Archive for June, 2009
CHICAGO/DETROIT (Reuters) –
U.S. auto sales fell nearly 34 percent in May from a year earlier, but aggressive discounting helped steady results for the battered industry, according to monthly results released on Tuesday.
Industry-wide auto sales for the month reached nearly 10 million units on an annualized basis -- a better result than most economists had expected with the industry reeling from auto bankruptcies.
Chrysler spent all of May in bankruptcy after filing for court protection on April 30, while General Motors Corp prepared for a well-telegraphed bankruptcy filing throughout the month before initiating the process on Monday.
May represented the highest sales rate so for this year and industry executives seized on that development as early evidence that the U.S. auto market could be pulling out of its steepest slump since the early 1970s.
"One month does not a recession end, but it was definitely a step in the right direction," said Al Castignetti, general manager of Nissan in the United States.
Sales were still far below the 14.3 million unit rate for the industry in May 2008 or the 17 million units in 2005 at the height of the recent credit-fueled boom -- a level most analysts believe is out of reach for many years.
GM aims to bring its costs down to a level that would allow it to break even at an industry-wide sales rate of 10 million vehicles as part of the bankruptcy process.
"It's hard to know what the collateral impact is of the bankruptcies right now, so this may be just a short-term event," Mirko Mikelic, a portfolio manager at Fifth Third Bank, told Reuters Television. "I wouldn't be saying this is maybe even the bottom. It just depends on what happens with the economy, the GDP and the unemployment numbers going forward."
The seasonally adjusted annual rate of auto sales is a key measure economists use to gauge U.S. economic health.
Ford Motor Co, the only American automaker to have avoided bankruptcy, had the strongest month among major automakers with a sales decline of 24 percent.
Sales for GM were off 30 percent and Chrysler sales dropped 47 percent.
"Clearly we're starting to see both globally and in the United States, we think, the industry starting to make a turn for the better," GM sales analyst Mike DiGiovanni told analysts and reporters on a conference call.
Sales for Japan's Toyota Motor Corp and Honda Motor Co were off 41 and 42 percent, respectively.
Rival Nissan Motor Co, which spent more heavily on discounts, saw sales drop by only a third.
Nissan said it had seen more car shoppers in its showrooms than during any month since August of last year after running a heavily promoted sale in May that offered discounts and low-cost leases on vehicles like the Maxima.
FORD STEERS CLEAR
Ford executives said the company's performance in May had raised the automaker's confidence in a second-half recovery in the U.S. market as the economy begins to gain strength.
That rebound is crucial for Ford as it attempts to steer clear of the reliance on U.S. government funding that is now reshaping GM and Chrysler in bankruptcy.
"For consumers and the industry, the next 90 days will be volatile and especially challenging. Frankly, we expect to see a lot of fire sales in the market," said Ford vice president of sales Ken Czubay. "We are already anticipating wild swings in production from some of our competitors."
GM began what the Obama administration hopes will be a fast-track restructuring on Monday. The slimmed-down GM that will emerge will be 60 percent owned by the U.S. government.
The sale of most of Chrysler's assets to Italian automaker Fiat will take effect on Friday, clearing the way for the automaker to emerge from bankruptcy after about a month.
Chrysler remained the most aggressive of the major automakers in discounting, but incentives were up across the board, analysts said.
Industry-tracking service Edmunds.com estimated that major automakers had spent about $2.6 billion on discounts in May, up 5 percent from a month earlier. Incentive spending by the major Japanese automakers was at a record level, it said.
Ford said it had reduced incentive spending in May and officials believe market share for its Ford, Lincoln and Mercury brands grew to its highest level since 2006.
Chrysler in June is offering up to $6,000 cash on some models and zero percent financing through GMAC to prop up sales during its bankruptcy restructuring.
In addition to incentive programs underwritten by the major automakers, a number of the 789 Chrysler dealers who are set to lose their franchises this month resorted to "fire sale" discounts to clear out remaining inventory.
Terminating dealers have sold or redistributed all but about 3,000 of the 42,000 vehicles they had and are expected to complete the process this week, Chrysler said.
Chrysler, which has had its plants shut down for the bankruptcy, expects to have a majority of its factories producing vehicles again in the last week of June, U.S. sales executive Steve Landry said on a conference call.
Toyota and Ford both plan production increases.
Ford has added to its second-quarter production plan and set a third-quarter schedule with a year-over-year increase, while Toyota said it would raise its U.S. third-quarter production by 65,000 vehicles.
(Additional reporting by Soyoung Kim, Poornima Gupta, Nick Carey and Kevin Krolicki in Detroit, editing by Matthew Lewis)
NEW YORK (Reuters) –
Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and several other banks said they have raised more than $19 billion as lenders scramble to extricate themselves from Washington's grip.
Lenders are trying to show regulators they are capable of functioning without government support. The Federal Reserve will announce next week which of the 19 big lenders that underwent "stress tests" will be allowed to repay government bailout funds.
"Markets are providing an avenue for banks of all sizes and stripes to raise money unless you are at death's door," said Gary Townsend, co-founder of Hill-Townsend Capital in Chevy Chase, Maryland. "The market also seems to be making an assessment that credit problems are manageable and that the environment is improving. In my view, that is correct."
JPMorgan sold $5 billion of stock, Morgan Stanley (MS.N) $2.2 billion and American Express Co (AXP.N) $500 million at a discount to Monday's prices after the Fed imposed new capital-raising requirements on large banks hoping to repay the Treasury Department's Troubled Asset Relief Program.
Goldman Sachs Group Inc (GS.N), which also hopes to exit TARP, sold $1.9 billion of its stake in Industrial and Commercial Bank of China (601398.SS) ().
Meanwhile, Bank of America said it has raised close to $33 billion since early May, including $7 billion over six days, closing nearly all of the $33.9 billion capital shortfall that regulators found through its stress test. The largest U.S. bank said it expects to "comfortably exceed" that sum.
Also, KeyCorp (KEY.N) said it has raised $1.3 billion, including $1 billion from selling stock, to help plug a $1.8 billion shortfall, while SunTrust Banks Inc (STI.N) late Monday sold $1.4 billion of stock to help fill a $2.2 billion hole.
Of the 19 banks to undergo stress tests that assessed their readiness for a deep recession, 10 were ordered to raise $74.6 billion. The others had enough capital.
American Express shares closed down 4.9 percent to $24.71, Bank of America rose 1.8 percent to $11.41, Goldman fell 0.8 percent to $143.13, JPMorgan fell 4.5 percent to $34.50, KeyCorp rose 1.7 percent to $4.82, Morgan Stanley rose 0.7 percent to $30.09 and SunTrust rose 15.5 percent to $15.94.
NEW RULES
The Fed said large banks hoping to repay TARP must show an ability to access public equity markets, sell long-term debt without government backing, lend sufficiently, meet their funding obligations and support their subsidiaries.
American Express, Bank of New York Mellon Corp (BK.N), BB&T Corp (BBT.N), Goldman, JPMorgan, Morgan Stanley, State Street Corp (STT.N) and U.S. Bancorp (USB.N) have signaled their intent to repay the government, people familiar with the matter have said. Some of the requests have not been made public.
Many banks have complained about the increased government scrutiny and pay restrictions that accompany TARP funds. To free themselves from Washington, banks still need to buy back or get rid of government warrants to buy their shares.
"For any bank that can raise capital and pay off TARP, they should so they can get the government out of their hair," said Joseph Gordon, president of Gordon Asset Management LLC in Durham, North Carolina.
Repaying TARP could leave banks "free and clear, like a real American free citizen, corporate citizen, like we were in the past," JPMorgan Chief Executive Jamie Dimon said on a conference call on Monday.
More than 600 banks took TARP money, and about 20 have paid it back, Treasury Department data show.
American Express took $3.4 billion, Bank of America $45 billion, Bank of New York Mellon $3 billion, BB&T $3.1 billion, Goldman $10 billion, JPMorgan $25 billion, KeyCorp $2.5 billion, Morgan Stanley $10 billion, State Street $2 billion, SunTrust $4.9 billion and U.S. Bancorp $6.6 billion.
(Reporting by Steve Eder and Jonathan Stempel; editing by John Wallace, Richard Chang)
Foreign stock funds -- led by emerging markets -- eclipsed U.S. stock funds by a wide swath in May. U.S. equity funds on average rose 4.81%, following an 11.19% leap in April, according to Lipper Inc. They're ahead 6.12% so far in 2009.
World equity funds surged 13.77%, following a 12.23% gain in April. They've surged 15.67% year to date.
Most bond categories rose, but Treasury funds fell. U.S. taxable bond funds returned 3.43%, after a 3.77% gain in April. General municipal bond funds ticked up 2.03%.
Short-selling funds, which make money from falling stock prices, lost 9.94%, on top of a 15.56% plunge the prior month.
Value funds trumped growth in all size categories in May, but growth has outpaced value year to date.
Small-cap value funds rose 4.19% last month; they're up 4.07% year to date. Small-cap growth climbed 3.87% the past month and 8.25% year to date.
Midcap value gained 4.45% for the month and 7.53% for the year. Midcap growth 4.36%, bringing the year's return to 12.69% -- the best of any size and style categories.
Large-cap value rose 6.40% last month; year-to-date they've ticked up 1.36%. Large-cap growth rose 4.84% and 10.54% year to date.
The Nasdaq lagged the Dow and S&P in May, rising 3.32%. But it leads them year to date with a robust 12.51% return. The Dow bounded 4.07% in May, paring its year-to-date loss to 3.15%. The S&P 500 advanced 5.31% in May for a 1.76% year-to-date gain.
"Despite recessionary head winds ... we have possibly seen the lows in both the economic indicators and the market indices," said Tom Stringfellow, president of Frost Investment Advisors.
"The equity market recovery will precede the inevitable earnings turnaround later in 2009," said Stringfellow, who manages the $205 million Frost Core Growth Equity Fund (NASDAQ: - ) and several other Frost funds. "Value oriented stocks will outperform initially as we rise from this economic trough, with the charge led by the small and mid-cap stocks early on."
He's overweighted his funds in financials including Aflac (NYSE: - ), JPMorgan Chase (NYSE: - ), MasterCard (NYSE: - ) and Charles Schwab (NasdaqGS: - ). He recently bought heavy-duty truck makers Cummins (NYSE: - ) and Paccar (NasdaqGS: - ). "Multiple factors appear to be coming together to produce a rebound in heavy-duty truck orders in 2010," he said.
Kristian Heugh, manager of several Van Kampen funds, is bullish. He cites an upswing in the Baltic Dry Index, which tracks international shipping prices of various dry bulk cargoes globally. Also, he's encouraged by a recovery in consumer confidence, which leapt to an eight-month high in May.
His firm has recently purchased Philip Morris (NYSE: - ) and CME Group (NasdaqGS: - ). It has also become the third-largest public shareholder of Wynn Resorts (NasdaqGS: - ).
Foreign Funds
Emerging markets -- led by Russia and India -- rose 19.39% in May and 36.22% year to date. They outpaced developed markets as the dollar fell to its lowest level in 2009 amid worries over the U.S. debt rating.
The MSCI Russia index soared 30.44% in May on a rebound in oil prices. It's up 67.44% year to date.
The MSCI India index rocketed 35.79% the past month and 65% for the year, largely because of a 24% surge May 18 following the national election.
"It is widely anticipated that the government will be more forceful with reforming and liberalizing the Indian economy," said Sharat Shroff, co-manager of Matthews India Fund (NASDAQ: - ) with $335 million in assets. "Valuations have reverted back to more normalized levels and future direction will be determined by earnings upgrades."
Buildings And Bridges
He believes that infrastructure firms may benefit from government policies and that India needs to raise infrastructure spending to enjoy high-single-digit GDP growth.
Latin America funds vaulted 23.50% in May and 47.93% year to date.
Brazil leads the region with a 68.51% return for the year. Valuations there remain reasonable, said Will Landers, manager of BlackRock Latin America (NASDAQ: - ), which is three-quarters weighted in that country. "Brazil is trading at 13 times 2009 earnings and 11 times 2010 earnings," said Landers.
China marched up 19.36% in May and 35.92% year to date.
"Although the first stage of this rally, may end soon, the second stage of this rally -- driven by upwards EPS revision -- will be stronger and will last longer," said Hugh Simon, a CEO and manager for Dreyfus Greater China (NASDAQ: - ) with $528.48 million in assets.
He's positioning his portfolio in sectors that will benefit from growth in domestic consumption such as financials, real estate, retail, health care, Internet and infrastructure development.
Europe, Japan, Pacific and Pacific ex Japan funds advanced 13% to 17%. Year to date, Europe funds returned 10.64%, while Japan sits nearly flat, down 0.92%
"We are seeing many clients, particularly conservatively positioned ones, dip their toe back in to the equity pool," said Toby Gibb, an investment specialist at Henderson Global Investors.
Henderson European Focus (NASDAQ: - ), with $356 million in assets, recently bought new positions in what it deemed undervalued: ArcelorMittal (NYSE: - ), the world's largest steel maker; Zurich Financial Services; Fiat, an Italian automaker; and Barclays (NYSE: - ), a global financial services provider based in London.
"(Arcelor) believes that the steel market bottomed in Q1 this year and expects demand to improve in the second half as de-stocking ends," said Gibb. "It's well placed to benefit from a recovery given its considerable cost advantage over its peers and exposure to spot steel markets."