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Cruise Industry Weighs Effect of Costa Concordia’s Grounding

January 18, 2012 by Leave a Comment

The death toll from the accident on Friday was 11, though at least 24 people were still missing after the ship, carrying 4,200 passengers and crew members, hit rocks and capsized hundreds of feet off Giglio Island, in Italy.

Shares of Carnival fell $4.68, to $29.60 on Tuesday in New York. That followed a similar drop in London the previous day, when markets in the United States were closed for Martin Luther King’s Birthday.

Carnival, which is based in Miami and London, owns 101 cruise ships and has 85,000 employees around the world.

Analysts said the accident could not have happened at a worse time for the industry, which carries more than 13 million passengers each year. January is the beginning of the so-called wave season, a period when cruise lines typically book a third to half of their reservations for the entire year.

Cruise companies were hoping for a rebound this year after a sluggish season last year because of the slow global economy and high fuel prices. Still, the cruise industry was not expecting to see much growth, even before the accident, according to a report Sunday by Standard Poor’s.

Gregory Badishkanian, an analyst at Citigroup, said he had seen indications of a 6 to 10 percent decline in cruise bookings after the tragedy.

“The pictures and the videos from the Costa tragedy are more graphic and widespread than past incidents,” he said in a note to investors. But he added that such volatility was not unexpected.

While cruise operators froze their advertising over the weekend, analysts and travel agents said the industry was not likely to suffer long-term consequences despite the effect of the images.

“There is no major passenger fear of cruising thus far,” Mr. Badishkanian said.

Neil Gorfain, the chief executive of the Cruise Outlet, an online national booking agency that specializes in cruises, said he had not seen any cancellations. “The public has a short memory. We might have some concern for a few weeks. But so far, we have had no fallout.”

The effect on the Carnival Corporation is harder to gauge at this point, although it has the wherewithal to shoulder the financial cost of the accident.

On Monday, Carnival said that its lost earnings this year from the grounding of the Costa Concordia would be $85 million to $95 million. It also anticipated “other costs to the business that are not possible to determine at this time,” which might include future cancellations, for instance, or possible liabilities. In addition, the company said it might have to pay $30 million in deductibles to cover damage to the ship, and a $10 million deductible for personal injury liability and cleanup costs.

The cost to insurers, on the other hand, might be substantial, depending on the vessel’s fate.

One analyst with Numis Securities in London has estimated total liability at $800 million if the ship were scrapped. This would make it the largest marine loss on record, exceeding the $500 million that insurers paid after the 1989 grounding of the Exxon Valdez oil tanker in Alaska, according to a report by Bloomberg News. The ship is insured by a group of firms, including Assicurazioni Generali, the RSA Insurance Group and the XL Group, it said.

Carnival was founded in 1972 by Ted Arison, with a single ship sailing between Miami and San Juan, Puerto Rico. The company is now run by the founder’s son, Mickey Arison, and carries eight million passengers a year, 60 percent of them from the United States, on cruises throughout the world.

Carnival, which has twice as many ships and employees as the second-largest cruise line operator, Royal Caribbean Cruises, reported revenues of $14.5 billion in its 2010 fiscal year.

Under Mickey Arison, the company has been one of the top drivers of the industry’s consolidation in the last decade. It now owns 10 brands, including the Carnival Cruise Lines, its largest subsidiary with 23 ships; Princess Cruises; and the Holland American Line. Its other subsidiaries include PO Cruises and Cunard.

Its Costa Cruises unit has 15 ships that operate mainly in Europe, and account for 16 percent of Carnival’s global capacity. The company has 10 ships on order, including two planned for Costa.

So far, Mr. Arison, who also owns the Miami Heat of the N.B.A., has taken a low-key position, allowing the head of his Italian subsidiary to handle the accident’s fallout. That executive, Pier Luigi Foschi, has blamed the ship’s captain for performing an unauthorized maneuver.

Public comments on cruise-related Web sites offered a mixed picture. One commenter on CruiseCritic.com, Christine Crossingham, said the accident had not dented her enthusiasm to board the MSC Fantasia, of Italy’s MSC Cruises, in March. It is one of the world’s largest ships with nearly 300,000 square feet of public space.

“This is evidently human error,” she wrote. “There are thousands of cruises going every day out somewhere.”

Another, Ralph Summers, said he would not cruise the Mediterranean Sea. “I’ll stick to the Caribbean thank you.”

Article source: http://feeds.nytimes.com/click.phdo?i=6d84b68e9f1cc0a143176ca929a3a5a4

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Stocks Rally on Positive Economic News

January 17, 2012 by Leave a Comment

A mixed report on American bank profits did not erase investor enthusiasm Tuesday, as stocks rose around the world on strong economic data from China and Germany.

Citigroup reported an 11 percent drop in fourth-quarter earnings, well below the Wall Street consensus, and revenue fell 7 percent, underscoring the banking industry’s slump in investment banking and slow growth in lending. Wells Fargo profit rose 20 percent in the same period.

Earlier, China said its economy, which has been an engine of growth since the financial crisis arrived in 2008, grew at an annual rate of 8.9 percent in the last three months of 2011, down from the 9.1 percent in the third quarter of 2011, but better than many economists had expected.

The Standard Poor’s 500-stock index rose 0.9 percent in afternoon trading in New York. The Dow Jones industrial average gained 1 percent and the Nasdaq composite index added 1.1 percent. Markets were closed Monday for the Martin Luther King holiday.

Across the Atlantic, the Euro Stoxx 50, an index of euro zone blue chips, rose 1.5 percent. The FTSE 100 in London added 0.7 percent.

In Mannheim, the Center for European Economic Research, known by its German initials Z.E.W., reported that its economic sentiment index increased by 32.2 points in January from last month, reaching a level of minus 21.6 points, its highest point since last July.

“Contrary to repeatedly expressed fears of a recession, the assessment of the financial market experts gives reason for cautious optimism that Germany will only experience a dent in economic activity,” the Z.E.W. president, Wolfgang Franz, said in a statement. He also noted that the European Central Bank’s massive supply of funding to the banking sector last month could have contributed to the uptick.

A successful debt sale in Spain also helped European stocks to rally for a second day.

In its first test of the market’s appetite for debt since it was downgraded by S.P. on Friday, Spain on Tuesday sold €4.9 billion, or $6.2 billion, in Treasury bills. It sold 12-month bills priced to yield 2.05 percent, down from 4.05 percent at the previous auction of such securities, in December, and 18-month bills at 2.35 percent, down from 4.23 percent.

The market’s new enthusiasm for riskier assets was reflected in European sovereign bond yields. French 10-year bonds rose in price, despite the Standard Poor’s downgrade Friday that clipped the country’s rating by one notch from the top AAA spot. The yield, which moves in the opposite direction of the price, fell 4 basis points to 2.98 percent.

Italian 10-years fell 14 basis points in yield, to 6.45 percent, while Spain’s 10-years yielded 5.03 percent, down 9 basis points. A basis point is equal to one-hundredth of a percent.

Analysts caution against reading too much into yields and auction results, however, as the European Central Bank has been intermittently intervening in the secondary market since August to help Spain and Italy. And they note that the fear factor in the interbank market remains at extremely elevated levels: European banks deposited a record €501.9 billion overnight Monday at the E.C.B., the central bank said Tuesday.

U.S. crude oil futures rose 2.0 percent to $100.64 a barrel. Comex gold futures rose 1.9 percent to $1,662.40 an ounce.

The dollar was mixed against other major currencies. The euro rose to $1.2788 from $1.2667 late Monday, while the British pound rose to $1.5385 from $1.5325. The dollar fell to 76.60 yen from 76.78 yen, and to 0.9459 Swiss francs from 0.9542 francs.

Asian shares posted solid gains. The Tokyo benchmark Nikkei 225 stock average added 1.1 percent. The Sydney market index S.P./ASX 200 rose 1.7 percent. In Hong Kong, the Hang Seng index added 3.2 percent and in Shanghai the composite index rose 4.2 percent.

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European Markets Edge Higher

January 17, 2012 by Leave a Comment

Market activity was subdued, with Wall Street closed in observance of Martin Luther King’s Birthday. The Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 1 percent, and the FTSE 100 index in London rose 0.4 percent. The DAX index in Germany rose 1.25 percent. Indexes rose in France and Italy and were little changed in Spain. The euro held steady against the dollar.

As for the S. P. ratings cut last week, the agency cited a deteriorating economic situation and disappointment with leaders’ efforts to address the euro crisis. On Monday, S. P. also lowered by one notch its rating on the euro zone’s main bailout vehicle, to AA+ from AAA, in a widely anticipated move.

President Nicolas Sarkozy of France, in his first public comments since S. P. cut the country’s rating, said Monday that “in the final analysis, this doesn’t change anything.”

Speaking in Madrid at a news conference with the Spanish prime minister, Mariano Rajoy, Mr. Sarkozy said France and the other European countries that were downgraded “must cut our deficits, cut spending and improve the competitiveness of our economies to return to growth.”

Mr. Rajoy, who broke a pre-election promise by raising taxes, told journalists that he did not think additional tax increases would be necessary. He also said Spain should continue to hold a seat on the board of the European Central Bank.

Herman Van Rompuy, the president of the European Council, met Monday in Rome with Prime Minister Mario Monti of Italy. “Market players or rating agencies sometimes consider our response as incomplete or insufficient,” Mr. Van Rompuy said after the meeting, according to Bloomberg News. “Yet real progress has been made in reshaping the euro area in order to build on its fundamentals, which are on average sound.”

In its first test of investors’ appetite since the downgrade, France sold 8.6 billion euros, or $10.9 billion, of short-term debt securities on Monday at yields slightly lower than in the previous auction. The yields on the country’s 10-year bonds fell 0.04 percentage point by late Monday, to 3.014 percent.

Yields on Italian 10-year bonds edged down one basis point, to 6.581 percent, while Spanish 10-years were yielding 5.117 percent, down four basis points. A basis point is one-hundredth of a percentage point.

Reuters cited unidentified traders as saying the European Central Bank had intervened in the secondary bond market again, buying Italian and Spanish securities to relieve some pressure on yields.

Yields on German 10-year bonds, the European benchmark, were unchanged, at 1.764 percent.

The dollar was mixed against other major currencies. The euro slipped to $1.2667 by late Monday in New York from $1.2680 late Friday in New York, while the pound rose to $1.5325 from $1.5317.

Asian shares fell. The Tokyo benchmark Nikkei 225 stock average slid 1.4 percent. The Sydney benchmark index fell 1.2 percent. In Hong Kong, the Hang Seng fell 1 percent and in Shanghai the composite index declined 1.7 percent.

Article source: http://www.nytimes.com/2012/01/17/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

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Economic Reports for the Week of Jan. 16

January 16, 2012 by Leave a Comment

CORPORATE EARNINGS Citigroup, TD Ameritrade and Wells Fargo (Tuesday); Bank of New York Mellon, Goldman Sachs, Charles Schwab, State Street, U.S. Bancorp and eBay (Wednesday); Bank of America, BlackRock, Morgan Stanley, Southwest Airlines, UnitedHealth Group, American Express, Google, I.B.M., Intel and Microsoft (Thursday); and General Electric (Friday).

IN THE UNITED STATES Financial markets, government offices and many businesses will be closed in observance of Martin Luther King Jr.’s Birthday (Monday).

Two House Financial Services subcommittees will conduct a joint hearing about the effect of the Volcker Rule on markets, businesses and investors (Wednesday).

IN EUROPE Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France will meet in Rome with Prime Minister Mario Monti of Italy to discuss the European debt crisis (Friday).

Banks in the European Union face a deadline to submit plans to meet the European Banking Authority’s new capital requirements (Friday).

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Markets Brush Off S&P Downgrades, Focus on Greece

January 16, 2012 by Leave a Comment

LONDON (AP) — European markets responded calmly on Monday to Standard Poor’s decision to cut the credit ratings of a number of euro countries, including France.

The downgrades, which were based on concerns over Europe’s ability to handle its two-year debt crisis and the lack of economic growth, had been anticipated for weeks so the market impact was muted, especially since the U.S. is on holiday for Martin Luther King Day.

Europe will likely remain the focus of attention all week as a number of bond auctions are due and Greece tries to clinch a debt deal with its private creditors. Last October, Greece’s partners in the eurozone sanctioned a deal whereby Greece’s creditors agree to take a cut in the value of their Greek bond holdings to help lighten the country’s debt burden.

The deal with private investors, known as the Private Sector Involvement, or PSI, aims to reduce Greece’s debt by euro100 billion ($126.5 billion) by swapping private creditors’ bonds for new ones with a lower value. It is a key part of a euro130 billion international bailout, the second one for Greece.

It is expected that talks on the PSI will resume this coming week after being abandoned last Friday.

On Tuesday, representatives of Greece’s creditors — the European Union, the European Central Bank and the International Monetary Fund — will visit Greece for yet another round of inspections of its efforts at fiscal and structural reform and negotiations for the next tranche, the seventh, from the first bailout.

Without a deal with its private creditors, Greece has been told it won’t get the next tranche of money due from its first bailout.

Without that money, Greece would be unable to pay a big bond redemption in March and would face the prospect of defaulting on its debts, potentially triggering more mayhem in financial markets.

Gary Jenkins, a director of Swordfish Research, reckons the Greek debt restructuring poses more risks to the markets in the short-term than SP’s decision to strip France of its cherished triple A credit rating or to downgrade eight other euro countries, including Italy.

“The progress or otherwise of these negotiations will probably dictate how the market trades over the next few weeks,” said Jenkins.

Greece’s Prime Minister Lucas Papademos insisted in an interview with CNBC that a deal will be hammered out.

“Some further reflection is necessary on how to put all the elements together,” he said. “So as you know, there is a little pause in these discussions. But I’m confident that they will continue and we will reach an agreement that is mutually acceptable in time.”

While investors awaited developments, markets were slightly lower, trading in fairly narrow ranges.

In Europe, Germany’s DAX was 0.3 percent higher at 6,161 while the CAC-40 in France rose 0.1 percent to 3,198. The FTSE 100 index of leading British shares was down 0.1 percent at 5,623. The euro was also relatively steady, up 0.2 percent at $1.2672. ON Friday, it had fallen to a 17-month dollar low of $1.2623 as speculation swirled in the markets of SP’s downgrades.

Earlier in Asia, markets responded more negatively to the SP downgrades, which were confirmed after U.S. and European markets had closed on Friday. Asian markets had already closed by the time speculation of the downgrades emerged.

Japan’s Nikkei 225 index slid 1.4 percent to close at 8,378.36 and Hong Kong’s Hang Seng lost 1 percent at 19,021.20. South Korea’s Kospi dropped 0.9 percent to 1,859.25.

In mainland China, the Shanghai Composite Index lost 1.7 percent to 2,206.19, while the smaller Shenzhen Composite Index dropped 3.3 percent to 818.17. Almost 70 companies plunged the daily limit of 10 percent.

In the oil markets, traders are fretting over simmering tensions in the Middle East and Nigeria.

The U.S. is trying to rally global support for sanctions against Iran for its alleged efforts to develop nuclear weapons. Iran, the world’s fourth-largest oil exporter, has vowed to retaliate by shutting down the Strait of Hormuz, the passage for one-sixth of the world’s oil. That could send prices skyrocketing.

Meanwhile, a threatened strike by oil workers in Nigeria, a top oil supplier to the U.S., has further complicated the picture. The threat is in response to the government’s decision to end fuel subsidies, which more than doubled the price of gasoline in a country where most people live on less than $2 a day.

Unsurprisingly, oil prices edged higher on the combination of concerns — benchmark oil rose 63 cents to $99.33 per barrel in electronic trading on the New York Mercantile Exchange.

____

Pamela Sampson in Bangkok contributed to this report.

Article source: http://www.nytimes.com/aponline/2012/01/15/business/AP-World-Markets.html?partner=rss&emc=rss

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