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November 26, 2008

Hewlett-Packard Q4 results beat views on strong laptop sales

Filed under: money — Tags: , — Snowman @ 9:57 am

SAN FRANCISCO – Hewlett-Packard Co. edged past Wall Street's forecast for the latest quarter, showing some resilience in troubled times, as strong laptop sales helped offset falling printer orders and weakness in some server lines.

Profit slipped two per cent while revenue grew 19 per cent, helped by a huge acquisition.

Electronic Data Systems Corp., which HP bought for US$13.9 billion to challenge IBM Corp. for more technology-services contracts, added $3.9 billion in revenue.

Severe cost-cutting is helping HP meet its financial targets as it digests that deal. HP is cutting 24,600 jobs, nearly eight per cent of its 320,000-employee work force, in a major restructuring designed to save more than $1 billion a year.

Palo Alto-based HP managed to stack up some big gains despite the economic downturn.

The company sold $6.3 billion worth of laptops in the three months ended Oct. 31, a 21 per cent increase from a year ago, at a time when customers are scaling back spending and suppliers are struggling. Intel Corp., the world's biggest maker of microprocessors, recently slashed $1 billion from its guidance for the October-December quarter because of falling demand for its chips.

HP did see significant weakness in other key areas, however. Revenue in two server categories declined and printer sales were off. Ink sales, a big reason the printer division contributes half of HP's entire operating profit, were a bright spot. Supplies revenue, including ink, rose nine per cent.

HP had announced preliminary results last week to reassure investors and shore up a sinking stock price. The full results were released Monday after the market closed business cards online.

HP's stock fell 35 cents to $35.35 in after-hours trading. It had closed up $1.06, or 3.1 per cent, at $35.70 during the regular trading session.

The company's fourth quarter net income was $2.11 billion, or 84 cents per share, compared with $2.16 billion, or 81 cents per share, in the year-ago period. The per-share figure was higher in the latest period because there were fewer shares outstanding. HP bought back 45 million shares in the fourth quarter.

Excluding one-time costs, HP's profit was $1.03 per share, two cents per share higher than the average estimate of analysts polled by Thomson Reuters.

Sales were $33.6 billion, a 19 per cent increase over last year's $28.3 billion. Excluding the effects of a weak dollar, revenue rose 16 per cent. Analysts were expecting $33.3 billion.

HP repeated its earlier forecast for the current fiscal year, which includes a warning that further strengthening of the dollar is expected to hurt sales. Deals done in other currencies translate into fewer greenbacks when those currencies fall in value compared to the dollar.

In the first quarter, HP expects profit of 93 cents per share to 95 cents per share, excluding one-time charges, on sales of $32 billion to $32.5 billion. For the full 2009 financial year, HP expects profit of $3.88 per share to $4.03 per share, excluding items. Sales are projected to be $127.5 billion to $130 billion.

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November 20, 2008

Weak Japan exports pile on economic gloom

Filed under: economics — Tags: , — Snowman @ 7:38 pm

Japan’s exports to Asia fell in October for the first time since 2002, showing that the fallout from the credit crisis has spread to neighbors such as China and adding momentum to investors’ flight to the safety of cash.

Capital flight from emerging markets drove the currencies of South Korea and Indonesia to their lowest levels since the Asian financial crisis a decade ago. India’s rupee hit a record low.

Asian markets suffered the same battering that drove U.S. and European stocks to their lowest levels in 5- years on Wednesday. Japan’s Nikkei tumbled 6.9 percent, while the MSCI All-Country World Index hit its lowest level since May 2003, dragged down by Asian shares.

Shipments to Asia had previously cushioned the impact on Japanese exports of weakening demand from the United States and Europe. But data on Thursday showed they fell 4 percent in October from a year earlier.

The drop in Japanese exports contributed to mounting signs elsewhere that the global slowdown could get worse.

The Federal Reserve forecast that the U.S. economy would contract through the first half of next year and signaled it was ready to cut interest rates further, while U.S. consumer prices last month posted their biggest drop on record.

“The fall in exports to Asia reflects that their economies are also taking a blow from weakness in developed economies,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Hopes that Asian economies, particularly China, could help prop up global growth have begun to fade as weaker demand in the United States and Europe has quickly translated into slowing factory output and job cuts cash in 1 hour.

Underlining the extent of Beijing’s concerns over its own slowdown, Minister of Human Resources and Social Security Yin Weimin said on Thursday that stabilizing employment is now the government’s top priority.

The worrisome outlook sent bonds surging. The yield on Japanese 10-year government bond futures fell to as low as 1.430 percent on Thursday, the lowest since early October, while the U.S. Treasury two-year yield hit a record low at one point.

Financial bookmakers expect worries over a lengthy economic downturn to send the leading European benchmark indexes as much as 2.4 percent in early trade on Thursday.

CHIP MAKERS HIT

Corporate news helped fuel the rush to safe havens.

Citigroup Inc shares tumbled 23 percent on Wednesday to a 13-year low, as investors questioned the survival prospects of the U.S. banking giant on concerns about mounting losses from credit cards, mortgages and toxic debt.

Friedman Billings Ramsey analyst Paul Miller said in a research note that the U.S. financial system still needs at least $1 trillion to $1.2 trillion of tangible common equity to firm up banks’ balance sheets and improve liquidity in credit markets. 

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November 17, 2008

Dismal end to stocks’ week

Filed under: economics — Tags: , , — Snowman @ 6:38 pm

Stocks slumped Friday, with investors abandoning a recovery attempt, as the worst retail sales on record ignited fears of a long recession.

The Dow Jones industrial average (INDU) fell 338 points, or 3.8%. Earlier, the blue-chip indicator had lost as much as 363 points and gained as much as 88 points.

The Standard & Poor’s 500 (SPX) index skidded 4.1% and the Nasdaq composite (COMP) shed 5%.

All three major gauges slid on the week as well, with the Dow losing 5%, the S&P down 6.2% and the Nasdaq down 7.9%.

Stocks crumbled through the early afternoon as investors considered the bleak outlook for consumer spending amid the weak retail sales report. Selling pressure eased up in the middle of the afternoon and then returned near the close.

"The recession has been mild up to this point, but I think we’re in for a much uglier one in the fourth quarter," said Scott Anderson, senior economist at Wells Fargo. "The retail sales report demonstrates that."

U.S. sales in October posted the worst monthly decline since the Commerce Department initiated the current measurement standard in 1992.

The corporate news Friday was just as bad. Freddie Mac posted a big quarterly loss. Sun Microsystems announced massive job cuts and Citigroup is reportedly getting ready to announce layoffs.

"Fundamentally the economy is very weak," said Robert Brusca, chief economist at FAO Economics. "The Freddie Mac losses are a reminder of that."

Stocks rallied Thursday, with the Dow gaining 552 points, its third-best single-session point gain ever, as the market bounced back from levels not seen since 2003. Some analysts said that the recovery was significant in helping to establish a bear market bottom.

However, after such a rally, stocks were vulnerable to a pullback Friday, particularly after the retail sales report.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by almost four to one on volume of 1.45 billion shares. On the Nasdaq, decliners topped advancers by more than three to one on volume of 2.31 billion shares.

After the close, Fidelity said it was cutting an additional 1,700 jobs in the first quarter of 2009 as part of an ongoing cost-cutting effort. A week ago the company said it was cutting 1,300 jobs

Retail sales: Retail sales fell 2.8% in October versus a revised 1.3% drop in September. Sales excluding volatile autos fell 2.2% in October, versus a revised 0.5% drop in September. Both results were worse than expected, according to a survey of economists by Briefing.com. (Full story)

"Sales were pretty awful across the board," Anderson said, noting that sales plunged pretty much everywhere other than at grocery stores and on health care. "With consumers only spending on the essentials, that’s pretty dire."

Also on Friday, retailers J.C. Penney (JCP, Fortune 500) and Abercrombie & Fitch (ANF) both reported lower quarterly earnings and issued bleak forecasts for the critical fourth quarter.

A separate report showed a slight improvement in consumer sentiment, according to the latest survey from the University of Michigan. Sentiment rose to 57.9 in November from 57.6 in late October, versus forecasts for a decline to 57.

Investors were also gearing up for the Group of 20 meeting in Washington, which gathers leaders from around the world to address the global financial crisis. It kicks off with a White House dinner Friday. (Full story)

The European economy is officially in a recession, EU leaders said Friday. Germany has already said it is in a recession. Hong Kong is in a recession. And many economists think the U.S. is in a recession, despite a lack of official declaration creditscore.

Recession is generally defined as two consecutive quarters of shrinking economic growth. In the U.S. a recession is officially declared by the National Bureau of Economic Research.

Speaking early Friday, Federal Reserve Chairman Ben Bernanke said that financial markets remain under severe strain. He pledged to continue working with central banks around the world and seemed to indicate the U.S. federal reserve could cut interest rates again at the December meeting. (full story)

Company news: Troubled mortgage giant Freddie Mac (FRE, Fortune 500) reported a steep $25 billion quarterly loss and said it will start chipping away at the $100 billion in taxpayer funds set aside for its bailout. (Full story)

Sun Microsystems (JAVA, Fortune 500) said Friday it will cut up to 6,000 jobs, or 18% of its workforce, as a cost-cutting measure. The software and computer networking company also said it was restructuring its software business operations.

Citigroup (C, Fortune 500) is reportedly getting ready to lay off another 10,000 people on top of the 23,000 it has already let go, according to a Wall Street Journal story Friday. The company is also expected to boost credit card rates, the report said.

Nokia (NOK) said fourth-quarter sales for the broad mobile handset industry will decline. The phone maker said worse credit conditions and the weak economy were to blame.

Hartford Financial Group (HIG, Fortune 500), the troubled insurer, said it has purchased a small bank, making it eligible to receive up to $3.4 billion in funds from the government’s bailout plan.

Investors again pulled money out of equity mutual funds last week, following the first week in months in which investors added money to funds.

In the week ended Nov. 12, investors pulled roughly $31.8 billion out of equity mutual funds, according to tracking firm Trim Tabs. In the previous week, investors added roughly $2.2 billion to funds. However, that one week was an anomaly, with investors cashing out of funds in 15 of the last 16 weeks amid the stock market selloff.

Other markets: Asian and European markets rallied in response to the U.S. advance Thursday.

The dollar gained against the euro, but fell versus the yen.

COMEX gold for December delivery rallied $42.50 to settle at $742.50 an ounce.

U.S. light crude oil for December delivery fell $1.20 to settle at $57.04 a barrel on the New York Mercantile Exchange.

Gasoline prices dipped another 2.6 cents to a national average of $2.152 a gallon, according to a survey of credit-card activity released Friday by motorist group AAA. The decline marks the 58th consecutive day that prices have decreased. During that time, prices dropped by $1.70 a gallon, or 44.2%.

Lending rates: The cost of borrowing rose modestly Friday, but remained near recently improved levels.

The 3-month Libor rose to 2.24% from 2.15% Thursday, according to Bloomberg.com. Overnight Libor rose to 0.56% from 0.4% Thursday, and up modestly from an all-time low of 0.32% last week. Libor is a key interbank lending rate.

The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, fell to 0.11% from 0.19% Thursday, with investors preferring to take a small return on their money than risk the stock market. In September, the 3-month yield reached a 68-year low around 0% as investor panic peaked.

Treasury prices rallied, lowering the yield on the benchmark 10-year note to 3.72% from 3.86% Thursday. Treasury prices and yields move in opposite directions. 

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November 13, 2008

Dollar rises on recession fears

Filed under: marketing — Tags: , , — Snowman @ 7:44 pm

The dollar resumed its climb against other major currencies for a second day in a row Tuesday as recession fears took center stage.

The U.S. currency also got a boost against the 15-nation euro on bets that the European Central Bank will have to cut rates again before the year ends.

"The markets are actually pricing in a 50 basis point cut in December," said Kathy Lien director of currency research at Global Forex Trading in New York. "The euro-zone economy is still in a lot of trouble," she added.

The ECB, which currently has its key interest rate at 3.25%, is scheduled to meet on Dec. 20 to make a decision on interest rates.

The euro, which initially rallied following some upbeat news about German economic sentiment, fell 2.3 cents to $1.252 by the end of trading in New York Tuesday.

The dollar also rose against the British pound, which fell 2.3 cents to $1.538. But the greenback lost ground against the Japanese yen, falling ¥0.35 to ¥97.65.

"Right now the dollar is not trading on U.S. fundamentals, it’s trading on risk aversion," said Lien.

Over the past several weeks, investors have been looking to the equities markets, which are considered forward-looking indicators, for guidance on the state of the global economy and the possibility of a deep recession.

World markets: Investors sought safety as economic instability continued to rumble through global equities. In the United States, the Dow Jones industrial average fell nearly 3% as U.S. automakers floundered, overshadowed by the possibility of a government intervention short-term cash loans.

Markets in Asia and Europe also weakened, with indexes falling more than 3% in the U.K. and Japan, and more than 4% in France, Germany and Hong Kong.

While an index of German business sentiment showed a modest recovery, the reading is still negative and well below it’s historic norm.

"The oncoming global recession is too large," said John Kicklighter, currency strategist with Forex Capital Markets. "The overall [negative] sentiment is too strong," he added.

Chinese stimulus: Meanwhile enthusiasm over the $586 billion Chinese stimulus package announced Sunday faded as investors began to reassess how quickly the plan will have an impact.

"People are still kind of skeptical over what will happen," said Kicklighter.

Unlike the stimulus plan enacted by the U.S., which focused on tax rebates, the Chinese plan focuses on job creation and building infrastructure such as roads and bridges, which may take longer to implement.

Investors were initially encouraged by the Chinese plan, but then began to re-examine its impact since it will be rolled out gradually till 2010, according to Kicklighter.

"It will have a little effect, but it’s like trying to stop an oncoming train with a car," he said.

The export-driven Chinese economy continued to show weakness as well, as exports slowed, according to a report from Beijing. 

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November 10, 2008

China okays $586 billion U.S. stimulus

Filed under: finance — Tags: , , — Snowman @ 11:13 pm

BEIJING–China unveiled a $586 billion (U.S.) stimulus package yesterday in its biggest move to inoculate the world’s fourth-largest economy against the global financial crisis.

The cabinet approved a plan to invest the money in infrastructure and social welfare by the end of 2010, a statement on the government’s website said.

Some of the money will come from the private sector. The statement did not say how much of the spending is on new projects and how much is for ventures already in the pipeline that will be speeded up.

China’s export-driven economy is starting to feel the pinch of weakening United States and European economies, and the government has already cut key interest rates three times in less than two months in a bid to spur economic expansion.

Economic growth slowed to 9 per cent in the third quarter, the lowest level in five years and a sharp decline from last year’s 11.9 per cent.

That is considered dangerously slow for a government that needs to create jobs for millions of new workers who enter the economy every year and to satisfy a public that has come to expect steadily rising incomes.

Exports have been growing at an annual rate of more than 20 per cent but analysts expect that may fall as low as zero in coming months as global demand weakens.

The International Monetary Fund has urged governments to adopt economic stimulus packages and, in some cases, to cut interest rates further, to counteract the slowdown.

China joins other major economies such as the U.S., Japan and Germany which have already introduced their own stimulus plans.

The U.S. allocated $168 billion earlier this year for tax rebates to individuals and tax breaks for businesses. Germany set aside $29 billion for tax breaks on new cars and credit assistance for companies. Japan allotted $275 billion for loans to small- and mid-sized businesses and discounts on highway tolls among other measures.

China’s statement said the cabinet, at a meeting chaired by Prime Minister Wen Jiabao, had "decided to adopt active fiscal policy and moderately easy monetary policies Faxless pay advance."

The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing as well as increased spending on rural infrastructure.

Money will also be poured into railways, roads and airports. Spending on health and education will rise, as will environmental protection and technology spending.

Efforts to rebuild disaster areas, such as Sichuan province where 70,000 people were killed and millions left homeless by a massive earthquake in May, will also be accelerated. That includes $2.93 billion planned for next year that will be moved up to the fourth quarter of this year.

The statement said rural and urban incomes would be increased.

Credit limits for commercial banks will also be removed to channel more lending to priority projects and rural development, it said.

Reform of the value-added tax will cut taxes by $17.5 billion for enterprises, the statement said.

The stimulus plan should give a lift to China’s shares, said Ben Simpfendorfer, an economist at Royal Bank of Scotland PLC in Hong Kong. The CSI 300 Index has tumbled 69 per cent this year, the biggest drop among stock benchmarks in the Asia-Pacific region.

"We view this as a positive step," the U.S. Treasury’s Undersecretary for International Affairs David McCormick said. "This stimulus should help encourage domestic consumption" in China, he said.

"The golden years have shuddered to a dramatic halt," said Stephen Green, head of China research at Standard Chartered Bank PLC in Shanghai.

- With files from the Star’s wire services

Source

November 9, 2008

Fed lends another $100B to companies

Filed under: news — Tags: , — Snowman @ 1:52 am

The Federal Reserve continued its massive lending efforts to business in the past week, pumping $100 billion more into the credit stream through a new short-term funding program.

Fed numbers released Thursday showed that Fed lending in the so-called Commercial Paper Funding Facility increased to $243 billion from $144 billion a week earlier. The facility opened on Oct. 20.

The Fed’s program has helped lower borrowing rates and provided critical short-term financing to businesses and financial institutions in desperate need of cash. Businesses and financial institutions have turned to the Federal Reserve for funds, as the traditional source of lending from private banks dried up after the collapse of Lehman Brothers in mid-September.

As a result, the federal government has instituted several programs aimed at easing funding concerns for banks and encouraging lending between financial institutions. These include measures such as lowering interest rates, injecting capital into banks and providing insurance on all non-interest bearing accounts.

"The Fed is tapping all the keys on the keyboard, and it does seem to be helping," said Bill Bergman, senior equity analyst at Morningstar. "We have a financial market problem of historic proportion, and I think the Fed’s ability to liquefy is worth respect."

In another such program, the Federal Reserve’s emergency lending window, the Fed reported that commercial banks borrowed $110 billion a day, on average, over the past week. That’s down 1.7% from the $111.9 billion they borrowed from the discount window in the previous week.

For a long while before the credit crunch, the Fed has offered overnight funding for commercial banks at a rate slightly higher than its targeted funds rate. But after the collapse of Bear Stearns in March, the Fed for the first time opened its discount window to Wall Street firms like Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500), which were in dire need of lending.

Investment banks borrowed $77 billion a day, on average, down 11.9% from $87.4 billion a week ago.

Some analysts have suggested that investment banks’ borrowing needs have not decreased, but they are borrowing less from the discount window due to the Treasury’s $250 billion capital injection into financial institutions and access to the Fed’s commercial paper facility american cash advance.

"We haven’t seen any sign of a turnaround in lending yet," said Bergman. "The question is whether or not the Titanic is unstoppably sinking."

AIG lending shrinks

The Fed also reported Thursday that troubled insurer American International Group (AIG, Fortune 500) paid back $2.3 billion of its emergency loan from the Federal Reserve.

AIG now owes $81.2 billion, down from $83.5 billion as of last week. That’s equal to about two-thirds of the $122.8 billion loan the federal government has offered to the company.

In mid-September, the government agreed to bail out the world’s largest insurance company, which was on the verge of collapse, with an $85 billion federal loan. In addition to the bailout, the New York Fed later made available an additional $37.8 billion to the corporation through a special lending facility. The facility, which opened three weeks ago, was designed to provide funding for AIG’s businesses after its securities lending division ran into trouble.

AIG announced last week that it will refinance a big chunk of its original loan. Through four of its subsidiaries, AIG said it will sell $20.9 billion of debt to the Fed and use the proceeds to pay back some of the $85 billion government bailout loan. The move allows AIG to pay down about a quarter of the loan - on which it is currently paying about 11% in interest - with money it has borrowed at 4% through the Fed’s commercial paper program.

AIG has said it plans to pay off the $85 billion bridge loan by spinning off divisions.

In addition, the company’s new managers, headed by government-installed CEO Edward Liddy, have agreed to withhold big payouts to former executives and curtail corporate trips in the face of criticism from Congress and other government officials. With taxpayer dollars on the line, New York Attorney General Andrew Cuomo has demanded the company halt all "unreasonable expenditures." 

Source

November 7, 2008

Swiss Unemployment Rises as Companies Cut Payrolls

Filed under: term — Tags: , , — Snowman @ 6:31 pm

The number of people unemployed in Switzerland rose in October as a gloomy outlook for the world economy prompted companies to scale back their payrolls.

The seasonally adjusted number of people without jobs increased by 1,204 to 102,319 from September, the State Secretariat for Economic Affairs in Bern said today. The jobless rate held at 2.6 percent, in line with the median of 14 economists' forecasts in a Bloomberg News survey.

Swiss companies may pare their workforces further in coming months as the financial-market crisis pushes up lending costs and a global slowdown hits order books. Swiss leading indicators declined to the lowest in more than five years in October. The Swiss central bank yesterday unexpectedly trimmed borrowing costs to counter a deepening economic slowdown.

“The Swiss labor market is still rather robust, but of course that won't last,'' said Dirk Faltin, a senior economist at UBS Wealth Management Research in Zurich in an interview with Bloomberg Television. The Swiss National Bank's decision to lower the key rate “was the right signal in this situation.''

The SNB yesterday trimmed its three-month Libor target by 50 basis points to 2 percent, the biggest cut in more than five years, after the Bank of England lowered borrowing costs more than economists expected by 150 basis points bad credit payday loans. The European Central Bank yesterday cut its key rate by 50 basis points.

The Zurich-based SNB said that the economic outlook has “deteriorated more severely than anticipated'' and the Swiss economy may fail to grow in 2009. The International Monetary Fund yesterday predicted economic contracts in the U.S., Japan and the economy of the 15 euro nations next year.

Adding to signs of slowdown, Swiss manufacturing contracted for a second straight month in October and exports declined for the first time in almost four years in September.

Clariant AG, the world's biggest maker of chemicals, is cutting 2,200 jobs, or 10 percent of its workforce, through 2009 as it seeks to boost profitability. The Muttenz, Switzerland-based company said Nov. 4 it will need to cut costs further as slumping automotive and construction industries and slowing growth in China hurt revenue.

The unadjusted jobless rate rose to 2.5 percent in October from 2.4 percent in the previous month partly as weather-sensitive industries such as forestry and agriculture reduced their workforce. The number of open jobs increased by 369 to 14,132 from September, today's report showed.

Source

November 6, 2008

Time Warner profit beats, but cuts outlook

Filed under: finance — Tags: , — Snowman @ 6:46 am

Time Warner Inc posted a higher-than-expected third-quarter profit, helped by strong advertising sales at its cable networks including CNN, and the summer blockbuster movie “The Dark Knight.”

But the media conglomerate, which also owns HBO and the Warner Bros movie studios, on Wednesday lowered its full-year outlook due to severance charges at its Time Inc publishing unit and restructuring charges at New Line Cinema.

Shares of Time Warner have fallen around 40 percent this year, hurt by the turbulent financial markets and by concerns that the weakening global economy would cut advertising revenue for media companies.

Even though the company reduced its full-year forecasts, the new estimates roughly matched Wall Street expectations, which reassured some analysts who had feared a bigger cut.

“Their outlook was OK to leaning positive,” said David Joyce analyst at Miller Tabak.

Shares of Time Warner rose 1.6 percent to $11.00 in pre-market trading.

Third-quarter net income from continuing operations rose to $1.1 billion, or 30 cents per share, from $900 million, or 24 cents per share, a year earlier. Excluding items, profit was 31 cents per share, beating the average Wall Street forecast of 27 cents, according to Reuters Estimates.

Revenue was essentially flat at $11.7 billion, compared to analyst expectations of $11.86 billion.

Results were boosted by Time Warner’s cable networks including CNN, which has benefited from high viewership ratings for its coverage of the U pay day loan lenders.S. presidential elections. Cable advertising and subscriber revenues grew by 9 percent and 10 percent respectively, the company said.

At the Warner Bros film studios, “The Dark Knight” Batman movie was one of the highest grossing films of all time and has to date taken in nearly $1 billion in worldwide theater sales. It helped to increase the division’s income by 6 percent.

Time Warner Cable, which is 84 percent-owned by the media conglomerate, added more Internet, phone and digital video subscribers and reported a better-than-expected profit.

“Time Warner Cable was the standout for us with more cable services sold during the quarter than expected. It looks like the newer cable systems in Dallas and Los Angeles are becoming more of a factor,” said Tuna Amobi, equity analyst at Standard & Poor’s.

AOL, TIME INC WEIGH ON RESULTS

Investors have been disappointed by the performance of Time Warmer’s AOL Internet division, which has lagged far behind competitors like Google Inc and Yahoo Inc. Time Warner has been in talks to combine AOL with Yahoo, sources familiar with the situation have said.

Profit was also dragged down by weak advertising at Time Inc magazines. The unit plans to cut as many as 600 jobs, or about 6 percent of its workforce. 

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November 4, 2008

New York Commercial Property Sales Plunge 61% in Credit Freeze

Filed under: money — Tags: , , — Snowman @ 11:58 pm

New York City commercial real estate transactions plunged 61 percent in 2008 through October as the global credit crisis roiled lending and sidelined buyers.

About $17 billion of transactions have closed so far and the market is headed for its worst year since 2004, according to data from Real Capital Analytics Inc. of New York. Sellers have made 237 deals of $5 million or more, a four-year low in a market that posted a record $51 billion in sales in 2007.

“The banks are not lending, and most of them are saying we're done for the year,'' said Scott Latham, executive vice president for New York investment sales at Cushman & Wakefield Inc., the largest closely held commercial brokerage. “In all likelihood, you will see next to no transactions between now and the end of the year.''

The property recession that began in housing during 2006 is spreading to the commercial market. About 85 percent of domestic banks tightened lending standards on commercial and industrial loans to large and mid-size firms in the past three months, the highest since the Federal Reserve's Senior Loan Officer Survey began in 1991, the Fed said yesterday. Financial firms have recorded writedowns and losses of more than $680 billion.

The office market will likely get worse in 2009 and may not improve for at least another year, said Andrew Simon, executive managing director for the New York City office of NAI Global, a worldwide network of 325 independent commercial property brokerages. The bankruptcy of Lehman Brothers Holdings Inc., the takeover of Merrill Lynch & Co. and the city comptroller's forecast that New York may lose as many as 165,000 jobs are also weighing on the market.

No Rosy Outlook

“I don't think the first half of 2009 is going to be very rosy,'' said Simon. “I believe you're talking about a year from now before you see more movement toward normalcy.''

Buyers and sellers are looking for a bottom, he said.

“People are going to be waiting on the sidelines until a floor is established,'' said Simon. “People aren't going to sell unless they have to sell. Unless that floor is established you will not see significant sales.''

With no letup in sight for the property industry, investors have dumped real estate investment trusts focusing on offices.

The 14-member Bloomberg Office REIT Index lost 43 percent in the 12 months through October, led by Maguire Properties Inc. and SL Green Realty Corp., which together control almost 50 million square feet of office space in the Los Angeles and New York metropolitan areas.

Sales Fall

SL Green, the biggest owner of Manhattan office buildings, has dropped 65 percent in the 12 months through October. Maguire, the largest owner of downtown Los Angeles office towers, has plunged 87 percent and is the worst performer in the index.

Global commercial sales fell 57 percent this year through August, Real Capital said in an Oct. 9 report. In the third- quarter, they fell 64 percent from the same period a year ago, according to preliminary data from the company.

In the U.S., sales have declined 72 percent this year through October, the biggest drop since the firm's recordkeeping began in 2001, Real Capital said. Starting in 2004, property investors, fueled by cheap and abundant debt, began an unprecedented run to $514 billion of U.S. deals in 2007, said Dan Fasulo, Real Capital's director of market analysis.

“I think it will be a while before we get to that figure again,'' Fasulo said. “We're going to do less than half of that in 2008.''

`Disastrous' September

September was “disastrous'' for the financial and commercial property markets, Real Capital said bad credit cash loans. Office sales totaled $13.4 billion in the third quarter in the U.S., the lowest since the first quarter of 2004. Sales for all of 2008 aren't likely to exceed the volume of the first quarter of 2007.

“Until we have some kind of watershed transaction that gives people a sense of what the market is, you're not going to see a lot of transactions,'' Lynne Sagalyn, director of the Paul MilsteinCenter for Real Estate at Columbia University, said in an interview.

Sales involving New York real estate investor Harry Macklowe, perhaps commercial real estate's most prominent casualty of the credit crisis, accounted for more than two- fifths of New York's year-to-date dollar figure through October.

Macklowe paid $6 billion last year for seven Midtown skyscrapers, primarily using short term debt. His lender, Deutsche Bank AG, took control of the towers in February and sold five of them for $2.83 billion. Macklowe also sold the General Motors Building and three other buildings for $3.97 billion to Mortimer Zuckerman's Boston Properties Inc.

Mortgage Originations Sink

Second-quarter commercial and multifamily mortgage originations tumbled 63 percent in the second quarter from the same period a year earlier, according to the Mortgage Bankers Association in Washington.

Office property loans fell 65 percent, retail property loans fell 63 percent and industrial property loans slid 57 percent, the MBA said. Loans slated for the commercial mortgage- backed securities market declined 98 percent in the second quarter from a year earlier, the group said.

Financing of deals by so-called portfolio lenders, companies like commercial banks and life insurers that originate loans and keep them on their books, was also down. Loans by banks fell 29 percent and 27 percent for insurers, the MBA said.

The few deals being made usually require sellers to either provide financing or allow buyers to take over their existing loans, said Howard Michaels, chairman of the New York-based Carlton Group LLC, a real estate investment banking firm, which arranged the recapitalization of the GM Building for Macklowe in 2004, and Chicago's Sears Tower in 2007.

Wachovia Sale

At 1372 Broadway, a 20-story pre-World War I office building in New York's Garment District, buyer Lloyd Goldman received financing for 86 percent of the tower's cost from the seller, Wachovia Corp., the lender being acquired by Wells Fargo & Co.

Wachovia and partner SL Green sold the building for $274 million, $61 million less than what they paid a year before, according to city records. The price dropped $20 million from the signing of the contract in July and last month's closing, said people familiar with the transaction.

A standoff between sellers and buyers over price appears to be stalling the market, said Michaels.

“Most people are waiting to see how 2009 shakes out. Until then, nobody's putting any buildings on the market unless they have to.'' he said. “I don't think that anybody would voluntarily sell into this market right now.''

Two properties remain on the market five months after they went up for sale. They are Worldwide Plaza on Eighth Avenue, a 1.7 million square-foot tower, and 1540 Broadway in Times Square, the former Bertelsmann Building.

The seller of both buildings: Harry Macklowe's lender, Deutsche Bank.

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