April 18 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, posted its second straight quarterly loss on at least $15 billion of writedowns and increased loan losses as customers fell behind on home, car and credit-card payments.
The first-quarter net loss of $5.11 billion, or $1.02 a share, compared with earnings of $5.01 billion, or $1.01, a year earlier, New York-based Citigroup said in a statement. While the loss was worse than the $4.75 billion predicted by analysts in a Bloomberg survey, revenue exceeded their estimates. The shares climbed 6 percent to $25.46 in early New York trading.
``I think the worst is largely behind us,'' Malcolm Polley, who manages $1 billion as president of Stewart Capital Advisors LLC, in Indiana, Pennsylvania, said in a Bloomberg radio interview.
Citigroup's writedowns and credit losses from the collapse of the subprime mortgage market now total about $39 billion, more than Zurich-based UBS AG and Merrill Lynch & Co. Vikram Pandit, Citigroup's chief executive officer, has bailed out about 10 investment funds, replaced his chief risk officer, raised $30 billion to replenish capital and cut more than 6,000 jobs since he succeeded Charles O. ``Chuck'' Prince in December.
``It was a difficult quarter,'' said Peter Kovalski, portfolio manager at Alpine Woods Investments in Purchase, New York, which oversees about $12 billion and holds about 32,000 Citigroup shares. ``You're still seeing a deterioration in the residential market, which has really been a driving force in the writedowns, and that's going to continue.''
Friday, April 18, 2008
Rice Gains to Record on Concern Trade Curbs to Spread
Rice futures rose for a fifth day, recording the biggest weekly advance in at least seven years, on concern export curbs imposed by China and Vietnam will spread as importing nations struggle to meet their needs.
Rice for May delivery rose as much as 93.5 cents, or 4 percent, to a record $24.235 per 100 pounds on the Chicago Board of Trade. The contract has gained as much as 16 percent this week, and more than doubled in the past year.
India and Egypt have also curbed sales this year to safeguard local supplies. The gain in rice, as well as energy, has prompted warnings that civil unrest may spread as the poor in Africa and Asia can't afford to eat, and their governments can't fund or find sufficient imports.
``More and more countries will have restrictions on exports,'' Frederic Neumann, an economist at HSBC Global Research, said by phone today from Hong Kong. ``There's some pressure on the Thai government to curtail shipments.''
Thailand, the world's largest rice exporter, boosted shipments 66 percent in the first three months, according to Commerce Minister Mingkwan Sangsuwan on April 16. The nation's 100% Grade B White Rice gained 54 percent in the month to April 9, according to data from the Rice Exporters' Association.
The Philippines, the world's biggest rice importer, received offers for just two-thirds of the grain it sought at a tender yesterday at prices about 40 percent higher than in March. The country, which shipped in 1.9 million tons of rice last year, fills 10 percent to 15 percent of local needs from imports.
Slowing Purchases
The jump in rice prices has forced some buyers to cut the size of their orders, said Apichat Chansakulporn, managing director of President Agri Trading Ltd., Thailand's fourth-largest rice exporter.
``Clients are slowing their purchases because the prices are very high,'' Apichat said by phone from Bangkok today. Price gains were ``driven more by psychological impact than real demand and supply. The perception is now toward an uptrend.''
A global food crisis has reached ``emergency proportions,'' United Nations Secretary-General Ban Ki-Moon said April 14. The World Bank has forecast that 33 nations from Mexico to Yemen may face social unrest after food and energy costs increased.
China, the world's most populous nation, has started to block or tax some food-related exports to make sure that local supplies remain adequate. The country set a tax on rice shipments at 5 percent this year and started to tax wheat exports at 20 percent.
`Control Exports'
The world's fastest growing major economy announced yesterday that it was increasing the tax on fertilizer shipments to ``control exports'' and damp local prices, according to the Finance Ministry. China also turned down a Philippine request for wheat exports, Trade Minister Peter Favila said April 11.
Sumeth Laomoraphorn, president of C.P. Intertrade Ltd., Thailand's sixth-largest rice exporter, also said the pace of purchases from some nations was beginning to slow.
``Orders from China are slowing, they may perceive that fragrant and white rice from Thailand and Vietnam is overly expensive,'' Sumeth said today. ``Some African countries are chasing prices up, but some in that region are balking at buying more because they have limited financial resources.''
The Chicago rice contract's so-called relative-strength index reached 84 today, and has traded above 70 all this week. A reading above 70 is regarded among traders as a signal the price may be set to drop. The contract was at $24.16 at 8:50 a.m. in London.
Food Summit
The Philippines called this month for an Asian summit on escalating food prices, especially rice, and urged India, China, Japan and the members of the 10-state Association of Southeast Asian Nations to attend.
World leaders ``must come together and identify the issues, including rising fuel prices and rising demand,'' Al-Ghazim Wurie, the World Food Program's country director for the Philippines, said in an interview today. After collective steps to increase output ``we'll begin to see a downward trend in prices.''
Households in poorer countries spend a larger share of their income on food compared with those in richer nations, magnifying the impact of costlier rice, wheat and meat, according to the U.S. Department of Agriculture.
An average household in India spent 32 percent of its income on food last year compared with 6 percent for a household in the United States, data from the department show. The figure for Indonesia was 43 percent, and 36 percent for the Philippines.
``Poorer countries tend to suffer more than developed countries,'' HSBC's Neumann said. ``It is the poor who shoulder the biggest burden.''
Rice for May delivery rose as much as 93.5 cents, or 4 percent, to a record $24.235 per 100 pounds on the Chicago Board of Trade. The contract has gained as much as 16 percent this week, and more than doubled in the past year.
India and Egypt have also curbed sales this year to safeguard local supplies. The gain in rice, as well as energy, has prompted warnings that civil unrest may spread as the poor in Africa and Asia can't afford to eat, and their governments can't fund or find sufficient imports.
``More and more countries will have restrictions on exports,'' Frederic Neumann, an economist at HSBC Global Research, said by phone today from Hong Kong. ``There's some pressure on the Thai government to curtail shipments.''
Thailand, the world's largest rice exporter, boosted shipments 66 percent in the first three months, according to Commerce Minister Mingkwan Sangsuwan on April 16. The nation's 100% Grade B White Rice gained 54 percent in the month to April 9, according to data from the Rice Exporters' Association.
The Philippines, the world's biggest rice importer, received offers for just two-thirds of the grain it sought at a tender yesterday at prices about 40 percent higher than in March. The country, which shipped in 1.9 million tons of rice last year, fills 10 percent to 15 percent of local needs from imports.
Slowing Purchases
The jump in rice prices has forced some buyers to cut the size of their orders, said Apichat Chansakulporn, managing director of President Agri Trading Ltd., Thailand's fourth-largest rice exporter.
``Clients are slowing their purchases because the prices are very high,'' Apichat said by phone from Bangkok today. Price gains were ``driven more by psychological impact than real demand and supply. The perception is now toward an uptrend.''
A global food crisis has reached ``emergency proportions,'' United Nations Secretary-General Ban Ki-Moon said April 14. The World Bank has forecast that 33 nations from Mexico to Yemen may face social unrest after food and energy costs increased.
China, the world's most populous nation, has started to block or tax some food-related exports to make sure that local supplies remain adequate. The country set a tax on rice shipments at 5 percent this year and started to tax wheat exports at 20 percent.
`Control Exports'
The world's fastest growing major economy announced yesterday that it was increasing the tax on fertilizer shipments to ``control exports'' and damp local prices, according to the Finance Ministry. China also turned down a Philippine request for wheat exports, Trade Minister Peter Favila said April 11.
Sumeth Laomoraphorn, president of C.P. Intertrade Ltd., Thailand's sixth-largest rice exporter, also said the pace of purchases from some nations was beginning to slow.
``Orders from China are slowing, they may perceive that fragrant and white rice from Thailand and Vietnam is overly expensive,'' Sumeth said today. ``Some African countries are chasing prices up, but some in that region are balking at buying more because they have limited financial resources.''
The Chicago rice contract's so-called relative-strength index reached 84 today, and has traded above 70 all this week. A reading above 70 is regarded among traders as a signal the price may be set to drop. The contract was at $24.16 at 8:50 a.m. in London.
Food Summit
The Philippines called this month for an Asian summit on escalating food prices, especially rice, and urged India, China, Japan and the members of the 10-state Association of Southeast Asian Nations to attend.
World leaders ``must come together and identify the issues, including rising fuel prices and rising demand,'' Al-Ghazim Wurie, the World Food Program's country director for the Philippines, said in an interview today. After collective steps to increase output ``we'll begin to see a downward trend in prices.''
Households in poorer countries spend a larger share of their income on food compared with those in richer nations, magnifying the impact of costlier rice, wheat and meat, according to the U.S. Department of Agriculture.
An average household in India spent 32 percent of its income on food last year compared with 6 percent for a household in the United States, data from the department show. The figure for Indonesia was 43 percent, and 36 percent for the Philippines.
``Poorer countries tend to suffer more than developed countries,'' HSBC's Neumann said. ``It is the poor who shoulder the biggest burden.''
Japan consumer confidence index 36.5 in March
Japanese consumer confidence worsened in March from three months earlier on a seasonallyadjusted basis, a government survey showed on Friday.
The Cabinet Office survey's sentiment index for general households, which includes views on incomes and jobs, was 36.5 in March, the lowest since June 2003 when it was 36.1. It was down from 38.8 in December. Seasonally adjusted figures are released only quarterly. The unadjusted monthly index for March stood at 36.7, up from 36.1 in February and rising for the first time in six months. "General households" are those with two or more people and a reading below 50 suggests consumer pessimism.
The Cabinet Office survey's sentiment index for general households, which includes views on incomes and jobs, was 36.5 in March, the lowest since June 2003 when it was 36.1. It was down from 38.8 in December. Seasonally adjusted figures are released only quarterly. The unadjusted monthly index for March stood at 36.7, up from 36.1 in February and rising for the first time in six months. "General households" are those with two or more people and a reading below 50 suggests consumer pessimism.
U.S. earnings tell tale of two economies
U.S. quarterly earnings so far tell a tale of two economies: those that do big business overseas like IBM are doing well, while companies more dependent on the American consumer like Harley-Davidson Inc are hurting.
There was broad-based weakness in earnings on Thursday from companies exposed primarily to the U.S. economy, as the sharp slowdown crimped demand for goods and services from the iconic Harley motorcycles to Marriott hotel rooms.
Harley-Davidson said it would report full-year earnings well below its forecast, while hotel operator Marriott International Inc said the slowing U.S. economy was taking a toll on travel spending.
"Things that are domestic and exposed to consumer discretionary spending -- absolutely they're having a bad time. This is a recession, and I would say its not time to buy these stocks yet," said David Bianco, chief U.S. equity strategist at UBS in New York.
But investors were encouraged by a strong showing from some of the large multinational companies that benefit from the weak dollar, either through the conversion of overseas profits into greenbacks or because they are more competitive against foreign rivals.
International Business Machines Corp provided the biggest lift to the Dow industrials on Thursday, after the computer services company, which is seen as a bellwether of business activity, raised its 2008 outlook late on Wednesday. IBM gets about two-thirds of its revenue from outside the United States.
The weak dollar and strong demand from emerging economies is also helping commodities producers.
Oil and gas explorer McMoRan Exploration Co posted a profit that significantly beat Wall Street expectations as oil and gas production and prices rose considerably.
As U.S. companies are increasingly exposed to overseas markets, their earnings are weathering the downturn, in contrast to previous recessions.
So far this quarter, the majority of the companies have exceeded their lowered forecasts. Of the 51 companies that have reported so far, 82 percent beat estimates compared with only 43 percent at this point last quarter, according to JPMorgan Securities.
"When we put it all together, the earnings haven't crumbled similar to past recessionary periods, the situation is much more well behaved," said Ned Riley, chief executive at Riley Asset Management.
"We're holding up well, but you only need one blue chip to do badly, or well, for that matter, and the feeding frenzy begins," Riley said.
IBM's strong results followed solid earnings from chip-maker Intel and reassured investors who had been concerned that big technology stocks would be the next victim of the downturn.
"In order for profits to collapse as they normally do in a recession, you need industrials, technology, materials and energy to decline sharply. It's those sectors that usually decimate S&P profits and that is just not happening at all," Bianco of UBS said.
In the fourth quarter of 2007, only three out of 10 sectors reported a decline in earnings, compared with eight out of 11 in the fourth quarter of the 2001 recession, according to a recent report by Thomson Financial.
"It's because those hyper-cyclical sectors have become global-cyclicals," Bianco said. "More than half their revenues come from abroad, so they're positively exposed to commodities and the weak dollar."
But, even among those companies with international exposure, there were some signs of trepidation, with diversified manufacturer United Technologies Corp, whose earnings topped expectations, giving a cautious full-year outlook due to the slowing economy.
"This quarter I am looking for more differentiation as to who is better able to maintain operating margins, who is not using macro(-economic) excuses," said Subodh Kumar, who heads investment firm Subodh Kumar & Associates.
"At the moment, that seems to be your IBMs, your Intels. Some of the industrials, on the other hand, are mentioning the economy and striking a more cautious note."
Financial services companies, however, did not get help from international exposure as their earnings were bludgeoned by the credit crisis. Large banks and brokers, such as Merrill Lynch, posted significant losses because they had more exposure to risky debt, while regional banks on average beat expectations.
But a lot of the bad news seems to already have been built into share prices, and financial-sector stocks have mostly risen this week.
There was broad-based weakness in earnings on Thursday from companies exposed primarily to the U.S. economy, as the sharp slowdown crimped demand for goods and services from the iconic Harley motorcycles to Marriott hotel rooms.
Harley-Davidson said it would report full-year earnings well below its forecast, while hotel operator Marriott International Inc said the slowing U.S. economy was taking a toll on travel spending.
"Things that are domestic and exposed to consumer discretionary spending -- absolutely they're having a bad time. This is a recession, and I would say its not time to buy these stocks yet," said David Bianco, chief U.S. equity strategist at UBS in New York.
But investors were encouraged by a strong showing from some of the large multinational companies that benefit from the weak dollar, either through the conversion of overseas profits into greenbacks or because they are more competitive against foreign rivals.
International Business Machines Corp provided the biggest lift to the Dow industrials on Thursday, after the computer services company, which is seen as a bellwether of business activity, raised its 2008 outlook late on Wednesday. IBM gets about two-thirds of its revenue from outside the United States.
The weak dollar and strong demand from emerging economies is also helping commodities producers.
Oil and gas explorer McMoRan Exploration Co posted a profit that significantly beat Wall Street expectations as oil and gas production and prices rose considerably.
As U.S. companies are increasingly exposed to overseas markets, their earnings are weathering the downturn, in contrast to previous recessions.
So far this quarter, the majority of the companies have exceeded their lowered forecasts. Of the 51 companies that have reported so far, 82 percent beat estimates compared with only 43 percent at this point last quarter, according to JPMorgan Securities.
"When we put it all together, the earnings haven't crumbled similar to past recessionary periods, the situation is much more well behaved," said Ned Riley, chief executive at Riley Asset Management.
"We're holding up well, but you only need one blue chip to do badly, or well, for that matter, and the feeding frenzy begins," Riley said.
IBM's strong results followed solid earnings from chip-maker Intel and reassured investors who had been concerned that big technology stocks would be the next victim of the downturn.
"In order for profits to collapse as they normally do in a recession, you need industrials, technology, materials and energy to decline sharply. It's those sectors that usually decimate S&P profits and that is just not happening at all," Bianco of UBS said.
In the fourth quarter of 2007, only three out of 10 sectors reported a decline in earnings, compared with eight out of 11 in the fourth quarter of the 2001 recession, according to a recent report by Thomson Financial.
"It's because those hyper-cyclical sectors have become global-cyclicals," Bianco said. "More than half their revenues come from abroad, so they're positively exposed to commodities and the weak dollar."
But, even among those companies with international exposure, there were some signs of trepidation, with diversified manufacturer United Technologies Corp, whose earnings topped expectations, giving a cautious full-year outlook due to the slowing economy.
"This quarter I am looking for more differentiation as to who is better able to maintain operating margins, who is not using macro(-economic) excuses," said Subodh Kumar, who heads investment firm Subodh Kumar & Associates.
"At the moment, that seems to be your IBMs, your Intels. Some of the industrials, on the other hand, are mentioning the economy and striking a more cautious note."
Financial services companies, however, did not get help from international exposure as their earnings were bludgeoned by the credit crisis. Large banks and brokers, such as Merrill Lynch, posted significant losses because they had more exposure to risky debt, while regional banks on average beat expectations.
But a lot of the bad news seems to already have been built into share prices, and financial-sector stocks have mostly risen this week.
India Orders Banks to Set Aside More Reserves to Cool Inflation
India's central bank ordered banks to set aside more money to cool lending, adding to government efforts to rein in inflation running near a three-year high.
The Reserve Bank of India will raise the cash reserve ratio to 8 percent from 7.5 percent in two phases by May 10, according to a statement in Mumbai yesterday. The increase, the first in 2008, will drain as much as 185 billion rupees ($4.6 billion) from the financial system.
India's inflation rate has more than doubled in the past four months amid soaring commodity and food prices, undermining support for Prime Minister Manmohan Singh's Congress party ahead of election due in a year's time. The central bank's move came a day after China, fighting to tame 11-year-high inflation, also told commercial lenders to set aside more cash.
``Given the huge political importance of inflation'' in India, we expect the Reserve Bank ``will continue its tightening measures,'' said Tushar Poddar, a Mumbai-based economist at Goldman Sachs Group Inc. ``The guiding principle would be to arrest inflationary expectations and further slow demand.''
The central bank said India's cash reserve ratio would be raised to 7.75 percent starting April 26 and to 8 percent effective May 10. The People's Bank of China increased the required reserve ratio to a record 16 percent.
Prime Minister Singh's Congress party, which was defeated in five of seven state polls in 2007 and failed to secure power in three this year, needs to curb prices to bolster its electoral prospects.
Interest Rates
Reserve Bank Governor Yaga Venugopal Reddy has raised the central bank's key policy interest rates nine times since October 2004 and the cash reserve ratio five times since December 2006 until yesterday.
The level of inflation is unacceptable and the central bank will announce a response in its April 29 monetary policy statement, Reddy said on April 15.
``The cash reserve ratio increase has come at a very right time,'' said Krish Ramkumar, who manages the equivalent of $1.1 billion in Indian debt at Sundaram BNP Paribas Asset Management in Mumbai. ``I still expect the repurchase rate to be hiked to 8 percent from 7.75 percent'' in this month's policy statement.
Yesterday's increase came after several fiscal measures by the government earlier this month, including bans on the export of some food staples such as pulses and types of rice.
Slower Growth
Finance Minister Palaniappan Chidambaram said in parliament this week that apart from fiscal measures, cracking down on hoarding and price cartels, inflationary expectations had to be quelled by reducing liquidity and tempering demand.
India's inflation rate was 7.14 percent in the week ended April 5 from a year earlier, after gaining 7.41 percent in the previous week, the Ministry of Commerce and Industry said in New Delhi yesterday. Economists had expected a 7.23 percent increase.
``The worst seems to be over for inflation,'' said Prasanna Ananthasubramaniam, a fixed-income analyst at ICICI Securities Ltd. in Mumbai. ``Bond yields should peak out now.''
Benchmark bond yields climbed to the highest level since June yesterday after crude oil's surge to a record stoked concern inflation will quicken further. The yield on the 7.99 percent note due July 2017 rose 4 basis points to 8.12 percent at the close in Mumbai. The cash reserve ratio announcement was made after trading ended.
There may be some respite from rising prices if the monsoon forecast is borne out.
India's monsoon rains are expected to be sufficient this year for farmers to plant rice, wheat and oilseeds, Science and Technology Minister Kapil Sibal said April 16. That may reduce the nation's dependence on imports and help stave off pressure on global food prices, which have caused social unrest in 33 countries from Mexico to Yemen.
The Reserve Bank of India will raise the cash reserve ratio to 8 percent from 7.5 percent in two phases by May 10, according to a statement in Mumbai yesterday. The increase, the first in 2008, will drain as much as 185 billion rupees ($4.6 billion) from the financial system.
India's inflation rate has more than doubled in the past four months amid soaring commodity and food prices, undermining support for Prime Minister Manmohan Singh's Congress party ahead of election due in a year's time. The central bank's move came a day after China, fighting to tame 11-year-high inflation, also told commercial lenders to set aside more cash.
``Given the huge political importance of inflation'' in India, we expect the Reserve Bank ``will continue its tightening measures,'' said Tushar Poddar, a Mumbai-based economist at Goldman Sachs Group Inc. ``The guiding principle would be to arrest inflationary expectations and further slow demand.''
The central bank said India's cash reserve ratio would be raised to 7.75 percent starting April 26 and to 8 percent effective May 10. The People's Bank of China increased the required reserve ratio to a record 16 percent.
Prime Minister Singh's Congress party, which was defeated in five of seven state polls in 2007 and failed to secure power in three this year, needs to curb prices to bolster its electoral prospects.
Interest Rates
Reserve Bank Governor Yaga Venugopal Reddy has raised the central bank's key policy interest rates nine times since October 2004 and the cash reserve ratio five times since December 2006 until yesterday.
The level of inflation is unacceptable and the central bank will announce a response in its April 29 monetary policy statement, Reddy said on April 15.
``The cash reserve ratio increase has come at a very right time,'' said Krish Ramkumar, who manages the equivalent of $1.1 billion in Indian debt at Sundaram BNP Paribas Asset Management in Mumbai. ``I still expect the repurchase rate to be hiked to 8 percent from 7.75 percent'' in this month's policy statement.
Yesterday's increase came after several fiscal measures by the government earlier this month, including bans on the export of some food staples such as pulses and types of rice.
Slower Growth
Finance Minister Palaniappan Chidambaram said in parliament this week that apart from fiscal measures, cracking down on hoarding and price cartels, inflationary expectations had to be quelled by reducing liquidity and tempering demand.
India's inflation rate was 7.14 percent in the week ended April 5 from a year earlier, after gaining 7.41 percent in the previous week, the Ministry of Commerce and Industry said in New Delhi yesterday. Economists had expected a 7.23 percent increase.
``The worst seems to be over for inflation,'' said Prasanna Ananthasubramaniam, a fixed-income analyst at ICICI Securities Ltd. in Mumbai. ``Bond yields should peak out now.''
Benchmark bond yields climbed to the highest level since June yesterday after crude oil's surge to a record stoked concern inflation will quicken further. The yield on the 7.99 percent note due July 2017 rose 4 basis points to 8.12 percent at the close in Mumbai. The cash reserve ratio announcement was made after trading ended.
There may be some respite from rising prices if the monsoon forecast is borne out.
India's monsoon rains are expected to be sufficient this year for farmers to plant rice, wheat and oilseeds, Science and Technology Minister Kapil Sibal said April 16. That may reduce the nation's dependence on imports and help stave off pressure on global food prices, which have caused social unrest in 33 countries from Mexico to Yemen.
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