Top Stories: Business and Finance
The following are the day's top business stories:
1. Stocks, Euro Advance on German Confidence, GE's Earnings; Dollar Weakens 2. Bank of England's Posen Sees U.K. Inflation Slowing `Well Below' 2% Target 3. Citigroup Boosts Pandit's Annual Base Salary to $1.75 Million From a $1 4. Facebook Raises $1.5 Billion, Valuing Social-Network Site at $50 Billion 5. Home Buyers Are at Risk in Bad-Foreclosure Case at Massachusetts Top Court 6. Morgan Stanley Banker Gave AMD Merger Data, U.S. Says in Rajaratnam Case 7. Google Turns to Co-Founder Larry Page to Step Up Attack on Facebook, Apple 8. Asian Stocks Erase This Year's Gains on Concern About Inflation in China 9. `Canadian Peso' Time Over as Loonie Set to Hold Its Value, Flaherty Says 10.Mid-Cap Stocks Sit in U.S. Market's `Sweet Spot,' MTB Says: Chart of Day 11.Size Matters for Gulf of Mexico Drillers in Post-Macondo World of Mergers 12.Eat-What-You-Kill Brokers Starved as Bailed-Out Banks Dominate Bond Market
1. Stocks, Euro Advance on German Confidence, GE's Earnings; Dollar Weakens
Stocks rebounded from a two-day slump while the euro strengthened to an eight-week high against the dollar as earnings at companies including General Electric Co. beat analysts´ estimates and German business confidence increased. Coffee, sugar and cotton led gains in commodities. The Standard & Poor´s 500 Index climbed 0.2 percent to 1,283.35 at 4 p.m. in New York, paring its first weekly loss since November, and the Stoxx Europe 600 Index rose 0.7 percent. The euro strengthened against 15 of 16 major peers. The cost of credit-default swaps insuring Europe´s deficit-ridden nations headed for the biggest two-week drop on record. Treasuries rose, with the 10-year yield down four basis points at 3.41 percent. GE helped bolster optimism in the earnings season after posting its first increase in sales in two years. Per-share profit topped estimates at 42 of the 57 companies in the S&P 500 that reported since Jan. 10, Bloomberg data show. German business confidence unexpectedly rose to a record in January, the Ifo institute said, while French business sentiment advanced to a three-year high, according to Paris-based Insee. "The strong earnings season signals that the economic recovery is sustainable," said Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust Co. in Boston. "We´re looking at sales growth because companies have cut expenses to the bone. Overall, there´s good sales momentum. In addition to that, we´ve been getting positive surprises about the economy. That all bodes well for the stock market."
2. Bank of England's Posen Sees U.K. Inflation Slowing `Well Below' 2% Target
Bank of England policy maker Adam Posen dismissed the recent burst of inflation as temporary, indicating he may keep pushing for more stimulus to aid the economic recovery. "In terms of underlying U.K. inflation, driven by domestic forces, my position is unchanged," Posen said in an interview in his office in London today. "Inflation will be well below" the bank´s 2 percent target, he said, citing spare capacity and the likelihood that budget cuts will hurt consumer spending. Posen´s first public comments this year on the U.K. economic outlook suggest that he is continuing his call for the central bank to expand its bond-purchase plan, even after inflation reached an eight-month high of 3.7 percent in December. Nevertheless, he said the resilience of the euro against the pound and Germany´s economic growth may fan inflation in the U.K. "What has changed for me is increasing awareness of the risks external to the U.K.," Posen said. "There could be sufficient growth in demand abroad -- positive surprises abroad, particularly in the euro area, our major trading partner -- that could influence not just demand for U.K. goods and services, but also the exchange rate."
3. Citigroup Boosts Pandit's Annual Base Salary to $1.75 Million From a $1
Citigroup Inc. boosted Chief Executive Officer Vikram Pandit´s base salary to $1.75 million from $1 after the bank reported the first profit for a year under his watch. The raise is effective immediately, the bank said today. Pandit, 54, has led the New York-based lender since December 2007 and oversaw its $45 billion bailout by taxpayers the next year. In February 2009, he told lawmakers his salary would be capped at $1 until the firm returned to profitability, and this week it reported a $10.6 billion profit for 2010. "He´s accomplished what he set out to do a couple of years ago," said Gary Townsend, president of Hill-Townsend Capital LLC in Chevy Chase, Maryland. "This boosts him back up to something that is at least respectable." Shares of Citigroup, the third-largest U.S. bank by assets, climbed 43 percent in 2010, and the U.S. Treasury Department sold the last of its 27 percent stake in December, making a profit for taxpayers. Under Pandit, the bank had losses of $29.3 billion for 2008 and 2009 combined, driving down its stock 89 percent during that period.
4. Facebook Raises $1.5 Billion, Valuing Social-Network Site at $50 Billion
Facebook Inc., owner of the world´s most popular social-networking site, raised $1.5 billion in a financing round led by Goldman Sachs Group Inc., less than the $2 billion it could have received. Goldman Sachs -- and funds managed by the firm -- along with Digital Sky Technologies invested $500 million in Facebook in December, valuing the company at $50 billion, Facebook said today in a statement. Goldman Sachs has also completed an oversubscribed offering to its non-U.S. clients in a fund that invested $1 billion, also valuing the company at $50 billion. "Under the transaction´s terms, Facebook had the option to accept between $375 million and $1.5 billion from the Goldman Sachs overseas offering, at the discretion of Facebook," the company said in the statement. "While the offering was oversubscribed, Facebook made a business decision to limit the offering to $1 billion." Facebook, which is hiring more staff and expanding its service, said the investment provided an opportunity to boost its cash reserves and increase its financial flexibility with limited dilution to shareholders. The company said it has no immediate plans for the proceeds from the transaction. Facebook will "continue investing" to expand operations, it said.
5. Home Buyers Are at Risk in Bad-Foreclosure Case at Massachusetts Top Court
Massachusetts´ highest court will consider whether a home buyer can rightfully own a property if the bank that sold it to him didn´t have the right to foreclose on the original owner. The state´s Supreme Judicial Court, which agreed last month to take the appeal, already ruled Jan. 7 that banks can´t foreclose on a house if they don´t own the mortgage. The lower- court decision now under review said the buyer of residential property in Haverhill, Massachusetts, never really owned it because U.S. Bancorp foreclosed before it got the mortgage. "It appears to be the next step in the conversation," Paul R. Collier III, who represented the borrower in the earlier case, U.S. Bank v. Ibanez, said in a phone interview. Like the Ibanez case, the court´s decision may resonate with other states as they grapple with the rights of new homebuyers who may be hesitant to complete a purchase for fear of uncertain title, and with how such a trend may hobble the broader housing market.
6. Morgan Stanley Banker Gave AMD Merger Data, U.S. Says in Rajaratnam Case
An unidentified Morgan Stanley banker provided information on Advanced Micro Devices Inc.´s purchase of ATI Technologies Inc., U.S. prosecutors in the Raj Rajaratnam insider-trading case said. In a letter to lawyers for Rajaratnam, the Galleon Group LP co-founder who goes on trial next month for insider trading, U.S. prosecutors said the Morgan Stanley banker in May 2006 gave the information to an unnamed person who passed the tip on to Rajaratnam. A public copy of the letter contains redactions obscuring the identities of the Morgan Stanley banker and the person who allegedly passed Rajaratnam the tip. "In or about May 2006, [redacted], a banker with Morgan Stanley, provided [redacted] with information regarding AMD´s acquisition of ATI," said the letter, signed by Assistant U.S. Attorney Jonathan Streeter. "[Redacted] provided this information to Rajaratnam."
7. Google Turns to Co-Founder Larry Page to Step Up Attack on Facebook, Apple
Google Inc. is turning to its roots as a Web startup to confront threats from a new generation of Internet companies, led by Facebook Inc. Google, owner of the world´s most popular search engine, said yesterday that co-founder Larry Page will take over as chief executive officer as Eric Schmidt becomes executive chairman after a decade at the helm. By elevating a founder, Google hearkens back to the entrepreneurial ethos that helped it create the most used and highly profitable tools for culling information from the Web. Page´s task will be to accelerate a drive into new areas of growth as Web users spend more time on social sites like Facebook, and Apple Inc. poses a threat in mobile advertising. "Having a configuration where you have somebody as experienced as Eric in the executive chairman role and having the heart and soul of Google in the CEO role makes a lot of sense," said Stephen Miles, vice chairman of executive consulting firm Heidrick & Struggles International Inc. "They do face challenges and a lot of headwind. There´s nothing like a founder to take whatever hill you need to take."
8. Asian Stocks Erase This Year's Gains on Concern About Inflation in China
Asian stocks fell this week, with the benchmark index erasing its gain for the year, amid concern China´s faster-than-expected economic growth will add pressure for it to step up measures to combat inflation. BHP Billiton Ltd., the world´s largest mining company, slid 2.5 percent in Sydney as commodity prices retreated. Mitsubishi Corp., Japan´s No. 1 commodities trader, declined 4.1 percent in Tokyo. Cnooc Ltd., China´s biggest offshore oil producer, dropped 2.1 percent in Hong Kong. James Hardie Industries SE, the biggest seller of home siding in the U.S., declined 3.1 percent in Sydney. "The market is worried that growth in China has been too strong and that officials may need to tighten policy further to prevent the economy overheating," said James Holt, who helps manage about $40 billion at BlackRock Investment Management Australia) Ltd. "Since China is one of the few growth engines in the world right now, markets have sold off." The MSCI Asia Pacific Index retreated 1.7 percent to 136.48 this week, halting five straight weeks of advance. Hong Kong´s Hang Seng Index dropped 1.7 percent. China´s Shanghai Composite Index slipped 2.7 percent.
9. `Canadian Peso' Time Over as Loonie Set to Hold Its Value, Flaherty Says
Canadian Finance Minister Jim Flaherty said he doesn´t expect a major weakening of the country´s currency, whose gains reflect the strength of fiscal policy and commodity prices. "We´re done with the Canadian peso," Flaherty told reporters in Vancouver, where he was meeting with business officials as part of pre-budget consultations. He added there are "lots of good reasons for people to have confidence in this country." The Bank of Canada this week said it expects a "modest" economic recovery for the nation´s economy, hampered by a strong currency that limits exports. The bank´s forecast assumes the Canadian dollar will trade at parity with the U.S. dollar through the end of 2012. Flaherty said he wouldn´t "speculate" on the future value of the currency. He added "it is fairly obvious" to business people he speaks to "that the Canadian dollar is not likely to go back to the days of being relatively cheap vis-a-vis the U.S. dollar."
10.Mid-Cap Stocks Sit in U.S. Market's `Sweet Spot,' MTB Says: Chart of Day
U.S. mid-cap stocks recouped their bear-market losses faster than the shares of larger and smaller companies because they are "a sweet spot in the market," said Mark Schultz, manager of the MTB Mid-Cap Growth Fund. The CHART OF THE DAY compares the performance of the Standard & Poor´s MidCap 400 Index, whose companies have a median market value of $2.7 billion, with the S&P 500 and S&P´s SmallCap 600 Index in the past two years. They were set to 100 on July 13, 2007, when the mid-cap index peaked at a record. All three benchmarks tumbled more than 50 percent from their 2007 highs by March 9, 2009, when they bottomed out. While the MidCap 400 surpassed its record a week ago, the S&P 500 and SmallCap 600 failed to follow suit. As of yesterday, they were down 18 percent and 7.3 percent from their peaks, respectively. Companies in the mid-cap category typically benefit from time-tested products and management, access to capital markets, and national or international reach, Schultz said yesterday in a radio interview.
11.Size Matters for Gulf of Mexico Drillers in Post-Macondo World of Mergers
Two years ago, Seahawk Drilling Inc. was plotting to expand its fleet of rigs worldwide. Now the Houston-based company may sell itself after BP Plc´s well explosion in the Gulf of Mexico thrust the industry into regulatory limbo. "If we can´t be more diversified, I would rather sell the company to somebody else and let them try to do it," Seahawk Chief Executive Officer Randall Stilley said in an interview, Bloomberg Businesweek reports in its Jan. 24 issue. Mergers and acquisitions among offshore drillers are likely to accelerate as size becomes a matter of survival in the $125 billion industry. Intensifying government scrutiny and rising customer demands may crank up costs so high only the largest companies can compete, bankers and analysts say. There were $5.3 billion of deals involving drillers last year, more than triple 2009, according to data compiled by Bloomberg. "What you have to do these days to get a contract if you´re a driller is going to get tougher and tougher," said Mark Bentley, who advises on energy mergers and acquisitions at Greenhill & Co. in London. "This means the industry will increasingly rely on larger companies."
12.Eat-What-You-Kill Brokers Starved as Bailed-Out Banks Dominate Bond Market
Bond-trading boutiques are being squeezed out of the market as Wall Street´s biggest banks recover from the financial crisis that caused almost $2 trillion in losses worldwide. BTIG LLC, an equities broker that hired 75 debt traders and salespeople in 2009, has lost at least 42 fixed-income staff in the past year, regulatory records show. Chapdelaine & Co. is seeking a buyer to stem a staff exodus after a deal announced in April to raise capital broke down, said people familiar with the matter. LaBranche & Co. in New York shut its debt-trading operations in July, informing clients in an 11-word e-mail. Banks that dominated debt trading before the credit crisis have recovered their market share after $12.8 trillion of government bailouts healed credit markets and cut profit margins by more than 80 percent. Traders who joined smaller firms are abandoning so-called eat-what-you-kill, or commission-based, pay in search of guaranteed compensation. "People who went into this expected that the banks would take two to three years to come back; they turned that around in six to nine months," said John Purcell, who left BTIG in June, 17 months after joining the firm in New York to help lead its expansion into fixed income. "The practical realities of competing in an environment where the banks not only are applying capital again, but are also aggressively hiring and writing some good contracts, just made it more difficult."
-0- Jan/22/2011 00:35 GMT