Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


US stocks surge on latest data
By Michael Mackenzie and Telis Demos in New York
Copyright The Financial Times Limited 2010
Published: September 24 2010 22:53 | Last updated: September 24 2010 22:53
http://www.ft.com/cms/s/0/8b2b2b0a-c824-11df-ae3a-00144feab49a.html


US stocks surged on Friday in what analysts have described as a “stealth rally”, putting the S&P 500 index on track for its best month in a decade.

Gains reflected hopes that the US economy would avoid a double-dip recession and that cash-rich corporations would buy back more of their own shares.

But the rally was marked by light volume, as has often been the case on Wall Street since May’s “flash crash” rattled retail investors, raising concerns about its sustainability.

“Sometimes volume goes down because you don’t have believers,” said John Schlitz, chief market technician at the Instinet brokerage.

The S&P 500 rose 2.12 per cent to 1,148.67, giving it a gain of 9.47 per cent in September, the best month for the index since a rise of 9.7 per cent when the internet bubble peaked in March 2000. It would be the best September since 1939, when stocks rose 16.5 per cent.

With four trading days in the month left next week, the world’s most followed equity benchmark is also within sight of the 11.2 per cent gain posted in December 1991.

The trigger for Friday’s advance was the release of durable-goods data for August that showed rising business investment in most sectors.

Investors who have been selling stocks short in hopes of profiting from declines rushed to close out their positions. Short interest in New York Stock Exchange-traded shares had hit a 52-week high at the end of August.

“People were gearing up for terrible economic data in September, but it didn’t materialise,” said Paul Hickey, of Bespoke Investment Group. Analysts said investors were also hopeful about the prospects for corporate earnings. For the 2010 calendar year, Thomson Reuters said analysts expect earnings per share of $83.43 for the S&P 500, followed by a rise to $95.37 in 2011, surpassing the record $88.18 in 2006.

Stocks with high dividend yields, seen as defensive investments, have also rallied sharply as they compare favourably with lower US bond yields.

“We have avoided a double-dip recession for now and during September, investors also started to see companies are staying lean and mean which is good for their earnings,” said Marc Pado, US market strategist at Cantor Fitzgerald.

With more cash on hand, companies are buying back more of their stock. S&P Indices predicted that share buy-backs will outpace dividends for the rest of 2010, with companies spending at least $300bn, more than double the $137.6bn spent in 2009.

This has helped compensate for a lack of participation by cautious retail investors. Hefty outflows from mutual funds have continued during September, although that has been offset to some extent with solid demand for exchange-traded funds linked to the S&P 500.





Rescue of US credit unions launched
By Suzanne Kapner in New York
Copyright The Financial Times Limited 2010
Published: September 25 2010 02:05 | Last updated: September 25 2010 02:05
http://www.ft.com/cms/s/0/d05ad404-c834-11df-a5ee-00144feab49a.html


Federal regulators have unveiled a multibillion-dollar rescue of wholesale credit unions, which have suffered big losses from risky mortgage-backed securities.

Known as “banker’s banks”, wholesale credit unions do not deal with everyday consumers but rather invest money and provide cheque-clearing services for retail credit unions, the member-owned co-operatives that are similar to savings banks.

As part of the rescue, regulators will seize three wholesale credit unions – after the biggest two were seized in March – and hive off about $50bn of troubled assets into government-managed “bad banks”.

The move brings the tally of failed wholesale credit unions to five out of 27 since the financial crisis began. It marks the latest government effort to bail out banks that binged on risky mortgage-backed securities.

“This action will create stronger safeguards for the nation’s entire credit union system,” said Debbie Matz, who chairs the National Credit Union Administration, the federal regulator.

To finance the rescue, the NCUA will issue up to $35bn in bonds backed by the troubled mortgage assets that will carry a government guarantee. Regulators also issued new rules that prohibit the surviving wholesale credit unions from making more investments in “private label” mortgage-backed securities, withdrawing billions of dollars from the market at a time when other sources of funding have dried up.

Larry Fazio, the NCUA’s deputy director, said losses on the troubled securities stood at about $21bn, down from $30bn at the peak of the credit crisis in late 2008, largely because market values had improved. Federal guidelines said credit unions were supposed to invest primarily in safe assets. But to boost returns, some loaded up on riskier subprime home loans.





Norway’s central bank sues Citigroup
By Andrew Ward in Stockholm and Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 24 2010 19:09 | Last updated: September 24 2010 19:09
http://www.ft.com/cms/s/0/7b35e5b0-c800-11df-ae3a-00144feab49a.html


Norway’s central bank has sued Citigroup for alleged misstatements over the company’s financial condition before the financial crisis, which it claims caused heavy losses to the Norwegian sovereign wealth fund.

In a lawsuit filed in New York, Norges Bank alleged that it lost $835m because Citigroup failed to fully reveal the financial risks it was facing – particularly from investments in subprime mortgages.

The suit names Vikram Pandit, the group’s current chief executive, and Chuck Prince, his predecessor, among the defendants.

“Due to the defendants’ repeated material untrue statements and non-disclosure of material information to investors, plaintiff purchased Citi securities at inflated prices [between January 2007 and January 2009],” the lawsuit said.

“When the market slowly learned the truth of Citi’s financial condition, Citi came close to insolvency, and plaintiff lost a substantial amount of its investment.”

Citi denied the allegations. “We believe the suit has no merit and will defend ourselves vigorously,” said Danielle Romero-Apsilos, a Citigroup spokeswoman.

Norges Bank invested in Citigroup in its role as manager of Norway’s $440bn “oil fund” – the world’s second-largest sovereign wealth fund after Abu Dhabi’s.

The Norwegian fund, into which the country invests its oil wealth for future generations, lost 23 per cent of its value in 2008 as global markets plummeted but has since recovered most of the losses.

The lawsuit is the latest in a series of legal actions against Citigroup and other big US institutions from investors who lost money in the financial crisis.

Last year, the Abu Dhabi Investment Authority filed an arbitration against Citigroup accusing the US bank of misleading it over a $7.5bn investment the fund made in the bank in 2007.

The Abu Dhabi fund alleged “fraudulent misrepresentations in connection with the sale” and sought “rescission of the investment agreement or damages in excess of $4bn”. Citigroup said the allegations were without merit.

The latest lawsuit was not the first against Citigroup from Norway.

Last year, seven Norwegian municipalities sued Citigroup over the sale of more than $115m in derivatives in 2007.