Archive for August, 2009

CFTC delays first expanded trader report: source (Reuters)

Thursday, August 27th, 2009 | Finance News

WASHINGTON (Reuters) –
The Commodity Futures Trading Commission will not release its first expanded trader report by the end of August, as the regulator initially had planned, a CFTC source said on Thursday.

The source did not give a reason for the delay or a date when the expanded report would be released.

"We do expect to put out a press release in advance of the new report, that will basically walk everyone through what it's going to entail, what it's going to look like and how it can be used," the source said.

The CFTC announced in early July it would overhaul its weekly Commitments of Traders report to provide more information about positions held by traders to increase transparency of business occurring on futures exchanges.

The new report is part of the regulator's push to boost transparency on futures exchanges and curb excessive speculation, which some blame for helping commodity prices spike to record heights last year.

The expanded report will break down positions by producers, merchants, swap dealers, hedge funds and other participants. In an effort to level the playing field for all participants -- including large institutional investors, companies that consume commodities, to even the smallest of farmers.

Currently, the CFTC lists aggregate positions for commercial and noncommercial players, and places smaller market participants into a nonreportable category. The report is released every Friday.

It breaks down open interest in a futures contract in which 20 or more traders held positions that equaled or exceeded the reporting levels set by the CFTC.

The report is an important indicator of supply and demand in energy, agricultural and other futures markets. Analysts and traders use it to calculate the size of the net noncommercial, or speculative, position in a market.

The new Commitments of Traders report will mark the latest step by the CFTC to improve its oversight of markets since Chairman Gary Gensler assumed the top post in May.

The regulator recently increased oversight over certain contracts like natural gas and carbon that had been exempt from its authority.

Gensler has said the CFTC will consider adding position limits for energy contracts similar to what is in place for agricultural markets to prevent large players from having too much influence over prices.

(Editing by David Gregorio)


Bebe Stores offers 1Q forecast lower than analysts (AP)

Thursday, August 27th, 2009 | Finance News

BRISBANE, Calif. – Apparel retailer Bebe Stores Inc. said Thursday it expects to report lower earnings for its first quarter than analysts expect.

The company expects report earnings for the three months that end Oct. 3 between breaking even to a loss of 5 cents per share. In contrast, analysts polled by Thomson Reuters on average expect to see a profit of 4 cents per share.

The company says its finished-goods inventory will fall on a per-square-foot basis by a percentage in the mid- to high-teens range compared with a year earlier.

The news came as the Brisbane, Calif.-based retailer reported a loss for its fourth quarter amid slumping sales and markdown intended to reduce inventory. But the company's adjusted results beat expectations.

Shares of Bebe fell 29 cents, or 3.7 percent, to $7.63 during after-hours trading.


Investors trading 3 stocks that may be doomed (AP)

Thursday, August 27th, 2009 | Finance News

WASHINGTON – Investors are still trading common shares of Fannie Mae, Freddie Mac and American International Group Inc. by the billions, even though analysts say their prices are almost certain to go to zero.

All three are majority-owned by the government and are losing huge sums of money. The Securities and Exchange Commission and other regulators lack authority to end trading of stocks in such "zombie" companies that technically are alive — until the government takes them off life support.

Shares of the two mortgage giants and the insurer have been swept up in a summer rally in financial stocks. Investors have been trading their shares at abnormally high volumes, despite analysts' warnings that they're destined to lose their money.

"People have done well by trading them (in the short term), but when it gets to the end of the road, these stocks are going to be worth zero," said Bose George, an analyst with the investment bank Keefe, Bruyette & Woods Inc.

Some of the activity involves day traders aiming to profit from short-term price swings, George said. But he said inexperienced investors might have the misimpression that the companies may recover or be rescued.

"That would be kind of unfortunate," he said. "There could be a lot of improvement in the economy, and these companies would still be worth zero."

The government continues to support the companies with billions in taxpayer money, saying they still play a crucial role in the financial system.

Fannie and Freddie buy loans from banks and sell them to investors — a role critical to the mortgage market. They have tapped about $96 billion out of a potential $400 billion in aid from the Treasury Department.

Officials have said AIG's failure would be disastrous for the financial markets. Treasury and the Federal Reserve have spent about $175 billion on AIG and AIG-related securities. The company also has access to $28 billion from the $700 billion financial industry bailout.

But analysts say the wind-down strategies for the companies are almost sure to wipe out any common equity, making their shares worthless.

"There are some folks that believe that somehow that 20 percent (of the stock) that's out there in the public market might be worth something someday," said Daniel Alpert, managing director of the investment bank Westwood Capital LLC. But he said the three companies are doomed because they are "massively indebted," and the values of their assets are declining.

The stocks remain in circulation mainly for two reasons: They've violated no rules on the New York Stock Exchange, where they are traded. And no regulator has the power to suspend their trading without evidence securities laws are being violated.

Alpert said no regulations exist to deal with cases where the government props up unsustainable companies.

By contrast, regulators were able to warn investors about stock in the "old" General Motors, which also sits on a mound of government debt. The SEC and the Financial Industry Regulatory Authority, the brokerage industry's self-policing group, have issued alerts and taken other steps to prevent investor losses on that stock.

In that case, the SEC could act because GM acknowledged the stock was headed for zero in a restructuring plan filed with the SEC.

The SEC says it has no reason to suspend trading of stocks that still technically meet its standards, which include filing timely financial reports and disclosing events that could affect share values.

The NYSE's rules include maintaining minimum numbers of shareholders and market capitalization. But they give the exchange full discretion over which stocks are listed — regardless of whether a company meets those listing standards.

FINRA has jurisdiction over NASDAQ-traded stocks and over "pink sheet" stocks, which are worth too little to be traded on a major exchange. It has no jurisdiction over stocks on the NYSE.

Shares of Fannie, Freddie and AIG — along with their trading volumes — have jumped this summer, when activity normally fades as traders take vacations. Fannie shares have more than tripled since the end of July. Their volume soared to 360 million shares Thursday from 6.45 million shares on the last day of July.

Freddie and AIG shares have surged threefold since then. Freddie's volume jumped to 191 million shares from 4.5 million. And 148 million AIG shares changed hands on Thursday, compared with 5 million on July 31.

By comparison, the trading volume of General Electric Co.'s common shares fell to around 63.7 million shares Thursday, compared with 109 million shares July 31. The stock price rose 5.3 percent in that stretch.

AIG shares rose $10.15, or 26.9 percent, to $47.84 Thursday. Analysts speculated the company might be reconciling with former CEO Maurice "Hank" Greenberg, who could help bring private capital and other business benefits to the company.

A reverse stock split in early July raised the price by a factor of 20. In a reverse split, a stock price is increased, and the number of shares are reduced by a similar proportion. It has no effect on shareholders' equity.

Fannie shares closed up 3.8 percent at $1.92 Thursday; Freddie shares rose 10 percent to $2.24.

Fannie and Freddie's government owners haven't announced their plans for the companies. That means there's a possibility — however remote — that their shares could retain some value. But the administration is expected to announce in February that the companies will be wound down, merged into a federal agency or have their bad mortgage assets split into a new government-backed company.

All those possibilities are almost certain to eliminate any remaining shareholder equity, analysts said.

Lawrence J. White, a professor at New York University's Stern School of Business, said the higher trading volumes might reflect speculation about the government's February announcement.

With the share prices still so low, White said investors are willing to bet on the outcome of the government's announcement. He said trading volume is likely to grow further, with even sharper price swings, as February approaches.

Still, Freddie Mac Chairman John Koskinen said the price fluctuations were hard to understand.

"I have absolutely no idea what that represents," he said.

Representatives for Fannie, the SEC, AIG, FINRA and the NYSE declined to comment. Spokeswomen for Treasury, which owns most of AIG, and the Federal Housing Finance Agency, which holds Fannie and Freddie in conservatorship, also wouldn't comment.


AP Business writers Alan Zibel in Washington and Stephen Bernard in New York contributed to this report.