Archive for February, 2009

Obama Sets $75 Billion Mortgage Rescue Plan (BusinessWeek Online)

Thursday, February 19th, 2009 | Finance News

President Barack Obama on Feb. 18 announced a plan to stabilize the faltering housing market by allowing up to 9 million families to refinance or restructure at-risk mortgages through a $75 billion "homeowner stability initiative" and other incentives to keep homes out of foreclosure.

Obama is selling the plan -- already being dubbed a "backyard bailout" -- by stressing that foreclosures have a huge impact on entire communities and reduce the price of all homes.

How It Works

According to a fact sheet distributed by the White House, the plan, which Obama outlined in a speech in Mesa, Ariz., has three main components:

-- Allowing up to 5 million homeowners who have seen the value of their homes decline to refinance mortgages through the government-sponsored mortgage entities Fannie Mae or Freddie Mac

-- A $75 billion fund that would assist up to 4 million home owners to modify subprime mortgage loans so that payments would be no more than 31% of household income and incentive payments to servicers to successfully modify mortgages

-- Shoring up market confidence in Fannie Mae and Freddie Mac by doubling the government's investment in the companies to $200 billion each and increasing the size of their retained mortgage portfolios.

Obama also expressed support for a change in bankruptcy rules that would allow judges to modify first-mortgages held by defaulting homeowners. Such modifications are currently only allowed for mortgages on multifamily homes, vacation houses, and investment properties. The financial services industry has been opposed to the "cramdown" proposals.

In Arizona -- one of the areas of the country hardest hit by declining home prices -- Obama stressed that foreclosures affect not only those who are being forced out of their homes but the surrounding neighborhoods as well. "In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to continue to deepen," Obama said.

Next: The Political Sell

That argument that all homeowners have a stake in the outcome is key to persuading homeowners who are paying their mortgages to support a plan that helps those who cannot do so, said Howard Glaser, a former Clinton Administration housing official and a consultant to Fannie Mae and Freddie Mac.

"A $500 check to your next-door neighbor is more 'real' to many people than the abstraction of shoveling hundreds of billions into bailouts for banks headquartered thousands of miles away," Glaser said in a report on the plan. "Obama will need to employ all of his communications skills to explain why all Americans benefit from using taxpayer funds to help homeowners in trouble."

Obama said that the plan "will not save every home" and will not apply to speculators or "rescue the unscrupulous or irresponsible And it will not reward folks who bought homes they knew from the beginning they would never be able to afford." Guidelines for the mortgage modification plan will be announced when the program begins on March 4.

But it remains unclear whether that will overwhelm critics who argue that the plan promotes "moral hazard" by encouraging people to take excessive risks knowing that someone will bail them out.

"The government could end up subsidizing mortgage borrowers, lenders, and servicers to the tune of more than $10,000 as part of this program." said Mike Larson, real estate and interest analyst at Weiss Research in Jupiter, Fla. "How is that fair to borrowers who played by the rules That's what many Americans are going to be asking, and what many politicians are going to be hearing from callers."


Nestle ’08 sales growth beats goal, confident for ’09 (Reuters)

Thursday, February 19th, 2009 | Finance News

VEVEY, Switzerland (Reuters) –
Nestle (NESN.VX) reported strong underlying 2008 sales growth of 8.3 percent and, unlike some rivals, said it was cautiously upbeat for 2009 and would push cheaper products to cope with the downturn.

The world's biggest food maker by revenue said economic trouble would continue to hit consumer demand in 2009 but it forecast organic sales growth "at least approaching 5 percent" compared with a long-term target of 5 percent to 6 percent underlying growth, and reiterated its goal of profit margin improvement at constant currencies.

"We do not believe that 2009 will be all doom and gloom as some would make us think," Chief Executive Paul Bulcke told a news conference, adding that Nestle expected to sell more ready meals like its "Lean Cuisine" as consumers cut back on dining out.

Shares in the Vevey-based maker of Nescafe coffee, KitKat chocolate bars and Maggi soup were up 4.9 percent at 38.82 Swiss francs at 0958 GMT (4:58 a.m. EST), compared with a 2.7 percent stronger Dow Jones European food and beverage index (.SX3P).

Nestle shares had been underperforming in recent months on concerns about how the company will fare in 2009.

"Overall a strong set of figures and probably better than expected after weakness among peers," said Kepler Capital Markets analyst Jon Cox. "The guidance is solid enough."

Big rivals like Procter & Gamble (PG.N) and Kraft (KFT.N) have recently cut their targets due to the consumer slowdown and retailer destocking, while Unilever (ULVR.L)(UNc.AS) said it could not give a specific 2009 outlook.

Nestle said it was committed to completing a three-year, 25 billion franc share buyback program launched in 2007, but would only buy back about 4 billion francs in 2009, instead upping its dividend by 14.8 percent to 1.40 francs per share.

Nestle reported that 2008 net profit rose 69 percent to 18 billion francs ($15.35 billion), compared with average analyst forecasts for 20 billion francs, helped by a 9.2 billion gain from the sale of part of U.S. eyecare firm Alcon (ACL.N).

Chief Financial Officer Jim Singh said Nestle had no plans to renegotiate its deal agreed in April last year to sell the rest of its stake in Alcon to Swiss drug firm Novartis (NOVN.VX) despite plummeting stock markets.

"We believe the underlying value of Alcon is sound and therefore there is no intention to renegotiate," Singh said.


Nestle said 2008 sales rose 2.2 percent to 109.9 billion francs, versus analysts forecasts for 110.5 billion, as a strong Swiss currency negated volume and price growth.

Analysts had expected closely-watched organic or underlying sales growth of 8.2 percent. They forecast organic sales growth of 4.5 percent in 2009.

CFO Singh said Nestle's "popularly positioned product" strategy of offering cheaper goods to lower income consumers was helping during the downturn and would be further pushed in Europe as well as developing countries.

"We offer consumers the opportunity to trade up and trade down without trading out of Nestle products," he said.

However, Singh said that as consumers focus on essentials, 2009 would be a tough year for its bottled water business and its nutrition unit, which produces diet products, and sports drinks and bars.

However, CEO Bulcke said Nestle's premium and luxury products were still doing well, noting that sales of its Nespresso coffee soared to more than 2 billion francs in 2008, while Russian sales of its Movenpick ice cream rose 40 percent.

After big falls in commodity prices last year, CFO Singh said Nestle -- a major consumer of coffee, cocoa and milk -- had seen an uptick in raw materials prices in January and expected an overall increase of about 2 percent for 2009.

Nestle shares have underperformed of late due to concern it might use proceeds from the Alcon sale to launch an expensive takeover of L'Oreal (OREP.PA), the world's biggest cosmetics firm in which Nestle has a 29 percent stake.

Nestle said on Thursday it would honor its agreement with L'Oreal that it would not increase its stake until six months after the death of Liliane Bettencourt, the 86-year-old billionaire daughter of the group's founder who owns 30 percent.

CFO Singh said on Thursday Nestle was "not in a hurry" to do anything and said investors should not expect any news when a shareholder lock-up expires on April 29.

For more information, click on (NESN.VX)

($1=1.173 Swiss Franc)

(Additional reporting by Laura MacInnis; editing by David Cowell and Karen Foster)


Retail group Kingfisher posts flagging sales (AFP)

Thursday, February 19th, 2009 | Finance News

Kingfisher, the biggest home-improvements retailer in Europe, on Thursday posted flagging fourth-quarter sales due to "difficult" conditions around the world.

Like-for-like sales, stripping out the effect of new floor space and exchange rate moves, fell 5.5 percent in the 13 weeks to January 31, from the same period of the previous fiscal year.

Kingfisher added in a trading update that full-year group sales jumped 10.8 percent to 10.026 billion pounds but fell by 4.1 percent on a like-for-like basis.

The group also forecast that full-year pre-tax profit will meet consensus estimates -- of about 364 million pounds -- when it is announced on March 26.

Kingfisher, which owns the B and Q chain in Britain and the Castorama and Brico Depot stores in France, blamed weak Q4 sales on a "weaker international trading environment."

Chief Executive Ian Cheshire added in the trading update that consumers were facing a "difficult time" across Kingfisher's main markets.

"We continued to take share in our major markets during Q4 and have managed our cashflow in what was a particularly difficult time for consumers," he said.

"We now enter what is anticipated to be a very challenging year in good shape with a robust balance sheet, leading market positions and an international portfolio of retail brands with strong value positions."

-- Dow Jones Newswires contributed to this report --