Archive for September, 2010

Lehman preps bank units for sale or shutdown (Reuters)

Thursday, September 2nd, 2010 | Finance News

NEW YORK (Reuters) – Lehman Brothers Holdings Inc (LEHMQ.PK), the bankrupt U.S. investment bank, needs at least $550 million to keep its two bank units going as it prepares to sell them or shut them down in 18 months, court documents show.

Lehman asked a Federal bankruptcy court judge in Manhattan on Wednesday to approve the capital commitments and sale plans, which are part of Lehman's blueprint for unwinding its operations after filing for bankruptcy protection nearly two years ago.

The sale of the bank units could bring in $1 billion to $2 billion, Lehman has said, and are among the largest single assets Lehman has left to sell.

In the filing with a U.S. bankruptcy court, Lehman said it was faced with a choice of either allowing the units to fail or injecting capital into their balance sheets to recover significant value for its creditors.

It asked the court to approve settlements with the banks and wants to be allowed to sell Aurora Bank FSB, formerly known as Lehman Brothers Bank, within 18 months or shut it down if unable to find a buyer.

Aurora has struggled to meet capital requirements as regulators have limited its ability to offer new certificates of deposit.

It also asked the court to approve a settlement agreement that would allow it to sell or dissolve its other banking unit, Woodlands Commercial Bank. It faces similar restrictions from regulators due to capital requirements.

Failure to resolve the capital issues at the banks would result in estimated losses of between $1.2 billion and $3.6 billion, Lehman said.

Lehman said that based on June 30, 2010, regulatory reports, the values of its equity interest in Aurora and Woodlands were at $677.6 million and $741.6 million, respectively, for a combined value of $1.42 billion.

Lehman said it would transfer $477 million in cash to Aurora and would need to put $75 million into Woodlands.

It noted that since February 2009, Lehman has taken steps to support the banks' capital levels, including making a $200 million cash contribution to Woodlands and an additional $72 million capital commitment that has not been drawn upon.

The case is In re: Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555.

(Reporting by Sakthi Prasad in Bangalore and Caroline Humer in New York; Editing by Michael Shields)

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Economic data damp down fears of new recession (Reuters)

Thursday, September 2nd, 2010 | Finance News

WASHINGTON (Reuters) – Pending sales of previously owned U.S. homes rebounded unexpectedly in July and new claims for jobless benefits fell last week, helping quell fears the economy could face a double-dip recession.

The data released on Thursday, including sturdy sales from U.S. retailers last month, followed a report on Wednesday showing a surprising gain in manufacturing and suggested the economy retained some underlying strength.

"This is an economy that has hit a soft patch. It's not an economy that appears to be heading toward a double-dip recession," said Brian Levitt, an economist at OppenheimerFunds in New York.

Investors appeared to agree that fears of a double-dip recession might have been overdone as they sold U.S. government debt for a second straight day and bought stocks. The broad Standard & Poor's 500 Index (.SPX) ended up 0.91 percent.

The National Association of Realtors' Pending Home Sales Index, based on contracts signed, rose 5.2 percent in July from June. Analysts had expected the index, which leads actual sales by a month or two, to fall 1 percent.

Home sales have dropped sharply since a popular tax credit for home buyers ended in April and the surprise gain in pending sales raised hopes the sector could soon stabilize.

A separate report from the Labor Department showed initial claims for state unemployment benefits dropped for a second straight week last week, slipping 6,000 to 472,000.

RETAILERS POST STRONG SALES

Investor sentiment was also lifted by better-than-expected August data reported by retailers which showed sales getting a lift as consumers sought bargains during the key back-to-school selling season.

While new jobless claims declined last week, they are still high for this stage in the recovery. Two weeks ago they hit a nine-month high and they remain above where they stood at the beginning of the year.

"We're still uncomfortably high given where we are at this juncture of the recovery, but that we're moving toward 400,000 rather than 500,000 is indicative of at least some measure of job creation," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

The government is expected to report on Friday that nonfarm payrolls dropped 100,000 in August, the third straight month of job declines, with private sector employment increasing only 41,000, according to a Reuters survey.

The claims data offered few hints of whether those forecasts are on track, since it fell outside the survey period for the closely watched monthly jobs report.

The weak labor market threatens to derail the U.S. economy's recovery from the most painful recession since the Great Depression. Growth is losing steam as the boost from a $814 billion government stimulus package and the rebuilding of inventories by businesses fade.

FED WATCHING RECOVERY

The Federal Reserve has acknowledged the slowing recovery pace but the minutes of the U.S. central bank's last policy meeting released this week showed several policymakers felt the outlook would have to deteriorate "appreciably" to spur fresh monetary support.

Growing unease over the economy's health and the high unemployment rate are weighing on President Barack Obama's popularity and dimming the Democratic Party's prospects of keeping control of Congress in November's mid-term elections.

The economy grew at a 1.6 percent annualized rate in the second quarter, less than half the 3.7 percent pace seen in the January-March period.

The lackluster recovery was underscored by a second report from the Labor Department on Thursday that showed U.S. business productivity contracted at an annual rate of 1.8 percent in the second quarter, instead of the previously reported 0.9 percent. It was the largest decline since the third quarter of 2006.

While falling productivity will hurt corporate profits, some analysts said it also signaled job growth was imminent.

"When productivity peaks and starts to go lower, it means that businesses have basically gotten as much out of their workers as they can and usually that is a pretty good indicator for future job creation," said OppenheimerFunds' Levitt.

The report showed unit labor costs, a gauge of potential inflation pressures, rose at a 1.1 percent rate rather than the previously estimated 0.2 percent. It was the biggest increase since the fourth quarter of 2008.

Other data on Thursday showed new orders received by U.S. factories edged up 0.1 percent last month after falling 0.6 percent in June.

(Additional reporting by Glenn Somerville in Washington and Ryan Vlastelica in New York; Editing by James Dalgleish)

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Summary Box: ECB raises eurozone growth forecast (AP)

Thursday, September 2nd, 2010 | Finance News

OUTLOOK IMPROVES: The European Central Bank raised its growth projections for the 16-nation eurozone after better-than-expected economic news.

PROBLEMS REMAIN: The economic outlook remains uncertain, the ECB said, as countries rein in spending to reduce deficits and the U.S. economic recovery slows. Bank President Jean-Claud Trichet said "the recovery should proceed at a moderate pace with uncertainty still prevailing."

RATES UNCHANGED: The ECB left its benchmark refinancing rate at a record low of 1 percent for the 16th consecutive month, and offered no indication that it might rise any time soon.

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