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S.E.C. Weighs Action Against Standard & Poor’s

September 26, 2011 by Leave a Comment

Collateralized debt obligations, also known as C.D.O.’s, are securities tied to multiple underlying mortgage loans. The securities generally gain value if borrowers repay. But if borrowers default, investors lose money. Soured C.D.O.’s have been blamed for making the 2008 financial crisis worse. Ratings agencies have been accused of being lax in rating the investment.

The S.E.C. staff said it may recommend that the commission seek civil money penalties, disgorgement of fees or other actions.

S. P. has been under fire for its recent downgrade of United States long-term debt, as well as several bad calls it made leading to the financial crisis and economic meltdown that began in 2008. The unit’s president stepped down last month.

McGraw-Hill Companies, which owns S. P., said Monday that it received a so-called Wells notice from the S.E.C. on Thursday. A Wells notice is a warning to a company that the commission is considering enforcement action.

S. P. said it has been cooperating with the commission and plans to continue cooperating on the matter.

The news comes two weeks after McGraw-Hill announced that it plans to split up into two public companies, with one focused on education and the other centered on markets, featuring the Standard Poor’s unit. The decision had been expected, as investors have pushed the New York company to boost the company’s stock price, which has dropped by more than 40 percent since 2006.

McGraw-Hill Education will be the new company focused on education services and digital learning, while McGraw-Hill Markets will retain Standard Poor’s and J. D. Power and Associates, a market research company. It also includes S. P. Capital IQ, a provider of data, research, benchmarks and analytics, and Platts, a provider of information and indices in energy, petrochemicals and metals.

McGraw-Hill was founded by James H. McGraw in 1888 when he purchased the company’s first publication, The American Journal of Railway Appliances. Since then, the company has provided technical and trade publications, as well as information and analysis on global markets.

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News Analysis: News Analysis: Greece Awaits Votes on Rescue Package

September 26, 2011 by Leave a Comment

It’s not clear whether the global markets will give them that much time. Investors will be watching a series of crucial votes by European parliaments due this week on an earlier package aimed at preventing a default by Greece, Ireland and Portugal.

Sensing urgency from the markets and keenly aware of the potential consequences of a rejection of that plan by the German Parliament when it votes on Thursday, Chancellor Angela Merkel drew parallels on Sunday between the risk of a Greek default now and the broader chaos in the financial system that followed the collapse of Lehman Brothers in 2008. “We are doing it for ourselves,” she said in a radio interview on Sunday night aimed at persuading a skeptical German audience that setting aside hundreds of billions of euros to prop up shaky neighbors made sense. “Otherwise, the stability of the euro would be in danger.”

“We can only take steps that we can really control,” she said. If a Greek default started a fresh financial crisis, “then we politicians will be held responsible.”

All 17 member countries of the euro bloc must approve the strengthening of the rescue package, known as the European Financial Stability Facility, with votes set on Tuesday in Slovenia, Finland on Wednesday and Germany on Thursday. So far, only six countries have signed off, but European leaders say the process should be completed by mid-October.

Only after that do they seem likely to come up with a broader rescue package aimed at relieving the anxiety that has driven markets lower in recent weeks. The markets may not wait that long.

Indeed, for political leaders like Mrs. Merkel, the problem now is that investors have already concluded that the 440 billion euro bailout fund, the expansion of which is being voted on this week, might not be enough to stop the contagion from spreading. On Friday, the yield on two-year Greek notes rose to 69.7 percent, suggesting that investors considered a default all but inevitable.

When the initial expansion of the bailout fund was agreed to in July, worries centered on three smaller countries on the periphery of Europe — Greece, Ireland and Portugal. Since then, however, fears have multiplied about the ability of Spain and Italy, the third-largest economy in the euro zone, to keep borrowing heavily, creating doubts about pools of debt from countries that right now are considered “too big to bail.”

The worry is that a default by Athens would threaten these and other sovereign borrowers, as well as banks in France and Germany that hold tens of billions of euros in Greek debt. That, in turn, has helped push shares of American banks, which are intertwined with their European counterparts, sharply lower, dragging down the broader market.

“The next three weeks are absolutely critical, and they can still stabilize the markets, but I wouldn’t tell my clients to put money to work until we see it,” said Rebecca Patterson, chief market strategist at J.P. Morgan Asset Management. “As we stand right now, European policy makers have gotten well behind the curve. It’s not about the periphery anymore; it’s about the core, too.”

A fresh indicator of market confidence in European borrowers will come as Italy sells billions of euros in bonds this week, culminating on Thursday. Weak demand at an auction on Sept. 13 sparked global worries about the safety of Italian debt, which stands at a whopping $2.3 trillion, making Italy one of the world’s largest borrowers.

What is more, Italy’s debt load equals 120 percent of the country’s gross domestic product. In Europe, only Greece is in worse shape, with debt totaling roughly 150 percent of G.D.P.

In addition, the Greek Parliament must vote this week on a recently proposed property tax increase that is seen as a test of whether the country will stick to past promises to tighten its belt.

“If that doesn’t go through and Greece can’t show it can move forward, it will be very difficult for anyone to give them more aid,” Ms. Patterson said. Greece is also trying to show its austerity program is enough to qualify for an aid payment due in October.

Last week, anxiety about Europe led to the worst week for the Dow Jones industrial average since the onset of the financial crisis in 2008, and as was the case then, it seems events are moving faster than political leaders, further narrowing their options.

Landon Thomas Jr. and Jack Ewing contributed reporting.

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Moody’s Downgrades Credit Ratings of Three Large Banks

September 22, 2011 by Leave a Comment

The downgrades were driven by Moody’s conclusion that the federal government was less likely to step in and provide support for a faltering big bank the way it did after the 2008 collapse of Lehman Brothers, when Washington executed a series of actions including capital infusions and credit guarantees to halt the spreading panic.

Moody’s had put the banks on notice for a possible downgrade on June 2.

While Moody’s said it “believes that the government is likely to continue to provide some level of support to systemically important financial institutions,” the agency added that the government “is also more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled.”

Under the Dodd-Frank financial regulatory reform passed by Congress in 2010, financial institutions must file a so-called living will that lays out steps for an orderly liquidation in the event of a financial collapse. The goal is to avoid future government bailouts, as well as the kind of turmoil unleashed by Lehman’s unexpected bankruptcy.

“Now, having moved beyond the depths of the crisis, Moody’s believes there is an increased possibility that the government might allow a large financial institution to fail, taking the view that the contagion could be limited,” the firm said in a statement. Even so, Moody’s said it doubted whether a global financial institution could be liquidated “without a disruption of the marketplace and the broader economy.”

The ratings agency cut Bank of America’s long-term senior debt to Baa1, three levels above junk. For Citigroup, Moody’s cut its ratings on short-term debt to Prime 2 from Prime 1, while affirming its A3 long-term rating. Moody’s lowered its rating on Wells Fargo’s senior debt to A2 from A1. Its Prime-1 short-term rating was affirmed. Of the three institutions, Bank of America has the lowest credit rating.

Shares of all three big banks fell sharply after the downgrade, but Bank of America dropped the most, falling 7.5 percent to $6.38 a share.

Although big banks enjoyed higher credit ratings before the financial crisis, Wednesday’s move was not unexpected, and analysts played down its significance. Although it could slightly raise borrowing costs over the long term, banks are not expected to have to pay significantly more to finance their operations in the near term.

“It’s not a good headline, but it shouldn’t have much impact,” said Jason Goldberg, an analyst with Barclays Capital, adding that even the federal government’s loss of its AAA rating this summer had not raised its borrowing costs.

In addition to seeing the government as less likely to support Bank of America, if needed, Moody’s said that the company “remains exposed to potentially significant risks related to both the residential mortgage and home equity loans on its balance sheet, as well as to mortgages previously sold to investors.”

Investors are seeking to force Bank of America to pay billions of dollars for its alleged misdeeds during the height of the housing boom, especially the bubble-related excesses at Countrywide Financial, the subprime giant Bank of America acquired in 2008. Bank of America has reached settlements with some investors, but other holders of mortgage-backed securities assembled by Bank of America, Countrywide and Merrill Lynch, another subsidiary, are suing to recover multibillion-dollar losses.

Moody’s was careful to note that its action did not reflect a weakening of Bank of America’s “intrinsic credit quality.”

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DealBook: Moody’s Cuts Ratings on Three Big Banks

September 21, 2011 by Leave a Comment

Moody’s Investors Service cut its credit ratings on Bank of America, Citigroup and Wells Fargo on Wednesday, saying that Washington was now less likely to bail out the banks if needed.

“The downgrades result from a decrease in the probability that the U.S. government would support the bank, if needed,” Moody’s said.

The ratings agency said that it did think the government would provide some support to systemically important financial institutions. But the huge bailouts that rescued Bank of America and Citigroup and others during the financial crisis might not happen again, Moody’s said.

“It is also more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled, as the risks of contagion become less acute.” the ratings agency said. It added that the moves “do not reflect a weakening of the intrinsic credit quality” of the bank.

The ratings agency cut Bank of America’s long-term senior debt to Baa1 from A2 and lowered short-term debt to Prime-2 from Prime-1.

Shares of Bank of America were down 3.7 percent in early afternoon trading.

In a statement, Bank of America said: “Moody’s decision to downgrade our credit rating is based on factors external to Bank of America: Their conclusion that the Dodd-Frank legislation will make the U.S. government less likely to support financial institutions in a crisis, and a possible further deterioration of the economy. In fact, Moody’s explicitly stated that the downgrades do not reflect a weakening of the intrinsic credit quality of Bank of America.”

The bank said it had made “significant progress” in improving its capital and liquidity positions.

During the financial crisis, Bank of America received some $45 billion in federal aid, which it has since repaid. The bank has been trying to shore up investor confidence as it continues to struggle with the legacy of tens of billions of dollars in bad mortgage assets. In recent weeks, it has announced an executive shakeup, a streamlining that will cut 30,000 jobs and a $5 billion investment by Warren E. Buffett.

Moody’s also cut its ratings on Citigroup’s short-term debt to Prime 2 from Prime 1, while affirming its A3 long-term rating.

Shares of Citigroup were slightly lower, at $26.85. In a statement, the bank said: “We completely disagree with Moody’s change to Citigroup’s short-term rating. It does not accurately reflect the significant progress Citi has made since Moody’s last rated Citi more than two-and-a-half years ago.”

And Moody’s lowered its rating on Wells Fargo’s senior debt to A2 from A1. Its Prime-1 short-term rating was affirmed. Its shares were up 0.8 percent in afternoon trading.

In June, the ratings agency had put Bank of America, Citigroup and Wells Fargo on review for a possible downgrade.

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DealBook: United Technologies Said to Pursue Goodrich

September 17, 2011 by Leave a Comment

8:45 p.m. | Updated

United Technologies is exploring a potential takeover of Goodrich, a maker of airplane components, people briefed on the matter said Friday, as the conglomerate seeks to grow through a major deal.

United Technologies, whose wide array of holdings range from Pratt Whitney to Sikorsky Aircraft to the Otis Elevator Company, has been studying several companies as potential deal candidates, some of these people said.

They added that as recently as Friday, the company was in talks to secure several billion dollars worth of debt financing. It is possible that United Technologies may decide not to strike a deal, these people cautioned.

United Technologies has exchanged communications with Goodrich over the last several months, another person briefed on the matter said.

A spokesman for United Technologies declined to comment. A representative for Goodrich was not immediately available for comment.

Shares in companies that were rumored to be potential United Technologies takeover targets, which also include Rockwell Collins and Textron, rose on Friday. Reuters first reported United Technologies’ efforts to secure deal financing.

Shares in United Technologies closed on Friday at $75.50, down 11 cents, giving it a market value of $68.6 billion.

A deal by United Technologies would be the latest by a company seeking growth through acquisitions, at a time when companies have been hard-pressed to increase their profits internally. Financing remains relatively cheap for borrowers with strong credit ratings, while many companies have been holding billions of dollars in cash on their balance sheets since the end of the financial crisis.

United Technologies had $5.4 billion in cash and short-term investments on hand as of June 30.

Shareholders have often rewarded the deal-as-growth strategy this year. Several corporate buyers have seen their stocks rise on the day a deal is announced. That is an unusual reversal, since investors usually sell shares in an acquirer for fear that it is overpaying for a company.

A deal for Goodrich, which has a market value of $11.6 billion, would be the largest by United Technologies in recent memory. The conglomerate’s biggest deal over the last 12 years was the $3.8 billion takeover of Sundstrand, another airplane parts maker, in 1999, according to the data provider Capital IQ.

United Technologies’ top executives have made no secret that they consider acquisitions a key growth strategy. “You’re going to see us put our balance sheet to work, you’re going to see us put more cash to work on the M.A. side,“ Gregory J. Hayes, the company’s chief financial officer, said in July, according to Reuters.

The company has been an active deal maker over the last three years. In 2009, it purchased General Electric’s fire alarm and security systems unit for $1.8 billion.

In 2008, it began a hostile bid for Diebold, a maker of automated teller machines and security systems, that went on for months but called off its efforts after the onset of the financial crisis. Since then, it has shied away from unsolicited offers.

United Technologies’ shares rose 10.3 percent over the last 12 months ended Thursday.

Should it strike a deal for Goodrich, United Technologies would acquire a big maker of aircraft landing gear, as well as engine maintenance equipment and electrical systems for planes.

The company traces its roots to B. F. Goodrich, a former Civil War surgeon who founded a rubber company in Akron, Ohio, in 1870. It grew to become one of the biggest tire makers in the world, eventually diversifying into the manufacturing of components for commercial and military aircraft.

It is currently based in Charlotte, N.C., and has 25,600 employees. The company no longer has a relationship to the B. F. Goodrich tire brand, having sold that to Michelin in 1988.

Last year, Goodrich reported nearly $7 billion in revenue and $578.7 million in net income. The company’s shares rose 22.8 percent over the last 12 months ended Thursday.

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Advice on Debt? Europe Suggests U.S. Can Keep It

September 17, 2011 by Leave a Comment

Financial officials from the United States, once called “the committee to save the world” after the Asian crisis in the 1990s, now find themselves uttering apologies for the harm caused to the world by the 2008 financial crisis and coating their advice to European countries with the knowing nod of the battle-hardened.

The change in tone was on display here on Friday when Treasury Secretary Timothy F. Geithner made an unusual appearance at a meeting of euro zone finance ministries. Mr. Geithner had been invited to offer some advice on fixing Europe’s sovereign debt and banking problems.

European leaders, who have been slow to react to the root causes of the problem, emerged from the meeting dismissive of Mr. Geithner’s ideas and, in some cases, even the idea that the United States was in a position to give out such pointers.

“I found it peculiar that, even though the Americans have significantly worse fundamental data than the euro zone, that they tell us what we should do,” Maria Fekter, the finance minister of Austria, said after the meeting Friday morning. “I had expected that, when he tells us how he sees the world, that he would listen to what we have to say.”

Such criticism was echoed by other attendees of the meeting, including the finance minister of Belgium, Didier Reynders, who said that Mr. Geithner should listen rather than talk. And Jean-Claude Juncker, president of the finance minister group, said pointedly that European officials did not care to have detailed discussions about expanding their bailout fund “with a nonmember of the euro area.”

To be sure, American officials are aware that they need to tread carefully when advising others, especially now, and they have avoided providing specific plans or proposals.

Instead, they point to recent programs in the United States simply as case studies. On Friday, Mr. Geithner, among other recommendations, encouraged the European leaders to add more firepower to their bailout funds, and described how the United States used leverage in 2008 to help bolster the markets.

The Treasury department said in a statement Friday that “Secretary Geithner encouraged his European counterparts to act decisively and to speak with one voice.” And a Treasury official said the department did not feel he was rebuffed, because he did not have a specific agenda.

In the past, countries with financial problems have not always received the United States’ advice with open arms, at least until they needed financial support. Europe, analysts say, may never need outside support if its political leaders can find a way to use the wealth of nations like Germany to shore up more debt-troubled countries like Italy.

Still, it is hard to argue that the United States is not in a far weaker place to be doling out advice than it was in past crises, especially after the gridlock in August over raising the debt limit.

“We’re in a very different world environment right now,” said Ian Bremmer, president of Eurasia Group, a political consulting firm. “The United States has diminished credibility — it can’t simply tell Europe what to do. And it lacks the political will or means to throw a lot of cash at European troubles, even though they could become American problems very quickly.”

It was unusual for Mr. Geithner to attend an internal meeting of the 17 financial ministers from European Union countries that use the euro. The meeting was held on the first of two days of talks in Poland, and so far European finance ministers are no closer to overcoming hurdles holding up the plan they developed for Greece back in July.

Mr. Geithner did not offer up a fully developed plan or urge one particular action. According to an American official who was not authorized to comment publicly, the Treasury secretary urged Europe to send a strong message to the market by putting up a large enough sum of money to support their debt-ridden nations and banks. He suggested that could be done through the use of leverage — or borrowed money — as the United States did in some programs in 2008. One program, known as TALF, was meant to revive lending in the consumer and small-business markets.

Some Europeans have expressed ideas similar to Mr. Geithner’s for a broader rescue plan. Still, the United States faces a different sort of audience when giving ideas to Europe than it does when facing officials in developing economies.

“In the 1990s, there were lots of countries that would say, that’s working in the United States, how can we copy that?,” said Gary Gensler, who worked at the Treasury in the 1990s and now leads the Commodity Futures Trading Commission. “We’re still very much the leader in financial regulations and in the financial markets, but the 2008 crisis showed we failed. Our financial regulatory system failed and Wall Street failed.”

Countries like Brazil and China have already offered financial aid to Europe. Some policy makers say the United States might even be wise to turn to China as a partner in persuasion.

“Maybe this should be a joint effort,” said Sheila C. Bair, a senior advisor at the Pew Charitable Trusts, who was the chairwoman of the Federal Deposit Insurance Corporation until this summer.

Ms. Bair said it would be helpful for China and the United States to give European leaders the same message. But, she said, referring to the United States’ financial crisis in 2008, “we certainly don’t have clean hands in all this.”

Countries with financial problems do not want outside advice until they need outside money, said Jeffrey Shafer, who was the under secretary for international issues at the Treasury in the 1990s.

“There are different stages in this process, and Europe right now is kind of in a halfway house,” said Mr. Shafer. “The reality is that you get more influence when you are providing support.”

It would be difficult for the Obama administration to persuade Congress to give loans to Europe, analysts say, but there are other options. The Federal Reserve can open its discount window to European banks or, as it has already done, it can use foreign exchange lines. The Treasury could also lend out money from a facility that helps with exchange-rate problems. Or the United States could promote additional aid from the International Monetary Fund.

Even if the United States offered more aid, it is unclear if Europe would want it. Edwin M. Truman, a senior fellow at the Peterson Institute who has worked with Mr. Geithner, said the United States has questions to answer, too. “It’s not just a question of being the scolding school teacher,” he said. “Geithner will also have to give a convincing story that we’re dealing with our problems.”

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BUSINESS: Talking Money With Elmo

September 15, 2011 by Leave a Comment

In the wake of the financial crisis, “Sesame Street” is teaching children financial literacy. Ron Lieber talks to Elmo about saving and sharing.


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DealBook: Buffett’s Bank of America Stake Is Viewed as a Seal of Approval

August 26, 2011 by Leave a Comment

Warren Buffett’s investment has a guaranteed payout.Lucas Jackson/ReutersWarren E. Buffett’s investment has a guaranteed payout.

The financial crisis has been good to Warren E. Buffett.

The billionaire investor snatched up shares of Goldman Sachs and General Electric during some of the darkest days of 2008, injecting life and funds into the companies and turning a handsome profit later. On Goldman alone, Mr. Buffett netted $1.7 billion.

On Thursday, he sought to turn the same trick again, investing $5 billion in an institution that is still struggling to recover from the financial crisis, Bank of America. Like the Goldman deal, the Bank of America infusion comes with a rich plum: a guaranteed dividend payout of about $300 million a year, whether the stock goes up or down.

The stock shot up on Thursday as the investment allayed concerns about the bank. Its shares rose as much as 27 percent, before ending the day up 9.4 percent, at $7.65.

“He has the golden touch,” said Mitchel Penn, an analyst with Legg Mason Capital Management, one of Bank of America’s largest shareholders. “It’s a wonderful vote of confidence in Bank of America.”

The deal came together quickly. On Wednesday morning, Mr. Buffett’s assistant called the office of Brian T. Moynihan, the Bank of America chief executive, and a call was set up, said two people briefed on the matter who were not authorized to speak publicly about it.

Mr. Moynihan told the investor that the bank did not need capital. Mr. Buffett responded by saying that he was planning to invest for the long term and outlined a proposal. Interested, Mr. Moynihan suggested that the two of them meet to discuss it. No, thanks, Mr. Buffett said, his mind was made up and he didn’t need a sit-down. The call was soon over.

In the hours that followed, Mr. Moynihan, Bruce Thompson, the bank’s chief financial officer, and Charles Holliday, the chairman, met and briefed directors on Mr. Buffett’s proposal. Lawyers for both sides — Munger, Tolles Olson for Mr. Buffett’s company and Wachtell, Lipton, Rosen Katz, which represented Bank of America — hashed out the details, working straight through the night.

Robert E. Denham, a partner at Munger Tolles, said there were no major hurdles to an agreement. “It’s a very boring story,” he said laughing. “Just a very, very intense turning of the documents.”

At 7 a.m. on Thursday, the board held a conference call to approve the deal.

The investment comes at a pivotal time for Bank of America. It has set aside more than $20 billion to cover its legal exposure for mortgages made during the housing bubble, and the bank faces a nationwide investigation into its foreclosure practices. Last quarter, Bank of America reported an $8.8 billion loss, owing in large part to a settlement with mortgage investors.

Mr. Buffett is aware of the bank’s mortgage issues, but a person briefed on his thinking said that the investor felt that Bank of America was well positioned to make money over the long term and that the legal woes would diminish.

At the age of 80, Mr. Buffett can claim a global reputation as a savvy investor for his bets on railroads, insurers and famous brands like Coca-Cola. But in recent years, he has also become one of the world’s mightiest champions of the banking industry.

With the $5 billion investment by his investment company, Berkshire Hathaway, Mr. Buffett stands to eventually become the largest shareholder in Bank of America, according to Thomson Reuters data. Berkshire is already the biggest shareholder in Wells Fargo and American Express. It stands to be a large stakeholder in Goldman when shares he obtained during the financial crisis convert.

“He always likes to buy into industries he understands and he feels comfortable with banking,” said Drew Woodbury, an analyst with Morningstar.

That was not always the case. In his 1990 letter to shareholders Mr. Buffett wrote, “The banking business is no favorite of ours.”

He had good reason to be skeptical.

Just before the market crash of 1987, Berkshire bought $700 million of preferred shares in Salomon Inc.

To protect his holdings, Mr. Buffett did something unusual, stepping in to become chairman in August 1991 after he forced out Salomon’s chairman, John Gutfreund, during a Treasury auction scandal. Mr. Buffett was widely credited with saving Salomon from collapsing by quickly cleaning house and winning over angry clients, politicians and investors. Mr. Buffett stepped down as chairman of Salomon about 10 months later. It was many years before he would return to Wall Street.

During the financial crisis in September 2008, Mr. Buffett came to the rescue of Goldman, investing $5 billion in the firm. A week later, he bought $3 billion in preferred shares from General Electric, as the conglomerate’s shares were plummeting.

Each investment proved to be highly profitable for Mr. Buffett, with the preferred shares carrying a requirement that Goldman and G.E. pay a 10 percent premium to buy Berkshire out. Goldman has since bought back Mr. Buffett’s holdings, while G.E. has said that it intends to do so.

By some measures, his Bank of America investment closely resembles the earlier deals. Each contained investments of $5 billion or lower and the deals all included warrants with strike prices near the pre-deal share price. During the crisis, however, Mr. Buffett commanded a steeper price.

“It was an indication of how bad it was at the time,” said Mr. Woodbury of Morningstar.

Under the terms of the Bank of America deal, Berkshire will buy $5 billion of preferred stock that will pay a 6 percent annual dividend. Mr. Buffett also will receive warrants for 700 million shares that he can exercise over the next 10 years. Bank of America has the option to buy back the preferred shares at any time for a 5 percent premium.

The deal is expected to close on Sept. 1, according to a regulatory filing.

It was the sort of move that many industry insiders had been expecting. In May, Morgan Stanley’s chief executive, James P. Gorman, told reporters at his firm’s annual meeting that a big-name investor was bound to jump into financials, prompting “the malaise to lift.”

Jason Goldberg, an analyst with Barclays, on Thursday commended Bank of America for being the one to nab the highly coveted “Buffett seal of approval.”

In the video below, Susanne Craig discusses Warren E. Buffett’s decision to invest $5 billion in Bank of America.

Article source: http://dealbook.nytimes.com/2011/08/25/buffetts-bank-of-america-stake-viewed-as-seal-of-approval/?partner=rss&emc=rss

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Terms of Spectrum Auction in Greece Rankle Operators

August 14, 2011 by Leave a Comment

BERLIN — This November, the Greek government hopes to raise as much as €300 million by auctioning some of its best broadcast spectrum to three mobile network operators. Proceeds from the sale would help Greece weather its financial crisis.

But Greece, despite its grave fiscal problems, is by no means acting like a distressed seller. The country is planning to sell 14 units of prime 900-megahertz spectrum. At current prices, a block of 10 megahertz could cost as much as €46.6 million, or $66.2 million. One operator, Wind Hellas, says that is twice as much as other European sellers are asking in similar sales.

“The approach used to set the price for the renewal of mobile spectrum is driven solely by short-term revenue gains and disregards the need for Greece to create a positive investment climate,” Nassos Zarkalis, the chief executive of Wind, the No. 3 operator, said after the government set the auction’s terms in late July. “This sends the worst signal possible to international investors.”

The price demands are particularly galling to Wind, whose owners, a group of five U.S and British investment funds, recently paid €420 million to acquire the company in December, the largest single investment by a foreign company in Greece so far.

A Greek government official, during an interview, disputed Mr. Zarkalis’s claim that the auction had been designed to siphon as much money as possible from the operators, which besides Wind include the market leader, Cosmote, a unit of the former monopoly, O.T.E., that is 40 percent owned by Deutsche Telekom; and Vodafone Greece, the No. 2 operator.

The auction has been discussed and planned for more than a year and predates the country’s financial crisis, said the official, a senior administrator at the Hellenic Telecommunications and Post Commission, the regulator holding the auction. He did not want to be identified, citing his agency’s policy. The auction’s goal, the official said, was to level the playing field in Greece among the three operators going forward as they introduce faster third- and fourth-generation mobile services.

Vodafone and Wind already hold licenses for 900-megahertz spectrum, and Cosmote uses the 1.8-gigahertz band. The higher frequency, however, requires Cosmote to operate three times as many cellphone base stations in the country to provide the same coverage its rivals can.

Under the government’s plan, Vodafone and Wind, whose licenses for 900-megahertz spectrum expire next year, would have to give up some of that prime spectrum to Cosmote so that the three operators would have roughly equal amounts going forward.

In addition, all three will be required to share cellphone base stations in the future, a concession to a public outcry over the proliferation of signal masts around Greece.

“We did extensive benchmarking, and our prices are in line with what is happening elsewhere,” the regulatory official said. If the goal had been to maximize revenue for the Greek government, the official said, the regulator would have simply put all of the spectrum up for bid in an open auction, which would drive up the prices.

Gerasimos Gerolymatos, an analyst in Athens at International Data Corp., estimated that the Greek government’s asking price for spectrum was two to three times the prices for comparable spectrum elsewhere in Europe. The steep demands are coming at a time when the revenues of Greek mobile network operators have fallen an average of 20 percent amid the economic downturn, he said.

The operators feel caught in a bind, Mr. Gerolymatos said, being asked to pay more for spectrum when their businesses are weaker than usual. Press officers for Vodafone and for Deutsche Telekom, the biggest shareholder in Cosmote, declined to comment.

“Their primary reason for opposing the auction and its prices are the difficult economic circumstances of the moment,” Mr. Gerolymatos said. “Spectrum is a very important company asset, and mobile operators cannot leave this unattended despite the high price.”

Greece is one of Europe’s smaller telecommunications markets, with 12.3 million mobile users and 2.3 million broadband subscribers, according to the International Telecommunications Union, an industry standards organization based in Geneva. The country used to have a fourth mobile network operator, Q-Telecom, but that company amassed a €25 million debt before being bought in 2007 by the former owners of Wind Hellas for €350 million.

Article source: http://www.nytimes.com/2011/08/15/technology/terms-of-spectrum-auction-in-greece-rankle-operators.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Stocks Open Higher in U.S.; Europe Up

August 12, 2011 by Leave a Comment

At noon, all three of the main indexes were up more than 1 percent. Tthe Standard Poor’s 500-stock index was up 14.65 points, after dipping briefly into negative territory. The Dow Jones industrial average was up about 187 points, and the Nasdaq rose 27.26.

If Friday’s gains are sustained, it could turn around the week’s overall trend, which had the broader market as measured by the S.P. 500 down by just over 2 percent at the end of trading Thursday.

American stock markets have been wildly volatile in the past four trading sessions, with alternating days of collapsing and then sharply rising prices. The mood has swung between speculation about worries over the economy and a renewed financial crisis, and confidence that banks are healthy and corporate profits strong.

As the week drew to a close, investors sifted through new data on the economy, including insights into consumer behavior, a crucial element in trying to gauge the pace of the recovery.

The Commerce Department said retail sales for July rose 0.5 percent. Without the volatile automobile and gas components, sales firmed 0.3 percent. The figures included several revisions, but they suggested there was some spending momentum in the second quarter and the beginning of the current quarter, at least.

But another piece of data that is indicative of where the market could swing was a survey by the University of Michigan that showed consumer sentiment dipped in August, registering 54.9 on its index, which was a reading lower than during the crisis of November 2008.

“Clearly, recent financial market turmoil has weighed heavily on sentiment, which was already under pressure from a dysfunctional political arena and the longer-term issue of an ailing labor market,” said Joshua Shapiro, the chief United States economist for MFR, in a research note.

Industrial stocks led the way on the S.P. 500, with General Electric up 2.55 percent. Financial stocks showed slight gains of less than half a percent.

The “fear” index, or VIX, which is a measure of volatility in the market, declined to 34.23, its lowest point so far this week.

United States benchmark 10-year Treasury yields were lower, to 2.25 percent from 2.34 percent on Thursday.The gain in stocks came well after investors had digested the latest economic data. Timothy A. Hoyle, director of research for Haverford Investments, said that the markets took a step down in early trading when the index report was released, but that the figure was not unexpected considering recent bad economic data and some of the developments in financial markets.

Speaking about the market on Friday, he said: “Everyone is suffering from volatility fatigue.”

“We are stuck in a trading range until we have a credible backstop in Europe,” he said. “The market is extremely cheap but there is a lack of confidence in forward earnings estimates.”American stocks picked up the pace from Europe, where markets got a lift from the imposition of temporary bans on negative bets against financial stocks in four countries. The Euro Stoxx 50 index of euro zone blue chips was up more than 4 percent, and the FTSE 100 index in London was up 3.04 percent. The CAC 40 index in Paris was also up 4.02 percent, and the DAX in Frankfurt was up 3.45 percent. Asian stocks had a lackluster trading day.

Bans on so-called short-selling of bank shares took effect in France, Italy, Spain and Belgium Friday, giving some relief to pressured bank shares. France, Italy and Spain said the bans would be in effect for 15 days, while Belgium did not set an expiration date. The Stoxx Europe 600 Banks index was up 2.8 percent in afternoon trading.

Germany said it supported the move by its neighbors and would push for other countries to adopt its own ban on so-called naked short-selling, which involves selling securities without having the underlying assets, in the hope of buying them back at a lower price.

“We are advocating a wide-reaching ban on naked short-selling of stocks, sovereign bonds, and credit default swaps,” a German Finance Ministry spokesman, Martin Kotthaus, told Reuters in Berlin. “Only this way can destructive speculation be countered convincingly.”

Article source: http://www.nytimes.com/2011/08/13/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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