China’s manufacturing weakens in credit crunch

Sunday, June 30th, 2013 | Finance News

BEIJING (AP) — China's manufacturing weakened again in June amid a credit crunch and slower U.S. and European orders, two surveys showed Monday, adding to signs that growth in the world's second-largest economy is decelerating.

HSBC's purchasing managers' index declined to 48.2 from May's 49.2 on a 50-point scale on which numbers below 50 show a contraction. A separate measure by an industry group, the China Federation of Logistics and Purchasing, showed activity declined to 50.1 from May's 50.8.

The numbers follow data showing May export growth weakened while retail sales growth failed to meet government projections.

The slowdown in Chinese manufacturing could have global repercussions, depressing demand for iron ore and other commodities from Australia and Brazil and for industrial components from Southeast Asia, Taiwan and South Korea.

Manufacturers were hurt by falling orders and a shortage of credit in June as Chinese regulators try to cool a lending boom they worry could race out of control. A shortage of cash in financial markets caused interest rates paid by banks for loans from other banks to spike to a record high.

"As Beijing refrains from using stimulus, the ongoing growth slowdown is likely to continue in the coming months," said HSBC Corp. economist Hongbin Qu in a statement.

New export orders suffered their sharpest decline in nine months, and manufacturers shed jobs at their fastest rate in 10 months, according to HSBC. Its measure is based on a survey of 420 manufacturing companies.

The logistics federation said its survey also showed production and new export orders declined.

"The June PMI declined, mostly in the main index, indicating the economy in the future will face downward pressure," said economist Zhang Liqun in a statement issued by the federation.

China's economic growth decelerated to 7.7 percent in the first quarter from 7.9 percent the previous quarter. Forecasters have said the clampdown on bank lending could cause growth to dip below 7 percent in coming quarters. That would be China's weakest performance since the early 1990s.

Beijing is in the midst of a marathon campaign to build up self-sustaining economic growth based on domestic consumption instead of investment and exports.

Chinese President Xi Jinping was quoted by state media on Saturday as saying officials should not be judged just by increases in economic output, an indication that China's Communist leaders are prepared to tolerate slower growth.

China's vast industry of privately owned small manufacturers could be hit especially hard by credit controls. Regulators want banks to reduce profitable but risky unreported lending, much of which goes to entrepreneurs who cannot qualify for formal loans.


Ballard Saphr expands white-collar defense work, acquires Stillman & Friedman

Sunday, June 30th, 2013 | Finance News

By Casey Sullivan

(Reuters) - New York litigation boutique Stillman & Friedman, whose clients have included famous Wall Street moneymen and government lawyers, is being acquired by the large law firm Ballard Spahr, according to the firms' leaders.

The acquisition underlines how white-collar criminal defense work is increasingly becoming a growing practice at large law firms.

Stillman & Friedman founding partner Charles Stillman said in an interview on Sunday that his entire firm, which consists of nine partners, two counsel and three associates specializing in white collar criminal defense, commercial and civil litigation, will join Ballard Spahr on Monday and retain their titles and level of compensation.

The firm is known in New York for its recent representation of former UBS global head of commodities Peter Ghavami against charges that he rigged bids to invest in municipal bond proceeds and deceived American cities and towns, charges which he was found guilty of last year by a federal jury Manhattan.

Other firm clients have included Clark Clifford, a former defense secretary later charged in the Bank of Credit and Commerce International scandal and Mark Swartz, the former chief financial officer of Tyco, who served prison time after being convicted of bilking his former employer for millions.

The acquisition, which was approved in a vote by Ballard Spahr lawyers late last week, reflects the most recent example of an ongoing trend in the legal industry of large law firms seeking to tap into the lucrative business of representing corporate executives facing scandal and government scrutiny.

The trend has been growing over the past two decades as Fortune 500 companies have increasingly globalized and face complex regulatory compliance issues under laws like the Foreign Corrupt Practices Act.

As a result, big law firms that have established successful white-collar criminal defense practices like Skadden Arps Slate Meagher & Flom, Gibson Dunn & Crutcher and Dechert have been called upon to conduct internal investigations of companies, advise them on compliance issues and defend Wall Street financiers and businessmen during scandals.

"In the early days, handling these kinds of cases was something that the big firms had no interest in," said Stillman & Friedman leader Charles Stillman in an interview. "The world changed as the investigations became bigger.

"What happened is that big firms saw this field ... and realized that they should not be afraid to step in and handle these kinds of cases," he said.

Ballard Spahr, which staffs more than 500 lawyers and is headquartered in Philadelphia, is just the most recent example of a long list of other big firms that have sought to bolster their white-collar criminal defense practices recently.

Earlier this month, the large Chicago law firm Winston & Strawn, known best for its strong litigation practices, recruited famed criminal defense attorney Gerald Shargel who had been working at his own small firm and represented Mafia bosses and corrupt politicians.

In August, the Philadelphia law firm Pepper Hamilton acquired former FBI Director and MF Global Trustee Louis Freeh's investigations firm before promoting him to become chairman in February. The firm then recruited a group of five white-collar lawyers from Linklaters.

Ballard Spahr, which staffs 26 lawyers in its white-collar practice in Philadelphia, Atlanta and San Diego, had been eying the New York market for the past several years instead because of its real estate and litigation work in the city, according to the firm's chairman Mark Stewart.

But Stewart said that "the white collar area is an area that is of particular interest for us because it's a growing area".

Under the terms of the acquisition, the new law firm will be called Ballard Spahr Stillman & Friedman for two years, and then the firm's name may or may not change.

As his own reason for the move, Stillman, 75, said that many of his firm's lawyers were in their fifties and sixties and that he wanted to ensure the future stability of their practices and make sure that they land safely at a large firm during this late stage of his career.

"Nothing is forever," said Stillman. "So I felt it was important and they felt it was important to find the right place to build the bridge to the future."

(Reporting By Casey Sullivan)


Analysis: Latest Barrick mine delay fans price tag fears

Sunday, June 30th, 2013 | Finance News

By Julie Gordon

TORONTO (Reuters) - Barrick Gold Corp has slowed spending at its Pascua-Lama project in South America, delaying first output to 2016, but that may not be enough for the its shareholders, who worry that the final price tag may creep beyond what the mine is worth.

While the flagship development, which straddles the border of Chile and Argentina, is one of the richest untapped gold deposits in the world, the string of delays and budget overruns have been a nightmare for world's top producer and its investors.

"They should walk from Pascua-Lama," said John Ing, president of boutique investment and research firm Maison Placements, adding that the embattled miner also needs to divest non-core assets, cut exploration spending and slash hefty board salaries if it wants to turn its fortunes around.

Barrick said late on Friday that it would re-sequence construction of the controversial project to target first production by mid-2016, deferring some $1.5 billion to $1.8 billion of planned capital spending in 2013 and 2014.

The company has not updated the market on capital costs, last projected to be up to $8.5 billion.

The delay was in-line with a scenario that Credit Suisse analyst Anita Soni outlined earlier this week, as the bank downgraded Barrick to 'Neutral' from 'Outperform'.

Soni estimated that a mid-2016 start-up would boost capital costs by about 20 percent to $10 billion and could shock the market, which was anticipating first production in late 2015.

"In our view, a mid-2016 start-up for Pascua would be a negative surprise to the street," she said in the Tuesday note.

That surprise could lead to another stock dive for Barrick, whose shares have already tumbled to their lowest point in more than 20 years, dragged down by Pascua-Lama, along with worrisome debt levels and the declining gold price.

But the alternative, walking away indefinitely, would not be an easy feat for the company. Once complete, the gold mine will be one of the cheapest in the world to operate, producing some 800,000 to 850,000 ounces a year at all-in sustaining costs of just $50 to $200 per ounce, in its first five full years.

And Barrick has already spent nearly $5 billion on the project, with mining and processing facilities partially built. The cost of shuttering the site would likely top $1 billion, according to analysts, and the company would also have to pay out Silver Wheaton , which has rights to part of the mine's silver output.

Still, with the new delay and the recent drop in the gold price - which fell 23 percent in the second quarter - Barrick expects to take a writedown of up to $5.5 billion on the value of Pascua-Lama, a tough pill to swallow for investors.

"The Pascua impairment is higher than expected, but I didn't expect to see the gold price fall so far, so maybe it is not that surprising after all," said a portfolio manager, whose firm owns shares in Barrick Gold.

The fund manager, who declined to be named due to company policy, said that the delay is positive in light of sagging gold prices, but the downside is new cash flows from the mine are also delayed.

"Retail investors may be a bit spooked by this news, but less uncertainty is better," the fund manager said.


Uncertainty has plagued Pascua-Lama over the last few years, as bad project management and environmental issues led the development wildly off-track. When construction was approved in 2009, the world's first bi-national mine was supposed to cost less than $3 billion to build, with production in early 2013.

After numerous delays, Pascua-Lama is now slated to start-up in mid-2016, and costs are expected to balloon again, hurting the rate of return for the project.

The potential of further budget overruns is a concern for investors, who worry that Barrick is not filtering enough cash into dividends and restraining its debt load, which has threatened the company's investment-grade credit rating.

"Barrick does have some of the best assets in the world, it's just they also have $16 billion in debt, which is potentially an issue at these gold prices," said Chris Beer, a portfolio manager with RBC Global Asset Management.

Indeed, rating agency DBRS put the miner under review with negative implications on Friday, citing troubled investment decisions, declining gold prices and difficulties with development projects, among other factors.

Barrick, aware of changing market conditions, has already slashed planned capital spending and reduced staff at sites around the world. The company is not currently building any new mines, with notable exception of Pascua-Lama.

And while the challenges at the project have hurt investors, prompting some to demand it iced, those who bought into Barrick with the expectation that the Toronto-based miner would produce gold - and lots of it - say the rich mine is worth the wait.

"I think Pascua-Lama has come out of their core mission of what they should be doing," said Caesar Bryan, a portfolio manager for the Gabelli gold fund. "There have been some mistakes, and it has been hard, and that is unfortunate. But it is absolutely what they should be doing."

(Additional reporting by Euan Rocha; Editing by Marguerita Choy)