US & World Daily Markets Financial Briefing 10-09-2008

US STOCKS-Wall St rises on Lehman, tech, FedEx

NEW YORK - U.S. stocks rose on Wednesday after embattled Lehman Brothers announced steps that investors said may help the investment bank bolster its capital position, easing worries about its stability.

Positive outlooks from chip maker Texas Instruments and shipper FedEx added to the stronger opening. Investors bought beaten-down stocks after The broader market suffered its worst slide in more than a year on Tuesday.

The Dow Jones industrial average was up 25.65 points, or 0.23 percent, at 11,256.38. The Standard & Poor's 500 Index was up 5.12 points, or 0.42 percent, at 1,229.63. The Nasdaq Composite Index was up 13.77 points, or 0.62 percent, at 2,223.58.

Lehman Bros. sees 3Q loss; slashes dividend; to spin-off assets

BOSTON - Lehman Brothers Holdings Inc. Wednesday said it expects to report a loss for its fiscal third quarter and plans to spin-off to its shareholders a vast majority of its commercial real estate portfolio into a
separate publicly-traded company.
    
The company said it sees a third-quarter loss of $3.9 billion, or $5.92 a share, compared to net income of $887 million, or $1.54 a common share, in the year-ago period. The net loss was driven primarily by gross mark-to-market adjustments stemming from writedowns on commercial and residential mortgage and
real estate assets.
   
Lehman expects revenue for the quarter to be negative $2.9 billion, compared to positive $4.3 billion for the same period a year earlier. Analysts polled by Thomson Reuters, on average, are forecasting a loss of
$3.35 a share on revenue of $286.3 million.
   
The New York-based company said it expects to incur negative gross mark-to-market adjustments on assets of $7.8 billion in the third quarter.
   
In conjunction with its preliminary third quarter results, Lehman announced a plan of initiatives to "dramatically" reduce its commercial real estate and residential mortgage exposure, generate additional capital and reduce the annual dividend.
   
Lehman intends to spin-off to its shareholders $25 billion to $30 billion of its commercial real estate portfolio into a separate publicly-traded company in the first quarter of 2009. Additionally, the company plans to sell a majority stake (estimated to be about 55%) in a subset of its Investment Management
division.
   
The company has also decided to cut its annual common dividend to 5 cents from 68 cents, enabling it to retain $450 million annually.
   
Lehman said it took "several steps to significantly reduce" its real estate portfolio in the third quarter. The company said it reduced its residential mortgage exposure by 31% to $17.2 billion and its commercial real estate exposure by 18% to $32.6 billion. Shares of the investment bank fell 3 cents to $7.76 in premarket trades on volume of about 10.5 million.

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FOREX-Dollar pressured vs yen after Lehman Q3 results

LONDON - The dollar cut gains against the yen on Wednesday, while the Japanese currency hit an 13-month high versus the euro after embattled Wall Street investment bank Lehman Brothers reported its third quarter results.

Lehman, whose share price plunged 45 percent on Tuesday on growing concerns about its capital situation, reported a loss of $5.92 per share, slashed dividends and said it is actively in talks to sell assets.

The U.S. currency also trimmed gains against a basket of currencies, weighed by an early rebound in oil prices from a five-month low after the world's major oil producers agreed to a small but unexpected production cut.

"The dollar has come under initial pressure," said Ian Stannard, senior foreign exchange strategist at BNP Paribas. "The market may have been hoping for more news regarding capital raising ... this doesn't seem to be the case, so concerns about the banking system remain in place."

The Korean Development Bank said earlier in the day it had ended talks over possible investment in Lehman, with the bank's ongoing woes highlighting nagging problems in the financial sector and prompting a wave of risk aversion.

Abating risk appetite prompted the Japanese unit to score a 13-month high against the euro at 150.15 yen  as market participants said low-risk currencies like the yen would stay in favour as the market endures the latest in the financial sector storm.

By 1218 GMT, the dollar stood at 106.77 yen, flat on the day compared with 107.47 yen prior to the results. It traded 0.2 percent higher against a basket of major currencies .

The euro fell nearly 0.4 percent to $1.4082, dragged down by its losses against the yen, while increasing worries about a growth slowdown in the euro zone kept the single currency near an 11-month low of $1.4045 hit on Tuesday.

Traders showed limited initial reaction to European Central Bank President Jean-Claude Trichet, who on Wednesday told the European Parliament it would be naive to think markets will return to their pre-turbulence state

Initial news the KDB was seeking a controlling stake in Lehman had knocked the Japanese currency down and boosted the Australian and New Zealand dollar up more than 1 percent each.

But the announcement the talks had ended in disagreement enabled the yen to trim those losses, as the news suggested an immediate solution to Lehman's problems seems unlikely.

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Europe stocks sag as Lehman hits banks; Sanofi up

PARIS - European stocks fell early on Wednesday, led by banks after troubles surrounding Wall Street firm Lehman Brothers reignited fears over the health of the banking system.

But the drop was limited by gains in the pharmaceutical sector, with French drugmaker Sanofi-Aventis rising 3.8 percent on expectations Chief Executive Gerard Le Fur would be replaced by GlaxoSmithKline executive Chris Viehbacher.

At 0810 GMT, the FTSEurofirst 300 index of top European shares was down 0.2 percent at 1,153.12 points. Lehman shares sank as much as 46 percent on Tuesday on rising fears the fourth-largest Wall Street investment bank will not be able to raise the capital it desperately needs to survive the global credit crisis.

Adding to the gloom, Korea Development Bank confirmed talks had ended for now with Lehman over a possible investment because of disagreement over terms and considering financial market conditions.

European banks were among the biggest losers, with Banco Santander down 2.1 percent and Barclays down 2.6 percent. The DJ Stoxx bank index was down 1.5 percent. The index has fallen 30 percent in the year to date.

But Lehman shares in Frankfurt were up more than 10 percent. "Lehman's meltdown won't probably be the last negative episode of this credit crisis," said Christian Jimenez, president of Imene Investment partners, in Paris.

"The consequences of the troubles in the banking system will continue to drag the economy, and stocks will stay in the doldrums for a while before we see any durable rebound."

Stocks markets around the world jumped on Monday as investors applauded Washington's move to rescue embattled mortgage firms Fannie Mae and Freddie Mac.  But the rally was short lived and U.S. stocks sank on Tuesday on rising fears over the faith of Lehman Brothers.

"The U.S. Treasury is unlikely to rush to their aid, or any other U.S. institution for that matter, after having bailed out Fannie and Freddie in such emphatic fashion," Simon Denham, managing director at Capital Spreads, wrote in a note.

"So, now that it's most likely that corporate U.S. is going to be left to fend for itself, confidence in equities seems to have almost completely disappeared."

Lehman brought forward the release of "key strategic initiatives" and quarterly results by a week to 1130 GMT on Wednesday.

The FTSEurofirst 300 has lost 24 percent so far this year, hit by recession fears, worries over inflation as well as concerns on the impact of a crisis in the credit market on the banking sector.

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Asian stock market summary

JAPAN
The Nikkei 225 Stock Average was 0.4 percent lower at 12,346.63, after financially troubled U.S. investment bank Lehman Brothers Holdings Inc. failed to raise fresh capital.

SOUTH KOREA
The Korea Composite Stock Price Index closed up 0.72 percent at 1,464.98, with Hynix gaining on prospects for a stake sale and investors shrugging off reports North Korea's leader was gravely ill.

CHINA
The benchmark Shanghai Composite Index closed up 0.23 percent at 2,150.76, after the August consumer price index came in better than expected, even as producer prices remained at high levels.
   
The Shanghai A-share Index was up 0.23 percent at 2,257.40, and the Shenzhen A-share Index rose 0.50 percent to 615.92.
   
The Shanghai B-share Index was up 0.46 percent to 143.35, while the Shenzhen B-share Index was down 0.85 percent at 350.21.

AUSTRALIA
The benchmark S&P/ASX 200 index gave up 74.6 points to close at 4,905.5, as miners slid on falling metals prices and banks fell on fresh worries about U.S. banks' ability to cope with mortgage losses.

TAIWAN
The weighted index closed up 0.52 percent at 6,458.01, as hopes for government support measures offset early weakness caused by concerns over troubles at US investment bank Lehman Brothers.

HONG KONG
The Hang Seng index closed down 491.33 points or 2.4 pct at 19,999.78, off a low of 19,951.36 and high of 20,283.99.

INDIA
The benchmark 30-share Sensex of the Bombay Stock Exchange fell 238.15 points or 1.6 percent to 14,662.61 while the broader 50-share S&P CNX Nifty of the National Stock Index shed 68.45 points or 1.53 percent to 4,400.25.

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Oil up on OPEC output cut

LONDON - Oil rose on Wednesday following a surprise decision by OPEC to cut production, after slowing demand from the United States and other large consumers sent prices down 30 percent over the past two months.

The Organization of the Petroleum Exporting Countries (OPEC) said it had agreed to revise its output targets to 28.8 million barrels per day (bpd), which the group's president said effectively meant reducing supply by about 520,000 bpd versus July over the next 40 days.

"Since the market is over-supplied, the conference agreed to abide by September 2007 production allocations (adjusted to include new members Angola and Ecuador and excluding Indonesia and Iraq), totalling 28.8 million bpd," the group said in a communique.

Most analysts had expected the group to maintain formal targets. U.S. crude rose 68 cents to $103.94 a barrel by 10:17 a.m. On Tuesday, it fell to as low as $101.74, the cheapest price in five months.

London Brent crude rose 77 cents to $101.11, after falling below $100 on Tuesday for the first time since April. "We think this is a serious deal for a real cut...In this market, direction matters and this is a turn," UBS economist Jan Stuart said in a report.

However, the gains in prices were limited as the International Energy Agency (IEA) lowered its 2008 world oil demand growth forecast by 100,000 bpd due to the impact of weaker economic conditions and high prices in its monthly oil market report.

The IEA, adviser to 27 industrialized countries on energy policy, also trimmed its forecast for 2009 global demand growth by 40,000 bpd to 890,000 bpd.

Traders would shift their focus to the U.S. weekly oil statistics due out later on Wednesday for market direction. Analysts in a Reuters poll expect U.S. government oil inventory data to show a sharp fall in crude oil and refined product stocks due to production and import disruptions caused by Hurricane Gustav.

Crude oil stocks in the United States were seen falling 4.4 million barrels in the week to September 5. Gasoline stocks were seen down by 4.2 million barrels and distillates by 2.7 million barrels.

Hurricane Ike's progress toward the U.S. Gulf of Mexico kept most oil and natural gas production shut in for a second week. Its path has recently shifted south and west of the biggest concentration of production platforms, aiming instead toward the Texas refining hub of Corpus Christi.

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