Top Stories: Business and Finance
The following are the day's top business stories:
1. Stocks Slump on Egypt Unrest as Oil Rises Most Since 2009; Dollar Climbs 2. Goldman Sachs Boosts CEO Blankfein's Stock Bonus by 40% to $12.6 Million 3. U.S. Economy Expands Amid Biggest Gains in Consumer Spending in Four Years 4. Bank of America Banker Compensation Said to Decline 10% on Falling Revenue 5. KKR Said to Drop Out of Blackstone, TPG Bidding Group for Beckman Coulter 6. Dow's Surge to 12,000 Echoes April With 81% of Stocks Above Average Price 7. Google Acknowledges Collecting Private Data in Agreement With Connecticut 8. Merkel Defies Deutsche Bank as Ackermann Frets Over Sinking Bonds in Davos 9. Trading Volume Sags to Eight-Year Low as New Issues Dwindle: Muni Credit 10.Netflix Gain on HBO Explains Jeff Bewkes's War of Words: Chart of the Day 11.BP Investors Push Dudley to Sell More Oil Fields After $5 Billion Dividend 12.Wall Street Rocket Scientists Revive Specter of CDO in Derivatives Dispute
1. Stocks Slump on Egypt Unrest as Oil Rises Most Since 2009; Dollar Climbs
Stocks worldwide plunged the most since November, crude oil posted the biggest jump since 2009 and the dollar rose versus the euro after protesters posed the biggest challenge to Egyptian President Hosni Mubarak´s 30-year rule. Egypt´s dollar bonds sank, pushing yields to a record. The MSCI World All-Country World Index of stocks in 45 countries lost 1.4 percent at 4:59 p.m. New York time. The Dow Jones Industrial Average fell 1.4 percent to 11,823.70, preventing its longest weekly winning streak since 1995. Oil futures increased 4.3 percent to $89.34. The dollar appreciated 0.9 percent to $1.3611. Yields on Egypt bonds due in 2020 surged 22 basis points to 6.51 percent. Gold futures jumped 1.7 percent, the most in 12 weeks. Egyptian protesters clashed with police throughout the country and into the night, defying a curfew and setting fire to buildings. Mubarak imposed the curfew after tens of thousands of marchers chanted "liberty" and "change." After U.S. markets closed, Mubarak said he asked the government to resign. The demonstrations offset data showing that growth in U.S. gross domestic product accelerated in the fourth quarter. "The unrest in Egypt has people concerned," said Mark Bronzo, who helps manage over $25 billion at Irvington, New York-based Security Global Investors. "When it comes to the Middle East, there´s worries the unrest is going to spread. It has negative implications for the world."
2. Goldman Sachs Boosts CEO Blankfein's Stock Bonus by 40% to $12.6 Million
Goldman Sachs Group Inc. gave Chairman and Chief Executive Officer Lloyd Blankfein a $12.6 million stock bonus for 2010, an increase from $9 million in restricted stock a year earlier. Blankfein, 56, received 78,111 shares on Jan. 26, according to a filing today with the U.S. Securities and Exchange Commission. At the closing price of $161.31 that day, the shares would be valued at $12.6 million. New York-based Goldman Sachs also raised Blankfein´s base salary to $2 million this year from $600,000, according to a separate filing. Goldman Sachs, the fifth-largest U.S. bank by assets, reported 2010 earnings dropped 38 percent from a record in 2009 as revenue from trading stocks and bonds fell from an all-time high. The firm set aside 39 percent of revenue to pay employees in 2010, up from 36 percent in 2009, the lowest ratio ever. Chief Financial Officer David Viniar, President Gary Cohn, and Vice Chairmen J. Michael Evans and John S. Weinberg each also received 78,111 restricted shares, according to separate filings today. For 2009, Blankfein was awarded 58,381 restricted stock units, the amount given to those four deputies.
3. U.S. Economy Expands Amid Biggest Gains in Consumer Spending in Four Years
The U.S. economy accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years. Gross domestic product grew at a 3.2 percent annual rate, Commerce Department figures showed today in Washington, falling short of the 3.5 percent median forecast of 85 economists surveyed by Bloomberg News because of a slowdown in inventories. Excluding stockpiles, the economy rose at a 7.1 percent pace, the most since 1984. "The consumer really drove the economy in the fourth quarter," said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who accurately forecast the rate of growth. "The economy has moved beyond recovery to a stable state of growth." The dollar advanced on expectations the revival in demand will extend into this year, boosting sales at companies including General Electric Co. and Apple Inc. At the same time, the report showed the Federal Reserve´s preferred measure of inflation climbed at the slowest pace on record, bolstering forecasts the central bank won´t raise borrowing costs until 2012.
4. Bank of America Banker Compensation Said to Decline 10% on Falling Revenue
Bank of America Corp.´s global banking and markets division set aside about 10 percent less for employee compensation than a year earlier as revenue slipped, said two people with direct knowledge of the decision. Managing directors in areas that underperformed compared with 2009 saw pay shrink by as much as about 20 percent, said the people, who declined to be identified because the Charlotte, North Carolina-based bank doesn´t disclose compensation figures. Employees of the unit, run by former Goldman Sachs Group Inc. trading head Thomas Montag, were told their year-end payouts yesterday, the people said. "It´s what you should expect considering it was a pretty volatile year," said Alan Johnson, managing director of New York-based compensation consultant Johnson Associates Inc. "People were down more than that at other places; I´d say a 10 percent decline overall is a pretty good outcome." The bank joins Goldman Sachs and JPMorgan Chase & Co. in trimming 2010 pay for traders, deal makers and other personnel amid revenue slumps and regulatory pressure following taxpayer- funded rescues. Bank of America said this month that revenue in Montag´s division fell 13 percent to $28.5 billion in 2010 as trading results slipped in the fourth quarter.
5. KKR Said to Drop Out of Blackstone, TPG Bidding Group for Beckman Coulter
KKR & Co. dropped out of a bidding group for lab-equipment maker Beckman Coulter Inc., leaving TPG Capital and Blackstone Group LP to come up with extra funding or find another investor, said three people with knowledge of the matter. The next round of bids for Beckman Coulter, which has a market value of about $5 billion, are due in early February, said the people, who declined to be identified because the process is private. Danaher Corp. and a second private equity group that includes Apollo Global Management LLC and Carlyle Group are also interested in Brea, California-based Beckman, the people said. A Danaher spokesman didn´t return a call seeking comment. Representatives for Apollo and Carlyle declined to comment.
6. Dow's Surge to 12,000 Echoes April With 81% of Stocks Above Average Price
Investors who pushed the Dow Jones Industrial Average above 12,000 for the first time since 2008 this week may be getting ahead of themselves. The gauge surpassed that level the past two days before plunging the most since 2010 today, preventing the longest stretch of weekly gains since 1995. As of yesterday, more U.S. stocks were trading above their 200-day average price than any time since April, when the Dow began a 14 percent slump, and the cost to insure against Standard & Poor´s 500 Index losses fell to an almost three-year low. The Dow may have surged too fast following its more than 2,000-point jump since August even as analysts forecast a third straight year of profit growth for the S&P 500, said James Investment Research Inc.´s Tom Mangan and BB&T Wealth Management´s Walter "Bucky" Hellwig. Mangan and BGC Partners LP´s Michael Purves see signs investors are too optimistic about the next few months. "We expect a setback of 10 percent or more in the S&P 500 and the Dow," said Mangan, who helps oversee $2.4 billion in Xenia, Ohio. "The market is going to face much stronger headwinds over the next months as the rally gets old and it gets increasingly difficult to find a rationale for further gains, but there will be a lot of buyers on a pullback and it would probably be a short-lived decline."
7. Google Acknowledges Collecting Private Data in Agreement With Connecticut
Google Inc. acknowledged that its so-called Street View Cars collected private data from unsecured networks in Connecticut, allowing settlement talks to move forward, Connecticut´s attorney general said. In an agreement, Google said that the company´s Street View cars gathered information including addresses of requested Web pages, partial or complete e-mails and other confidential data, according to a statement from Connecticut Attorney General George Jepsen. Connecticut issued a civil investigative demand -- similar to a subpoena -- to Google in December for data collected by the Street View cars. Google, which has allowed Canadian and European authorities to review such data, refused to accede to Connecticut´s demand, then-Attorney General Richard Blumenthal said at the time. For purposes of the negotiations to settle the state´s privacy concerns, Google agreed not to contest that it picked up private data "every day" that the cars operated, Jepsen said. That will allow the Mountain View, California-based company, Connecticut and a 40-state coalition led by Connecticut to move ahead in their talks "without the need for a protracted and costly fight in the courts," he said.
8. Merkel Defies Deutsche Bank as Ackermann Frets Over Sinking Bonds in Davos
The leader of Europe´s biggest economy and the head of Germany´s largest bank, partners in a financial rescue two years ago, are rattling investors with their feud over how to manage the sovereign-debt crisis. German Chancellor Angela Merkel and Deutsche Bank AG Chief Executive Officer Josef Ackermann, both of whom are airing their views at the World Economic Forum in Davos, Switzerland, this week, have disagreed publicly over who should bear the costs of future bailouts, international banking regulation and a German tax on nuclear-power producers. The rift, including comments by Ackermann in November that Merkel was spooking markets, underscores wider divisions between Germany, France and other European governments. It has more than personal consequences, threatening to further unnerve investors concerned about Europe´s ability to tackle the debt crisis after a 750 billion-euro ($1 trillion) rescue effort failed to stop the contagion spreading from Greece to Ireland. That has political and business leaders hoping for a rapprochement. "We´re in a phase where markets are reacting very nervously to individual statements and rumors about the debt crisis," said Philipp Musil, who helps manage about $11 billion at Semper Constantia Privatbank AG in Vienna. "This leads to insecurity in the market. It´s important what individual states and market participants say. We need more unity."
9. Trading Volume Sags to Eight-Year Low as New Issues Dwindle: Muni Credit
Investors this month are trading the lowest volume of municipal bonds in more than eight years as new issues dwindle with the end of Build America Bonds and demand cools on speculation about state and local defaults. About $4 billion a day has been traded this month, the least since November 2002, when the daily average fell to $2.9 billion, according to Municipal Securities Rulemaking Board data. States and local governments plan to sell about $15.6 billion in fixed-rate debt this month, making it the slowest January since 2008, according to data compiled by Bloomberg. A year ago, about $31.9 billion was sold in the month. "You´re getting fund redemptions and money going into taxables and equities," said Anthony Greco, a trader at Boston- based Breckinridge Capital Advisors, which manages $13.5 billion. Investors pulled about $1.9 billion from U.S. municipal- bond funds in the week ended Jan. 26, the 11th straight week of outflows, according to Lipper U.S. Fund Flows. Withdrawals have totaled $22.5 billion since the week ended Nov. 17, according to Lipper, a Denver-based research company.
10.Netflix Gain on HBO Explains Jeff Bewkes's War of Words: Chart of the Day
Netflix Inc., the online and mail- order film-rental service, will catch Time Warner Inc.´s HBO pay channel in subscribers by the end of the year, based on company forecasts and analysts´ estimates. The CHART OF THE DAY shows Netflix is projected to exceed 27 million subscribers this year. Through September 2010, HBO has slipped 2.1 percent to 28.3 million customers, according to researcher SNL Kagan. Time Warner´s Cinemax is also declining, as pay TV systems curtail free or low-cost promotions. Jeff Bewkes, Time Warner´s chief executive officer, has labeled Netflix a "200-pound chimp" that devalues films and TV shows. Netflix charges $7.99 a month for unlimited online access and $9.99 for a plan that also includes one DVD at a time. HBO costs about $15 on top of an $85 monthly cable bill, said Derek Baine, a senior analyst at SNL Kagan in Monterey, California. "If you´re an HBO subscriber, your bill is already $100 a month," Baine said. "Netflix´s biggest growth, meanwhile, is from kids just out of college. That might not be a concern for HBO now, but it will be in the future."
11.BP Investors Push Dudley to Sell More Oil Fields After $5 Billion Dividend
BP Plc shareholders said they want Chief Executive Officer Robert Dudley to expand the company´s record asset sale program, raising cash that will help fund a $5 billion a year dividend. BP is likely to bring back a dividend and may pledge sales beyond the $30 billion target when it outlines strategy and announces full-year results on Feb. 1, investors said. On the same day, a London court will consider a bid to stop BP´s $8 billion share swap with a Russian rival OAO Rosneft. Since taking charge in October, Dudley has taken asset sales to $22 billion to pay costs from the worst U.S. oil spill, reorganized management and cut the deal with Rosneft to give the company access to Russia´s untapped Arctic reserves. The share price has recovered about 60 percent from June´s post-spill low, in part on expectations that the dividend will return at 50 percent of the previous level. "The market clearly assumes the dividend is coming back, the question is where is BP going to grow from here?" said Christopher Wheaton, who has BP as the biggest holding in Allianz RCM´s $150 million Energy Fund in London. "I hope they increase the asset sales target because there are plenty of willing buyers. Everyone has been surprised by how much value the sales have released."
12.Wall Street Rocket Scientists Revive Specter of CDO in Derivatives Dispute
Three years after collateralized debt obligations helped trigger the worst financial crisis in 70 years, Wall Street´s math wizards are exploring how to use them to deflect rules intended to prevent the next crisis. Credit Suisse Group AG traders are testing a risk model that may help them reduce capital charges imposed by the Basel Committee on Banking Supervision on derivative products. Claudio Albanese, a quantitative economist who is advising the lender on the plan, says it could also help banks to limit one of their biggest risks by allowing them to offload through a CDO the risk that one of their trading partners, or counterparties, defaults. Critics say such CDOs could trigger a new crisis. "In theory, it´s a great idea -- just like the CDOs of subprime debt that caused the financial crisis," said Richard Werner, professor of international banking at the University of Southampton, England, and a former Bear Stearns Cos. fund manager. "If the bankers are already thinking of how to get around the Basel rules, then that shows nothing has changed." Albanese´s plan shows how banks are likely to try and mitigate rules that impose higher capital requirements on their operations and threaten profit, according to Charles Freeland, a former deputy secretary general of the Basel Committee. The Basel rules may cut the return on equity by more than half for some derivatives, forcing some banks to stop arranging those types of transactions, according to Kian Abouhossein, a banking analyst at JPMorgan Chase & Co. in London.
-0- Jan/29/2011 00:35 GMT