Actual finance blog

Baidu’s hasty move to a new Internet ad system marks a rare stumble for China’s dominant search engine, opening a window of opportunity for others salivating for a piece of the country’s fast-growing online market.

Baidu, whose name is practically synonymous with Internet search in China, surprised investors when it revealed transition to its new Phoenix Nest system will lead to softer revenues into next year as customers adjust, sending its stock down sharply.

The news was music to others, such as Sina Corp and global search leader Google, looking for a bigger piece of the pie in the world’s biggest Internet market with 235 million search users in June, up about a third from a year ago.

“In the short term Baidu could possibly lose market share to Google,” said JP Morgan analyst Dick Wei.

“From the end user perspective, they aren’t going to see much of a difference, but from the advertisers perspective, if you look at monetization market share, it (Baidu’s market share) could be a bit lower in the next few months,” he said.

Baidu expects to lose some customers and have lower revenue in the near term after the system is fully rolled out.

Baidu shares, which shed 0.5 percent to close at $432.97 during regular trading hours in New York, fell more than 13 percent in after-hours trade to $375.99 after the company gave its revenue forecast that was well below Wall Street estimates.

The glitch isn’t the first for Baidu, which was previously accused by some of the world’s biggest music companies of allowing illegal trading of copyrighted songs over its system.

But the stumble could have more serious implications as it relates directly to the company’s revenue generation model.

ONLINE PLAYERS

Baidu, whose name comes from an ancient Chinese poem, is just one of a growing field of upstart firms seeking to cash in on China’s rapidly growing Internet, home to a search market valued at 1.8 billion yuan ($264 million) in the second quarter.

Online game companies such as Shanda Games and NetEase vie for dominance in the country’s Internet gaming market worth nearly $1 billion in the second quarter, while portal operators such as Sina and Sohu.com also spar for dominance in the portal space.

In an Internet market where two or three names usually control each space, Baidu stands out because of its single-handed dominance of China Internet search.

Several Chinese Internet firms such as NetEase, Perfect World and Baidu, have seen their share prices skyrocket this year. However, softer-than-expected fourth quarter guidance from two other companies may further dampen investor sentiment.

Sohu and its recently listed gaming unit Changyou.com warned on Monday that current-quarter revenue would come in below Wall Street estimates, sending their shares down. 

Read more

The economy in the U.S. probably grew in the third quarter at the fastest pace in two years as government stimulus helped bring an end to the worst recession since the 1930s, economists said before reports this week.

The world’s largest economy grew at a 3.2 percent pace from July through September after shrinking the previous four quarters, according to the median estimate of 65 economists surveyed by Bloomberg News. Other reports may show sales of new homes and orders for long-lasting goods increased.

Americans flocked to auto showrooms and real-estate offices last quarter to take advantage of government programs such as “cash-for-clunkers” and tax credits for first-time homebuyers. Growing demand caused stockpiles to keep falling, which will prompt companies to rev up assembly lines and help sustain the recovery into 2010 even as unemployment climbs.

“The recovery is off to a decent but unspectacular start,” said Joe Brusuelas, a director at Moody’s Economy.com in West Chester, Pennsylvania. “While another large drawdown in inventories will be a drag on third-quarter growth, it sets the stage for a longer and stronger upturn in manufacturing.”

The Commerce Department’s report on gross domestic product is due Oct. 29. The four consecutive decreases through the second quarter marks the longest stretch of declines since quarterly records began in 1947. The economy shrank 3.8 percent in the 12 months to June, the worst performance in seven decades.

Stocks Climb

Stocks have rallied as earnings at companies from Caterpillar Inc. to Morgan Stanley topped estimates. Profits exceeded expectations at about 80 percent of the companies in the Standard & Poor’s 500 Index that have released results, according to Bloomberg data. That marks the highest proportion in data going back to 1993. The S&P 500 closed at a one-year high on Oct. 19.

Consumer spending last quarter probably jumped at a 3.1 percent annual rate from the previous three months, the biggest gain since the first quarter of 2007, the GDP report is also projected to show.

September readings on household purchases, due from the Commerce Department on Oct. 30, may show the quarter ended on a soft note after the Obama administration’s car incentive expired the month before. Spending probably fell 0.5 percent last month as car sales slowed after jumping 1.3 percent in August, the biggest gain since 2001.

The so-called cash-for-clunkers program offered buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles. The plan boosted sales by about 700,000 vehicles, according to a Transportation Department estimate.

Homebuyer Credit

The administration’s $787 billion stimulus package, signed into law in February, included an $8,000 tax credit for first- time homebuyers that expires at the end of November.

New-home sales last month increased 2.6 percent to an annual pace of 440,000, the highest level since August 2008 and reflecting the boost from the credit, according to economists surveyed. The Commerce Department’s report is due Oct. 28.

Lawmakers in Washington are debating an extension of the credit through June, and are discussing expanding it to all buyers under an income cap.

A report from S&P/Case-Shiller home-price index due Oct. 27 may show home values in 20 U.S. metropolitan areas declined in the year ended August at the slowest pace since January 2008, according to the survey median.

More Orders

Orders for durable goods rose 1 percent in September, economists project the Commerce Department will report Oct. 28. A gain would be the fourth in the last six months and indicates companies are starting to invest in new equipment.

Business spending and housing “stand ready to provide the oomph necessary to generate continued optimism until consumer activity stabilizes,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.

Optimism among U.S. consumers in October is forecast to rise even as unemployment probably also increased, economists said. The Conference Board’s confidence index, due Oct. 27, climbed to 53.5 from 53.1, according to the survey median.

The economy will likely grow at a 2.4 percent annual rate from October through December, according to a Bloomberg survey earlier this month. GDP will also expand 2.4 percent next year and 2.8 percent in 2011, the survey showed, compared with an average of 3.4 percent growth over the past six decades.

Source

Sweeping rule changes meant to shed light on so-called dark pools, where stock-trading is done anonymously, could ultimately hurt the traditional investors that regulators are trying to empower, trading executives warned over the past few days.

The U.S. Securities and Exchange Commission meets in the coming week to consider changes that the industry widely expects will bring some order to the way dark pools communicate, force them to display more quotes, and publicly reveal more data about the amount of trading taking place outside the formal exchanges.

Executives at a conference said political pressure had a hand in pushing new regulations. They argued that although some changes may be needed, a lack of understanding the way orders circulate among the more than 40 U.S. trading venues could lead to poorer prices and executions for mutual funds, pension funds, and individual retail investors.

“Does the public understand that (new rules are) actually going to have real negative consequences to larger orders that are generally made up of a lot of small retail interest?” Shane Swanson, head of transactions at Citigroup Inc’s Lava unit, told the Security Traders Association conference.

Dark pools, private venues primarily used to match large trades, have proliferated this decade as institutions sought safe places to buy and sell “blocks” of stock. They now account for an estimated 10 to 15 percent of U.S. equity volumes.

The SEC, having last month proposed a ban on so-called flash orders, has now turned to dark pools as it cracks down on an increasingly opaque and complex marketplace that some say favors the most sophisticated players at the expense of others.

Commissioners, who meet in Washington on Wednesday, are expected to require from dark pools real-time post-trade transparency so that the public has a better idea where trading actually takes place.

Brett Redfearn, global head of liquidity at JPMorgan Securities, said new data would matter little to the public but would be a boon for high-frequency trading shops — the market’s fastest players that use lightning-fast algorithms to seek out market imbalances, and who could take advantage of the dark pool information.

Swanson added: “That will result in worse impact for those orders. And quite honestly, the small retail orders that are going into the market today already interact with these dark pools. That’s the point that seems to be missed.”

Similar objections were raised over a likely SEC proposal to lower the threshold at which dark pools must publicly display quotes and allow fair access to 1 or 2 percent of market share in a particular stock from 5 percent.

WHAT’S A QUOTE

The SEC is also expected to decide that most so-called actionable indications of interest, or IOIs, should be treated as regular quotes and added to the public quote stream.

Dark pools, exchanges, and other market players send or receive IOIs to sniff out trading interest elsewhere. They vary, but can include the stock symbol, order size, and the price, much like a public quote, raising concerns over a two-tiered market favoring those in the know.

“Depending on how you define IOIs, you may find that many dark pools are not so dark. And that is a little bit scary for institutional orders,” Jeromee Johnson, vice president at BATS Exchange, said in an interview. “If they can’t execute in a dark pool, where do they go?”

Len Amoruso, senior managing director at Knight Capital Markets Group, told the conference: “There could be a host of very legitimate, very bona fide reasons people are using those IOIs to help execute their underlying orders.” 

Read more

Goldman Sachs Group Inc’s vaunted trading operations helped the dominant Wall Street firm quadruple its earnings, but investment banking results were lackluster and its shares fell.

Goldman, whose lavish compensation has drawn scrutiny, stayed on pace to hand out more than $20 billion in year-end bonuses. That would be equivalent to more than $630,000 per employee and could beat a record set for compensation in 2007.

But in a sign of weakness, Goldman’s investment banking and asset management revenues were lower. The bank fell to No. 2, behind Morgan Stanley, in merger and acquisition adviser rankings for deals announced globally through the third quarter, according to Thomson Reuters. It also dropped a spot to No. 7 in global capital markets.

“Goldman produced great numbers but apparently didn’t live up to those heightened expectations,” said Peter Jankovskis, co-chief investment officer at Oakbrook Investments.

“Their real earnings, the question is how repeatable are they,” he said. “Trading gains come and go. They’re genuine earnings at the time, but it’s not like something you rely on quarter to quarter.”

Fixed income, currency and commodities (FICC) trading nearly quadrupled, helping propel overall revenue to a forecast beating $12.37 billion.

Yet the $5.99 billion in FICC revenue, fueled by credit products and mortgages, also lagged the second quarter and fell short of some high expectations.

“While it is difficult to call $6 bln in FICC trading a miss, we suspect the recent run-up in GS shares reflected expectations for a stronger trading revenue number,” analyst Jeff Harte of Sandler O’Neill wrote in a research note.

The New York-based firm posted third-quarter net income for common shareholders of $3.03 billion, or $5.25 a share, up from $845 million, or $1.81 per share, a year earlier.

It easily beat analysts’ average forecast of $4.24 a share, according to Thomson Reuters I/B/E/S. But one analyst noted the beat was helped by Goldman’s decision to set aside less than usual for compensation.

‘HEIGHTENED EXPECTATIONS’

Goldman, which has been under fire from some quarters over gold-plated pay so soon after taking government bailout funds, allocated 43 percent of net revenue in the third quarter to compensation and benefits, down from 49 percent in the first half.

Stellar results by rival JPMorgan Chase & Co on Wednesday may have prompted investors to raise the bar for Goldman.

JPMorgan’s lift from fixed income — its trading revenues in that area rose more than five-fold to $5 billion — in particular led analysts and investors to expect a similar or larger jump at Goldman, which has a reputation as a more aggressive risk-taker than the commercial bank.

Goldman shares fell 2.0 percent to $188.45 in afternoon trading, underperforming the Amex Securities Broker dealer index .XBD, which was 1.2 percent lower. The shares are up nearly 124 percent this year. 

Read more

Bank of America Corp agreed to give regulators more information about why it refrained from disclosing details about Merrill Lynch’s performance before it bought the investment bank, federal regulators said on Tuesday.

The agreement, still subject to court approval, would allow the U.S. Securities and Exchange Commission to look at details on the bank’s failure to disclose information to shareholders about Merrill’s $15.8 billion fourth-quarter losses and bonuses paid to Merrill employees.

The bank faces an array of lawsuits and investigations by lawmakers and regulators. New York Attorney General Andrew Cuomo has threatened to sue bank officers and is seeking more information on who knew what prior to the December 5 shareholder vote to approve the merger.

Under the SEC pact, Bank of America would waive its attorney-client privilege that protects the names of those who made decisions on the Merrill merger.

“Attorney-client privilege is a very important business principle but given the pressure in several inquiries for further insight we decided to waive it in this matter,” said Bank of America spokesman Larry Di Rita.

“We have nothing to hide and believe our actions throughout the Merrill Lynch acquisition were appropriate and in the best interest of our shareholders,” he said.

Last month, a federal judge rejected Bank of America’s $33 million settlement with the SEC, which alleged it misled investors about $3.6 billion of bonuses paid to Merrill employees.

U.S. District Court Judge Jed Rakoff faulted the SEC for accepting the bank’s effort to invoke attorney-client privilege and avoid disclosing what executives and lawyers knew about its authorization to pay the bonuses no fax pay day loan.

If the pact is approved, the SEC would have access to information on the bank’s decisions about whether to disclose impairment of goodwill of Merrill and other financial results of Merrill Lynch during the fourth quarter of fiscal year 2008.

The agreement would give the SEC access to the bank’s communications with the Federal Reserve and the Treasury Department, which helped broker the deal and buttress the bank with taxpayer funds.

That would likely include communications between departing Bank of America CEO Ken Lewis who was at the center of negotiations with federal regulators.

The order would allow the SEC to share the information from Bank of America with other government authorities including federal and state regulators, the SEC said.

The bank announced at the end of last month that 62-year-old Lewis will retire by the end of the year. His reputation has been badly bruised by government investigations into the Merrill acquisition, as well as massive credit losses that led the bank to take two rounds of U.S. bank bailout funds.

Bank of America is searching for a successor with a view to appointing a replacement before Lewis leaves. Possible candidates include Brian Moynihan, head of consumer banking, and Joe Price, the bank’s chief financial officer.

Lewis had previously said he wanted to stay at the bank until it had returned the $45 billion in government funds it received.

(Reporting by Rachelle Younglai, Elinor Comlay, Dan Wilchins, editing by Dave Zimmerman)

Read more

Senate Banking Committee Chairman Christopher Dodd told Reuters Television on Thursday he sees no obstacles in the way of the Senate reconfirming Ben Bernanke as Federal Reserve chairman.

Asked in an interview if he saw any roadblocks to the reconfirmation, Dodd said, “No, I don’t think so.”

“I’ve indicated I want to be supportive. I think Ben Bernanke’s done a very good job, particularly in the last year or so. I think that view is embraced by a lot of people,” said Dodd, a Democrat.

President Barack Obama nominated Bernanke to a second term as Fed chairman in August quick pay day loan. His four-year term expires in January.

“The chairman’s not going anywhere,” Dodd said.

“We’re so preoccupied now with trying to pull together the modernization of the financial structure, which is taking a lot of time, as it should.”

(Reporting by Kevin Drawbaugh and Corbett Daly; editing by Jeffrey Benkoe)

Read more

U.S. government-controlled mortgage finance companies Freddie Mac and Fannie Mae are working on a program to help independent mortgage banks get access to short-term credit needed to make home loans, the Wall Street Journal said, citing people familiar with the matter.

Fannie and Freddie will provide advance commitments for the purchase of home mortgages that meet certain standards, according to the paper.

The program aims to reduce risks that independent mortgage banks face so they can obtain short-term credit, the paper said.

The Journal’s sources added that the companies are planning to build on an undisclosed pilot program that Freddie has with Provident Funding Associates LP and warehouse-lender NattyMac, where short-term funding would be provided to mortgage companies. Spokesmen for Fannie and Freddie declined to discuss details of the plan with the paper.

Fannie and Freddie could not be immediately reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Kim Coghill)

Read more

Recession-pounded consumers who find Target, Kohl’s and even Wal-Mart a bit pricey are moving down to the dollar stores.

As many retailers suffer — quarterly profits dipped this summer at mighty Wal-Mart, for example — dollar stores are opening by the hundreds. And some locate in well-to-do suburbs that once seemed out of reach for chains near the bottom of the retail barrel.

Growth by Dollar Tree, Family Dollar and Dollar General — the Big Three of discount retailing — has become a lifeline to commercial property owners struggling against rising vacancy rates.

"It’s a fascinating trend consistent with neoclassic economic theory," said Bob Lewis, president of Development Strategies, an economic development consultant in St. Louis. "It relates to marginal utility and inferior goods concepts. And the need for commercial real estate owners to fill up space."

Dollar Tree, with nearly two dozen stores in the St. Louis area, is about to open another store at the Heritage Place shopping center on Olive Boulevard in Creve Coeur. The latest Dollar Tree, scheduled to open Thursday, is taking space formerly occupied by Famous Footwear, which moved in July to a smaller spot.

Marginal utility? Inferior goods? Lewis doesn’t equate inferior with poor quality. He means inexpensive items.

"You can survive on ramen noodles if you’re poor," Lewis said. "You don’t buy more of them after you get a good job. But if you’re poor, inferior goods go up in demand."

Marginal utility relates to shopping "ambience," he said. While many shoppers prefer the surroundings of upscale stores, some find that dollar-store shopping for staple items bestows smart-shopper status, Lewis said.

"It’s a fascinating little situation we have going on here," he added. "If you’re buying the things you might normally pick up at Target or Wal-Mart for a few pennies more, why not use the dollar place?"

Shopping center owners benefit by getting occupants for millions of square feet of retail space payday loans.

"Otherwise, it would probably stay vacant or be rented out to a dance studio, or something, just so that the owners can generate a bit of income and keep the lights on," Lewis said.

Mike Swearngin, vice president of Pace Properties, said Dollar Tree’s presence at Heritage Place helps boost the center’s occupancy to 90 percent, up from 80 percent a year ago. He said Dollar Tree will add stability to Heritage Place and draw the same women who already shop at the center’s Marshalls and TJ Maxx stores.

"It’s the type of retailer that seems to be relatively recession-proof," Swearngin said.

In August, Dollar Tree, based in Chesapeake, Va., reported a 50 percent jump in per-share quarterly earnings. Sales rose 12 percent, to $1.22 billion. Dollar Tree had 3,717 stores, 200 more than a year earlier. Spokeswoman Shelley Davis said the company knows the recession is sending shoppers its way from more upscale places.

"We have a sense we are benefiting from trade downs," she said. "But we also feel our regular loyal customers are shopping us more. We do feel that Dollar Tree can operate in a booming or recovering economy."

She said the 9,600-square-foot Creve Coeur outlet is within the company’s ideal size.

Dollar Tree isn’t alone in enjoying growth. Dollar General Co.’s latest quarterly profit tripled, to $93.6 million, from $27.7 million a year earlier. Sales rose 11 percent, to $2.91 billion. The Goodlettsville, Tenn., company has said it will open 500 stores in addition to the 8,577 it had at the end of July.

Dollar General already has more than 600 stores in Missouri and Illinois, including about 20 in the St. Louis area. Family Dollar has about 30 area stores. The region’s next Family Dollar will open in January at 9070 West Florissant Avenue in Ferguson.

Source

European planemaker Airbus will make one fewer A380 superjumbo aircraft than planned in 2009 after agreeing to push a delivery into 2010, reminding investors of challenges facing Europe’s largest industrial venture.

Airbus cut its 2009 delivery target on Tuesday from the most recent target of 14, as reported by Reuters. A spokesman said it would still deliver over 20 A380s next year.

Separately, Belgium’s defense minister, Pieter De Crem, said everything pointed to a deal on Europe’s largest defense project, the delayed Airbus A400M military transport, being reached by year-end as planned.

Also on Tuesday, global airlines body IATA said passenger traffic was recovering from the global recession but the industry remained far from a return to profit.

Shares in Airbus parent EADS, Europe’s largest aerospace group, were down 0.9 percent at 155.01 euros at mid-session.

A380 production targets have been revised down repeatedly since wiring installation flaws were exposed in 2006, leading to a crisis from which Franco-German-Spanish EADS is recovering.

This time the impetus for the delay appeared to come from the buyer, but analysts said it stoked up lingering fears Airbus may not have eliminated all the gremlins that have cost it a total of more than two years of A380 production.

Paris brokerage Oddo Securities said in a note that EADS, already facing a potential major provision for the A400M, might be forced to take a further charge this year for ongoing A380 production problems.

“The delivery of one fewer aircraft in 2009 has a margin revenue impact and is almost invisible at EADS operating income level but this delay puts Airbus execution risks back in focus.”

Singapore Airines is one of three carriers operating the world’s largest airliner, which sells for $327 million at list prices. The airline said this month it wanted to delay a total of eight future A380 deliveries, becoming the latest airline to push back new aircraft in the face of a slump in travel.

EADS chief executive Louis Gallois told Reuters on Monday this could result in one plane slipping to 2010.

He described as a “non-event” an incident in which a Singapore Airlines A380 turned back to Paris after one of its four Rolls-Royce engines failed on Sunday

ENTERING WAVE 2

The 525-seat superjumbo has dazzled aviation enthusiasts but provided a turbulent ride for EADS investors.

EADS shares have risen 25 percent this year, outperforming the Paris market’s blue-chip index by 5 percent. 

Read more

It has been 31 years since the last trains left Union Station. And 24 years since its $140 million renovation as a hotel, shopping and entertainment spot on Market Street. But today the station is a shell of what it once was.

Banana Republic? Gone. Talbot’s? Gone. Body Shop, Brookstone, Nature Co.? Gone, gone, gone.

The space formerly occupied by Nature Co. is a gift shop called Fat Sassy’s. Nearby, a shop that calls itself a newsstand has one magazine rack near the front door and several shelves of liquor behind the counter.

But don’t write of this downtown landmark just yet.

A large expansion by Marriott, which in December took over the station’s hotel from Hyatt, is about to get under way. Marriott will move the front desk to the atrium near the station’s western end, allowing greater use of the barrel-vaulted Great Hall for

private events. Marriott also will extend its meeting and restaurant space into much of the retail area along the midway.

As a result, Union Station’s shops will be concentrated along the eastern concourse, where the food court is situated beneath the arched train shed, which dates to 1894. Whether this transformation — the station’s most extensive since the 1980s — will revive the place is yet to be seen.

Barbara Geisman, deputy mayor for development, said city officials hope better times are ahead.

"We would certainly like to see as much retail as possible in Union Station," she said. "As the downtown residential and business population grow, we think there’s a market for more mainstream retail there."

Resuscitating shopping at Union Station will require "some big-time marketing," Geisman said.

"A lot of this is that you get a name draw and then that kind of sets the tone for the rest of it," she said. "We think the station presents opportunities for larger retail."

Bass Pro Shops, based in Springfield, Mo., took a look a few years ago but passed on Union Station, Geisman said. She added that shopping habits have changed since the 1980s, when "festival markets" such as Quincy Market in Boston, South Street Seaport in New York and Union Station drew big crowds. All have faded.

"Things have changed a lot since then," Geisman said. "Instead of people going there on a whim because they want to see a neat old building, you now have a lot of people with disposable income who like to shop."

Frances Percich, Union Station’s marketing manager, said "serious" discussions are under way with two retailers, including one that would be new to St. Louis. She declined to name them. Percich said the station will continue to market itself as a tourist attraction with numerous spring and summer events.

"When people walk in here expecting a mall, they will be disappointed," she said. "We’re not a mall. We have no anchor store."

Among the few Union Station visitors one afternoon last week were Russ and Donna Clark of Yuba City, Calif. They were staying at the Marriott for a meeting. The Clarks said they had been unsure whether Union Station’s emptiness resulted from a renovation still under way or from a lack of business.

Told that the renovation was completed in 1985 and that the station had been in decline for years, Donna Clark said: "Wow, that’s a shame. This looks like a great idea. It’s disappointing not to see a lot of people."

Union Station’s current retail occupancy is 79 percent, Percich said. Ownership has changed in recent years. In 2003, the inability of St. Louis Station Associates, the investment group behind the 1980s renovation, to pay the mortgage led to foreclosure by Regency Savings Bank of Oak Park, Ill. Park National Bank of Chicago bought the property from Regency and owns it through Union Station Holdings LLC.

Doug Dean, the Marriott’s general manager, said the hotel renovation will restore some of the inn’s original 1890s configuration. He noted that the original front desk was off the atrium, remarkable for its glass-block floor. All 539 rooms, including the 67 in the station’s original "headhouse," will be redone. Dean declined to specify the overall cost, saying it remained "a moving target."

Four meeting rooms and a restaurant will be built near the new lobby. One floor above, the existing restaurant will be used mainly for private events. Beginning with a ballroom freshening done by November, the renovation project will be completed in late 2011, he said.

Hotel and shopping areas will remain open during the renovation.

Across Market from Union Station is the western end of the Gateway Mall, the milelong park that extends east to the Old Courthouse. Tricia Roland-Hamilton, head of the project to redo the mall, said that to thrive, the Union Station area must have more offices, residents and stores.

"The key to livening up that space, not just Union Station but that part of the mall, is density," she said. "And we don’t have that right now."

Source