Archive for August, 2010

Asian shares advance, BHP bid boosts confidence (Reuters)

Tuesday, August 17th, 2010 | Finance News

SINGAPORE (Reuters) – Asian stocks rose on Wednesday and the dollar inched up against the yen as a $39 billion takeover bid in the farm sector and earnings from two U.S. retail giants boosted confidence in the corporate outlook.

The gains were limited though and the yen, seen as a safe haven, remained near a 15-year high against the dollar, following mixed data from the United States, showing higher producer prices while housing starts posted a weaker-than-expected rise.

The MSCI share index for Asia excluding Japan (.MIAPJ0000PUS) was up 0.41 percent following gains on Wall Street after retailing giants Wal-Mart Stores Inc (WMT.N), and Home Depot Inc (HD.N) beat earnings estimates.

The launch of an unsolicited $38.6 billion take-over bid by mining giant BHP Billiton Ltd (BHP.AX)(BLT.L) for Canada's Potash Corp of Saskatchewan Inc (POT.TO)(POT.N) also helped improve sentiment.

Japan's Nikkei (.N225) average rose 0.5 percent, buoyed by short-covering after two days of falls.

Japanese government bonds dipped as investors turned to stocks and the benchmark 10-year yield rose 1.5 basis points to 0.950 percent, after touching a seven-year low of 0.920 percent the previous day.

Market players said, however, it was hard to see the benchmark Nikkei racking up substantial gains without a sustained weakening of the yen even though recent falls -- a 4 percent drop last week -- suggested a short-term rebound might be overdue.

"Today we're seeing short-covering prompted by the overnight Wall Street rise, but the main players are day traders and they tend to dump shares fairly quickly when any rises lose steam," said Norihiro Fujito, general manager of the investment research and information division at Mitsubishi UFJ Morgan Stanley Securities.

Nidec Corp (6594.OS), a precision motor manufacturer, jumped nearly 5 percent after the firm said it would buy the motors business of U.S. firm Emerson Electric Co (EMR.N).

The deal marks the latest move in Nidec's aggressive expansion through acquisitions, and comes as the rising yen reignites a push by Japanese companies to snap up overseas assets and secure growth outside their sluggish home market.

BHP DOWN

Australia's main share index eased on Wednesday, dragged lower by a sell-off in BHP Billiton after Canada's Potash Corp (POT.TO) spurned its takeover offer, raising concern BHP may come back with a hostile bid.

BHP Billiton (BHP.AX) shares fell 3.5 percent near a one month low, as investors braced for a possible bid battle.

"It is just BHP; one big story taking out a lot of points from the index," Ben Potter, a research analyst at IG Markets said.

The euro dipped 0.1 percent to $1.2870. The euro rose 0.4 percent the previous day according to Reuters data, helped by solid demand at Irish and Spanish debt auctions that also spurred a narrowing in peripheral euro zone bond yield spreads.

But Moody's Investors Service told Reuters in an interview on Tuesday that it still had enough doubts about the outlook for Spain's public finances to keep the sovereign's triple A rating under review.

The euro could come under pressure again if the market's focus turns toward sovereign risks in the euro zone, said a trader for a Japanese foreign exchange broker.

Oil prices fell on Wednesday after an industry report signaled petroleum inventories in top consumer the United States were headed for a record, following an unexpected sharp increase in crude stocks last week.

(Additional reporting by Elaine Lies in Tokyo; Editing by Tomasz Janowski)

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Bell OKs property tax cuts amid state scrutiny (AP)

Tuesday, August 17th, 2010 | Finance News

BELL, Calif. – This small, working class city gave nearly $900,000 in loans to former officials, employees and at least two council members in the last several years.

The Los Angeles Times reported Tuesday that records show City Administrator Robert Rizzo, who was forced to step down after his high salary kicked off a scandal, received two loans of $80,000 each.

Councilmen Oscar Hernandez and Luis Artiga borrowed $20,000 each but didn't report the loans on their financial disclosure forms, as required by state law.

Artiga said Rizzo told him about the loan program when he was having financial difficulties last year.

"I cannot think of a reason to provide loans to a council member," said David Demerjian, head of the Public Integrity Unit of the Los Angeles County District Attorney's Office, which is investigating Bell.

Interim City Manager Pedro Carillo said at least 50 people received loans over the last eight years.

City officials said no documents show that the City Council approved the program. They are still trying determine how much money was repaid and whether any is outstanding.

After a meeting that dragged on into Tuesday morning, the City Council also unanimously voted to lower property taxes after a state audit showed it overcharged residents to cover pension costs for exorbitantly paid staffers.

The council voted to give control over the next municipal election to Los Angeles County and cut copying fees for public records.

A state audit last week found Bell had overcharged residents more than $3 million during the past three years to pay for pension obligations.

The finding came after prosecutors launched investigations into high salaries paid to the city's leaders, including nearly $800,000 to the former city manager.

Bell is a community of about 37,000 people located about 10 miles south of Los Angeles.

Hundreds of residents showed up at the meeting, demanding four of the five council members resign and reprimanding the panel for turning Bell into what was called an epicenter of corruption.

"If you have any dignity, you need to resign," resident Violeta Alvarez said during the public comment period.

A man dressed as a clown referred to the lawmakers as the "City Clowncil."

Councilman Lorenzo Velez has avoided the anger directed at his colleagues because he was never drawing the high salary of nearly $100,000 a year they were, and he was one of the early supporters of reform in the city.

For the first time in the council's tenure, a court reporter was hired to record the meeting.

The reduced taxes will apply to those due in November. If a home has an assessed value of $400,000, the owner will save $360 a year under the revised pay structure.

Artiga said the panel also plans to ask the state if it can refund the money directly to taxpayers.

The city manager, police chief and assistant city manager all resigned last month shortly after the scandal broke.

A group called the Bell Association to Stop the Abuse staged a rally before the meeting. The public portion of the meeting ran past midnight, then the council went into private session, adjourning shortly after 3 a.m.

During the public part of the meeting, the council named Jamie Casso of the Meyers Nave law firm as interim city attorney and Pedro Carrillo of Urban Associates Inc. as acting city manager. Velez voted against both appointments.

"We will take appropriate action to restore dignity, trust and faith in City Hall," Casso said in a statement he read at the meeting.

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Fannie, Freddie Fix? Explicit Guarantees On Most Mortgages (Investor’s Business Daily)

Tuesday, August 17th, 2010 | Finance News

Politicians don't want future taxpayer bailouts of Fannie Mae and Freddie Mac but also don't want to do anything to hurt home prices.

So even as the Obama administration rammed through sweeping rules for Wall Street, it's dithered over the mortgage finance giants, key culprits in the financial crisis, an ongoing taxpayer burden — and a bigger prop than ever to a shaky housing market.

At Tuesday's Treasury Department hearing on the future of the government-sponsored enterprises, Treasury Secretary Timothy Geithner didn't offer a plan so much as broad, conflicting goals.

"We need to begin the process of weaning the markets away from government programs and make room for the private sector to get back into the business of providing mortgages," Geithner said.

But he added: "We need to continue working to keep overall mortgage rates low. ... It is important that consumers maintain access to credit at attractive rates."

The likeliest outcome: Let Freddie and Fannie guarantee certain home loans — with explicit Treasury backing — but end purchases of mortgage-backed securities.

Privatizing or shutting down Fannie and Freddie seems off the table. Alex Pollack, resident fellow at the conservative American Enterprise Institute, was the lone attendee to argue in favor of that option.

"We need a private secondary market for the bulk of mortgage loans," he said. "The financial system of the future should have withdrawn a large part of the subsidization and distortion of the market caused by the bulk of the GSEs."

During the housing bubble, the then-implicit government guarantee let Freddie and Fannie bor row and leverage far more than truly private firms. When Freddie and Fannie agreed to buy riskier mortgages, bankers cut underwriting standards, knowing they could sell their risky loans to the GSEs.

The 2008 crash forced Freddie and Fannie into government conservatorship. So far, the direct bailout has cost taxpayers $148 billion.

But some at the conference wanted to keep the current system with only minor changes.

Bill Gross, CIO of bond-fund giant Pimco, said his company "advocates 100% public finance with government guarantees that are protected by adequate down payments and sufficient insurance premiums."

He wants to merge all the GSEs into one fully government-owned entity, similar to Ginnie Mae, whose securities contain only government-guaranteed loans. "Without government guarantees, mortgages would be hundreds of basis points higher, resulting in a moribund housing market for years," Gross said.

Banks would have to fully price in credit risk, making mortgages more expensive and harder to get — hurting home values.

Ingrid Gould Ellen, a professor of Urban Planning and Public Policy at New York University, said the government should explicitly back loans, but "charge a fee to create a reserve fund to cover any losses."

Guarantees should be limited to the safest mortgages, she added.

Barbara Desoer, president of Bank of America (NYSE:BAC - News) Home Loans, said Fannie and Freddie should provide home-loan guarantees, but have "no long-term need to hold mortgages or MBSs."

That sounds a lot like the Federal Housing Administration, which guarantees riskier mortgages. The FHA has vastly expanded as private subprime lending dried up.

One potentially key lawmaker wasn't impressed.

"The primary stakeholders at the hearing either have a vested interest or a policy reason to go back to where we are now," said Rep. Scott Garrett, R-N.J. "To think outside the box, we have to go beyond what they're doing at this panel."

Garrett is in line to chair the subpanel that oversees GSEs should the GOP retake the House. He favors the eventual privatization of Freddie and Fannie.

"You may see some price increases without the GSE model," he conceded. But "how is the housing market working for us now? All of these models have the specter of political influence and you put the taxpayer at risk."

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