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Monday, November 2, 2009


Most Asian markets drop after Wall Street decline
Asian-Pacific stocks mostly closed lower Monday, after a poor performance Friday by the Dow Jones Industrial Average. Japan's Nikkei 225 fell 2.3%, Australia's S&P/ASX 200 lost 2.2% and South Korea's Kospi Composite declined 1.4%. Hong Kong's Hang Seng Index slipped 0.6%, New Zealand's NZX 50 dropped 1% and Taiwan's Taiex inched down 0.1%. Meanwhile, China's Shanghai Composite jumped 2.7%. The Wall Street Journal (02 Nov.)

Bondholders back CIT's filing of prepackaged bankruptcy
CIT Group's prepackaged bankruptcy has the backing of an overwhelming majority of bondholders and is designed to put the lender back in business after reorganization under Chapter 11 protection. If the lender emerges from bankruptcy as planned, it will be largely owned by creditors. "The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small-business and middle-market customers, two sectors that remain vitally important to the U.S. economy," said Jeffrey Peek, CIT's outgoing chairman and CEO. In the process, U.S. taxpayers are almost certain to lose their $2.3 billion investment in the firm. Forbes (01 Nov.)
CIT listed $71 billion in assets and $64.9 billion in debt in a Chapter 11 filing in U.S. Bankruptcy Court in Manhattan. The U.S. Treasury Department said the government probably won’t recover much, if any, of the $2.3 billion in taxpayer money that went to CIT.

Goldman in negotiations to buy tax credits from Fannie Mae
Fannie Mae could receive some financial respite by selling millions of dollars in tax credits to Goldman Sachs, but the U.S. Treasury opposes the deal and could block it. The Obama administration is concerned about the agreement, which would help the investment bank lower its tax bill. The "Treasury is reviewing and will not let it proceed unless it is clearly in the taxpayers' interest," said department spokesman Andrew Williams. The Wall Street Journal (02 Nov.)

Companies have increased cash holdings since crisis
The 500 biggest nonfinancial companies in the U.S. were holding about 9.8% of their assets in cash in the second quarter, up from 7.9% the year before. Companies are holding onto more cash than at any other period in the past 40 years, according to this article. "Everyone is hoarding cash," said Carsten Stendevad, head of Citigroup's financial-strategy group. The Wall Street Journal (11/2)

Traders move nervously into stocks, then into cash
Traders are moving nervously in and out of stocks, dollars, corporate bonds and gold, analysts said. A large supply of cash available, because of quantitative easing by the Federal Reserve, created this trading. Last week, the Dow Jones Industrial Average went up and down a 400-point spread, finally closing down 249.85 points Friday. Meanwhile, the U.S. dollar index finished 0.5% higher. "We've got this very unstable situation in which Fed policy is dictating the behavior of so many assets," said Dean Curnutt, president of Macro Risk Advisors. "The dollar is at the nexus of this." The Wall Street Journal (02 Nov.)

Australia's largest IPO in 2 years falls flat
Australia's biggest initial public offering in two years got a flat reception. Department-store chain Myer Holdings was introduced at the low end of its indicated range of pricing, then its stock dropped 5.4%. The company is owned by a private-equity firm, and the move suggests a poor future for this kind of exit for such companies, analysts said. The New York Times/Reuters (01 Nov.)

Private equity struggles with weak IPOs
The private-equity industry is struggling to use initial public offerings for exits, as investors avoid offerings with a high level of debt, analysts said. Last week, an IPO was postponed for energy company AEI, which has $2.9 billion in debt, because investors would not put up the offering price. Several other recent IPOs have not performed well. "Investors are more focused than ever before on buying healthy balance sheets," said Timothy Monfort of Jefferies. "They don't want to see a stopgap measure, and they want to know that the equity investment offers a complete solution for the company." Bloomberg (02 Nov.)

China's manufacturing PMI increases for October
China's manufacturing sector saw growth last month. The sector's purchasing managers' index increased 0.9 percentage points from September to 55.2%, the China Federation of Logistics and Purchasing said. A reading of more than 50 indicates expansion. The index is compiled from a survey of 700 manufacturers. China Daily (Beijing)/Xinhua News Agency (02 Nov.)

Economist: U.K. public finances to need £350 billion
The U.K. will need to cut spending and increase taxes by £350 billion during the next five years, Deloitte economic adviser Roger Bootle was expected to say. Bootle forecast that the government debt will hit 15% of GDP this year, which is higher than what it was when the country sought aid from the International Monetary Fund in the 1970s. The Times (London) (02 Nov.)

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