War in Georgia, Anxiety in the Oil Patch
As BusinessWeek went to press on Aug. 13, it was unclear whether Russia was ending its invasion of Georgia or would push farther in its bid to punish Georgian President Mikheil Saakashvili. What's clear is the threat to vital oil transport routes. Most of the oil majors pipe crude through Georgia—about a million barrels a day, largely from Kazakhstan and Azerbaijan—and they all hope to boost those shipments. For now, the route is nearly shut down, though it's expected to reopen within a couple of weeks, assuming the fighting ends. But the prospect of building new pipelines to carry oil and gas from the Caspian Sea without Russia's say-so appears to be dead in the water.
The Oil-Dollar Equation
Oil falling, greenback rising—it's the perfect anti-inflationary combo. Crude futures dropped to $113 a barrel on Aug. 12 on the New York Merc, more than $30 below the early-July peak, as traders bet on a slowdown in the global economy. Oil bounced up to $116 on Aug. 13 after Washington reported a decline in gasoline inventories. Meanwhile, the dollar's perkiness has cut a dime off the price of a euro since late July, to $1.49 on Aug. 13. The rush into dollars also reflects the softening economic outlook outside the U.S., especially in Europe.
Battered in Zurich
Swiss financial giant UBS (UBS) must be wondering when it's going to stop raining disasters. On Aug. 12 the bank unveiled a second-quarter $329 million net loss and $5.1 billion in writedowns. That takes its total debt provisions related to the credit crisis to $43 billion, the worst hit of any European bank. UBS said it will split off its floundering investment bank from its highly profitable wealth management business to make it easier to hold managers accountable. The earnings downer came only days after UBS agreed to pay a fine of $150 million to U.S. authorities and buy back $18.6 billion in assets for allegedly misrepresenting the safety of auction-rate securities. Citigroup (C), Merrill Lynch (MER), and Morgan Stanley (MS) also agreed to repurchase billions in similar securities, and Wachovia (WB) is negotiating with regulators.
See "UBS: Preparing to Dump Its Investment Bank?"
Disunited at United
Who's steering this plane? Rancor between United Airlines (UAUA) and its pilots is at fever pitch, with the carrier suing the union over what it says is a high level of sick time, which has forced flight cancellations. Pilots' union chief Steve Wallach fired back on Aug. 11 by calling for United CEO Glenn Tilton to resign because of financial and operational failures. The pilots are agitating to open contract talks early, arguing that their current deal, which runs through December 2009, was designed to aid United's bankruptcy restructuring. Meanwhile, at a neighboring gate, the 12,000 pilots at Delta and Northwest approved on Aug. 11 a joint bargaining agreement that paves the way for the two to merge.
Fannie and Freddie: Ouch!
Like boxers still reeling from the last punch, Fannie Mae (FNM) and Freddie Mac (FRE) were rocked anew by a rating downgrade from Standard & Poor's on Aug. 11, not long after posting record losses totaling $3.1 billion. S&P left Fannie's and Freddie's AAA senior debt ratings unchanged—recent legislative action confirmed the long-assumed backing of the U.S. government. There's no such floor, however, under the mortgage financers' junior debt and preferred stock, S&P said, as it knocked ratings down three notches, from AA- to A-. That sent Freddie and Fannie shares, already off more than 75% this year, spiraling down 5% and 7%, respectively, from their Aug. 8 close.
NBC Looks Golden
Superswimmer Michael Phelps isn't the only one with a string of dizzying triumphs in Beijing. Riding Phelps' wake, NBC averaged 31.3 million viewers for the first five nights of the Summer Games, a 16% leap and 5 million more than the first four nights of Athens in 2004. Throw in hefty promos to beef up a still shaky prime-time lineup, and General Electric (GE) is likely getting its money's worth after paying $894 million for the rights. NBC's next test: keeping those eyeballs around when Phelps dries off and lower-profile events take over.
What Boeing Wants
Frustrated by the Pentagon's seeming desire to hire Northrop Grumman (NOC) and European Aeronautics Defence & Space to build $35 billion worth of new refueling tanker planes, Boeing (BA) is asking for more time and design specs that better suit its offerings. The Pentagon hopes for a contract by New Year's Day, but Boeing left talks with military officials on Aug. 12 seeking a "realistic timetable" that analysts say would push a decision into a new White House. Democrats might favor Boeing and its unionized workforce in Washington State over the alliance of Northrop and EADS, which promises jobs in Republican-leaning Alabama.
See "Boeing: More Heat Over Tankers"
Sinking in Shanghai
Even China's mighty Olympic gold medal tally has done nothing to lift investor spirits. The Shanghai Composite Index has sunk more than 53% this year, skidding to an 18-month low on Aug. 13, while trading has slowed to a trickle as everyone focuses on the Games. Plunging profits, plus inflation jitters and uncertainty whether Beijing can keep the economy steaming while the rest of the world is flagging, have hit share prices. Across the East China Sea in Japan, the mood is even gloomier after Tokyo reported on Aug. 13 that second-quarter GDP shrank at a 2.4% annual rate.
See "Inflation Fears Batter Chinese Stocks"
Alarmed by the waves of hot money hitting Chinese shores, Beijing has moved to tighten controls on currency transfers. New rules, which took effect this month, should make it tougher for companies and individuals to move cash into the country but easier to move it out. And what if you're caught using shady methods to bring in foreign exchange? You'll face fines of up to 30% of the money.
Rolling Out the iPhone
It may get a bit easier to land one of those elusive gizmos from Apple (AAPL). Electronics giant Best Buy (BBY) announced on Aug. 13 that it'll be the first independent retailer to carry the iPhone 3G in the U.S. As of Sept. 7, iPhones will be available at both the smaller Best Buy Mobile outlets and 970 full-size Best Buy stores with Mobile sections inside. For now, the phone can be found at 188 Apple stores in the U.S. and at 2,000 AT&T (T) stores.
More Cash for Trash
The smell of garbage grows ever sweeter. Aiming to stay king of the trash heap, Waste Management (WMI) upped its bid for Republic Services (RSG) on Aug. 11 by 9%, to $6.7 billion in cash. A takeover would lift Waste Management's revenue to more than $16 billion and give it half the nation's dumps. Investors seemed dubious that regulators would let the Houston company get that big; Republic shares topped out at 35. Republic, the industry's No. 3, is itself chasing the No. 2, Allied Waste Industries (AW)—a deal Waste Management seems determined to block.