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October 30, 2009

Universal Health quarterly net up, beats Street

Filed under: legal — Tags: , , — Snowman @ 3:00 pm

Hospital operator Universal Health Services Inc reported higher quarterly net earnings on Thursday as revenue rose slightly, operating margins improved while costs were cut.

Third-quarter net earnings were $51.07 million, or $1.03 per diluted share, in the third quarter, compared with $36.99 million, or 73 cents per diluted share, in the year-ago period.

Analysts had expected earnings of 88 cent per share, on average, according to Thomson Reuters I/B/E/S.

Revenue rose to $1.295 billion in the quarter from $1.244 billion a year ago.

The provision doubtful accounts, or bad debt, rose to $141.09 million in the quarter from $125 million in the year ago period.

In a telephone interview, Chief Financial Officer Steve Filton said he expects bad debt to continue to rise cheap payday advance.

“It’s difficult to predict, but my best guess is that, as long as there’s unemployment, we’ll see a gradual increase,” Filton said.

But even in Las Vegas, Universal Health’s biggest market, where economic weakness is pronounced, the company performed well, as it held the line on spending, he said.

Filton said he has noticed that capital spending among hospitals has started to thaw a bit, although he said he expects hospital CFOs to remain somewhat cautious.

(Reporting by Debra Sherman; editing by Andre Grenon)

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October 29, 2009

GMAC sells government-backed debt ahead of capital test

Filed under: money — Tags: , , — Snowman @ 8:03 am

GMAC Inc on Wednesday launched a new government-backed bond sale ahead of a regulatory deadline next month that will test the company’s capital levels and ability to absorb losses.

GMAC came to market with a $2.9 billion three-year government-guaranteed note issue expected to price as soon as Wednesday, according to IFR, a Thomson Reuters service.

The bond sale comes amid conversations the Detroit-based firm, the traditional lender to General Motors Co, is having with the U.S. Treasury about a possible third cash infusion to its GMAC Financial Services Inc unit.

GMAC, which is also taking over the auto loan business of Chrysler, converted to a bank holding company in December to become eligible for bailout money the U.S. Treasury was pumping into banks.

Bank holding companies, including GMAC, that regulators have viewed as being undercapitalized face a November 9 deadline for implementing plans to enhance their capital positions.

Concerns that GMAC could fail the impending test had sent the cost of insuring debt at its residential mortgage arm, Residential Capital, spiraling in the past week as investors worried that the unit would need to be spun off.

Credit default swaps insuring ResCap’s debt plunged 10 percentage points on Wednesday, to around 29 percent of the sum insured as an upfront cost, as these concerns ebbed.

That means it would cost $2.9 million to insure $10 million in debt for five years, plus annual payments of $500,000 payday advance lenders.

Concerns that GMAC will fail the November tests are likely overdone, said Ricardo Kleinbaum, trading sector specialist at BNP Paribas in New York.

“We would expect Rescap to be protected in any further capital injection given the importance of its mortgage servicing unit, though origination volumes are dropping,” he said.

GMAC is also scheduled to report its third-quarter earnings on November 4.

The cost of insuring GMAC’s debt with credit default swaps fell on Wednesday to around 630 basis points, or $630,000 million per year to insure $10 million for five years, from around 690 basis points on Tuesday, according to Markit Intraday.

GMAC’s new bonds are expected to yield 10 basis points less than midswaps, which are the mid-point between bids and offers on interest rate swaps.

The debt will be backed by the Federal Deposit Insurance Corp under its Temporary Liquidity Guarantee Program, set up to relieve a financing squeeze for U.S. banks during the credit crisis. The program is set to expire on October 31, though a limited six-month safety net may be extended if needed.

Thanks to the government guarantee, the notes will be rated AAA by all three major rating agencies. 

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October 28, 2009

British economy shrinks unexpectedly

Filed under: management — Tags: , , — Snowman @ 12:06 am

Britain’s gross domestic product suffered another decline in the third quarter of 2009, figures showed Friday, meaning the country remains mired in recession.

GDP decreased 0.4% in the third quarter, according to preliminary estimates from Britain’s Office of National Statistics.

Some analysts had expected Friday’s GDP figures to show the recession in Britain was over.

The British economy officially entered recession in January after two consecutive quarters of negative GDP growth, which is the traditional definition of a recession.

For the third quarter of 2009, statistics showed the biggest declines occurred in the hotel and restaurant industry, which fell by 1%; construction, which decreased by 1.1%; and agriculture, forestry and fishing, which declined by 1.6%.

There was zero growth in government and other services — a marginal increase from the previous quarter — with the health industry making the largest contribution to that figure, statistics showed. 

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October 26, 2009

Saudi SABB bank books $94 mln for Q3 loan losses

Filed under: economics — Tags: , , — Snowman @ 3:18 pm

SABB bank 1060.SE, HSBC’s Saudi affiliate, booked 351.5 million riyal ($93.7 million) in provisions for loan losses during the third quarter, bourse data showed on Saturday.

SABB reported a worse-than-expected 19.8 percent drop in third-quarter net profit, hit by an increase in provisions for bad loans.

The data also showed that Aljazira Bank 1020.SE made provisions for loan losses of 115.7 million riyals during the third quarter, the lender’s highest in at least one year, while Saudi Investment Bank (SAIB) 1030.SE booked 60 million riyals for the same purpose, its the highest this year.

Aljazira reported a 14 percent increase in third-quarter net profit [ID:nLE169399] while SAIB tripled its net profit during the same period.

The provisions have been widely expected amid concerns over the solvency levels of heavily indebted Saudi conglomerates Saad Group SAADG.UL and Ahmad Hamad Algosaibi & Bros (AHAB).

Unlike their peers in the Gulf Arab region, Saudi banks have not disclosed the level of their exposure to these two firms and this keeps analysts wondering whether any newly booked sums would be high enough to fully cushion them against anticipated losses.

A Saudi government panel has brokered a deal between Saad Group and Saudi lenders but neither party disclosed the details of the agreement.

Saudi central bank governor Muhammad al-Jasser said last week that Saudi banks would make sure they have enough provisions for doubtful debts. Jasser has once in the past encouraged Saudi banks to keep the level of their exposure to the two groups secret.

Saad and AHAB are at the center of an estimated $22 billion debt implosion. The two firms are battling in court over alleged financial irregularities in the wake of a debt restructuring.

Standard & Poor’s has said it found banks in Saudi Arabia and the United Arab Emirates accounted for almost two-thirds of the total net exposure to the conglomerates of the 30 commercial banks it rates in the Gulf.

(Reporting by Souhail Karam; Editing by Sugita Katyal)

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October 24, 2009

Spanish Unemployment Rate Remains EU’s Highest in Third Quarter

Filed under: legal — Tags: , , — Snowman @ 1:45 am

Spain’s unemployment rate, the highest in Europe, held at 17.9 percent in the third quarter as state stimulus projects put people to work, even as the government warned the figure would rise again by year-end.

The number of unemployed fell by 14,100 from the previous three months to 4.12 million people, the Madrid-based National Statistics Institute said today in an e-mailed statement. From a year earlier, 1.52 million people joined the unemployment lines. The rate was expected to rise to 18.7 percent, according to a Bloomberg News survey of eight economists.

Spain’s government has implemented one of the largest stimulus plans in Europe, putting more than 400,000 people to work widening sidewalks and building cycle tracks in cities. The International Monetary Fund forecasts unemployment will exceed 20 percent next year, and joblessness among young people is almost twice that level, sapping support for Prime Minister Jose Luis Rodriguez Zapatero.

Spain’s opposition People’s Party extended its lead over the ruling Socialists to five percentage points, the most since Zapatero was first elected in 2004, according to an Oct. 12 poll in newspaper Publico. Zapatero’s Socialists would win 38 percent of the vote compared with 43 percent for the PP if elections were held now, said the poll prepared by Publiscopio. Unemployment is Spaniards’ main concern, according to the state- run Center for Sociological Research.

Construction Boom

Finance Minister Elena Salgado said yesterday that the fourth quarter could bring worse jobless data as the third quarter was traditionally more favorable for employment.

Once the motor of job-creation in the euro region, Spain is now suffering from the end of a decade-long construction boom that has left a glut of 1 million new, unsold homes and produced the deepest recession in more than half a century. The IMF expects the Spanish economy to contract 0.7 percent in 2010, while the euro area, U.S., and U.K. post full-year growth.

Rising joblessness is swelling the budget deficit as the government has extended jobless benefits for the long-term unemployed and is implementing stimulus measures worth 2.3 percent of gross domestic product. The shortfall will swell to 9.5 percent of GDP this year, one of the largest in the euro region, before narrowing to 8.1 percent in 2010.

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October 21, 2009

How Uncle Sam is killing your savings

Filed under: term — Tags: , — Snowman @ 2:18 pm

This is a quiz. What do the record-high Wall Street bonuses have in common with the record-low yields for savers?

Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being screwed by the government’s bailout of the imprudent.

Here’s the deal. The government is spending trillions to keep interest rates down in order to support the economy and prop up housing prices, and those low rates have inflicted collateral damage on savers’ incomes.

"It’s a direct wealth transfer from savers and retirees to overly indebted borrowers," says Greg McBride, senior financial analyst at Bankrate.com.

Since October 2007, when government intervention in the financial system began picking up speed, yields on the ultrasafe one-year and five-year investments that many retirees favor have tanked.

Two years ago the average yield on a five-year federally insured bank CD was 3.9%, according to Bankrate.com. Now it’s 2.2%, a drop of more than 40%.

Yields on one-year CDs have almost vanished: 0.92%, compared with 3.6%. On five-year Treasury securities, yield is down to 2.3% from 4.4%. On one-year maturities, you get a minuscule 0.3%, down from more than 4% in 2007.

The rates on AAA-rated one- and five-year tax-exempt bonds, another safe saver haven, are down sharply, too, for bailout-related reasons that we’ll get to in a bit.

As for money market mutual funds, fuggeddaboutit — the average is about 0.06% (no, that’s not a misprint) according to Crane Data, down from 4.6% two years ago.

It’s become customary practice — a wise one — that when the U.S. economy falters, the Fed cuts very short-term rates, the only ones that it controls, to stimulate business. But this time the Fed hasn’t confined its rate-suppression activities to the short-term markets.

It’s been a huge buyer of Treasury securities with maturities of up to 10 years, as well as mortgage-backed securities and Lord only knows what else. This buying pressure forces up the securities’ prices, and thus reduces their yields no fax needed payday loans.

The Fed, which declined to talk to me, is the major buyer of mortgage paper, in what’s clearly an attempt to hold down mortgage rates and prop up house prices. The Fed has also been a huge buyer of Treasury bills — securities with a maturity of less than a year — that Uncle Sam has issued to help fund the federal deficit and pay for various bailout programs.

But wait, there’s more. As part of the economic stimulus package, the federal government is promoting Build America Bonds, under which the Treasury pays 35% of the interest costs of project-related bonds issued by state and local governments. These BABs, as they’re known, are taxable securities rather than being tax-exempt as normal state and local bonds are.

The BAB program has sharply reduced the supply of new tax-exempt muni bonds. Almost $40 billion of Build America Bonds have been issued since the program began in April, according to Bloomberg.

Chip Norton, a muni maven at Wasmer Schroeder & Co., says that by reducing the supply of new munis, Build Americas have been a major factor in driving down yields on one- and five-year triple-A munis to 0.5% and 2.3%, respectively, from 3.4% and 3.6% two years ago.

One day, the federal government won’t be able to keep all these interest rates artificially low, as it’s now doing. The Chinese government, our major financier, is growing restless. The dollar’s falling sharply relative to other currencies is an ominous sign. If this problem accelerates, it will put pressure on the Fed to let interest rates rise to protect the dollar from a collapse.

But until rates go up, Wall Street will be chowing down on essentially free money, while fixed-income people living off their investments will have to eat into their capital, take more risk, or reduce their standard of living. A nice reward from their government for a lifetime of saving. Thanks for nothing, guys. 

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Adecco boosts professional staffing in $1.3 billion buy

Filed under: marketing — Tags: , — Snowman @ 12:54 am

Adecco, the world’s largest staffing company, has bought American rival MPS Group for $1.3 billion, boosting its position in the high-margin professional staffing business.

To shore up its balance sheet and protect its investment grade credit rating in the wake of the cash deal, Adecco also said on Tuesday it was launching 900 million Swiss francs ($888 million) of mandatory convertible bonds.

“We are delighted to have MPS Group become part of the Adecco Group, in a move that will see Adecco taking the world-wide lead in professional staffing,” Chief Executive Officer Patrick De Maeseneire said in a statement.

Adecco also sounded a more upbeat tone on its trading environment, saying market conditions had improved during the third quarter and had developed in line with its expectations. The group will post quarterly figures on November 5.

One Zurich-based trader welcomed the move to increase its share of the more lucrative professional market, but said: “The financing through the convertible bond will put shares under some pressure today, since dilution is around 8.7 percent and we will see some hedge funds switching from the shares to the bond.”

“The price seems to me at the upper end, with P/EBITDA of 9.9 times,” he added.

Adecco shares were indicated to open 1.6 percent lower.

UNANIMOUS BACKING

MPS Group’s board of directors has unanimously backed Adecco’s offer of $13.80 per share, which represents a premium of 24 percent over the Florida-based company’s previous last closing price.

This deal, as well as the recent acquisition of Britain’s Spring Group, means close to 25 percent of Adecco’s group revenues will be generated in the more lucrative professional staffing arena, up from 17 percent in 2008, Adecco said.

The move marks a significant coup for De Maeseneire who took over the helm in June from Dieter Scheiff. Adecco failed last year in its bid to buy professional staffing group Michael Page, which many believed was the reason behind Scheiff’s departure.

Adecco has repeatedly said it was on the prowl for acquisitions and that it wanted to strengthen its professional staffing business.

MPS Group, which had revenues of 1.5 billion euros ($2.24 billion) in 2008, will also boost Adecco’s UK and Canada business, and the deal will be earnings accretive on an adjusted earnings per share basis in the first year, Adecco said.

The transaction is expected to close in the first quarter of 2010.

($1=1.013 Swiss Franc) 

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October 19, 2009

World’s Hungry Pass 1 Billion as Wealth Increases: Chart of Day

Filed under: economics — Tags: , , — Snowman @ 12:09 pm

The world’s undernourished and hungry will exceed 1 billion this year as governments failed to channel a decade of rising wealth into improving agriculture.

The CHART OF THE DAY coincides with World Food Day and shows how hunger began increasing in the mid-1990s following a 20-year decline. The green line shows that global per-capita gross domestic product rose almost 84 percent through the end of last year and is likely to be 76 percent higher at the end of 2009 even after the global recession, according to World Bank and United Nations data.

Government development aid for agriculture has fallen 37 percent on an inflation-adjusted basis since 1988, contributing to the rise in hunger even as population growth eased, the Food and Agriculture Organization said in the 2009 edition of the State of Food Insecurity in the World released Oct. 14.

“Investment in more long-term agriculture is needed,” said David Dawe, a senior economist at the Rome-based FAO. “It’s going to take a long-term sustainable commitment and it’s going to require that those funds be spent effectively.”

World hunger declined in the late 1970s and through the 1980s after a global food crisis triggered a surge in government agricultural aid and investment that boosted crop yields and improved transport and irrigation, the FAO report said.

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October 12, 2009

New Zealand House Prices Rose for a Fifth Month, Led by Cities

Filed under: online — Tags: , , — Snowman @ 8:17 pm

New Zealand house prices rose for a fifth month in September, led by the nation’s largest cities, adding to signs a property recovery is helping the economy emerge from a recession.

Prices increased 0.6 percent from August and have gained 2.7 percent from a low in April, Quotable Value New Zealand Ltd., the government valuation agency, said in an e-mailed report. From a year ago, prices fell 1.1 percent, the smallest annual decline since June 2008.

Record-low interest rates together with increased housing demand and immigration are helping New Zealand recover from its worst recession in three decades. Gross domestic product increased 0.1 percent in the three months to June, the first expansion in six quarters.

“There are signs of more activity in the market,” Glenda Whitehead, valuation manager at Wellington-based Quotable Value, said in the report. “There is strong competition among keen buyers in some localities.”

In the nation’s 16 largest cities, prices rose 0.4 percent from a year earlier, Quotable Value said.

In Auckland, home to about a quarter of New Zealand’s 4.3 million residents, prices climbed 0.6 percent and in the capital city Wellington they increased 1 no faxing payday loan.1 percent.

Reserve Bank Governor Alan Bollard last month kept the benchmark interest rate at a record-low 2.5 percent and said he doesn’t plan to raise borrowing costs until late 2010. Also buoying housing demand, net immigration rose to a four-year high as more residents opted to stay at home rather than seek jobs overseas.

Consumer Confidence

House prices slumped last year amid a credit crisis and a plunge in consumer confidence. Prices in April were 9.2 percent lower than a year earlier. Confidence recovered to a four-year high in the third quarter, according to a report from Westpac Banking Corp. published on Sept. 24.

A shortage of houses being offered for sale has helped fan prices, said Whitehead.

“There is still a feeling that activity levels are below normal, with somewhat fewer listing to date than was expected,” she said.

Quotable Value said a survey of households showed a majority of consumers now expect house prices to rise over the next year, and more people are considering selling their homes within the next six months.

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October 10, 2009

A test case for Wall Street justice

Filed under: legal — Tags: , — Snowman @ 1:59 am

Despite all the finger-pointing over who’s to blame for the worst financial crisis since the Great Depression, just two prominent players face criminal charges.

But even though the case against them is compelling, and the government wants to make an example of them, legal experts say it will be hard to nail down anyone else.

Ralph Cioffi and Matthew Tannin, both former hedge fund managers at Bear Stearns, are accused of painting a rosy picture of their portfolios, even though "the defendants believed that the funds were in grave condition and at risk of collapse," according to the prosecution.

Prosecutors blamed Cioffi and Tannin for causing Bear Stearns investors to lose more than $1 billion, alleging that their fraudulent behavior led to the collapse of their hedge funds and, subsequently, Bear Stearns. They have both pleaded not guilty and are out on bail: $4 million for Cioffi and $1.5 million for Tannin.

The trial is scheduled to begin Oct. 13 in U.S. District Court in Brooklyn, New York. Cioffi and Tannin could each face 20 years if convicted of securities fraud.

Cioffi could face an additional 20 years on charges of insider trading for moving $2 million of his own money out of a poorly-performing Bear Stearns fund and into a separate fund "for which he had supervisory responsibilities," according to prosecutors.

A spokesman for Tannin’s legal defense declined to comment. Lawyers for Cioffi did not return messages.

Making an example

"I don’t know whether it’s a test case, but [it] certainly will test the government theory of going after Wall Street defendants who, according to the government, were less than forthright about the future prospects of their fund," said Robert Mintz, a former federal prosecutor who leads white collar defense at the law firm McCarter & English.

Ken Springer, a former FBI agent, certified fraud examiner and president of the consultant firm Corporate Resolutions, was more succinct: "I think this a line in the sand that the government is drawing and I think they’re going to make an example."

Springer described this as a "pivotal case for the government to show that this kind of behavior is not acceptable" and he said the prosecution’s evidence is "compelling."

The two defendants presented their hedge funds, which totaled some $1.4 billion in 2006, as "low risk" investments in AAA-rated pieces of collateralized debt obligations, backed by pools of securities such as mortgages, according to government lawyers.

By the spring of 2007, they allege the two men were having private conversations about the declining prospects of their funds and the impending meltdown. Tannin told Cioffi that the "subprime market looks pretty damn ugly" and he suggested that they "close the funds now," according to prosecutors.

"Notwithstanding their views to the contrary, the defendants led investors and creditors to believe that, despite the challenges presented in the market, the funds would continue to generate an increasing net asset value," wrote prosecutors, in a press release at the time of their June 19, 2008 indictment faxless pay day loans.

And on Sept. 22, prosecutors accused Cioffi, a New Jersey resident, of flying to Florida to try to retrieve documents from the Fort Myers-based Busey Bank, where he had attempted to obtain a $4.25 million line of credit. His lawyers deny that he was trying to snag the documents ahead of a federal subpoena, as the prosecutors allege.

Ken Rubinstein, an asset protection lawyer with the New York firm Rubinstein & Rubinstein, also believes that prosecutors have a strong case against Cioffi and Tannin, but that it’s a unique situation.

"These are the only two that have come out because these are the only two where the facts are clear enough in the government’s favor," he said.

Fraudulent - or just stupid?

Even though Cioffi and Tannin are the only fund managers charged with the fraudulent behavior that fueled the collapse, no one is alleging that they alone brought down Wall Street.

"I think it’s clear that there’s been a lot of fraud in the system," said Dick Bove, banking analyst for Rochdale Securities. "It’s a multi-layered system, and at every layer people chose not to do the proper due diligence, which is criminal. Everywhere along the line there were excesses, and perhaps the biggest excesses [were from] the government itself, because it had an obligation [to prevent fraud.]"

Despite the rampant wrongdoing by white collars leading up to the market meltdown of 2007, Bove said that pinpointing fraudulent acts and perpetrators is complex and difficult.

"There would have to be some intensive investigating to ferret out the people who were doing these things and I don’t know what the risk-reward will be," he said. "It’s going to take a lot of work to figure out who they are."

Even when investigators find a couple of suspects, like Cioffi and Tannin, it can be difficult to prove that they had any intention of deliberately misleading investors, or if they were simply making stupid mistakes.

In this way, hedge fund investors are just as responsible for their demise as the portfolio managers, said David Wyss, chief economist for Standard & Poor’s.

"Nobody held a gun to these people’s heads and told them to buy subprime mortgages," he said. "It’s a combination of stupidity and overconfidence, and unfortunately, both were national epidemics."

But even if most of the pre-crash behavior on Wall Street can be attributed to lack of due diligence rather than deliberate fraud, Bove said that’s hardly an excuse.

"Is it wrong? Goddamn right, it’s wrong," he said. "Is anyone going to do anything about it? I sincerely doubt it."

"I think, in the end, that the defense is going to argue that some of the greatest minds in the economy were unable to predict the recession, so how could these two be held accountable?" said Mintz, the lawyer at McCarter & English. 

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