April 29 (Bloomberg) -- Australian stocks fell for a second day after the nation’s fourth-biggest lender reported a slump in profits and commodity prices slipped. South Korean equities rose as the nation’s current-account surplus widened.
Australia & New Zealand Banking Group Ltd. sank 4.8 percent in Sydney after rising bad debts dragged first-half profit down by 28 percent. Rio Tinto Group, the world’s third-biggest mining company, declined 1.4 percent after metals traded in London fell for a second day. Hynix Semiconductor Inc., the world’s second- biggest computer-memory chipmaker, rose 1.5 percent in Seoul after the Maeil Business Newspaper said the company plans to sell equipment.
Australia’s benchmark S&P/ASX 200 Index dropped 0.2 percent to 3,702.60 at 11:16 a.m. Sydney time. South Korea’s Kospi index gained 1 percent to 1,313.50. The MSCI Asia Pacific excluding Japan Index rose 0.4 percent to 263.90, after a two-day, 4 percent decline. The Japanese market is shut for a holiday.
“People in the market are looking for a reason to buy cheap equities,” said Angus Gluskie, who manages about $256 million at White Funds Management Pty. in Sydney. “They are being too optimistic relative to the fundamentals that are out there.”
Futures on the U.S. Standard & Poor’s 500 Index gained 0.5 percent. The gauge lost 0.3 percent yesterday as concerns that banks need more capital and the swine-flu outbreak will thwart an economic recovery offset a bigger-than-expected jump in consumer confidence.
Overseas Shipments
ANZ Banking slumped 4.8 percent to A$15.84. Rio Tinto lost 1.5 percent to A$60.68 as a measure of metals traded in London fell 3 percent.
In Seoul, companies that rely on overseas sales advanced after the central bank said South Korea’s current-account surplus widened to a record $6.65 billion in March as imports fell and the pace of a decline in exports eased. Overseas shipments, which make up 60 percent of South Korea’s gross domestic product, rose 10.5 percent from February.
Samsung Electronics Co., the world’s second-largest maker of mobile phones, added 0.9 percent to 580,000. UBS AG increased its share-price target by 9.1 percent.
Hynix gained 1.4 percent to 14,200 won. The company plans to sell about 500 billion won ($368 million) of equipment, the Maeil reported, citing unidentified industry officials.
Tuesday, April 28, 2009
Monday, April 27, 2009
Deutsche Bank Chief’s Contract Extended After Navigating Crisis
April 28 (Bloomberg) -- Josef Ackermann, who helped Deutsche Bank AG navigate the financial crisis, will have his contract as chief executive officer extended by three years.
Ackermann, 61, acceding to a supervisory board request, will remain CEO until the annual general meeting in 2013, Frankfurt-based Deutsche Bank said in a statement late yesterday. He was scheduled to step down in May of next year.
The Swiss-born CEO, who has been at the helm since 2002, helped Deutsche Bank skirt the worst of the U.S. subprime mortgage market crash and resist taking government aid. The German bank returned to profit in the first quarter, analyst estimates show, bouncing back from the first annual loss in more than 50 years in 2008.
“This is about continuity,” said Manfred Jakob, a Frankfurt-based analyst at SEB AG. “Ackermann has best exemplified the company’s strategy of both pursuing investment banking and expanding retail banking. Overall, it’s not a bad move.”
Deutsche Bank, which reports first-quarter earnings today, may post net income of 773 million euros ($1.02 billion), compared with a loss of 131 million euros a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg.
Ackermann “steered the bank safely through the crisis,” said supervisory board Chairman Clemens Boersig in the statement. “Our performance in the first quarter 2009 is impressive evidence of this.”
‘Secures’ Leadership
Deutsche Bank rose 55 percent so far this year in Frankfurt trading. The stock is the third-biggest gainer in the Bloomberg index of 65 European banks, following a 69 percent slump last year. The company has a market value of 26.9 billion euros.
Ackermann said on Feb. 5 at the annual earnings press conference in Frankfurt that he was sticking to his plan to step down in May 2010, when asked by Bloomberg News whether he’d consider extending his contract.
Deutsche Bank appointed four executives to its management board in March, stoking speculation one of them would be selected to succeed Ackermann. Investment banking co-heads Anshu Jain and Michael Cohrs were named to the board, as was Rainer Neske, the head of private and business clients, and regional management chief Juergen Fitschen.
The decision to extend the contract “secures leadership continuity for the bank,” Boersig said in the statement.
Higher Profit
Since taking over, Ackermann boosted Deutsche Bank’s profit 16-fold by 2007 by cutting more than a quarter of the workforce, selling industrial stakes in companies such as Daimler AG and expanding the investment bank. Ackermann, who joined from Credit Suisse in 1996 and headed the investment bank before becoming CEO, expanded the securities unit and the bank’s international operations.
Nearly two-thirds of the 80,000 employees work outside Germany. The bank extended its geographical reach to markets including Qatar and Peru, and generated almost three-quarters of its revenue abroad by 2007 compared with about half in 2001.
Ackermann also helped turn Deutsche Bank into a sales-and- trading powerhouse. The German bank ranked No. 2 among underwriters of international debt issues last year, and was among the top 10 underwriters for equity and equity-linked securities, according to data compiled by Bloomberg. It ranked seventh in providing merger advice.
Ackermann has been investing in consumer banking to reduce reliance on investment banking, which generated about half of earnings in 2007. Deutsche Bank earlier this year acquired a stake in retail lender Deutsche Postbank AG and has an option to gain control in the future.
Ackermann, 61, acceding to a supervisory board request, will remain CEO until the annual general meeting in 2013, Frankfurt-based Deutsche Bank said in a statement late yesterday. He was scheduled to step down in May of next year.
The Swiss-born CEO, who has been at the helm since 2002, helped Deutsche Bank skirt the worst of the U.S. subprime mortgage market crash and resist taking government aid. The German bank returned to profit in the first quarter, analyst estimates show, bouncing back from the first annual loss in more than 50 years in 2008.
“This is about continuity,” said Manfred Jakob, a Frankfurt-based analyst at SEB AG. “Ackermann has best exemplified the company’s strategy of both pursuing investment banking and expanding retail banking. Overall, it’s not a bad move.”
Deutsche Bank, which reports first-quarter earnings today, may post net income of 773 million euros ($1.02 billion), compared with a loss of 131 million euros a year earlier, according to the median estimate of 13 analysts surveyed by Bloomberg.
Ackermann “steered the bank safely through the crisis,” said supervisory board Chairman Clemens Boersig in the statement. “Our performance in the first quarter 2009 is impressive evidence of this.”
‘Secures’ Leadership
Deutsche Bank rose 55 percent so far this year in Frankfurt trading. The stock is the third-biggest gainer in the Bloomberg index of 65 European banks, following a 69 percent slump last year. The company has a market value of 26.9 billion euros.
Ackermann said on Feb. 5 at the annual earnings press conference in Frankfurt that he was sticking to his plan to step down in May 2010, when asked by Bloomberg News whether he’d consider extending his contract.
Deutsche Bank appointed four executives to its management board in March, stoking speculation one of them would be selected to succeed Ackermann. Investment banking co-heads Anshu Jain and Michael Cohrs were named to the board, as was Rainer Neske, the head of private and business clients, and regional management chief Juergen Fitschen.
The decision to extend the contract “secures leadership continuity for the bank,” Boersig said in the statement.
Higher Profit
Since taking over, Ackermann boosted Deutsche Bank’s profit 16-fold by 2007 by cutting more than a quarter of the workforce, selling industrial stakes in companies such as Daimler AG and expanding the investment bank. Ackermann, who joined from Credit Suisse in 1996 and headed the investment bank before becoming CEO, expanded the securities unit and the bank’s international operations.
Nearly two-thirds of the 80,000 employees work outside Germany. The bank extended its geographical reach to markets including Qatar and Peru, and generated almost three-quarters of its revenue abroad by 2007 compared with about half in 2001.
Ackermann also helped turn Deutsche Bank into a sales-and- trading powerhouse. The German bank ranked No. 2 among underwriters of international debt issues last year, and was among the top 10 underwriters for equity and equity-linked securities, according to data compiled by Bloomberg. It ranked seventh in providing merger advice.
Ackermann has been investing in consumer banking to reduce reliance on investment banking, which generated about half of earnings in 2007. Deutsche Bank earlier this year acquired a stake in retail lender Deutsche Postbank AG and has an option to gain control in the future.
National Australia Profit Falls on Rising Bad Debts
April 28 (Bloomberg) -- National Australia Bank Ltd., the country’s biggest by assets, said first-half profit fell 0.9 percent as bad debts rose in an economy headed for its first recession in 18 years.
Net income dropped to A$2.66 billion ($1.9 billion) in the six months ended March 31, from A$2.69 billion a year earlier, as the bad and doubtful debt charge for the half rose to A$1.8 billion, the Melbourne-based bank said in a statement today. Cash earnings, which excludes gains from currency and interest rate movements on the bank’s debt, declined 9.4 percent.
“The bad and doubtful debt charge is a little higher than some would have expected and may head higher,” said Peter Vann, who manages more than $600 million at Constellation Capital Management Ltd. in Sydney. “The outlook from here is really going to depend on the outlook for the economy.”
Cameron Clyne, who took over as CEO from John Stewart on Jan. 1, is also facing pressure in the U.K., where the company’s Clydesdale and Yorkshire banking units are confronting the prospect of the worst recession since the 1930s. National Australia is firing workers and cut its dividend payout by a quarter to 73 cents in the half to weather the downturn.
The bank’s shares, which have rallied 27 percent since March 9, dropped 4 percent to A$21.17 at 10:23 a.m. in Sydney.
Collective provisions increased by A$1.2 billion to A$3.6 billion, while specific provision increased by A$800 million to A$1.3 billion since March 2008. Total provisions as at March 31 stood at A$4.9 billion, reflecting “a downgrade in customer credit ratings across all businesses,” the bank said.
‘Tough’ Conditions
“The fall in cash earnings reflects the tough economic conditions that continued to deteriorate as the half year progressed,” Clyne said in the statement. “We continued to grow revenue while carefully managing costs, but this was offset by increased bad and doubtful debts and higher funding costs.”
In Australia, bank cash earnings rose 7.5 percent, while earnings at its MLC wealth management unit dropped 28 percent. In the U.K., where National Australia owns Clydesdale Bank Plc and Yorkshire Bank Plc, cash earnings tumbled 64 percent.
National Australia remains committed to Clydesdale Bank Plc and Yorkshire Bank Plc, it said in a briefing on March 12. With more than 190 retail branches for Yorkshire Bank and 150 for Clydesdale, the company derives the highest proportion of earnings abroad among Australia’s four biggest lenders.
The bank has already raised more than 86 percent of the funds it plans to source in bond markets for the year through Sept. 30, as it takes advantage of the government’s plan to guarantee wholesale debt sold by lenders in Australia. Its Teir- 1 ration, a key measure of financial health was at 8.31 percent as at March 31.
Improved Margins
Deposits increased 13 percent to A$340.7 billion, mainly due to growth in term deposits, the bank said.
National Australia’s banking cost-to-income ratio, a measure of profitability, improved by 360 basis points to 43.4 percent. Net interest margin, the difference between what the bank earns from loans and pays to depositors, rose 17 basis points to 2.53 percent in Australia, and dropped 52 basis points to 2.14 percent in the U.K.
The bank has shed 205 jobs in the past six months, giving it a work force of 39,783 full-time equivalent workers, it said.
Australia’s economy may already have followed the U.S., U.K., Japan and Europe into its first recession since 1991 after gross domestic product fell 0.5 percent in the fourth quarter.
Net income dropped to A$2.66 billion ($1.9 billion) in the six months ended March 31, from A$2.69 billion a year earlier, as the bad and doubtful debt charge for the half rose to A$1.8 billion, the Melbourne-based bank said in a statement today. Cash earnings, which excludes gains from currency and interest rate movements on the bank’s debt, declined 9.4 percent.
“The bad and doubtful debt charge is a little higher than some would have expected and may head higher,” said Peter Vann, who manages more than $600 million at Constellation Capital Management Ltd. in Sydney. “The outlook from here is really going to depend on the outlook for the economy.”
Cameron Clyne, who took over as CEO from John Stewart on Jan. 1, is also facing pressure in the U.K., where the company’s Clydesdale and Yorkshire banking units are confronting the prospect of the worst recession since the 1930s. National Australia is firing workers and cut its dividend payout by a quarter to 73 cents in the half to weather the downturn.
The bank’s shares, which have rallied 27 percent since March 9, dropped 4 percent to A$21.17 at 10:23 a.m. in Sydney.
Collective provisions increased by A$1.2 billion to A$3.6 billion, while specific provision increased by A$800 million to A$1.3 billion since March 2008. Total provisions as at March 31 stood at A$4.9 billion, reflecting “a downgrade in customer credit ratings across all businesses,” the bank said.
‘Tough’ Conditions
“The fall in cash earnings reflects the tough economic conditions that continued to deteriorate as the half year progressed,” Clyne said in the statement. “We continued to grow revenue while carefully managing costs, but this was offset by increased bad and doubtful debts and higher funding costs.”
In Australia, bank cash earnings rose 7.5 percent, while earnings at its MLC wealth management unit dropped 28 percent. In the U.K., where National Australia owns Clydesdale Bank Plc and Yorkshire Bank Plc, cash earnings tumbled 64 percent.
National Australia remains committed to Clydesdale Bank Plc and Yorkshire Bank Plc, it said in a briefing on March 12. With more than 190 retail branches for Yorkshire Bank and 150 for Clydesdale, the company derives the highest proportion of earnings abroad among Australia’s four biggest lenders.
The bank has already raised more than 86 percent of the funds it plans to source in bond markets for the year through Sept. 30, as it takes advantage of the government’s plan to guarantee wholesale debt sold by lenders in Australia. Its Teir- 1 ration, a key measure of financial health was at 8.31 percent as at March 31.
Improved Margins
Deposits increased 13 percent to A$340.7 billion, mainly due to growth in term deposits, the bank said.
National Australia’s banking cost-to-income ratio, a measure of profitability, improved by 360 basis points to 43.4 percent. Net interest margin, the difference between what the bank earns from loans and pays to depositors, rose 17 basis points to 2.53 percent in Australia, and dropped 52 basis points to 2.14 percent in the U.K.
The bank has shed 205 jobs in the past six months, giving it a work force of 39,783 full-time equivalent workers, it said.
Australia’s economy may already have followed the U.S., U.K., Japan and Europe into its first recession since 1991 after gross domestic product fell 0.5 percent in the fourth quarter.
Japan Retail Sales Drop for Seventh Month on Job Woes
April 28 (Bloomberg) -- Japan’s retail sales fell for a seventh month in March as worsening job prospects and declining wages prompted households to cut spending.
Sales slid 3.9 percent from a year earlier after decreasing 5.7 percent in February, the steepest pace since February 2002, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg predicted a 4.7 percent drop.
The world’s second-largest economy will shrink 3.3 percent this fiscal year, the sharpest contraction in the postwar period, the government forecast yesterday. Finance Minister Kaoru Yosano said the economy remains in a “crisis” as a slump in exports and factory output take a toll on employment.
“The labor market is deteriorating, profits have plunged; everything points to consumer retrenchment,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo.
The Nikkei 225 Stock Average opened lower, before gaining 0.6 percent at 9:57 a.m. in Tokyo. The yen traded at 96.55 per dollar from 96.38 before the report.
The Trade Ministry cut its assessment of retail sales, saying for the first time that they are “decreasing” compared with “on a decreasing trend” a month earlier.
Sales of clothing, general goods and automobiles led the declines, the ministry said. Fuel sales also slumped after gasoline prices dropped from a year ago.
Large Retailers
Receipts at large retailers including department stores and supermarkets tumbled 8.1 percent, matching the steepest decline in 11 years set in February.
Aeon Co., Japan’s largest supermarket chain, posted its first annual loss in seven years. Takashimaya Co., the country’s third-largest department store operator, said this month that it expects net income to decline 36 percent in the current fiscal year.
“Conditions will remain very severe for the next year at least,” Koji Suzuki, president of Takashimaya, said April 15.
Adachi at JPMorgan said retailers may get a boost this month as households start spending 2 trillion yen in handouts as part of a stimulus plan unveiled by Prime Minister Taro Aso last October.
“From April we expect an improvement because of the cash benefits, but we still don’t know how much it will help,” Adachi said. He said only about a quarter of the 12,000 yen most people are eligible for will be spent on items they wouldn’t otherwise buy.
Aso has pledged to spend 25 trillion yen in three stimulus packages since he took office in September to reduce the effect on households and businesses of a collapse in exports.
Jobless Rate
The jobless rate rose to a three-year high of 4.4 percent in February. Household spending fell for a 12th month and wages dropped 2.7 percent, matching the fastest pace in five years.
Toyota Motor Corp., the world’s largest automaker, last week said it will cut summer bonuses of managers in Japan by 60 percent in anticipation of its first loss in almost six decades.
From a month earlier, retail sales dropped 1.1 percent in March, the sixth straight decline, the Trade Ministry said.
“Households will remain cautious about spending as the job market worsens and incomes decline,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The outlook for consumer spending is grim.”
Sales slid 3.9 percent from a year earlier after decreasing 5.7 percent in February, the steepest pace since February 2002, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg predicted a 4.7 percent drop.
The world’s second-largest economy will shrink 3.3 percent this fiscal year, the sharpest contraction in the postwar period, the government forecast yesterday. Finance Minister Kaoru Yosano said the economy remains in a “crisis” as a slump in exports and factory output take a toll on employment.
“The labor market is deteriorating, profits have plunged; everything points to consumer retrenchment,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo.
The Nikkei 225 Stock Average opened lower, before gaining 0.6 percent at 9:57 a.m. in Tokyo. The yen traded at 96.55 per dollar from 96.38 before the report.
The Trade Ministry cut its assessment of retail sales, saying for the first time that they are “decreasing” compared with “on a decreasing trend” a month earlier.
Sales of clothing, general goods and automobiles led the declines, the ministry said. Fuel sales also slumped after gasoline prices dropped from a year ago.
Large Retailers
Receipts at large retailers including department stores and supermarkets tumbled 8.1 percent, matching the steepest decline in 11 years set in February.
Aeon Co., Japan’s largest supermarket chain, posted its first annual loss in seven years. Takashimaya Co., the country’s third-largest department store operator, said this month that it expects net income to decline 36 percent in the current fiscal year.
“Conditions will remain very severe for the next year at least,” Koji Suzuki, president of Takashimaya, said April 15.
Adachi at JPMorgan said retailers may get a boost this month as households start spending 2 trillion yen in handouts as part of a stimulus plan unveiled by Prime Minister Taro Aso last October.
“From April we expect an improvement because of the cash benefits, but we still don’t know how much it will help,” Adachi said. He said only about a quarter of the 12,000 yen most people are eligible for will be spent on items they wouldn’t otherwise buy.
Aso has pledged to spend 25 trillion yen in three stimulus packages since he took office in September to reduce the effect on households and businesses of a collapse in exports.
Jobless Rate
The jobless rate rose to a three-year high of 4.4 percent in February. Household spending fell for a 12th month and wages dropped 2.7 percent, matching the fastest pace in five years.
Toyota Motor Corp., the world’s largest automaker, last week said it will cut summer bonuses of managers in Japan by 60 percent in anticipation of its first loss in almost six decades.
From a month earlier, retail sales dropped 1.1 percent in March, the sixth straight decline, the Trade Ministry said.
“Households will remain cautious about spending as the job market worsens and incomes decline,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “The outlook for consumer spending is grim.”
LBO, Hedge Fund ‘Anchor’ Weighs Down AIG, Hartford
April 27 (Bloomberg) -- Insurers’ holdings in private equity and hedge funds shrank 10 percent last year as companies pared riskier investments amid a global decline in stocks and slowdown in leveraged buyouts.
The companies had $44.7 billion in the so-called alternative assets in 2008, down from $49.8 billion in 2007, according to the National Association of Insurance Commissioners, which collects data on firms’ U.S. holdings.
The decline is a reversal after the holdings almost doubled in the two years ended Dec. 31, 2007, as insurers reached for higher yields than possible on most bonds. The slide increased pressure on insurers including American International Group Inc. at the same time the industry posted record writedowns tied to housing. AIG lost $2.38 billion on alternatives in 2008, compared with a $3.72 billion gain in 2007.
“In the good years, it’s an amplifier of returns, it will help you exceed earning expectations,” said Josh Goldfarb, a financial advisory director specializing in insurers at PricewaterhouseCoopers LLP. “In the bad years, it’s an anchor around your legs, it can really drag a company down from a returns standpoint.”
Hedge funds, mostly private pools of capital whose mangers participate substantially in the profits from their speculation on whether the price of assets will rise or fall, lost 18.3 percent in 2008 as they misjudged the severity of the biggest financial crisis since the Great Depression. The loss was the worst since Chicago-based Hedge Fund Research Inc. began tracking data in 1990.
‘Harshest’ Losses
Investors in private-equity funds face writedowns of 10 percent to 20 percent, with the “harshest” losses coming from the biggest buyout firms, said Steve Kandarian, chief investment officer of MetLife Inc., the biggest U.S. life insurer, in a conference call in February.
Buyout funds that purchased businesses with the intention of reselling them or holding public offerings face a “lack of exit opportunities,” as the recession limits potential investors’ access to credit, Kandarian said. The combined value of mergers and acquisitions worldwide plunged 39 percent in 2008 from a year earlier.
Life insurers, which held $33.1 billion of the alternatives, three times more than property-casualty companies, accounted for most of the decline, according to NAIC data. AIG, based in New York, said its holdings shrank by 16 percent to $24.4 billion last year. That accounts for about 3.8 percent of the company’s total investments. The insurer was rescued by the U.S. last year after losses tied to subprime loans.
AIG, MetLife
AIG Chief Executive Officer Edward Liddy, appointed by the government last year, named a new investment head in January, and announced plans in October to sell AIG’s remaining stake in Blackstone Group LP, the world’s largest private-equity firm. AIG spent $150 million in 1998 for a 7 percent stake in Blackstone, which went public in 2007.
MetLife reported worsening results from the assets every quarter in 2008, culminating in a $540 million fourth-quarter miss of its expectations. In 2007, MetLife beat its target for alternative income every quarter, peaking in the final three months of the year with $270 million more than planned. The New York-based insurer had $6.04 billion of limited partnership interests as of Dec. 31, or about 2 percent of total investments.
The insurer’s stock is down about 16 percent this year through April 24 and plunged 43 percent in 2008 after gaining the prior five years.
‘Caught by Surprise’
Hartford Financial Services Group Inc. said that its holdings lost $445 million in 2008, compared with a $255 million gain the year earlier, as the size of the assets declined 11 percent to $2.3 billion. Hartford stock dropped 42 percent this year after plunging 81 percent in 2008. Hartford replaced its chief investment officer last year.
“Some insurers were caught by surprise as to how volatile” alternative investments where, said Paul Newsome, an analyst at Sandler O’Neill & Partners. “Now, they want to be as conservative as they possibly can.”
Mark Herr, an AIG spokesman, Shannon Lapierre of Hartford and Christopher Breslin of MetLife declined to comment.
Allstate Corp., the largest publicly traded U.S. home and auto insurer, said that its alternatives lost $36 million last year, compared with a $293 million gain the year earlier. The company had $2.79 billion in the assets as of Dec. 31.
Travelers, Chubb
Travelers Cos., the second-largest U.S. commercial insurer, will invest largely in bonds rather than spend like a “sailor on leave” to seek higher gains from private equity and hedge funds, Chief Executive Officer Jay Fishman said in September.
Travelers lost $137 million last year on a portfolio including private equity, hedge funds and real estate partnerships, compared with a $431 million gain in 2007.
“Our investment operations are in place to support our insurance operation, not the other way around,” Fishman said.
Chubb Corp., the insurer of corporate boards and high-end homes, said first-quarter results included a $248 million loss on alternative investments. The Warren, New Jersey-based company said last week that the second-quarter net realized loss from the holdings would probably be $50 million or less.
Hartford, MetLife, AIG, Travelers and Allstate are expected to announce first-quarter results this month or in May.
The companies had $44.7 billion in the so-called alternative assets in 2008, down from $49.8 billion in 2007, according to the National Association of Insurance Commissioners, which collects data on firms’ U.S. holdings.
The decline is a reversal after the holdings almost doubled in the two years ended Dec. 31, 2007, as insurers reached for higher yields than possible on most bonds. The slide increased pressure on insurers including American International Group Inc. at the same time the industry posted record writedowns tied to housing. AIG lost $2.38 billion on alternatives in 2008, compared with a $3.72 billion gain in 2007.
“In the good years, it’s an amplifier of returns, it will help you exceed earning expectations,” said Josh Goldfarb, a financial advisory director specializing in insurers at PricewaterhouseCoopers LLP. “In the bad years, it’s an anchor around your legs, it can really drag a company down from a returns standpoint.”
Hedge funds, mostly private pools of capital whose mangers participate substantially in the profits from their speculation on whether the price of assets will rise or fall, lost 18.3 percent in 2008 as they misjudged the severity of the biggest financial crisis since the Great Depression. The loss was the worst since Chicago-based Hedge Fund Research Inc. began tracking data in 1990.
‘Harshest’ Losses
Investors in private-equity funds face writedowns of 10 percent to 20 percent, with the “harshest” losses coming from the biggest buyout firms, said Steve Kandarian, chief investment officer of MetLife Inc., the biggest U.S. life insurer, in a conference call in February.
Buyout funds that purchased businesses with the intention of reselling them or holding public offerings face a “lack of exit opportunities,” as the recession limits potential investors’ access to credit, Kandarian said. The combined value of mergers and acquisitions worldwide plunged 39 percent in 2008 from a year earlier.
Life insurers, which held $33.1 billion of the alternatives, three times more than property-casualty companies, accounted for most of the decline, according to NAIC data. AIG, based in New York, said its holdings shrank by 16 percent to $24.4 billion last year. That accounts for about 3.8 percent of the company’s total investments. The insurer was rescued by the U.S. last year after losses tied to subprime loans.
AIG, MetLife
AIG Chief Executive Officer Edward Liddy, appointed by the government last year, named a new investment head in January, and announced plans in October to sell AIG’s remaining stake in Blackstone Group LP, the world’s largest private-equity firm. AIG spent $150 million in 1998 for a 7 percent stake in Blackstone, which went public in 2007.
MetLife reported worsening results from the assets every quarter in 2008, culminating in a $540 million fourth-quarter miss of its expectations. In 2007, MetLife beat its target for alternative income every quarter, peaking in the final three months of the year with $270 million more than planned. The New York-based insurer had $6.04 billion of limited partnership interests as of Dec. 31, or about 2 percent of total investments.
The insurer’s stock is down about 16 percent this year through April 24 and plunged 43 percent in 2008 after gaining the prior five years.
‘Caught by Surprise’
Hartford Financial Services Group Inc. said that its holdings lost $445 million in 2008, compared with a $255 million gain the year earlier, as the size of the assets declined 11 percent to $2.3 billion. Hartford stock dropped 42 percent this year after plunging 81 percent in 2008. Hartford replaced its chief investment officer last year.
“Some insurers were caught by surprise as to how volatile” alternative investments where, said Paul Newsome, an analyst at Sandler O’Neill & Partners. “Now, they want to be as conservative as they possibly can.”
Mark Herr, an AIG spokesman, Shannon Lapierre of Hartford and Christopher Breslin of MetLife declined to comment.
Allstate Corp., the largest publicly traded U.S. home and auto insurer, said that its alternatives lost $36 million last year, compared with a $293 million gain the year earlier. The company had $2.79 billion in the assets as of Dec. 31.
Travelers, Chubb
Travelers Cos., the second-largest U.S. commercial insurer, will invest largely in bonds rather than spend like a “sailor on leave” to seek higher gains from private equity and hedge funds, Chief Executive Officer Jay Fishman said in September.
Travelers lost $137 million last year on a portfolio including private equity, hedge funds and real estate partnerships, compared with a $431 million gain in 2007.
“Our investment operations are in place to support our insurance operation, not the other way around,” Fishman said.
Chubb Corp., the insurer of corporate boards and high-end homes, said first-quarter results included a $248 million loss on alternative investments. The Warren, New Jersey-based company said last week that the second-quarter net realized loss from the holdings would probably be $50 million or less.
Hartford, MetLife, AIG, Travelers and Allstate are expected to announce first-quarter results this month or in May.
Sell Indian Stocks Ahead of Poll Results, Credit Suisse Says
April 27 (Bloomberg) -- Investors should lower their holdings of Indian stocks on concern the nation’s ongoing elections may prove a “sharp disappointment,” Credit Suisse Group said.
Shares appear to have priced in a victory for a “market- friendly, stable government” without factoring the possibility of other outcomes, the brokerage said. Regional investors should instead buy other so-called high beta markets and local shareholders should reduce their holdings of more volatile stocks such as Bharat Heavy Electricals Ltd., they added.
The Bombay Stock Exchange Sensitive Index has gained 39 percent since sliding to 2009 low on March 9, making India one of the 10 best-performing stock markets among the 84 tracked by Bloomberg in that period. The MSCI Asia-Pacific Index rallied 26 percent since that date while the MSCI Emerging Markets Index climbed 32 percent.
“Election uncertainties are now badly mispriced,” Credit Suisse analysts Nilesh Jasani and Arya Sen wrote in a report today. “Chances of a market-friendly government have not improved in the last few weeks. As a result, the near surety of such an outcome in the stock market has opened the doors for a sharp disappointment.”
Indians began electing on April 16 a new government that will have to revive an economy growing at its slowest pace in six years. Votes will be counted on May 16, with opinion polls showing neither the Congress party-led United Progressive Alliance nor the main opposition, led by the Hindu-nationalist Bharatiya Janata Party, winning a clear majority.
Economy’s Prospects
Gains in Indian stocks over the past two months also suggest that investors are overly “positive” on the prospects for India’s economy, the Credit Suisse analysts said. The Reserve Bank of India said on April 21 the economy may expand 6 percent in the fiscal year that started April 1, the slowest pace since 2003.
Even if the election results disappoint investors, signs of improved funding may boost growth at Indian companies, helping extend gains in share prices, Credit Suisse said. Unitech Ltd., the nation’s No. 2 developer, was among companies that sold shares this year to raise funds.
“If the capital market-based funding continues to be strong and somehow $5 billion to $10 billion worth of funding gets done in the next three months, corporate India could be back on a strong growth path,” the analysts wrote.
Credit Suisse didn’t specify which “high beta” markets investors should buy at the expense of Indian equities.
Bharat Heavy, the nation’s biggest power equipment maker, has gained 21 percent this year, while Hindalco Industries Ltd., India’s largest aluminum producer, has climbed 11 percent. Credit Suisse lowered its rating on Bharat Heavy to “neutral” from “outperform” and downgraded Hindalco to “underperform” from “neutral” this month.
Shares appear to have priced in a victory for a “market- friendly, stable government” without factoring the possibility of other outcomes, the brokerage said. Regional investors should instead buy other so-called high beta markets and local shareholders should reduce their holdings of more volatile stocks such as Bharat Heavy Electricals Ltd., they added.
The Bombay Stock Exchange Sensitive Index has gained 39 percent since sliding to 2009 low on March 9, making India one of the 10 best-performing stock markets among the 84 tracked by Bloomberg in that period. The MSCI Asia-Pacific Index rallied 26 percent since that date while the MSCI Emerging Markets Index climbed 32 percent.
“Election uncertainties are now badly mispriced,” Credit Suisse analysts Nilesh Jasani and Arya Sen wrote in a report today. “Chances of a market-friendly government have not improved in the last few weeks. As a result, the near surety of such an outcome in the stock market has opened the doors for a sharp disappointment.”
Indians began electing on April 16 a new government that will have to revive an economy growing at its slowest pace in six years. Votes will be counted on May 16, with opinion polls showing neither the Congress party-led United Progressive Alliance nor the main opposition, led by the Hindu-nationalist Bharatiya Janata Party, winning a clear majority.
Economy’s Prospects
Gains in Indian stocks over the past two months also suggest that investors are overly “positive” on the prospects for India’s economy, the Credit Suisse analysts said. The Reserve Bank of India said on April 21 the economy may expand 6 percent in the fiscal year that started April 1, the slowest pace since 2003.
Even if the election results disappoint investors, signs of improved funding may boost growth at Indian companies, helping extend gains in share prices, Credit Suisse said. Unitech Ltd., the nation’s No. 2 developer, was among companies that sold shares this year to raise funds.
“If the capital market-based funding continues to be strong and somehow $5 billion to $10 billion worth of funding gets done in the next three months, corporate India could be back on a strong growth path,” the analysts wrote.
Credit Suisse didn’t specify which “high beta” markets investors should buy at the expense of Indian equities.
Bharat Heavy, the nation’s biggest power equipment maker, has gained 21 percent this year, while Hindalco Industries Ltd., India’s largest aluminum producer, has climbed 11 percent. Credit Suisse lowered its rating on Bharat Heavy to “neutral” from “outperform” and downgraded Hindalco to “underperform” from “neutral” this month.
India’s Sensitive Index Advances for a Third Day; ICICI Gains
April 27 (Bloomberg) -- India’s Sensitive index rose for a third day. ICICI Bank Ltd., the nation’s second-largest by assets, advanced after its rating was raised at Goldman, Sachs & Co. on improving earnings.
ICICI jumped to the highest in almost four months. Ranbaxy Laboratories Ltd., the nation’s largest drugmaker, dropped after it posted a loss for the third straight quarter as sales fell in the U.S. and it forecast a loss for the year.
The Bombay Stock Exchange’s Sensitive Index rose 0.4 percent to 11,371.85. The S&P CNX Nifty Index on the National Stock Exchange fell 0.3 percent to 3,470. The BSE 200 Index dropped less than 0.1 percent to 1,343.73. Nifty futures for April delivery declined 0.5 percent to 3,465.
ICICI surged 8.2 percent to 467.95 rupees, the highest since Jan. 7. Net income fell 35 percent to 7.44 billion rupees ($149 million) in the three months ended March 31, higher than the 7.3 billion rupee median estimate of analysts surveyed by Bloomberg News. The stock was raised to “buy” from “neutral” at Goldman Sachs, which said ICICI’s fundamentals were improving.
“The core earnings have improved even though treasury income was lower,” said Jayesh Shroff, who helps manage $5.5 billion in assets at SBI Asset Management Co. in Mumbai. “That’s encouraging.”
Swine Flu Drug
Cipla Ltd., India’s second-largest drugmaker by value, added 1.5 percent to 244 rupees. The stock rose after fourth- quarter profit climbed 41 percent to 2.53 billion rupees. The company also said it can supply 1.5 million doses of generic Tamiflu drugs to help fight an outbreak of swine flu within four to six weeks.
Jaiprakash Associates Ltd. gained 3.5 percent to 130.30 rupees. India’s biggest dam builder said profit in the quarter ended March 31 rose 83 percent to 3.85 billion rupees. That beat the 1.95 billion rupee median profit estimate in a Bloomberg News survey.
Ranbaxy fell 4.7 percent to 167.65 rupees. The net loss for the first quarter was 7.61 billion rupees compared with a profit of 1.37 billion rupees a year earlier. That’s wider than the 181 million rupee median estimate in a Bloomberg News survey after the company booked 9.19 billion rupees in losses on foreign- currency options.
The company expects to post a loss of about 8 billion rupees in 2009 on full-year sales of 70 billion rupees, according to an e-mailed statement. Ranbaxy shares were downgraded by Citigroup Inc. and Credit Suisse Group.
Overseas funds bought a net 3.12 billion rupees of Indian stocks on April 23, according to the nation’s market regulator.
The following shares were among the most active on the exchange:
Aban Offshore Ltd. (ABAN IN) dropped 8.9 percent to 442.60 rupees after it reported a loss of 930.4 million rupees in the fourth quarter, compared with a profit of 339.2 million a year earlier.
Ballarpur Industries Ltd. (BILT IN) fell 5.1 percent to 16.75 rupees. India’s biggest paper maker said profit in the three months ended March 31 dropped 76 percent to 178.9 million rupees. The company will buy back bonds worth $60 million.
Indiabulls Real Estate Ltd. (IBREL IN) declined 11 percent to 130.75 rupees. The company plans to raise as much as $600 million or its Indian rupee equivalent selling shares to institutions.
Raymond Ltd. (RW IN) fell 3.9 percent to 90.15 rupees. India’s biggest maker of woolen fabrics reported a loss of 2.39 billion rupees in the fourth quarter, compared with a profit of 269.7 million rupees a year ago.
Wockhardt Ltd. (WPL IN) slid 5.4 percent to 97.10 rupees. The drugmaker reported a loss of 202.4 million rupees in the fourth quarter ended March 31, compared with a profit of 509 million rupees a year ago.
ICICI jumped to the highest in almost four months. Ranbaxy Laboratories Ltd., the nation’s largest drugmaker, dropped after it posted a loss for the third straight quarter as sales fell in the U.S. and it forecast a loss for the year.
The Bombay Stock Exchange’s Sensitive Index rose 0.4 percent to 11,371.85. The S&P CNX Nifty Index on the National Stock Exchange fell 0.3 percent to 3,470. The BSE 200 Index dropped less than 0.1 percent to 1,343.73. Nifty futures for April delivery declined 0.5 percent to 3,465.
ICICI surged 8.2 percent to 467.95 rupees, the highest since Jan. 7. Net income fell 35 percent to 7.44 billion rupees ($149 million) in the three months ended March 31, higher than the 7.3 billion rupee median estimate of analysts surveyed by Bloomberg News. The stock was raised to “buy” from “neutral” at Goldman Sachs, which said ICICI’s fundamentals were improving.
“The core earnings have improved even though treasury income was lower,” said Jayesh Shroff, who helps manage $5.5 billion in assets at SBI Asset Management Co. in Mumbai. “That’s encouraging.”
Swine Flu Drug
Cipla Ltd., India’s second-largest drugmaker by value, added 1.5 percent to 244 rupees. The stock rose after fourth- quarter profit climbed 41 percent to 2.53 billion rupees. The company also said it can supply 1.5 million doses of generic Tamiflu drugs to help fight an outbreak of swine flu within four to six weeks.
Jaiprakash Associates Ltd. gained 3.5 percent to 130.30 rupees. India’s biggest dam builder said profit in the quarter ended March 31 rose 83 percent to 3.85 billion rupees. That beat the 1.95 billion rupee median profit estimate in a Bloomberg News survey.
Ranbaxy fell 4.7 percent to 167.65 rupees. The net loss for the first quarter was 7.61 billion rupees compared with a profit of 1.37 billion rupees a year earlier. That’s wider than the 181 million rupee median estimate in a Bloomberg News survey after the company booked 9.19 billion rupees in losses on foreign- currency options.
The company expects to post a loss of about 8 billion rupees in 2009 on full-year sales of 70 billion rupees, according to an e-mailed statement. Ranbaxy shares were downgraded by Citigroup Inc. and Credit Suisse Group.
Overseas funds bought a net 3.12 billion rupees of Indian stocks on April 23, according to the nation’s market regulator.
The following shares were among the most active on the exchange:
Aban Offshore Ltd. (ABAN IN) dropped 8.9 percent to 442.60 rupees after it reported a loss of 930.4 million rupees in the fourth quarter, compared with a profit of 339.2 million a year earlier.
Ballarpur Industries Ltd. (BILT IN) fell 5.1 percent to 16.75 rupees. India’s biggest paper maker said profit in the three months ended March 31 dropped 76 percent to 178.9 million rupees. The company will buy back bonds worth $60 million.
Indiabulls Real Estate Ltd. (IBREL IN) declined 11 percent to 130.75 rupees. The company plans to raise as much as $600 million or its Indian rupee equivalent selling shares to institutions.
Raymond Ltd. (RW IN) fell 3.9 percent to 90.15 rupees. India’s biggest maker of woolen fabrics reported a loss of 2.39 billion rupees in the fourth quarter, compared with a profit of 269.7 million rupees a year ago.
Wockhardt Ltd. (WPL IN) slid 5.4 percent to 97.10 rupees. The drugmaker reported a loss of 202.4 million rupees in the fourth quarter ended March 31, compared with a profit of 509 million rupees a year ago.
Subscribe to:
Posts (Atom)
Posts
