Archive for September, 2009

FDIC to propose banks prepay 3 years of fees: source (Reuters)

Monday, September 28th, 2009 | Finance News

WASHINGTON (Reuters) –
U.S. bank regulators are expected to propose on Tuesday that banks prepay three years of regular assessments to replenish the dwindling deposit insurance fund, according to a source familiar with the matter.

Such an option would give the Federal Deposit Insurance Corp more liquidity to deal with the sharp increase in bank failures, while banks would not be required to report the expense of the fees until they would normally be due.

The source, speaking anonymously because the regulator discussions have been private, said the FDIC would likely propose for the banking industry to prepay $12 billion per year in assessments, for a total of $36 billion.

The board of the FDIC is meeting on Tuesday to propose alternatives to charging the banking industry hefty emergency fees to avoid having the balance of the insurance fund hit zero.

The industry has said such upfront fees could hurt banks just as their balance sheets are starting to recover from the recent financial crisis.

FDIC Chairman Sheila Bair has said the agency is considering alternatives to the upfront "emergency" fees, including prepayments of regular assessments, tapping the FDIC's $500 billion line of credit with Treasury, and borrowing from healthier banks to rebuild the fund.

It is unclear what combination of options the FDIC board will propose to put out for public comment on Tuesday, as it seems regulators have narrowed the menu of options.

An FDIC spokesman declined to comment.

The source said the total amount of prepaid assessments could reach higher than $36 billion if the FDIC decides to ask the bank industry to also prepay special assessments.

The FDIC is exploring ways to replenish the insurance fund that safeguards bank deposits after a sharp increase of bank failures has been draining the fund.

So far this year 95 U.S. banks have failed, compared with 25 last year and only three in 2007.

Those failures have whittled the balance of the insurance fund down to $10.4 billion at the end of the second quarter from $45 billion a year earlier. The FDIC notes it has an additional $32 billion in reserves to handle failures over the next year.

(Reporting by Karey Wutkowski; editing by Carol Bishopric and Andre Grenon)

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Oil rises toward $67, eyes equities, Iran (Reuters)

Monday, September 28th, 2009 | Finance News

NEW YORK (Reuters) –
Oil rose more than 1 percent toward $67 a barrel on Monday as U.S. equities jumped and news emerged that Iran was test-firing missiles.

U.S. stocks climbed as more merger and acquisition activity encouraged investors and hinted at economic recovery, which could spur energy demand.

U.S. crude rose to settle up 82 cents at $66.84 a barrel, after earlier hitting an intraday high of $67.54. London Brent rose 43 cents to settle at $65.54.

Support for oil came from Iran test-firing a type of missile on Monday that defense analysts said could hit Israel and U.S. bases in the Gulf region, state television reported.

"Crude futures are following the stock market right now and the news from Iran firing missiles has sparked some buying, too," said Phil Flynn, analyst at PFGBest Research in Chicago.

Tensions over Tehran's nuclear program have supported oil prices in recent years. The country is the second-largest oil producer in the Middle East.

In late 2008, Iran threatened to block the Strait of Hormuz, through which about 40 percent of the world's globally traded oil passes, when tensions rose in another row with the United States around the nuclear work.

Even so, sluggish oil demand, reinforced by some lackluster economic data from the United States last week, continued to command investors' attention.

Oil prices posted their largest weekly decline in two to three months last week, pressured by government data showing U.S. crude oil inventories had risen, suggesting demand remains weak.

U.S. durable goods orders dropped by the largest amount in seven months while a rise in new home sales was less than forecast, according to data from the U.S. Commerce Department on Friday.

The market is awaiting weekly U.S. crude inventory data on Tuesday from the American Petroleum Institute and Wednesday from the EIA.

According to a Reuters poll of analysts on Monday, crude stocks were seen 500,000 barrels last week, distillate stocks were up 1.1 million barrels and gasoline stocks were up 1.1 million barrels.

(Additional reporting by Gene Ramos and Robert Gibbons in New York, Alex Lawler in London and Fayen Wong in Perth; Editing by Marguerita Choy)

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Abbott, J&J strike deals, boost vaccines (Reuters)

Monday, September 28th, 2009 | Finance News

AMSTERDAM/NEW YORK (Reuters) –
The world's two largest diversified healthcare companies struck deals on Monday that will propel them into vaccines, a red-hot area for investors because of the pandemic flu threat and potential high profits for preventing other diseases.

Jumping on the vaccines bandwagon, Abbott Laboratories (ABT.N) agreed to buy the drugs unit of Belgium's Solvay (SOLB.BR) in a $6.6 billion (4.5 billion euro) cash deal.

Abbott will gain Solvay's Dutch cell-based flu vaccine production facility, which can produce both seasonal and pandemic influenza vaccines. Flu vaccines last year brought Solvay $201 million (137 million euros), or 5 percent of its pharmaceutical sales, but the new facility is expected to boost potential output and demand for the products.

The deal also gives Abbott a slate of Solvay medicines, including cholesterol drugs the companies now co-market, and expands its reach into Russia and other emerging markets.

Johnson & Johnson , the world's largest healthcare company by market value, bought an 18 percent stake in Dutch biotech company Crucell (CRCL.AS)(CRXL.O) for $444 million (302 million euros) as part of a flu vaccine development deal, Crucell said.

Vaccine-makers have been desirable M&A targets recently, particularly for large drugmakers eager to secure new products as exclusivity on existing best-selling products nears an end.

Vaccines can be complicated to manufacture and therefore less vulnerable to eventual generic competition.

Recent advances in preventing diseases as diverse as cancer and flu have taken vaccines beyond their traditional marketplace for babies and established immunization as an option for adolescents, adults and the elderly.

Fears of a pandemic form of the H1N1 swine flu have intensified urgency to develop vaccines.

Merck & Co (MRK.N), already a major player in vaccines, agreed with CSL Ltd (CSL.AX) to distribute the Australian company's seasonal flu vaccine in the United States for an undisclosed amount.

GlaxoSmithKline (GSK.L) sealed a $2.2 billion deal on Monday with Brazil guaranteeing sales of its pneumococcal vaccine for 10 years, demonstrating how vaccines can help drugmakers gain ground in important emerging markets.

NO FINANCIAL CONSTRAINTS

Abbott expressed optimism the Solvay deal could bolster profits over the next two years beyond its own forecast, helping lift company shares 3.3 percent to $48.89.

"This is a great use for the assets and a heck of a good return," Abbott Chief Executive Miles White said on a conference call with analysts. White said Abbott is not "financially constrained at all" in pursuing other deals.

Solvay shares were little changed, closing at 74.65 euros.

In chasing Solvay, Abbott trumped a bid from Swiss drugmaker Nycomed (NYCMD.UL), people familiar with the matter said.

Abbott said the deal should add 10 cents to ongoing earnings per share in 2010, doubling to more than 20 cents by 2012 and increasing thereafter.

Abbott had been reviewing a potential Solvay deal for months and had little initial interest, but changed its mind over the summer after gaining a better understanding of Solvay's drugs and their sales potential, White said.

"We did more homework and made the increased effort," said White, who has overseen four other deals this year. The Solvay transaction should help Abbott continue to deliver double-digit percentage earnings growth in coming years, he said.

A UNIVERSAL FLU APPROACH

J&J's transaction with Crucell will focus on developing "flu-mAb," a universal product meant to prevent infection with all influenza A strains as well as to treat patients who are already infected. The strains include seasonal flu and H1N1 swine flu strains, along with the H5N1, or avian, strain.

"A universal antibody or vaccine that protects against a broad range of strains would be an important advance in helping ... control acute epidemic and pandemic outbreaks," said Paul Stoffels, head of pharmaceuticals R&D at Johnson & Johnson.

Shares of Crucell fell 3.8 percent, as the sale of the stake to J&J ignited worries that a speculated takeover of the company will not happen. J&J shares were up 1.4 percent.

Crucell has previously been in takeover talks with U.S. drugmaker Wyeth (WYE.N), but discussions were broken off in January after Pfizer (PFE.N) moved in to buy Wyeth.

Johnson & Johnson expects the deal to decrease its 2009 earnings by 2 to 4 cents per share.

Crucell issued 14.6 million new Crucell shares to J&J, which paid about a 30 percent premium based on the average price of Crucell shares in the past 35 days, or about 20.63 euros per share.

($1=.6810 euros)

(Additional reporting by Philip Blenkisop and Jan Harvey, writing by Jason Neely and Lewis Krauskopf; Editing by Simon Jessop, Maureen Bavdek and Matthew Lewis)

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