Let's say your economy is too hot for comfort—for example, growing at an annual rate of 11.5% for the first nine months of this year. What to do? One option would be to put the kibosh on lending, and that's just the road China is taking, according to the Nov. 19 Wall Street Journal. The China Banking Regulatory Commission immediately denied ordering commercial banks to freeze loans, but the Journal quotes bankers describing possible economic sanctions if they defy the blanket edict. Beijing has raised interest rates five times this year to cool things down but is reluctant to hike again for fear of making its currency even stronger.
Investors turned their backs on home finance goliaths Fannie Mae (FNM) and Freddie Mac (FRE) after Freddie on Nov. 20 posted a surprising third-quarter loss of $2 billion and said it might have to cut its dividend. The news cast doubt on the reliability of Fannie's Nov. 9 earnings release, which showed a $1.4 billion loss, and shivered the shares of both companies. Fannie dropped by nearly 25%; Freddie tumbled by almost 29% by the end of the day. Meanwhile, the Commerce Dept. reported on Nov. 20 that while housing starts overall rose 3% in October, an apparently cheery number, single-family starts fell by 7.4%, and building permits sank 6.6% to the lowest level since July, 1993.
See "As New Home Sales Stall, Deals Abound"
Northern Rock finds itself ever more up against a rock. On Nov. 19, just three days after CEO Adam Applegarth and four nonexecutive directors quit, the beleaguered British mortgage bank revealed that none of the rescue offers received so far proposes to buy the entire business, and all were "materially below" the share price. That knocked the stock down 20% to an all-time low. Another potential obstacle is that acquirers are likely to want the Bank of England to maintain its $48 billion in emergency funding. And the Chancellor of the Exchequer promises to veto any deal that fails to protect the taxpayer.
As if the search king weren't almost everywhere already, now it wants to take to the airwaves. It's contemplating a bid in the Jan. 24 auction of 700 megahertz of spectrum freed up by TV stations as they convert to digital transmission. Under a lobbying blitzkrieg from Google (GOOG) and others, the FCC on Nov. 16 changed its rules for the auction to allow bids from companies that want to wholesale wireless services to others. Google has said it will bid $4 billion or more. Bidders must notify the FCC of their intentions by Dec. 3, with deposits due by Dec. 28.
Mark Ernst, head of H&R Block (HRB) since 2001, became the latest CEO to tumble in the widening subprime debacle. Ernst quit on Nov. 20 as analysts warned that losses in the company's subprime mortgage unit, Option One, could climb. Cerberus Capital Management in August walked away from plans to buy the unit. Dissident director Richard Breeden, who has pushed Block to focus on its core tax-return business, will serve as chairman, and former Aetna (AET) CFO Alan Bennett takes over as acting CEO while a search goes on.
Will this one fly where many flopped? Amazon.com (AMZN) on Nov. 19 became the latest outfit to try to create a mass market for e-books. It unveiled its long-rumored e-reader, Kindle, which holds about 200 books in a paperback-size package and is always linked to the Web via Sprint Nextel's (S) EVDO high-speed wireless network. Kindle marks Amazon's first consumer-electronics product. The online retailer is offering 90,000 titles for now and plans to put up its entire list eventually. But great ease of use still may not persuade consumers to fork over $399.
Two America-haters took turns bashing America's currency at a special OPEC meeting in Saudi Arabia on Nov. 17-18. Iranian President Mahmoud Ahmadinejad said: "The U.S. dollar has no economic value." Venezuelan President Hugo Chávez chimed in: "The dollar is in free fall, everyone should be worried about it." Indeed, the greenback fell to a new low against the euro on Nov. 20. But oil producers are putting pressure on it as well. Iran and Venezuela would both like to see oil priced in other currencies, a process that has begun in Iran. Kuwait has switched from a dollar peg to a basket of currencies, while the United Arab Emirates is considering such a move. Saudi Arabia argues that such shifts put OPEC's billions of dollars of reserves at risk, but it may be forced at least to revalue the riyal.
When private equity firms Fortress Investment (FIG) and Blackstone Group (BX) went public this year, they raised hackles because of the sweet tax break their ultrawealthy principals receive on the performance fees they earn. The fees are taxed as capital gains rather than income. But other aspects of the fabulously complex deals, crafted by tax lawyers at blue-chip law firms such as Skadden, Arps, Slate, Meagher & Flom, go even further. The Blackstone offering achieves a trifecta: little corporate tax, slight SEC regulation, and no governance protection for investors. Now Congress is pondering what, if anything, to do about it. (The American Lawyer)
The subprime shockwaves keep rolling across the financial landscape. On Nov. 16, Barclays (BCS) announced $1.65 billion in mostly subprime-related charges. These come after a previous hit of $1 billion at Britain's third-largest bank. And on Nov. 19, Swiss Re, the world's biggest reinsurer, said it has suffered $1 billion in losses from credit default swaps provided to clients. That was a surprise, while Barclays' number was smaller than expected. Analysts think more major writedowns are inevitable.
See "Barclays Tries to Sooth the Street"
These days, United is a fitting moniker for the Chicago-based airline. Glenn Tilton, CEO of United and its parent, UAL (UAUA), sure looks like he has an urge to merge. He's been an unabashed cheerleader for consolidation, and many analysts think that some of his initiatives—including his reluctance to order new planes and his talk of spinning off the frequent-flier program—are designed to dress the $20 billion carrier up for sale. But who would buy?
Advanced Micro Devices (AMD) has a new ally in its endless warfare with Intel (INTC). On Nov. 16 the investment arm of the Abu Dhabi government, Mubadala Development, ponied up $622 million for an 8.1% stake in AMD, which plans to use the cash to beef up its chip offerings in coming years. The money, which will flow from issuing 49 million new shares, offers only short-term relief for AMD. The smaller chipmaker has fallen behind in the performance race and is trying to match its rival's practice of bundling processor, graphics chips, and other products into a single package.
How would you like to pay 27% interest on the portion of your medical bill not covered by insurance? That's what some Americans are facing. Hospitals and other health-care providers are converting bills of uninsured and underinsured patients into consumer debts in a bid to boost payment. Finance outfits, including big banks and credit-card companies, acquire the debts for a discount, then charge double-digit rates on past due bills. Hospitals get paid quickly, but the practice can leave lower-income patients in a worse financial bind.
The "Net neutrality" debate is gaining urgency, courtesy of Comcast (CMCSA). For years, the idea that an Internet service provider would give better delivery to some kinds of content over others was largely a fear shared by purist Net advocates. Now the cable giant (and its rival, Cox Communications) have admitted to slowing peer-to-peer traffic at times. One p-to-p company, Vuze, says it's time for big carriers to stop targeting this powerful technology, which distributes files over networks of thousands of PC users who download the software. Instead, Vuze says the carriers should embrace it to help meet consumers' insatiable appetite for bandwidth.
The latest emerging-markets play, apparently, is premium beer. Anglo-South African brewing group SABMiller agreed on Nov. 19 to pay $1.2 billion for Dutch brewer Grolsch—an 84% premium over the stock price—and said it plans to market the brew to upwardly mobile quaffers in Africa and Latin America. The move may not be as crazy as it sounds. The premium segment is growing fast in countries such as South Africa, but SABMiller has lacked a brand with Northern European cachet. Grolsch still sells most of its beer in the Netherlands, so there is plenty of untapped potential.
See "It's Miller Time for Grolsch"
Can you supersize an espresso? McDonald's (MCD) is thirsting for a bigger share of the $60 billion U.S. coffee market. The No. 1 fast-food chain relaunched its coffee business 18 months ago with great success: Coffee sales were up 39% in the first nine months of this year, thanks in part to a stronger brew. Mickey D plans to add premium coffee drinks next year??ll priced below Starbucks (SBUX) offerings. (adage.com)
Over at Starbucks, the picture isn't so pretty, so it's looking to pretty pictures to save the day. The company on Nov. 15 said that customers visits per store fell 1% during its fourth quarter, the first time that happened since it began reporting the number three years ago. On Nov. 16 it kicked off its first national TV ad campaign after disdaining the medium in the past. It's also slowing down U.S. expansion. Investors continue to spit out the stock, which has dropped 35% this year.
In California they take fuel economy standards really, really seriously. On Nov. 16 a federal appeals court there tossed out the Bush Administration's year-old standards for light trucks and sport utility vehicles because they failed to take into account the economic risks of climate change. The court further ruled that the Transportation Dept. had failed to explain plausibly why light trucks and SUVs should be treated more leniently than cars. The decision may prompt Congress to burn rubber in passing an energy and fuel economy bill that prevents the courts from preempting the field.
Doling out money to shareholders is generally a sign of good fiscal health, and in this case it's a wondrous recovery from a desperate illness. Xerox (XRX) announced on Nov. 19 that it's reinstating its dividend, which it hasn't paid in more than six years. True, it's not a thumping sum?.0425 cents a share—but CEO Anne Mulcahy called the move and recent stock repurchases a sign of the "long-term value we're creating." The dividend goes into effect in January for shareholders of record as of Dec. 31. Xerox' financial woes date back to 2002, when it suffered a cash crunch, restated five years of revenue, and erased 43% of earnings.
The writers' strike is starting to claim big-screen casualties. Filming of Pinkville, a drama about the investigation of the My Lai massacre to be directed by Oliver Stone, was set to roll in early December. United Artists yelled "cut" on Nov. 9 because the script wasn't ready. Same goes for Ron Howard's Angels & Demons: Sony Pictures Entertainment's (SNE) sequel to The Da Vinci Code was scheduled for a Christmas 2008 release but will now probably not hit theaters till mid-2009. (Variety)
Boston Scientific (BSX) is moving out from under its legal cloud. On Nov. 19 the company said it would pay $245 million, up from a July figure of $195 million, to settle virtually all the litigation arising from problematic defibrillators. Boston Scientific acquired the problem when it paid $27 billion for Guidant in April, 2006.
For some orthopedic surgeons, hips and knees pay extra. In early November, five large makers of replacement hips and knees posted lists on their Web sites of all the physicians they've formed consulting agreements with and how much they paid them. The lists are part of a settlement reached with the Justice Dept. over allegations of illegal kickbacks to doctors who were heavy users of certain devices. For patients, the revelations could be eye-opening: Zimmer (ZMH), for example, has paid out more than $86 million this year.
Financial crises make work for oodles of lawyers, and the subprime meltdown is proving no exception. In the latest lawsuit to be spawned by a broken deal, United Rentals (URI) went after Cerberus Capital Management on Nov. 19 to force it to complete a $4 billion buyout agreed to in July, when the credit markets were already in turmoil. Cerberus argues it can terminate the deal by paying a $100 million breakup fee, but the equipment rental outfit says that under the terms of the deal, the private equity firm can't simply walk because it wants to pay a lower price.
Oracle (ORCL) CEO Larry Ellison must be having a ball. Archrival SAP, struggling to contain the legal damage caused by its Texas-based subsidiary TomorrowNow, said on Nov. 19 it may unload the unit. The German business software giant also disclosed that several senior managers of TomorrowNow are resigning, including CEO Andrew Nelson. TomorrowNow, which specializes in customer support to Oracle customers, turned into a migraine for SAP in March after Oracle filed a lawsuit claiming the unit stole thousands of Oracle documents. SAP admits "some inappropriate downloads occurred," but says no info was passed on to the parent.