tightening up: raising rates, reducing loan limits, and cutting back on new card solicitations. All this means that consumers are having to seek out alternative forms of credit.
Hanging Up the Phone?
Motorola (MOT) invented the business in the early '80s, cleaned up with the Razr—and now may get out. The company said on Jan. 31 that it's mulling alternatives to its structure, including the sale or spin-off of its cell-phone unit, which has been losing money and zapping the stock. A breakup would be a concession to fed-up investors including Carl Icahn.
See "Motorola: The End of an Error"
Toyota Sees Trouble
No one could complain about numbers like these: For the three months through Dec. 31, Toyota (TM) rang up operating profits of $5.6 billion, a record for the quarter. Sales rose 9.2%, to $62.7 billion. Net earnings jumped 7.5%, to $4.3 billion. But even the well-tooled Toyota machine isn't immune to slowing sales in mature auto markets and a stronger yen. While the carmaker maintained its full-year forecasts, it expects earnings to shrink during the current quarter.
See "Recession Worries Weigh on Toyota"
Exxon Mobil (XOM) sure likes breaking records. On Feb. 1 it once again reported the highest quarterly and annual profits ever for a U.S. company. Fourth-quarter income rose 14%, to $11.66 billion, and for the full year Exxon sucked in a staggering $40.61 billion, beating its 2006 record of $39.5 billion. The gilded year resulted in part from crude prices gushing up nearly 60%. But as signs of a recession multiply, analysts are watching to see if prices will deflate and end the profit party.
Peace in Hollywood?
The three-month-long writers strike crept toward a dénouement when the Writers Guild of America said it would brief members on Feb. 10 on a potential new contract with studios that is expected to hike residuals for downloaded TV shows and for the first time pay writers for shows streamed on sites such as Hulu and MySpace (NWS). Talks warmed up after the Directors Guild reached a similar deal on Jan. 17. That pushed writers to resolve their issues before the Academy Awards on Feb. 24.
The Bush Administration has so far resisted calls to create an entity like the Resolution Trust Corp. to tackle the subprime crisis. But over the past year, government-owned or -backed agencies have quietly pumped liquidity into the mortgage market—to the tune of $840 billion. That number could reach $1.7 trillion by the end of the year, if Congress O.K.'s a steep hike in the Federal Housing Administration's loan limit. The measures may help put a floor under falling home prices. (CreditSights.com)
A Super Super Bowl
Who said mass media is dead? A record 97.5 million viewers tuned in to watch Eli Manning and the New York Giants take down the New England Patriots on Fox this past Sunday. The broadcast, which attracted 65% of all viewers watching TV that evening, according to Nielsen (NTRT), was the second-highest-rated program of all time. It fell just short of the final episode of M*A*S*H in 1983, which was seen by 106 million people.
See "Super Bowl Commercials XLII"
Bewkes Gets to Work
Just a month into his new job as CEO of Time Warner (TWX), Jeff Bewkes showed on Feb. 6 that he is out to redesign the world's largest media company. Bewkes said he would cleave AOL, separating its old dial-up business from its ad-supported, free portal. In addition, he said executives will consider spinning out more of Time Warner Cable (TWC) to the public (the float is currently 16%) and look at alternatives for its New Line Cinema unit, hinting that it may be merged into its Warner Bros. studio. Investors, long frustrated by Time Warner's stock, yawned: Shares rose just 50 cents on the news, to about 16.
Is This Rescue Needed?
The race to save bond insurers from a series of punishing credit downgrades continues to captivate Wall Street, which fears such a move would clobber the $2.7 trillion municipal bond market. Regulators are trying to force Wall Street banks and private equity firms to come up with cash to bail out the insurers, which are losing billions because of their ill-considered decision to guarantee subprime mortgage-backed securities. But critics say a rescue isn't necessary because many cities and states that buy bond insurance could do without it. Meanwhile, Moody's (MCO) announced that it's asking for comments on whether it should revise the way it rates structured finance instruments.
A Blow to the Merc
The Chicago Mercantile Exchange (CME), a longtime market darling, lost nearly $134 a share in just two days, closing at 485.25 on Feb. 6, after the Justice Dept. called for an overhaul of the futures markets. Trustbusters at Justice took aim at the CME's near-monopoly on futures trading, suggesting that Treasury take a detailed look. The criticism threatens to skunk CME's tentatively proposed $11 billion purchase of the New York Mercantile Exchange (NMX). If Congress takes action, it could legislate such changes as separating the CME and its clearinghouse.
See "Rough Justice for the Chicago Merc"
Don't Give Me Greenbacks, Boss
The mighty dollar is mighty no more—and it's not just supermodel Gisele Bündchen who thinks so. In Turkey, getting paid in greenbacks was once a status symbol. But now local hires at Hewlett-Packard (HP), Reuters (RTRSY), and other multinationals want payment in their national currency, the new Turkish lira, reports the Jan. 27 edition of BusinessWeek Turkey. The Turkish unit of HP already has made the switch, and others may follow. The Turkish lira, once a weakling itself, has been remarkably solid since the government axed six zeros from bills in 2005. Last year it gained more than 17% against the dollar.