Top Stories: Business and Finance
The following are the day's top business stories:
1. Bernanke, Two Officials Voice Concern on `Persistently High' Jobless Rate 2. Treasuries, Dollar Advance as Stocks Retreat on Job Data; Financials Drop 3. Paulson Lending Group Said to Seize CNL Hotels From Morgan Stanley Funds 4. BOJ's Nishimura Says Bank Must Avoid Creating Image of `Debt Monetization' 5. Verizon Wireless May Debut IPhone Next Week to Match AT&T, Analysts Say 6. Brazil's $35 Billion Asset-Backed Funds Face Scrutiny After Panamericano 7. AMR Call-Options Trading Jumps to Record on Bets Shares to Gain 24% by May 8. Roche's Genentech Sued by Ill Texan Over Withdrawn Psoriasis Drug Raptiva 9. GE Sets Pace as U.S. Bond Sales Reach Record $48.5 Billion: Credit Markets 10.Bernanke's Five-Year Job Recovery May Be Too Optimistic: Chart of the Day 11.Ford Takes on Chevrolet Volt, Nissan Leaf With Its All-Electric Focus Car 12.Pentagon's Brinkley Plays Matchmaker in Afghanistan for IBM, Kate Spade
1. Bernanke, Two Officials Voice Concern on `Persistently High' Jobless Rate
Federal Reserve Chairman Ben S. Bernanke and two other policy makers forecast faster U.S. growth this year that still won´t reduce unemployment quickly, signaling the Fed will complete its monetary-stimulus plans. A "moderately stronger" expansion in 2011, helped by consumer and business spending, doesn´t immediately change the "persistently high unemployment" that threatens the recovery, Bernanke said today in testimony to the Senate Budget Committee. Fed Governor Elizabeth Duke, speaking in Baltimore, and Chicago Fed President Charles Evans in Denver also voiced concerns about the labor market. The joblessness, while helping to keep inflation low, may reinforce the decision of Fed officials to buy $600 billion in Treasuries through June. The central bankers spoke in the hours after the Labor Department reported that employers added 103,000 workers to payrolls last month, less than the 150,000 gain forecast by economists in a Bloomberg survey. "When you look at the inflation data, there is really no justification for them to remove the monetary stimulus that they have been providing," said David Semmens, U.S. economist at Standard Chartered Bank in New York. "High unemployment is going to keep inflation relatively low."
2. Treasuries, Dollar Advance as Stocks Retreat on Job Data; Financials Drop
Treasuries and the dollar rose, while U.S. stocks trimmed a sixth weekly gain, as America failed to add as many jobs as economists estimated. Financial shares led equities lower after two banks lost a pivotal mortgage lawsuit. Five-year Treasury yields lost 11 basis points to 1.96 percent at 4 p.m. in New York, while the Dollar Index rose 0.4 percent to top 81 for the first time in more than a month as the U.S. currency traded at the strongest level against the euro since September. The Standard & Poor´s 500 Index slipped 0.2 percent to 1,271.5, with banks leading losses as Massachusetts´s highest court ruled against US Bancorp and Wells Fargo & Co. in a foreclosure case that may influence other decisions. Treasuries maturing in seven years or less gained for a second day as the government´s December jobs report showed payrolls increased by 103,000, about two-thirds of the median estimate in a Bloomberg survey of economists, and the jobless rate fell to 9.4 percent. Federal Reserve Chairman Ben S. Bernanke said in testimony to the Senate Banking Committee that the labor market may take five years to normalize. "This report had something for everyone," Bill Gross, manager of the world´s largest bond fund at Pacific Investment Management Co., said of the jobs data in an interview today with Tom Keene on "Bloomberg Surveillance." "We´re going to see a 3 to 4 percent real GDP economy but that doesn´t necessarily speak to jobs. Things are getting better, and they are getting better because of the prior stimulus and the expected stimulus going forward."
3. Paulson Lending Group Said to Seize CNL Hotels From Morgan Stanley Funds
A lender group including Paulson & Co., the New York-based hedge fund run by John Paulson, seized control of former CNL Hotels & Resorts Inc. properties from Morgan Stanley´s real estate funds through a $600 million debt restructuring, said two people with knowledge of the deal. The transaction involves the corporate debt used to finance Morgan Stanley´s 2007 acquisition of the hotel owner near the peak of the real estate market. Under the terms of the restructuring, $200 million of corporate debt was extinguished and $400 million was converted into equity, said the people, who asked not to be identified because the information is private. In addition to Paulson, the lenders are Winthrop Realty Trust, Capital Trust Inc. and Morgan Stanley´s special property group, according to the people. The restructuring, completed yesterday, gave the group control of certain CNL assets, they said. Morgan Stanley´s real estate funds have the right to participate in future capital raising, the people said. Erica Platt, a spokeswoman for Morgan Stanley in New York, declined to comment. Paulson spokesman Armel Leslie declined to comment, as did Beverly Bergman, a spokeswoman for Boston-based Winthrop. Stephen Plavin, chief executive officer of Capital Trust, didn´t immediately respond to a call and e-mail.
4. BOJ's Nishimura Says Bank Must Avoid Creating Image of `Debt Monetization'
Bank of Japan Deputy Governor Kiyohiko Nishimura said the central bank must avoid giving the impression that it is monetizing that country´s debt. While implementing its asset purchase program, the bank should focus on "avoiding causing problems in national debt management," Nishimura said today in Denver. He spoke at a panel discussion at a conference organized by the Allied Social Science Associations. "Specifically, it is crucial to avoid creating an impression of the monetization of government debt," he said. "Otherwise, purchases may lead to a substantial and lasting ratcheting-up of long-term rates which would pose a serious problem for economic recovery and the financial position of the government." The Bank of Japan in October unveiled a 5 trillion yen ($60.1 billion) fund to buy assets including government bonds, corporate debt, exchange-traded funds and real-estate investment trusts. BOJ Governor Masaaki Shirakawa has said the bank is ready to increase the fund´s asset purchases should the economy deteriorate and more monetary stimulus become needed.
5. Verizon Wireless May Debut IPhone Next Week to Match AT&T, Analysts Say
Verizon Wireless, the largest U.S. mobile-phone company, sent out invitations for an event in New York on Jan. 11 that two analysts say is probably an announcement for its long-awaited iPhone. "If it looks like a duck, talks like a duck and walks like a duck, it´s probably a duck," said Yair Reiner, an analyst with Oppenheimer & Co. "The question has always been on timing. We could hear as early as next week." Adding Verizon would end Dallas-based AT&T Inc.´s four-year run as the exclusive U.S. carrier of Apple Inc.´s iPhone, a period in which the device has both been a top seller and faced complaints about reception. The move brings millions of potential customers to Apple and may crimp the growth of devices that run on Google Inc.´s Android operating system, Reiner said. "By getting on to Verizon, Apple has the opportunity to sell more iPhones and could potentially slow Android´s momentum at the carrier that has been that platform´s most important patron," Reiner said.
6. Brazil's $35 Billion Asset-Backed Funds Face Scrutiny After Panamericano
Brazil´s securities regulator proposed stepping up disclosure requirements for the 59 billion reais ($35 billion) asset-backed fund industry in the wake of an accounting probe into Banco Panamericano SA. Banks administering the funds, backed by future cash flow and known as FIDCs, would be obliged to identify the original borrowers of loans of more than 5,000 reais that make up the assets of the funds, according to the plan posted on the Web site of the Rio de Janeiro-based regulator Comissão de Valores Mobiliarios. The new rules would also require banks to disclose information about the loan payments. "The objective is to improve the supervision of FIDCs," Claudio Maes, manager supervising structured funds at the regulator known as CVM, said in an interview. The industry, which in the past decade grew to 312 funds, came under increased scrutiny after the 2.5 billion real bailout of Banco Panamericano in November. The central bank is investigating Panamericano´s accounting of credit portfolios sold to other banks, which often re-packaged the assets into FDICs.
7. AMR Call-Options Trading Jumps to Record on Bets Shares to Gain 24% by May
Bullish AMR Corp. options volume soared to a record for the second time this week, with most of today´s trading concentrated in wagers that the parent of American Airlines will rally 24 percent by May. Almost 99,000 calls to buy the stock changed hands as of 4 p.m. in New York, five times the four-week average and 12 times the number of puts to sell. May $11 calls were the most active as the shares rose 4.7 percent to close at $8.85. Call volume rose to a record 94,762 contracts on Jan. 5, and 47,678 calls traded yesterday. Call volume averaged 37,333 contracts a day this week, almost triple the average over the prior three months, according to data compiled by Bloomberg. "There´s a belief that airlines have really been able to maximize capacity and have better pricing power," said Alec Levine, a strategist at Wallachbeth Capital LLC in New York. The Bloomberg U.S. Airlines Index has risen 30 percent from a six-month low in August. Nine of its 12 members advanced today. American Airlines pulled fares from travel agent Orbitz.com on Dec. 21 as the carrier focuses on its "Direct Connect" system to disseminate prices, which bypasses data distributors such as Southlake, Texas-based Sabre Holdings Corp. and travel sites including Orbitz.com. Expedia Inc. blocked fare data for American on Jan. 1.
8. GE Sets Pace as U.S. Bond Sales Reach Record $48.5 Billion: Credit Markets
Company bond sales in the U.S. reached a record this week and relative yields on investment- grade debt shrank to the narrowest since May as money managers boosted bets economic growth is gaining momentum. Issuance soared to $48.5 billion, eclipsing the $46.9 billion raised in the week ended May 8, 2009, as General Electric Co.´s finance unit sold $6 billion of notes in the largest offering in 11 months, according to data compiled by Bloomberg. Investment-grade bond spreads narrowed to 162 basis points, or 1.62 percentage points, more than Treasuries, Bank of America Merrill Lynch index data show. Appetite for corporate debt is growing after annual sales topped $1 trillion for the second consecutive year as the securities return more than Treasuries. Service industries expanded at the fastest pace since May 2006, signaling the U.S. economy is poised to accelerate. While employers added fewer positions in December than forecast, the jobless rate has dropped to the lowest in 19 months. "We´ve had a lot of good news come up economically, at least within the U.S., so that´s put some wind behind the sails," said Thomas Chow, who helps oversee $120 billion of fixed-income assets at Philadelphia-based Delaware Investments.
9. Bernanke's Five-Year Job Recovery May Be Too Optimistic: Chart of the Day
If 2010 is any indication, Federal Reserve Chairman Ben S. Bernanke may be too optimistic about the U.S. labor-market recovery. The CHART OF THE DAY shows that monthly payroll growth averaged 94,000 last year, indicating it will be the middle of 2017 before the economy recoups the 8.4 million jobs lost during the worst recession since the 1930s. It may take four or five years for the labor market to "normalize fully," Bernanke told lawmakers today about an hour after Labor Department figures showed a smaller-than-forecast 103,000 increase in December payrolls. "It´s about what we expected," Bernanke said in response to questions from the Senate Budget Committee. "If we continue at this pace we´re not going to see sustained declines in the unemployment rate."
10.Ford Takes on Chevrolet Volt, Nissan Leaf With Its All-Electric Focus Car
Ford Motor Co., playing catch-up in the battery-powered car market, introduced its first electric car today and promised it will outperform rivals. Ford, the first U.S. automaker to offer a gasoline-electric hybrid, will start selling an all-electric version of its Focus compact car late this year. The Focus Electric´s introduction follows last year´s debut of Nissan Motor Co.´s battery-powered Leaf and General Motors Co.´s Chevrolet Volt plug-in hybrid. To counter the publicity GM and Nissan have garnered, Ford Chief Executive Officer Alan Mulally and Executive Chairman Bill Ford unveiled the electric car at ceremonies in Las Vegas and New York. They said Ford´s electric car gets 1 mpg equivalent more than the Volt and recharges in three to four hours at a 240-volt charge station, half the time of the Leaf. "Ford has to get in the game because GM is making such a splash with the Volt and Nissan with the Leaf," said Rebecca Lindland, an analyst at IHS Automotive, a research firm based in Lexington, Massachusetts. "This is a company that was so far ahead and yet they don´t have an electric vehicle on the market."
11.Pentagon's Brinkley Plays Matchmaker in Afghanistan for IBM, Kate Spade
The skyline of the city of Herat, in the westernmost corner of Afghanistan, is dominated by the Qala Ikhtyaruddin, a 700-year-old stone citadel. On a chilly December afternoon, as the sun begins to dip, the citadel´s grounds are largely unoccupied. The general public isn´t allowed in until renovations to the time-ravaged site are finished. Paid for in part by a $725,000 grant from the U.S. government, the project is scheduled to be completed at the end of 2011. Paul A. Brinkley isn´t the general public. As a U.S. Defense Department deputy undersecretary, he moves freely behind the barricades, ushering a handful of American visitors, including Silicon Valley executives Atul Vashistha of Neo Group Inc. and Mike Faith of Headsets.com Inc., through dark corridors and up steep stairways to the highest reaches of the fortress, Bloomberg Businessweek reports in its Jan. 10 edition. The tour comes after a morning of meetings with the provincial governor and the local university´s chancellor and students, all of them pushing, along with Brinkley, for the executives to consider a noble and dangerous proposition: opening up shop in Afghanistan. "I´ve never regretted taking a businessperson to the theater," Brinkley says. "This is about getting their eyes on the problem."
-0- Jan/08/2011 00:35 GMT