Financial Teasers 5 March 2008

Top Stories

Banks work toward rescue of struggling Ambac
Banks are edging closer to a rescue for Ambac Financial Group, sources say. Ambac's stock gained on news that a deal was near. Although talks could fail at the last minute, people close to the situation are confident of a rescue. CNBC (04 Mar.)

Despite US pressure, OPEC likely to hold output steady
At a meeting today in Vienna, OPEC ministers are prepared to resist calls from the U.S., its largest consumer, to increase output to help the economy. The group says oil prices, hovering around $100 per barrel, are propped up by speculation and a weakening dollar and not lack of supply. Bloomberg/ClipSyndicate (05 Mar.) , Reuters (05 Mar.)

UBS chairman: Wealth management should stay within bank
Marcel Ospel, chairman of UBS, said that while there are risks to its wealth management business from subprime-related write-downs, the division should stay within the bank and not be spun off. He also noted synergies between investment banking and the wealth management operation, which has received new funds. "These are the key reasons why it does make strategic sense to operate those two businesses under the same roof and as closely as possible," Ospel said. Reuters (04 Mar.)

Goldman Sachs may acquire 20% stake in Eurotunnel
Goldman Sachs is likely to become a significant shareholder in Eurotunnel because it was left with the majority of an €800 million holding of deferred shares. The 20% stake would give Goldman influence over the future of the Channel Tunnel operator. Telegraph (London) (05 Mar.)

South Korean government says 50% of grain, bean supply secured
South Korea's Ministry of Agriculture, Fisheries and Food said domestic companies have secured more than half of the wheat, corn and beans that the country is expected to use in 2008. South Korean companies have deals with foreign suppliers for more than 8 million tons of the commodities. The country consumes an average of 14.10 million tons each year. Yonhap News Agency (Korea) (04 Mar.)

Australia lifts limits on wheat exporters
Following the AWB scandal, Australia is easing restrictions on how many companies are allowed to export wheat. "Once somebody is given an export license they will not have limitations placed on them as to tonnage and export destination," said Agriculture Minister Tony Burke. The new rules are expected to take effect July 1. The Sydney Morning Herald (05 Mar.)

Germany's airport workers plan to strike today
The Verdi union said workers at eight German airports are planning to strike today over wages. Lufthansa expects to cut 142 flights and is urging passengers to take the train. A separate strike in Berlin, however, will likely reduce train services as well. BBC (05 Mar.)

Market Activity

Most Asian markets down as credit crunch continues
Australian stocks withdrew early gains to close at a loss for the fifth consecutive session, while Shanghai-listed stocks continued to slide on fears of monetary policy tightening. Japanese stocks wavered between negative and positive territory, dragged down by financials. "The continuation of credit issues and data showing slowing growth is obviously disheartening to anybody trying to be bullish," said Matt McKeith of First State Investments in Hong Kong. MarketWatch (04 Mar.)

Most auction-rate bonds failed this week
Nearly 70% of auction-rate bonds failed this week and the market shows no signs of reversing as investment banks have stopped purchasing the securities that have been abandoned by investors. Average yields on the bonds, which were at 3.63% before demand plummeted in January, hit 6.52% at the end of February. Bloomberg (05 Mar.)

Economics

Europe pressures Washington to stop dollar's decline
With the dollar at a record low against the euro, policymakers in Europe are pressuring their U.S. counterparts to stop the greenback's slide. "It's up to ... U.S. authorities, who repeat that they are in favor of a strong dollar but who should reaffirm their words," said Guy Quaden, a representative for Belgium at the European Central Bank. Reuters (04 Mar.)

Premier says China needs to curb inflation, lending
Wen Jiabao, China's premier, told nearly 3,000 of the country's lawmakers that the government must do more to curb inflation and lending, indicating that the central bank may increase interest rates. Wen said China's biggest challenge, despite the global slowdown, is overheating. Bloomberg (05 Mar.)


Bush, Fed inch toward housing rescue
The Federal Reserve and the Bush administration are making slow progress toward a government-backed rescue of mortgage lenders and struggling homeowners, despite their ideological opposition. While not calling for a government bailout, Fed Chairman Ben Bernanke said industry and the government could do more. Meanwhile, the White House has begun increasing the government's response to the crisis. The New York Times (registration required) (05 Mar.)

Bernanke puts pressure on Paulson over homeowner aid: In a speech to bankers in Florida, Federal Reserve Chairman Ben Bernanke encouraged lenders to help struggling homeowners by forgiving parts of some mortgages. The request goes beyond the plan backed by Treasury Secretary Henry Paulson, which focuses on interest rate negotiations. "This puts enormous pressure on Paulson," said Michael Barr, a professor at the University of Michigan Law School. "Treasury's response so far has been insufficient." Bloomberg (05 Mar.)

Geopolitical/Regulatory

Lawmakers blast bank regulators for not warning about risks
U.S. senators grilled bank regulators Tueday about the risky lending practices that led to the mortgage market meltdown and why they failed to intervene. Donald Kohn, Federal Reserve vice chairman, and John Dugan, comptroller of the currency, both said they were aware of the risks, discussed them with banks and tried to warn others. Kohn acknowledged, though, that they may have needed to be more "forceful" in their warnings. CNNMoney.com (04 Mar.)

Clinton wins Texas, Ohio; Pennsylvania up next
Sen. Hillary Rodham Clinton silenced naysayers by defeating Sen. Barack Obama in the pivotal states of Ohio and Texas, as well as Rhode Island. Obama, whose winning streak was snapped at 12 states, was victorious in Vermont. The Democrats now gear up for the April primary in Pennsylvania. Meanwhile, Sen. John McCain wrapped up the Republican nomination. Bloomberg/ClipSyndicate (05 Mar.) , The Washington Post (05 Mar.)

Qatar balances relations with U.S., IranSheikh Hamad bin Jasmin bin Jaber al-Thani, prime minister and chief diplomat for Qatar, has learned to balance relations with nations that have contradictory political interests, such as the U.S. and Iran. The small Middle Eastern nation has become adept at using its natural gas resources to increase its influence on the global landscape. Bloomberg (04 Mar.)

Financial Products

UBS index allows investors to profit from food inflation
UBS is launching a new commodities index so that investors can profit from the increasing food inflation. The UBS Bloomberg Constant Maturity Commodity Food Index will include soy oil, orange juice, high-quality winter red wheat, lean hogs and other raw materials not generally included in commodity indexes. Financial Times (subscription required) (04 Mar.)

Ethics

FSA cold-calls for insider trading evidence
The Financial Services Authority has been calling investors and traders directly as it works to gather evidence of insider trading. The U.K. regulator had previously given individuals several weeks' notice before interviewing them, but now it is conducting interviews immediately. Financial Times (subscription required) (04 Mar.)

EC proposes ways to clamp down on tax havens
Fresh from the Lichtenstein tax scandal, the European Commission has started to put the screws to tax havens with proposals to broaden laws against tax evasion. Countries in the European Union say tax evasion costs them billions of euros each year. Germany alone estimates the figure to be as much as €30 billion. International Herald Tribune (04 Mar.)