Archive for August, 2009

Lehman claims could reach $100 billion: PwC (Reuters)

Sunday, August 30th, 2009 | Finance News

LONDON (Reuters) –
Administrators of the London arm of Lehman Brothers said the claims it is handling against the collapsed Wall Street bank could total as much as $100 billion.

PriceWaterhouseCoopers, which is working with over 100 companies, mostly in the UK but also in continental Europe, said on Sunday: "We're dealing with a large number of entities and therefore the claims could be as much as $100 billion.

"These claims are exceptionally complex and we anticipate a large amount of further work in dealing with (them)."

A significant amount of the claims arose as a result of guarantees issued by the parent company to its subsidiaries, the administrator said.

PwC said it had worked with administrators in other affiliates to understand Lehman's accounting system so a standard approach to the reconciliation of inter company balances could be agreed.

"If this can be achieved then it should reduce the likelihood of affiliates suing each other in pursuit of amounts that are owed between the different Lehman estates," it added.

Lehman Brothers Holdings filed for Chapter 11 bankruptcy protection in September 2008, the high water mark of the credit crisis.

Employees, counterparties and creditors have until September 22 to submit claims with the U.S. bankruptcy court.

(Reporting by Rosalba O'Brien; Editing by Mike Nesbit)

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For stocks, summer ends with jobs data (Reuters)

Sunday, August 30th, 2009 | Finance News

NEW YORK (Reuters) –
The last week of summer could prove to be anything but relaxing for stock investors worried about the economy, with the crucial August jobs report on the agenda.

Stocks eked out a second week of gains by Friday's close. Last week's economic data, including a report showing new home sales rising at their fastest pace in almost a year, helped to keep indexes in positive territory.

But employment has been among the weakest parts of the U.S. economy, keeping investors on edge about the sustainability of an economic recovery.

"We've been on a sugar high right now and sooner or later, the market will run out of candy. And this is what's going to happen on Friday" with the jobs data, said Michael Kane, chief executive officer of Hedgeable, an online portfolio management service, in New York.

Stronger-than-expected second-quarter earnings, which helped push the Standard & Poor's 500 Index (.SPX) up 11.5 percent since July 1, have just about come to an end.

And analysts noted that while overall volumes have been light, trading was dominated last week by a few troubled financial companies, including insurer American International Group Inc (AIG.N).

Economists polled by Reuters forecast job losses of 225,000 for August, which would be a slight improvement from 247,000 lost in July. But they expect the unemployment rate to rise to 9.5 percent in August from last month's 9.4 percent.

Along with the government's report on nonfarm payrolls, the economic calendar will be packed this week, with data due from the Institute for Supply Management on U.S. manufacturing and the service sector, as well as minutes from the Federal Reserve's most recent meeting.

For the week, the Dow Jones industrial average (.DJI) rose 0.4 percent, the Standard & Poor's 500 Index (.SPX) advanced 0.3 percent and the Nasdaq Composite Index (.IXIC) gained 0.4 percent.

FINANCIALS SHINE

AIG's stock jumped 27 percent on Thursday, a day after its new chief executive said in a Reuters interview he did not favor a fire sale of its assets. For the week, AIG's stock was up a whopping 53 percent.

Shares of mortgage lenders Fannie Mae (FNM.N) and Freddie Mac (FRE.N) also soared during the week.

"Markets have been driven by low-quality stocks and, more recently, by speculative financial stocks," said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates, in Toronto.

"Compared to six months ago, I'm paying more attention now to the sustainability of the recovery. When I look at that aspect and what companies are saying, the sense I get is the market is a little bit ahead of itself," he said.

The jobs report is expected on Friday, but it follows a slew of other economic indicators earlier in the week.

On Monday, the Chicago Purchasing Managers Index for August will be released. That will give investors a preview of what to expect for the ISM reports on manufacturing and the service sector later in the week.

On Tuesday, the Institute for Supply Management releases its manufacturing index for August. The Reuters poll forecasts a reading of 50.5, up from 48.9 for the previous month.

"The markets are now looking for validation from the ISM manufacturing number," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

"If we get a number above 50, the markets will react positively. But if it is a disappointment, then there will probably be a bout of profit taking," he said.

Construction spending figures for July, pending home sales for July and August car sales also are due on Tuesday.

Data on July factory orders is expected on Wednesday morning, with minutes of the Federal Reserve's August 11-12 policy-setting meeting set for release that afternoon.

On Thursday, the ISM's non-manufacturing index, which gives a reading on the U.S. service sector, will be released. The Reuters poll calls for an August reading of 48, up from July's index at 46.4.

HANGOVER FROM LOST JOBS

But Friday's jobs data could overshadow the rest of the week's numbers.

"This will set up for what I think will be a September to remember," Kane said.

"The biggest eye-popping number to me from last month's report is we still have 5 million people that are long-term unemployed. Until this number goes down dramatically, I don't see how the market can trade any higher."

Stronger-than-expected second-quarter earnings underpinned the market for much of July and August.

Just a handful of S&P 500 companies are left to report results. Second-quarter earnings now are projected to drop 27.3 percent from a year ago, according to Thomson Reuters data. That compares with a forecast for a 36 percent decline from the year-earlier quarter at the start of the earnings period, and a 35.5 percent drop in the year's first quarter from the same period in 2008.

Some 73 percent of the companies that reported results beat estimates -- well above the 61 percent average for a typical quarter, Thomson Reuters data showed.

(Additional reporting by Leah Schnurr; Editing by Jan Paschal)

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Rep. Frank eyes Fed audit, emergency lending curbs (Reuters)

Sunday, August 30th, 2009 | Finance News

WASHINGTON (Reuters) –
Rep. Barney Frank, the chairman of the U.S. House of Representatives Financial Services Committee, said he plans legislation to restrict the Federal Reserve's emergency lending powers and subject the central bank to a "complete audit."

At a recent town hall meeting, Frank said the House would pass a bill to use an audit to crack open the central bank's books more widely, but in a way that will not encroach on the central bank's monetary policy independence.

In addition, he said the House would move to rein in the authority that allows the Fed to lend to a wide range of non-bank firms in "unusual and exigent circumstances."

A bill sponsored by Texas Republican Rep. Ron Paul that would allow the Government Accountability Office, a federal watchdog agency, to audit Fed interest-rate decisions has won the co-sponsorship of more than half of the House.

Fed Chairman Ben Bernanke has warned that the bill would compromise the U.S. central bank's policy-making independence and could undermine financial markets and the economy.

Frank said he has been working with Paul on compromise language. "He agrees that we don't want to have the audit appear as if it is influencing monetary policy because that would be inflationary," Frank told constituents. A video of his remarks was posted on the popular video file-sharing website YouTube at http://www.youtube.com/watch?v=J2DX9Iu4wNo .

Steven Adamske, a spokesman for Frank, told Reuters compromise language had not yet been written. He provided no further details. A spokesman for Paul could not be reached.

OCTOBER TARGET

Frank said the audit and emergency lending provisions would be incorporated in broader legislation to revamp U.S. financial regulation that would likely pass the House in October. By seeking a compromise with Paul, Frank could strengthen the broader legislation's chance at passage.

As chairman of the House Financial Services Committee, Frank is a key player in the effort to overhaul U.S. financial regulation.

The Obama administration has proposed giving the Fed responsibility for overseeing firms whose collapse could endanger the entire financial system. At the same time, it wants to strip the central bank of its consumer protection function, and invest that authority in a new agency.

Frank expressed unease at what he called the Fed's power to "lend money to anybody they want" in emergency circumstances. "We are going to curtail that lending power. We are going to put some restraints on it," he said.

Since the financial crisis struck two years, the Fed has used this emergency authority to prop up a number of non-bank financial firms with billions of dollars in loans, including insurer American International Group.

The Fed's actions have angered many lawmakers who are concerned the central bank has put taxpayer money at risk. Fed officials have defended their actions as necessary to prevent a deeper credit crisis and widespread damage to the economy.

Bernanke, who President Barack Obama nominated this week to serve a second four-year term at the helm of the central bank, told lawmakers in July that the Fed understands the need to be accountable to taxpayers but that monetary policy decisions needed to be shielded from political interference.

In congressional testimony on July 22, he signaled a willingness to work toward a middle ground. "We are quite willing to work with Congress to try to figure out exactly where the line should be," he said.

Frank said the House legislation would pave the way for an audit to look into what the central bank "buys and sells," but he said the data would be released after a period of several months to avoid impacting financial markets.

Bernanke is widely expected to win needed Senate backing for a new term as Fed chairman, but the central bank's aggressive efforts to stem the financial crisis have stirred controversy that is likely to color his re-nomination hearing.

His current term expires on January 31, 2010.

(Additional reporting by Deborah Charles; Editing by Eric Walsh)

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