Spooked by Fannie and Freddie
Working weekends in the credit crisis: On Sunday, July 13, Treasury Dept. and Fed officials rushed to pledge emergency credit lines for Fannie Mae (FNM) and Freddie Mac (FRE) , the twin mortgage finance giants. But the plan met resistance in Congress—further delaying action on legislation to refinance up to $300 billion in home loans—and by July 16, Fannie and Freddie shares had sunk almost 90% from their peak a year ago. Housing's drag on growth, coupled with fresh fears about bank failures, are icing the notion that the Fed might raise rates soon, despite inflation's resurgence. The government said on July 16 that consumer prices jumped 5% in the 12 months through June. That's the biggest annual rise in 17 years.
Financials Under Fire
Nothing like an old-fashioned bank run to give Wall Street the willies. Scores of panicked customers lined up outside what is now IndyMac Federal Bank after its assets were seized by federal regulators on July 11. The Pasadena (Calif.) lender crumbled under the weight of souring mortgages and a hard-hit local housing market, making it the biggest savings-and-loan and the second-largest financial institution to fail in U.S. history. The news, along with the Fannie (FNM)/Freddie (FRE) debacle, sent investors fleeing. The Dow dropped through the 11,000 mark on July 15 before rallying the next day, partly thanks to oil prices taking a dive. Behemoths such as Citigroup (C), Merrill Lynch (MER), and JPMorgan Chase (JPM) were expected to report nasty numbers on July 17 and 18, though The Wall Street Journal on July 16 said Merrill had sold its Bloomberg stake for $4.5 billion to $5 billion.
Angst in Europe
Investors fed up with the U.S. have fewer places to run, as Europe seems to be succumbing to economic malaise. Sentiment took a turn for the worse on July 15 after a Spanish property developer, Martinsa-Fadesa, sought bankruptcy protection. Most economists aren't yet predicting a Europe-wide recession, but joblessness is on the rise again, and some small countries, such as Ireland, are already contracting. Inflation is spiking too, ruling out growth-friendly rate cuts by the European Central Bank.
InBev Quaffs Bud
"Ce Bud est pour vous." That may be Budweiser's new slogan, after parent Anheuser-Busch (BUD) on July 13 accepted Belgium-based InBev's $52 billion sweetened bid. The deal gives InBev a 25% share of the global beer market, nearly twice that of the next-biggest brewer, SABMiller.
Yahoo: No Thanks
Once again, Yahoo! (YHOO) told Microsoft (MSFT) to buzz off, spurning on July 12 an improved offer for the Internet portal's search operations. The deal, brokered by activist investor Carl Icahn, fell flat after Yahoo complained that it came with a 24-hour deadline and a demand for a new Yahoo board—claims Microsoft denied. Many shareholders prefer a full buyout by Microsoft, a prospect the software giant says is no longer on the table. But some figure Microsoft will come back with another search offer before Yahoo's annual meeting on Aug. 1.
More Cuts at GM
It's big news—but hardly surprising. General Motors (GM) announced a slew of moves intended to bolster its cash pile by $15 billion over the next 18 months. It will slash white-collar staff and end medical coverage for salaried retirees over 65, cut more truck output, and possibly sell assets. In brighter auto news, Volkswagen (VLKAY) said it will spend up to $1 billion on a new plant in Chattanooga.
See "GM Cuts Costs to Stop Its Cash Burn"
Colleges and alumni associations are tapping a profit stream-selling student data to credit-card companies. Hungry for new customers, major issuers fork over millions to schools in order to become the official plastic on campus. As student debt mounts, these arrangements raise a question: Are universities spurring students to rack up debt so that the schools reap more profit?
Who'll get to haul all the trash? Waste Management (WMI), the No. 1 garbageman in the U.S., made a $6.3 billion bid on July 14 for third-place Republic Services (RSG). The buyout wouldn't just make Waste Management three times larger than its nearest competitor—it also disrupts Republic's plans to buy the industry's No. 2, Allied Waste (AW), a $6 billion deal agreed to in June.
See "Waste Management: Trashing a Merger?"
Hot Money in China?
It's the case of the missing billions. China's Commerce Ministry says foreign direct investment soared 45.5% in the first half of this year, to $52 billion, but economists can't figure out where the money is going. Foreign investment in both fixed assets and real estate fell during the first five months of 2008, and no major merger-and-acquisitions deals were inked. So the inflow may consist largely of speculative cash that aims to profit from China's high rates and appreciating currency. (China Daily)
Lehman Brothers (LEH) Erin Callan has landed on her feet. The former CFO, who was demoted after the firm's disastrous second-quarter loss of $2.8 billion, said on July 15 that she's decamping for Credit Suisse (CS). Callan, a 13-year Lehman veteran, will head up the Swiss bank's hedge fund business, a newly created role. Callan, who publicly battled with hedge fund honcho David Einhorn, will also advise Credit Suisse funds on everything from asset sales to possible IPOs.
eBay Wins a Big One
Let the e-auctions continue! EBay (EBAY), which earlier in July was ordered by a French court to pay luxury-goods purveyor LVMH (LVMUY) more than $60 million because eBay let faux items be sold on the site, has now been absolved by a U.S. judge of the same alleged offense. On July 14, in a lawsuit filed by jeweler Tiffany (TIF), U.S. District Court Judge Richard Sullivan ruled in Manhattan that it's Tiffany's responsibility to find counterfeit goods and demand eBay delist them. Tiffany will likely appeal.
See "Judge to Tiffany: Police Your Own Brand"
On July 11, General Electric (GE) brought good things to investors. Its earnings report was much improved from the one before, when a rare failure to meet estimates sank its shares 13% in a day. Still, the market hardly rewarded CEO Jeffrey Immelt, boosting the stock just two cents. On July 10, the company said it will shed its entire Consumer & Industrial unit, rather than just its previously announced appliance sale. But Immelt is still under pressure from investors to do more.
Dow: Good Chemistry?
Dow Chemical (DOW) has a dandy short-term way to deal with high oil and gas prices: jacking up the cost of its products at double-digit rates. Now it has found what may be a long-term fix, too. The biggest U.S. chemicals outfit on July 11 said it would pay $15.3 billion for Rohm & Haas (ROH), a maker of specialty chemicals, which command higher markups than the commodity stuff Dow pours out. To help Dow afford a 74% premium on Rohm & Haas' stock, Berkshire Hathaway (BRK) piped in a $3 billion investment that will make it Dow's biggest shareholder. Chemical reactions continued the next day, when Ashland (ASH) agreed to pay $2.6 billion for Hercules (HRC).
See "Dow Pays Big for Rohm & Haas"
I Want My New iPhone!
Neither long lines nor Apple (AAPL) registration glitches that left new and old phones temporarily unusable discouraged hordes of shoppers from snapping up more than a million iPhone 3Gs in the 72 hours after they went on sale on July 11. In the same period, owners of new and old iPhones and iPod touches downloaded more than 10 million programs from the new iTunes App Store. But investors, banking on boffo sales, were unimpressed: The stock closed at 172.81 on July 16, down from 176.63 just before the iPhone 3G hit stores.
Intel Looks Strong
Who says tech sales are tanking? Intel (INTC) cashed in on strong global PC demand by ringing up a 25% jump in second-quarter profits, while predicting on July 15 that it will log more gains through the end of the year, thanks to a zippy new notebook chip called Centrino 2. But Intel may have to give back some of its gains. The EU is preparing to file new charges of anticompetitive behavior against the chip king, The Wall Street Journal reported on June 16.
See "Intel's Happy Earnings Surprise"
The Long but Skinny Tail
Wired magazine editor Chris Anderson made a splash with his 2006 book The Long Tail: Why the Future of Business is Selling Less of More. His argument, boiled down, is that in these digital days, the fattest profits lie in offering numerous niche products rather than blockbusters. Yet in probing sales patterns in the music and home-video industries, Harvard Business School marketing prof Anita Elberse found that Anderson's theory doesn't hold up. Her research shows that despite the wealth of choices available to shoppers online, the importance of best-sellers is growing, not waning. (Harvard Business Review)