Archive for July, 2009

GE shares up, U.S. lawmaker sees no breakup (Reuters)

Thursday, July 30th, 2009 | Finance News

BOSTON (Reuters) –
General Electric Co (GE.N) shares climbed more than 7 percent on Thursday after a powerful U.S. lawmaker said he saw "no great need" for the largest U.S. conglomerate to spin off its finance arm.

Since the Obama administration introduced its proposed revamp of the U.S. financial regulatory system, investors and analysts have been concerned that a passage in the proposal could compel the Fairfield, Connecticut-based company to spin off GE Capital.

"To break up GE at this point, I think, would be a mistake," U.S. Rep. Barney Frank told reporters. The chairman of the House Financial Services Committee said he saw "no great need" for a breakup.

Earlier on Thursday Goldman Sachs raised its rating on the shares to "buy" on the news, citing a Bloomberg News interview with Frank.

"Greater potential for a manageable regulatory outcome should prompt investors to focus on longer-term benefits of economic and credit stabilization to GE shares," Goldman Sachs analyst Terry Darling wrote in a note to clients. Goldman raised its target price on the shares to $15.

Still, another analyst pointed out that Frank's words did not mean there would be no change in GE Capital's status. It could yet be required to register as a bank holding company, even if its parent does retain it.

"Concerns surrounding the financial impact of (GE Capital's) status will likely rise with growing regulatory encouragement to convert GECS to a bank," wrote Sterne Agee analyst Nick Heymann, in a note to clients.

The company is also in the process of downsizing its finance business in the face of falling profits, with a goal of making it more "safe and secure."

GE shares rose 93 cents to $13.19 on the New York Stock Exchange, hitting their highest point since early June.

Deutsche Bank analyst Nigel Coe called the news "a modest positive" and noted "significant risks persist" at GE Capital.

GE officials had repeatedly said they would resist any attempt to force them to spin off GE Capital.

"We support systemic regulation and look forward to continuing to work with Congress and the administration on meaningful financial services reform," said GE Capital spokesman Russell Wilkerson. "We have been preparing for more regulation and will have to wait and see what specific proposals are made."

(Reporting by Scott Malone in Boston, additional reporting by Rachelle Younglai in Washington, editing by Maureen Bavdek and Steve Orlofsky)

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U.S. jobless claims rise, but trend seen slowing (Reuters)

Thursday, July 30th, 2009 | Finance News

WASHINGTON (Reuters) –
The number of Americans collecting long-term unemployment aid fell to the lowest in three months in mid-July, according to government data that implied a slowing pace of layoffs as the economy stabilizes.

The Labor Department said that while initial claims for state unemployment insurance benefits rose by 25,000 to a seasonally adjusted 584,000 last week, the number of people still on benefit rolls after collecting an initial week of aid fell by 54,000 to 6.20 million in the week to July 18, the lowest since early April.

In addition, the four-week moving average for new claims, considered to be a better gauge of underlying trends, fell by 8,250 to 559,000, the lowest since late January.

The weekly moving average has declined for five straight weeks. New applications for unemployment benefits have in recent weeks been distorted by auto plant closures for retooling which normally happens in July.

Further, plant closures related to General Motors and Chrysler bankruptcies have also caused volatility, making it difficult to gauge labor market trends.

Analysts said the general trend, however, was still toward a slowdown in the rate of layoffs, as illustrated by a consistent decline in the four-week moving average for new claims. This measure irons out weekly volatility.

LAYOFFS PACE SLOWING

"It is becoming increasingly evident that the underlying pace of layoffs is slowing," said Stephen Stanley, an economist at RBS Securities in Greenwich, Connecticut. "The reality, outside of the auto sector at least, is that layoffs have probably been moderating steadily for several months."

The weekly jobs data, together with a string of stronger-than-expected quarterly corporate profits, lifted U.S. stocks (.SPX), while government bond prices fell.

Recent data, including home sales and prices, have added to growing optimism that the recession is ending but high unemployment still weighs on consumer sentiment, which could result in the anticipated economic recovery being feeble.

Initial jobless claims are being monitored for signs of stability in the labor market and the number of laid off workers on jobless rolls fell for a third straight week.

The insured unemployment rate, which measures the percentage of the insured labor force who are jobless, was unchanged at 4.7 percent in the week ended July 18, remaining at that level for a third consecutive week.

Analysts said the sustained decline in continuing claims raised the chances of a less steep decline in July nonfarm payrolls data, due to be released next week.

"More to my liking is that continued claims are falling. There is the possibility that July's payroll number could be better but that number could be suspect because of auto and seasonal adjustments in July," said Lee Olver, a fixed income strategist at SMH Capital in Houston, Texas.

A Reuters survey forecast U.S. nonfarm payrolls would be down 340,000 in July after shrinking 467,000 in June. The unemployment rate is forecast to rise to 9.7 percent from 9.5.

(Editing by James Dalgleish)

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NYSE Euronext beats Street as costs fall further (Reuters)

Thursday, July 30th, 2009 | Finance News

Jonathan Spicer and Daisy Ku

NEW YORK/LONDON (Reuters) –
Aggressive cost cutting helped NYSE Euronext (NYX.N)(NYX.PA) beat expectations for a second straight quarter on Thursday, although $442 million in one-time charges forced the transatlantic exchange operator to record a loss.

Analysts applauded a surprising 6 percent drop in fixed expenses, and word from management that the company could exceed 2009 cost savings targets it set only three months ago.

Excluding one-time items, the world's largest exchange operator by the market cap of its listings reported a 33.7 percent profit drop, or 51 cents per share compared to 75 cents in the same period a year earlier. On average, analysts polled by Reuters Estimates expected earnings of 45 cents per share.

Revenue was up 9.5 percent at $1.13 billion.

"There was a lot of fat to be cut there," said Chris Allan, analyst at broker-dealer Pali Capital. "The old management team did not do a very good job of integrating things. This is a very pro-active management team -- these guys are clearing house."

Still, NYSE Euronext recorded a hefty $355 million charge related to the termination of its European clearing contract with London-based LCH.Clearnet. It also absorbed a $87 million charge from about 290 job cuts in Europe and the United States, which were expected after the integration of several mergers.

Including the charges, NYSE Euronext reported a loss of $182 million in the quarter ended June 30, or a loss of 70 cents per share, compared to earnings of 73 cents per share.

NYSE Euronext shares fell 1.9 percent to $18.75 in Paris.

The company said on Thursday its Liffe Clearing platform launched in Europe on Thursday, a venture it expects to be accretive this year and yield more than $100 million in annual revenues.

NYSE Euronext CEO Duncan Niederauer said the job cuts will translate into "sources of future revenue growth and expense reductions." Headcount was 3,500 as of June 30, down 9 percent from a year ago.

The company added it expects to exceed -- or at least hit the low end of -- this year's cost savings target. It said in April it expects between $1.82 billion and $1.90 billion in fixed operating expenses.

The company also runs bourses in Paris, Amsterdam, Brussels, and Lisbon, as well as the London-based derivatives exchange Liffe, following its 2007 acquisition of Euronext.

Excluding the impact of foreign exchange rates and investment in new business, the quarter's underlying fixed expenses were down $50 million or 12 percent from last year.

Meanwhile, average U.S. equity trading volume jumped 25 percent and European volume jumped 6 percent from a year ago, boosting cash trading revenues 20 percent. Derivatives trading revenues, accounting for a quarter of overall revenue, slipped 10 percent.

"Solid expense control and continued synergy realization drove this quarter's upside; revenues were a bit light of our expectations," Credit Suisse analyst Howard Chen said in a note to clients, noting the "backdrop of potential declines in industry-wide volumes and further competitive pressures."

The company has been under pressure from start-up stock trading venues in the United States and Europe. Its matched U.S. market share has fallen to 30.2 percent of trading.

(Reporting by Jonathan Spicer and Daisy Ku, editing by Will Waterman)

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