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Global Rout Continues

Posted by: Stuart Jackson on August 16

Shares fell across-the-board in Asia and in early European trading, and stock index futures in the US sank, implying Wall Street will open down. Financial institutions and mining companies led the decline.

With the global credit crunch showing few signs of abating, investors are increasingly concerned that world economic growth could falter. The commodities boom that began in 1999 could be imperiled if demand slowed significantly, though as long as China’s runaway expansion continues, that should provide some sort of floor under prices. Beware the first signs of a serious slowdown in the world’s fastest-growing major economy, though. Just as the buyout boom inflated share prices with a takeover premium, there’s a real, if unmeasurable ‘China premium’ in many a commodity price.

Source: Bloomberg

Paulson Sees Slower US Growth, But No Recession

Treasury Secretary reckons that even though US economic growth was already faltering even before the global credit squeeze began, strong expansion elsewhere should more than offset any negative impact from tighter money. He’s also perfectly content to see some pain inflicted on those who weren’t “vigilant” enough in managing risk. “One of the natural consequences of the excesses is that some entities will cease to exist,>” he says.

Source: Wall Street Journal

Countrywide Stock Tumbles on Bankruptcy Fears

Shares of Countrywide Financial, the biggest US mortgage lender, plunged 13%, bringing their year-to-date loss to 50%, on concern the company would be forced into bankruptcy due to the turmoil in the credit markets. Should the company ultimately fall victim to a credit squeeze spawned by the subprime lending debacle, it would be a bittersweet vindication for CEO Angelo Mozilo. He’s been warning for well over a year that the reckless lending practices of many of his peers in the mortgage business would end in tears.

Source: Los Angeles Times

KKR Unit Suffers Losses Thanks to Credit Crunch…

Shares of KKR Financial Holdings, a publicly-traded debt-management firm that’s 12%-owned by buyout firm Kohlberg Kravis Robert, slumped 31% after it said it could lose as mush as $290 million on its mortgage bond portfolio. The firm asked its lenders for a six-month delay in repaying $5 billion worth of commercial paper.

Source: Los Angeles Times

…As Its Parent Raises Money in Bid to Profit From the Squeeze

Many investment banks are on the hook to finance billions of dollars in buyouts at a time when investor appetite for taking on riskier debt has disappeared. That’s likely to lead to a lot of forced sales of takeover debt at distress prices. KKR, which alone accounts for 25% of outstanding but unfinanced takeover deals, is raising money from investors that will be used to snap up such unwanted paper, in hopes that it will rebound.

Source: Business Week

Kraft Looking for Buyers for Post Cereals Unit

It’s never much fun being No. 3 in a market, and the food giant has apparently decided enough is enough. It’s scouting for buyers for Post, maker of such well-known brands as Raisan Bran and Shredded Wheat, in a sale that could raise as much as $3 billion. With takeover financing largely unavailable, it’s expected that few if any buyout firms will enter the fray. That leaves potential trade buyers such as No. 2-ranked General Mills or Ralcorp Holdings with a clear field.

Source: Wall Street Journal

Amgen to Cut Jobs, Close Plants

Biotech firm hopes to save $1 billion next year as its struggles to cope with slumping sales of its top product, anemia drug Aranesp.< /p>

Source: New York Times

TJX Raises Cost of Data Breach to $256 Million

Investors have tended to discount the impact of computer security breaches. That could be foolish., if the experience of clothing retailer TJX is anything to go by. The company suffered the biggest computer data breach in corporate history when cyberthieves stole credit and debit card numbers of 45 million customers. Skeptics warn that even the revised cost estimate could prove too low.

Source: Boston Globe

Macy’s Still Struggling to Get May Deal Right

Department store chain’s decision to rebrand all the May Department Stores units it acquired with the parent’s name has so far proved a non-starter. Many customers deserted when mid-market Macy’s raised prices and cut back on promotions. Others from tonier May units such as Marshall Field’s found the New York retailer was too down-market for their tastes.

Source: New York Post

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