Archive for July, 2008

Billion-dollar bankruptcies highest since 2003 (Reuters)

Tuesday, July 29th, 2008 | Finance News

NEW YORK (Reuters) -
Billion-dollar bankruptcies are at
their highest in five years only half way through 2008,
according to bankruptcy filing tracker BankruptcyData.com.

A total of seven U.S. companies with more than a billion
dollars in assets have filed for bankruptcy protection so far
this year, it said.

Fremont General Corp (FMNTQ.PK), which was one of the
largest U.S. providers of subprime mortgages before regulators
ordered it to stop making the loans, was the largest filing of
the year with $13 billion in pre-petition assets,
BankruptcyData.com said. Fremont filed for Chapter 11
bankruptcy protection
in May, after arranging to sell bank
branches and deposits to CapitalSource Inc (CSE.N).

SemGroup LP, the energy trader which filed for bankruptcy
protection from creditors last week, was the second-largest
bankruptcy filing of the year with $6 billion in pre-petition
assets.

"We seem to be in the midst of a 'perfect storm' leading to
more bankruptcies: high levels of debt, high energy and raw
materials costs and weakness in the U.S. economy," George
Putnam, III of New Generation Research, which publishes
BankruptcyData.com said in a statement.

He forecast bankruptcies could peak as early as the middle
of 2009 or continue rising well into 2010.

The recent spike in billion-dollar bankruptcies, comes only
about half way through 2008 and is well above the previous
levels. In 2007 only one company listed more than $1 billion in
pre-petition assets, New Century Financial Corp. In 2006, auto
parts maker Dana Corp had the largest filing, listing $9
billion in pre-petition assets.

The last year in the previous bankruptcy wave was 2003,
when there were 15 billion-dollar bankruptcies filed. The
number of billion-dollar bankruptcies peaked in 2001 when there
were 25, according to BankruptcyData.com.

But the bankruptcies are not yet as large as the filings in
the last wave of corporate bankruptcies. The Enron Corp
(ECSPQ.PK) and Conseco Inc (CNO.N) bankruptcy filings in 2001
and 2002 each topped $60 billion. WorldCom still holds the
record with its $103.9 billion bankruptcy filing in 2002,
according to BankruptcyData.com.

(Editing by Andre Grenon)

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Oil falls to 12-week low on demand worries (Reuters)

Tuesday, July 29th, 2008 | Finance News

NEW YORK (Reuters) -
Oil fell to its lowest level in nearly
three months on Tuesday, extending a steep slide since mid-July
on mounting evidence high prices and a souring economy were
cutting into world energy demand.

The drop coincided with a firmer U.S. dollar, which may
have reduced the appeal of commodities to some investors
playing the strong negative correlation between the markets in
recent months, analysts said.

OPEC President Chakib Khelil said Tuesday oil could fall
further to $70 to $80 a barrel in the long term but added he
did not think the producer group should consider cutting output
at this point.

U.S. crude dropped $3.11 to $121.62 a barrel by 1:00 p.m.
EDT after dipping as low as $120.42, its lowest since May 6.
Brent crude fell $3.47 to $122.37.

"We still believe that crude's rallies are vulnerable and
we would advise not buying into them," said Edward Meir,
analyst at MF Global.

Oil has fallen from a record peak of $147.27 on July 11,
pressured by signs that high prices and an economic slowdown
are curbing demand, especially in the United States, the
world's largest oil consumer.

The chief executive of BP Plc (BP.L), Tony Hayward, said on
Tuesday he saw demand destruction of 5 to 10 percent for
gasoline in developed OECD economies as people drive less due
to high fuel prices.

The Energy Information Administration said on Monday U.S.
oil demand in May was 660,000 barrels per day less than
previously thought. A separate government report said motorists
drove 2.4 percent less during the first five months of the year
than they did in the same period of 2007.

Limiting oil's drop, Shell declared force majeure on
Tuesday on its Nigerian Bonny Light oil exports for July to
September following Monday's attack by militants on an oil
pipeline
in the Niger Delta.

Tension over Iran's nuclear program also provided support.
Iran is the second-largest producer in the Organization of the
Petroleum Exporting Countries.

Attention on Wednesday will focus on the latest snapshot of
U.S. oil supplies.

Crude oil stocks probably fell by 1.6 million barrels and
gasoline rose by 200,000 barrels, analysts said in an expanded
Reuters poll. Distillates inventories were expected to have
risen by 1.9 million barrels.

(Additional reporting by James Topham in Tokyo, Richard
Valdmanis in New York; editing by Marguerita Choy)

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ALL BUSINESS: Glass-half-full take on the economy (AP)

Tuesday, July 29th, 2008 | Finance News

NEW YORK - Just for a minute let's set aside all the bad things plaguing the financial world. Even in these gloomy times, there's some good news worth checking out.

The economy is still growing, though slowly.

Corporate earnings are coming in stronger than expected.

Higher prices aren't showing up in every last thing we buy.

The credit storm isn't as terrible as it might look.

These factors might not prevent the economy from slipping into a recession or even fuel big stock gains. They are more like a glimpse of hope that things may not be as awful as they feel.

It may be hard to see much good in this sea of trouble. The housing market collapse, the credit crisis and soaring energy and food prices are hurting many consumers and corporations.

All that has taken its toll on economic growth, which has decelerated in the last year. But remember: U.S. gross domestic product still remains positive, and new data expected to be released on Thursday will likely show a slight gain in second-quarter growth to a pace of around 2 percent.

That rise may help explain why corporate earnings haven't fallen apart. Just weeks ago, forecasts were for the second-quarter earnings season be a complete bust. Stock investors were selling off shares on expectations companies wouldn't weather the ugly combination of soaring costs and cash-strapped customers.

For some in corporate America, the reality has been that bad — airlines, financial firms, toy companies, restaurants and more have certainly limped through their latest batch of earnings.

But not everyone is in dire straights. Of the more than 200 companies in the Standard & Poor's 500 stock index that have reported quarterly earnings so far, more than 70 percent have topped expectations — well above the historical average over the last decade of 63 percent, according to Bespoke Investment Group.

Naysayers would likely argue that earnings estimates had been beaten down so much that they were easy to top, but there is more going on than just that. Some companies out there are figuring out how to manage this tough environment.

Among them is IBM Corp., which saw its second-quarter profit jump a better-than-expected 22 percent. The Armonk, N.Y.-based technology company's services division, which sells to companies looking to cut costs or better manage their information technology infrastructure, helped fuel the gains. That business has held up remarkably well for IBM despite fears that the economic downturn in the U.S. has pinched off corporate spending.

Also surprising: The inflation picture so far this summer isn't as troublesome as the soaring food and fuel costs might lead one to believe.

So far, many companies aren't passing along their increased costs to consumers. They recognize that the financially strained public — which is already contending with $4 a gallon for gas and for milk — will balk at paying more for everything else.

For evidence, compare the consumer price index's headline number, which includes food and fuel, to the core number, which strips it out. The headline number in June rose 1.1 percent; the core rose 0.3 percent. The spread between the two — which works out to 0.8 percentage point — is rarely so big. It has happened less than 1 percent of the time in the last 48 years, according to research by Merrill Lynch.

"Inflation is all the rage even through it remains a two-trick pony between food and fuels," said Merrill Lynch chief North American economist David Rosenberg. "The story beneath the story is that there remains, seven years into this commodity explosion, an unbelievable lack of pass-through into the rest of the pricing system."

It will be important to watch in the months ahead whether that begins to change and companies can no longer swallow the price increases from their suppliers and have to pass them onto their customers.

While inflation has been a big concern, there are also mounting fears about credit conditions. Among the worries is whether there will be a surge in bankruptcies, as business and consumers struggle to pay off their loans.

The good news is that the default rates in commercial loans and credit cards, while up, remain within historical norms. Lord Abbett senior economist and market strategist Milton Ezrati notes that default rates on commercial and industrial loans were 0.69 percent in the three months ended in March, well below the 1.2 percent rate in 2003 when the economy grew at an annual pace of more than 4 percent. Credit card defaults trend around 4.7 percent compared with 6 percent five years ago.

Another concern is whether businesses are struggling to borrow money to finance their operations. Recent data from the National Federation of Independent Business found that many of its members, who are small business owners, say that they've been able to get the loans they need, so far. Those loans help expand businesses that create jobs.

Yes, the economy has a slew of problems. Yes, we may yet have a recession. Sure, the nation's budget deficit may be heading toward a record. But there are still some reasons to see the glass half-full.

___

Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org

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