Actual finance blog

Insurance giant AIG has made progress on its restructuring and will likely be able to repay a taxpayer bailout and buy back much of the government’s stake in the company, Moody’s Investors Service said on Monday.

The Moody’s statement was a rare expression of optimism for American International Group Inc, which has received up to $180 billion of federal aid and is now 80 percent owned by U.S. taxpayers.

Moody’s said AIG’s restructuring plan still relies heavily on government support, but if its operations and global financial markets continue to stabilize, the company likely can generate enough value to repay the government.

The vote of confidence sent AIG’s hard-hit shares up 3.7 percent to $37.52. The cost of insuring $10 million of AIG debt for five year fell to around $732,000 annually, down $10,000 from Monday, according to Markit Intraday.

AIG posted its second straight quarterly profit last week, helped by a recovery in the value of its investments. But its underlying business remained weak. For details click on

The quarterly results “show continued stabilization of the core insurance operations despite challenging market conditions,” Moody’s said.

With the government likely to recoup its investment, it has incentive to continue supporting AIG and its various creditors, Moody’s said bad credit payday advance. The agency affirmed AIG’s long-term credit rating of A3, the seventh-highest investment grade, with a “negative” outlook.

Credit spreads on AIG’s 8.25 percent notes due in 2018 tightened by 0.15 percentage point on Tuesday, to 7.51 points over U.S. Treasuries, according to MarketAxess.

AIG’s $180 billion of federal aid includes more than $80 billion in loans. The company has sought to sell major business units to help repay the government, but has struggled to find buyers willing to pay enough.

Since the appointment of former MetLife Chief Executive Robert Benmosche as AIG CEO in August, the company has focused on rebuilding the value of some businesses previously slated for sale, Moody’s said.

“We believe that the slower approach to restructuring could help AIG to generate more favorable values from its business portfolio than would be the case under rushed asset sales,” it said.

(Reporting by Dena Aubin; Additional reporting by Joe Giannone and Karen Brettell; editing by Walker Simon and John Wallace)

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Ford Motor reported a surprise profit for the third quarter Monday, helped by a bump in sales from the Cash for Clunkers program, a reduced cost structure and problems at its U.S. rivals.

The company also announced plans late Monday to raise $3 billion in order to further boost its balance sheet.

The only major U.S. automaker not to file for bankruptcy this year earned $997 million, or 29 cents a share, compared to a loss of $161 million, or 7 cents a share on that basis a year earlier.

Excluding special items, Ford reported a profit of $873 million, or 26 cents a share, in the period. Analysts had been forecasting a loss of 12 cents a share for the quarter on this basis. Ford said it was the first pre-tax operating profit since the start of 2008.

In a separate announcement, Ford said it will issue $1 billion in common stock and $2 billion of debt that will be convertible to common shares. The company said it will start issuing them beginning next month. The automaker also said it hopes to extend the maturity of its revolving credit facility by two years to 2013.

"We expect the moves will enhance Ford’s automotive liquidity and over time reduce the company’s debt burden, providing an additional cushion given the still uncertain state of the economy," said Ford President and CEO Alan Mulally in a statement.

The company said cost cutting during the past year and an improved outlook for sales leads it to believe Ford will be "solidly profitable" in 2011, excluding special items.

That’s the most bullish outlook Ford has offered investors since it started losing money in 2005. The company had previously said it was looking for break-even or better results that year.

Turning the corner. The guidance raised hopes that the company may have turned the corner on nearly five years of losses for its key North American auto operations.

"Our third quarter results clearly show that Ford is making tremendous progress despite the prolonged slump in the global economy," said Mulally.

The company said it lowered its structural costs by $1 billion compared to a year earlier, with about half of that improvement coming in North America.

While Ford did not need federal assistance or a bankruptcy reorganization as rivals General Motors and Chrysler did, it was able to win concessions from its unions that resulted in a $300 million structural cost reduction. Ford also said it paid about $200 million less for materials and commodities in the quarter.

Ford still faces some potential problems in the near term. In a vote announced Monday afternoon, the United Auto Workers union rank and file rejected additional contract concessions sought by Ford management, including a freeze on entry level wages.

And Ford said it expects sharp declines in European sales in the next year partly because an even larger Cash for Clunkers there this year will steal demand from future months.

Still, Mulally told investors that the company remains hopeful it could be profitable in 2010, not just by 2011, and that the longer time frame in the new guidance is a way of being cautious.

"The reason we couched it that way is we’re just not sure about the strength of the recovery," Mulally said. Ford will detail further guidance on 2010 profits when it reports fourth-quarter results in January.

Digesting the details. Results in North America were helped by much stronger sales than a year earlier, particularly in the United States, where the company was one of the prime beneficiaries of the Cash for Clunkers program that gave buyers up to $4,500 if they traded in a gas guzzler for a more fuel efficient vehicle.

Even without the Cash for Clunkers program, which lifted the whole industry out of the doldrums, Ford made gains on many of its rivals during the quarter.

During the quarter, Ford’s U.S. market share rose by 2.2 percentage points to 14.6%. Ford benefited from steep market share declines at GM and Chrysler in the wake of their bankruptcies, but it also posted bigger market share gains than Japanese rivals such as Toyota Motor (TM) and Honda Motor (HMC).

Shares of Ford (F, Fortune 500) gained more than 8% Monday.

The company reported overall revenue of $30.9 billion in the quarter, down $800 million from the same period a year ago due to a decrease in revenue at its Ford Credit unit.

Ford said that global auto sales rose $100 million from the third quarter of 2008, to $27.9 billion. It sold 1.23 million vehicles worldwide, up 5% from a year earlier, and its average net pricing also improved along with its sales volume. Auto revenue in North America soared by $2.9 billion, or 27%, to $13.7 billion.

Ford also said it made money on its auto operations, and that it reported positive cash flow of $1.3 billion from its auto businesses. The company had been burning through significant amounts of cash every quarter since the second quarter of 2007 as it suffered from years of ongoing losses.

"While we still face a challenging road ahead, our [company] transformation plan is working and our underlying business continues to grow stronger," Mulally added.

Ford’s automotive unit earned $446 million in the quarter, compared to a loss of $2.9 billion in the year-earlier period, as the company’s core auto operations in North America returned to profitability for the first time since the first half of 2005. 

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Spain’s unemployment rate, the highest in Europe, held at 17.9 percent in the third quarter as state stimulus spending 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. From a year earlier, 1.52 million people joined the unemployment lines. The jobless rate was expected to rise to 18.7 percent, according to the median forecast in 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. Finance Minister Elena Salgado said yesterday that the fourth quarter could bring “more worrying” jobless data as the third quarter was traditionally more favorable for employment.

“We’ll reach the peak of unemployment in Spain in the second quarter of next year, and it will be very close to 18 percent,” said Jose Carlos Diez, chief economist at Intermoney Valores in Madrid, the only economist in the Bloomberg survey to forecast a third-quarter rate below 18 percent.

Immigrants Leaving

The active population, or the number of people employed or looking for work, fell by 89,000 people in the third quarter, or 0.4 percent, and most of the decline was among foreigners, suggesting some immigrants may have gone home.

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.

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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Wells Fargo & Co and U.S. Bancorp posted earnings that trounced Wall Street expectations, helped by outsized revenue from underwriting mortgages.

But it is not clear how long that bonanza will last.

U.S. mortgage applications have fallen 15 percent so far this month, according to an industry trade group. Declining application volume usually translates to lower underwriting activity.

At both Wells Fargo and U.S. Bancorp, third-quarter fees from mortgage underwriting were up dramatically from a year earlier but down from the second quarter.

“On the whole, mortgage operations probably won’t be as profitable going forward; so the question is, what gives them growth next,” said Blake Howells, head of stock research at Becker Capital Management, which owns U.S. Bancorp shares.

For U.S. Bancorp, revenue growth could come from processing transactions, Howells said. The Minneapolis-based bank generates substantial revenue every quarter from credit and debit card transactions and other payments.

For Wells Fargo, improving markets could trigger higher revenue for businesses ranging from wealth management to investment banking, said Alan Villalon, senior research analyst at First American Funds, which owns Wells Fargo shares.

The San Francisco-based bank picked up those businesses last year when it snatched Wachovia Corp away from Citigroup Inc no fax payday loan.

As Wells Fargo generates more profit, it should move closer to repaying the $25 billion it borrowed under the government’s Troubled Asset Relief Program, Villalon said.

Wells Fargo has expressed interest in repaying TARP soon. The bank said on Wednesday that it is earning 35 percent more money — before taxes and funds set aside for bad loans — than the government had forecast when it tested banks’ capital strength under adverse scenarios earlier this year.

But the bank said its overall nonperforming assets had risen by $5.1 billion from the second quarter, more than some analysts had hoped. The bank’s tier 1 capital ratio, a measure of its capital strength, is lower than those of Citigroup Inc and Bank of America Corp, two banks that have performed much worse than Wells Fargo during the credit crisis.

“Wells Fargo is improving, but it’s happening slowly,” Villalon said.

These credit difficulties helped push Wells Fargo’s shares down 1.4 percent in afternoon trading, to $30.03.

For U.S. Bancorp, nonperforming loans and assets were virtually unchanged from the second quarter. The company’s shares rose 6.0 percent to $25.23 in afternoon trading.

RISING RATES 

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Maybe, when all is said and done, Jamestown Mall won’t be a mall at all.

Maybe it’ll be a mix of things. Some offices. Some condos. Stores and restaurants. A YMCA. With a swath of green grass down its spine. A sort of town center for its corner of far north St. Louis County. With a different name. Maybe call it Lindbergh Place.

That’s the vision a team of national real estate experts sketched out Friday morning to a crowd of about 100 area residents and officials who packed a church meeting room down the street from the ailing Jamestown Mall.

They’d been brought in by St. Louis County officials, via the Urban Land Institute, and given a week to talk to people, study the area and come up with some new ideas for the half-empty shopping center.

What they came up with was a total redesign of the entire 142 acre site. Starting over from scratch.

"This mall as a regional mall cannot continue," said Arun Jain, an urban designer from Portland, Ore., who sat on the panel. "There are things you can do, short-term strategies to prolong the mall. But in the end, they’re short-term. The case for change and the time for change is now."

A key first step, the panel said, is for St. Louis County to take over the entire site, chunks of which today are owned by five companies, all from outside the area. It should buy them out, through eminent domain if necessary. And then …

"Take it down," said Ray Brown, a planner from Memphis who chaired the panel. "Bulldoze it and start over."

That may sound extreme, he said, but it’s the only way to create a fresh start, to build something new that is big enough and great enough and unique enough to draw people there, like people go to the Loop or the Central West End now. County officials should talk with the neighboring communities and figure out what people want to see, what they’d use, and what might draw shoppers from outside the immediate area to the new Lindbergh Place.

It is a chance for big vision, said Philip Hart of Hart Realty Advisers in Los Angeles cash advance no fax. It is not a time to be timid.

"We need to be brave," he said. "We need to be bold. We need to have a sense of urgency."

When the panel was done, there was applause. And almost immediately, the thorny questions began.

What would happen to existing businesses that are in the mall now? Why should residents trust the government when it has trouble with so many other problems in north county? Most of all, how will this get paid for?

Those are questions for the community to figure out, Brown said. After all, his group was flying home Friday afternoon. And County Executive Charlie Dooley said he planned to launch a series of discussions with residents, businesses and officials, to figure out where to go next, and what that might look like. The weeklong planning blitz — which cost the county $120,000 — was just a first step.

"Everything’s on the table," Dooley said. "Now we’ve got people thinking about what the possibilities are."

When the event was done, Barbara Brown and Carol Whittier stood in the hall outside, talking about what they’d like out of Jamestown. They both live in Spanish Lake and are tired of having to drive all the way to the Galleria to shop, or go a long way for a good restaurant.

"We don’t even have a Red Lobster around here," Whittier said.

What they’d love to see, Brown said, is something that brings people in, a place nice enough to draw visitors from Chesterfield or St. Charles, instead of the other way around.

"We want those tour buses coming here, as a destination," she said. "Coming to see … whatever."

What that’ll be, they’re not yet sure. But Friday’s meeting, Brown and Whittier said, was a good way to start thinking about it.

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Sara Lee Corp will sell its personal care brands like Sanex and Brylcreem for $1.87 billion (1.275 billion euros) to consumer goods giant Unilever and set a $1 billion share buyback plan, sending its stock up 6 percent.

Sara Lee also said on Friday it has seen significant interest in its household products business, which includes Ambi Pur air freshener and Kiwi shoe polish. The divestitures allow it to focus on its food and beverage businesses like Sara Lee baked goods and Hillshire Farm meats.

The deal also reinforces Anglo-Dutch Unilever’s global lead in deodorants and skin cleansing and marks the first major acquisition for new Chief Executive Paul Polman. The businesses it is acquiring from Sara Lee see 85 percent of their sales in Europe.

Sara Lee CEO Brenda Barnes said she expected the entire household and body care business to be reported as discontinued operations in the current fiscal first quarter, a sign the company expects to be able to sell the other businesses.

“As the process proceeded, it became clear that there were different people who had far more interest in different pieces of this,” Barnes told Reuters in an interview. She did not say which companies were interested in which businesses.

Credit Suisse analyst Charlie Mills said the price Unilever is paying of 10 times core operating profit, or EBITDA, is not huge by industry standards, which reflects the fairly disparate collection of brands.

“We’re not convinced that this is the greatest collection of assets but another acquisition shows Unilever still moving from the back foot (cost cutting and disposals) to the front foot (volume growth and acquisitions),” he said.

KEY EUROPEAN MARKETS

Unilever says the Sanex, Radox and Duschdas brands will complement its Dove, Axe and Rexona at slightly lower prices and strengthen its European business in key markets such as Britain, the Netherlands, Germany, France, Spain, Italy and Denmark.

Sara Lee said the brands sold accounted for 55 percent of the profits from its businesses up for sale.

BMO Capital Markets analyst Kenneth Zaslow said the deal is valued at about 1.7 times sales and 15 to 16 times earnings before interest and taxes, about in line with past household personal care deals.

The rest of the businesses Sara Lee is trying to sell are likely to receive lower valuations since the household business has a lower growth rate, but Sara Lee is still likely to receive total proceeds at the higher end of BMO’s $2 billion to $2.5 billion estimate, Zaslow said in a research note.

Sara Lee also reiterated it intended to maintain its current quarterly dividend of 11 cents for the next four quarters regardless of the timing of disposals.

Sara Lee’s board also approved a $1 billion share repurchase program. The plan is in addition to 13.5 million shares remaining to be bought back under a previous share repurchase program.

Unilever Plc shares were down slightly at 17.35 pounds in London, while Sara Lee shares were up 64 cents or 6.1 percent at $11.18 in early afternoon on Friday on the New York Stock Exchange. 

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As Beijing launched a case Monday against new U.S. tariffs on Chinese tires, President Barack Obama defended the duties, saying trading agreements must be enforced in order for trading systems to work.

The conflict adds to a series of disputes over poultry, auto parts and other goods that have threatened to strain relations as Beijing and Washington cooperate on complex issues including the economic crisis and North Korea.

It comes as the two world powerhouses prepare for a global economic summit meeting next week in Pittsburgh.

News of China’s complaint filed with the World Trade Organization sent Asian markets down 2 percent and more Monday on worries about the potential impact on the global economic recovery. But investors appeared to take a less dire view of the dispute as the day wore on. U.S. markets were flat by midday.

While China’s quick response to Friday’s tariff decision threatened to escalate the battle, many economists said they expected that both sides would find a way to avoid a full-blown trade war.

Economists said that both nations have too much at stake economically to allow the dispute to get out of control.

The U.S. is a huge export market for Chinese products while China is the largest holder of U.S. Treasury securities.

The Chinese complaint to the WTO in Geneva triggers a 60-day WTO process in which the two sides are to try to resolve the dispute through negotiations. If that fails, China can request a WTO panel to investigate and rule on the case.

Beijing’s quick response to the tariff decision shows the urgency communist leaders attach to maintaining exports, employment and social stability. Officials have said as many as 30 million laborers lost factory jobs last year as exports plummeted. Many have found new employment, but the government is anxious to avert more job losses.

Frustration over the tire tariffs has been fanned by news reports citing a rubber industry group that said as many as 100,000 jobs could be affected and losses to Chinese producers could top $1 billion.

Obama approved the tire duties to slow the rapid growth of U.S. imports of Chinese-made tires blamed for the loss of thousands of American jobs. The order raised tariffs for three years on Chinese tires — by 35 percent in the first year, 30 percent in the second and 25 percent in the third.

On Sunday, Beijing announced it would investigate complaints that American auto and chicken products are being dumped in China or are benefiting from subsidies.

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Warren Buffett is often a go-to guy when companies want to raise money.

Yet while his Berkshire Hathaway Inc is Kraft Foods Inc’s largest shareholder, he may not be needed as an ace in the hole, as the food company attempts to buy British candy maker Cadbury Plc.

“Buffett could put some Berkshire resources behind a Kraft bid but I find it hard to believe it is necessary,” said Vahan Janjigian, whose book “Even Buffett Isn’t Perfect” was published last year. “Credit markets have thawed enough for Kraft to get financing in traditional ways if it needs it.”

Cadbury, which makes Dairy Milk chocolate, Halls cough drops and Trident gum, on Monday spurned Kraft’s unsolicited $16.7 billion cash-and-stock offer. Kraft products include cheese, Kool-Aid, Oreo cookies and Oscar Mayer meats.

Through his assistant Carrie Kizer, Buffett did not return requests for comment.

Buffett, the world’s second-richest person and probably its most revered investor, is familiar with candy.

Last year, his company funded $6.5 billion toward Mars Inc’s purchase of Wm. Wrigley & Co. It also owns See’s Candies, whose confections Buffett munches at the annual shareholder meetings of Omaha, Nebraska-based Berkshire.

Berkshire owned 138.3 million shares, or 9.4 percent, of Northfield, Illinois-based Kraft as of June 30 free credit reports.

Those shares were worth about $3.6 billion on Thursday. They also throw off $160 million of annual dividends.

“Kraft and Cadbury have what Buffett likes: strong brands that have been around a long time, and which have durable earnings power,” said Justin Fuller, an analyst at Midway Capital Research & Management in Chicago and author of the Buffettologist.com blog.

Yet buying Cadbury may not be cheap. Some analysts believe Hershey Co could make a long-shot offer, forcing Kraft Chief Executive Irene Rosenfeld to drive up her company’s bid.

“We would not rule out Kraft raising extra cash through a private investor,” analysts at JPMorgan Cazenove Ltd wrote this week, noting Berkshire’s role in the Mars-Wrigley transaction.

Kraft said it would not plan to issue more equity, even if it needed to raise billions of dollars to buy Cadbury.

And asked on Monday if Kraft expects Buffett’s help, Chief Financial Officer Timothy McLevish parried the question, saying: “We have strong banking relationships and good access to debt capital markets and feel quite confident that we will not have difficulty with financing.”

THE “BUFFETT BLESSING” 

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U.S. retailers are likely to get an “incomplete” mark for the key back-to-school season when they report August sales this week, as a later Labor Day holiday is expected to pull some sales into September, pressuring August results.

Retailers that report August sales — a group that does not include industry giant Wal-Mart Stores Inc — are expected, on average, to post a decline of 3.9 percent in sales at stores open at least a year, according to Thomson Reuters data.

Investors are looking for signs that consumers, who account for about 70 percent of U.S. economic activity, are loosening their purse strings after pulling back during the worst recession since the Great Depression.

“It’s going to be watched very closely,” Ken Perkins, president of Retail Metrics Inc, said of August sales data. “Did anyone go out and start picking up their discretionary spending here?”

Retail stocks have rallied sharply since early March, helped by cost cuts that helped offset falling sales. The Standard & Poor’s Retail index is up more than 56 percent since early March, though some analysts say retailers will need to start showing sales improvement for the stocks to rally much further.

WHEN IS LABOR DAY?

The sales view is likely to be distorted by the shift of Labor Day — which falls on the first Monday in September — to September 7 in 2009 from September 1 in 2008. That shift means seven more pre-Labor Day selling days, including the entire holiday weekend, will be in the September sales reporting month this year. Last year, the Saturday of Labor Day weekend fell in August.

“A lot of people traditionally wait for that Labor Day weekend to do their back-to-school shopping,” Perkins said, estimating that a couple of percentage points of sales growth could be lost this August instant payday loan.

But some of the impact from the later Labor Day will be muted by a shift of some states’ sales tax “holidays” into August from July, analysts said.

Overall, a better look at the back-to-school season — often seen as a harbinger of the Christmas holiday selling season — will be seen by combining August and September sales this year.

“There are some tricks of the calendar this year, with variations in tax holidays and a delayed back-to-school season, so there may be volatility in August sales and September” sales, Lawrence Creatura, a portfolio manager at Federated Investors, said.

On Tuesday, the International Council of Shopping Centers and Goldman Sachs said sales for the week ended August 29 were down 0.5 percent from the previous week and down 0.7 percent from a year earlier.

ICSC forecast a decline of 3.5 percent to 4.0 percent for the month of August.

Still, there are some signs of brighter consumer sentiment and economic improvement, which could help sales going forward. The U.S. economy shrank less than expected in the second quarter, and fewer workers filed new claims for jobless benefits last week, among the latest signs that the economy could be shrugging off the recession. [nN27303398]

“If there is an uptick, then the holiday season could have a chance at a modest season, not just an absolutely terrible one like (retailers) had last year,” Perkins said. 

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The heads of General Motors GM.UL, Canadian auto parts group Magna and its Russian partner Sberbank are due to meet on Thursday ahead of GM’s board meeting on Friday, a German newspaper said.

German tabloid Bild reported in its Thursday edition, citing sources close to the negotiations, that Sberbank’s Chief Executive German Gref will join GM CEO Fritz Henderson and Magna’s co-CEO Siegfried Wolf for the first time at a meeting in Detroit later in the day.

Magna and Sberbank have teamed up to bid for GM’s European Opel business, rivaling an offer by RHJ International, and sources close to the deal have told Reuters that GM’s board of directors will convene on Friday to address among other things the sale of Opel car insurance.

The purpose of Thursday’s meeting in Detroit is for all parties to get to know each other better and not to hold fresh negotiations, Bild said.

Sources close to the talks have said the GM board aimed to recommend one of the suitors at Friday’s meeting.

Trustees who oversee a majority stake in Opel — which was ring fenced and propped up with German aid in May to avoid being swept into GM’s brief bankruptcy — must approve any decision.

(Reporting by Eva Kuehnen; Editing by Hans Peters)

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