Archive for October, 2009

Wall Street sinks on home builder fears, financials (Reuters)

Monday, October 26th, 2009 | Finance News

NEW YORK (Reuters) –
U.S. stocks fell for a second straight session on Monday as investors ditched home builders and financials on fears lawmakers may let a federal home buyer tax credit expire, while commodity shares succumbed to pressure from the higher U.S. dollar.

Trading was choppy. Stocks initially started on firmer footing, with indexes up more than 1 percent shortly after the open, but the bounce quickly faded as the U.S. dollar rebounded and investors fretted about the financial sector's prospects.

The tax credit has become a hot button issue and Wall Street sold off after an incorrect media headline said research firm, ISI Group, had written the tax credit probably would not be extended when it expires November 30.

The research report, however, was similar to news on Friday that Senator Majority Leader Harry Reid wanted to phase out the tax credit over time, and not let it expire. Reid said on Monday the Senate could vote as soon as Tuesday to extend the tax break.

JPMorgan (JPM.N), down 3.1 percent at $43.82, was among the top drags, along with Bank of America (BAC.N), down 5.1 percent at $15.40. The S&P financial index (.GSPF) slipped 2.5 percent, while the Dow Jones U.S. home construction index (.DJUSHB) declined 3.4 percent.

"It's a tough sell now to Congress to say we need another extension of the home buyer tax credit when supposedly we are out of the recession, according to economists, and housing is doing well again," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "If they are talking more of a phase-out than an extension, that certainly will hurt the market."

Without the home buyer credit, investors worry that the struggling housing market might lose a crucial incentive that has spurred hopes of stabilization in recent months.

The Dow Jones industrial average (.DJI) dropped 104.22 points, or 1.05 percent, to 9,867.96. The Standard & Poor's 500 Index (.SPX) shed 12.65 points, or 1.17 percent, to 1,066.95. The Nasdaq Composite Index (.IXIC) fell 12.62 points, or 0.59 percent, to 2,141.85.

The S&P 500 is now up 57.7 percent from the 12-year closing low of March 9, having slipped from its recovery peak when it was up 62.3 percent from that low.

Financials also came under pressure from the news that Dutch banking, insurance and asset management company ING (ING.AS)(ING.N) will split in two as part of a plan to pay back government bailout funds and return to its retail savings bank roots.

That plan might set a precedent for some of the U.S. institutions that received federal government bailout funds, said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

"If the banks are going to focus on mainly repaying the government, they are not going to lend, they are going to cut back on mortgages, and make it even stricter to get a mortgage," he said. "It's the domino effect and that hurts the home builders."

Among home builders' shares, luxury home builder Toll Brothers (TOL.N) slumped 4.2 percent to $18.36 and those of No. 3 U.S. homebuilder Lennar Corp (LEN.N) shed 4 percent to $13.57. Beazer Home (BZH.N), the ninth-largest U.S. home builder, declined 4.4 percent to $4.83.

The CBOE Volatility Index (.VIX) ended up 9.2 percent, its biggest one-day percentage gain in a month. During the session, the VIX rose as much as 11.6 percent, which marked its biggest intraday percentage jump in nearly two months.

The U.S. dollar rallied from a 14-month low against the euro as falling stock and commodity prices dampened risk appetite, prompting investors to lock in recent gains in other currencies.

The dollar's rise pressured commodity prices, which hurt shares of natural resource companies. Chevron Corp (CVX.N), due to post quarterly results this week, ended down 1.6 percent at $75.45.

On the bright side, RadioShack Corp (RSH.N) soared to a 13-month high after the electronics chain reported quarterly revenue above Wall Street's forecasts. The stock shot up 15.9 percent to $18.15.

Volume was moderate on the New York Stock Exchange, with about 1.39 billion shares changing hands, below last year's estimated daily average of 1.49 billion. On the Nasdaq, about 2.34 billion shares traded, slightly above last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of more than 3 to 1, while on the Nasdaq, more than two stocks fell for every one that rose.

(Editing by Jan Paschal)


U.S. seeks light sentence for UBS client in tax case (Reuters)

Monday, October 26th, 2009 | Finance News

MIAMI (Reuters) –
The U.S. government asked for a reduced sentence on Monday for a former American client of UBS AG (UBSN.VX) who pleaded guilty to tax evasion but provided information leading to the indictment of a Swiss banker and a Zurich lawyer.

The request came in a court filing ahead of Friday's scheduled sentencing in Fort Lauderdale, Florida of Jeffrey Chernick, who acknowledged in July that he used Swiss bank accounts, including one at UBS, to hide more than $8 million from U.S. tax authorities.

Chernick will be one of the first U.S. clients sentenced as part of a wide-ranging probe into UBS, the Swiss bank that settled a U.S. criminal probe earlier this year by paying $780 million and admitting it helped U.S. citizens evade taxes.

The Swiss bank giant ended a related civil lawsuit in August by agreeing to turn over the names of 4,450 wealthy U.S. clients with undisclosed offshore accounts.

The court filing said Chernick's cooperation with U.S. authorities had provided "substantial assistance in the investigation of others who have committed offenses against the United States."

It added that his cooperation also led to a conspiracy indictment in August of Swiss banker Hansruedi Schumacher and lawyer Matthias Rickenbach, who were charged in a south Florida court with encouraging Americans to switch secret accounts from UBS to Neue Zuercher Bank (NZB), a private bank, to conceal their wealth.

The two allegedly argued that NZB would be better protected from U.S. tax authorities because it did not have operations on American soil.

"Based upon information provided by the defendant (Chernick) and the indictment of Schumacher and Rickenbach, the Swiss government has opened a criminal investigation into allegations contained in the indictment," the court filing said

Because of his cooperation, government prosecutors asked the Fort Lauderdale court to impose a sentence on Chernick at the lower end of the guideline range of 18 months to 24 months.

(Reporting by Tom Brown; Editing by Gary Hill)


Ex-Bear Stearns manager wins email ruling (Reuters)

Monday, October 26th, 2009 | Finance News

NEW YORK (Reuters) –
Former Bear Stearns hedge fund manager Matthew Tannin won a round during his trial in New York on fraud charges on Monday when a judge ruled the jury cannot see a personal email in which he wrote about his fears of a "blow up risk" for investors.

Emails written by Tannin and his former boss at Bear Stearns Asset Management, Ralph Cioffi, are central to the prosecution's case against the two men -- the first high- profile Wall Streeters to be criminally charged stemming from problems with subprime mortgages and overall liquidity.

Bear Stearns Cos was taken over in 2008 by JPMorgan Chase & Co (JPM.N) in a government-backed deal for far less than it was once worth.

Cioffi, 53, and Tannin, 48, have denied charges of securities fraud and conspiracy over funds crammed with subprime mortgage-backed securities that collapsed in the summer of 2007, early in the financial meltdown. Both face up to 20 years in prison if convicted by the Brooklyn federal court jury, which was selected on October 13 for a trial expected to last well into November.

Investors lost as much as $1.6 billion, according to a U.S. prosecutor, who accused them in his opening statement of lying repeatedly to investors who had money in two funds they managed.

In their opening statements, lawyers for both men told jurors their clients did not lie and could not forecast the severity of the market's decline as they debated possible strategies for the funds in emails sent to each other and sometimes shared with other colleagues.

Monday's written ruling by Judge Frederic Block granted Tannin's motion "to suppress evidence from his personal email account on the ground that the warrant authorizing the seizure did not comply with the Warrants Clause of the Fourth Amendment."

The ruling referred to a November 23, 2006 email that was part of Tannin's personal diary on a private Google Inc (GOOG.O) or gmail account. The ruling did not quote the contents, which was put on the court record on October 8, five days before the trial began.

Tannin wrote about his fear that one of the funds could not be run the way he had hoped and that "it was going to subject investors to 'blow up risk'."

A spokesman for prosecutors in the office of the U.S. Attorney in the Eastern District of New York declined to comment on Monday's ruling. Tannin's lawyers were not immediately available to comment.

The case is USA v Cioffi & Tannin, U.S. District Court for the Eastern District of New York, No. 08-415

(Reporting by Grant McCool; editing by Andre Grenon)