RBS May Cut 7,000 Investment Banking Jobs, People Say

Royal Bank of Scotland Group Plc, Britain's second-largest bank, may cut about 7,000 jobs following the purchase of ABN Amro Holding NV's securities unit and credit market losses, said two people with knowledge of the plan.

``Since the acquisition of ABN Amro we have consistently said that as we brought our two wholesale banking businesses together there would be job losses over the course of the next two years,'' RBS said in a statement today. ``In light of current conditions in some parts of the global credit markets we are also looking at the appropriate size for our businesses affected by this downturn.''

The Edinburgh-based bank is reviewing all jobs in its global securities and corporate lending unit, and the biggest reductions will likely be made in the enlarged debt trading and corporate lending businesses, said the people, who declined to be identified because the matter is confidential. The job cuts would amount to almost 25 percent of the more than 28,000 people at the division.

``This is more than just normal integration of two businesses,'' said Mike Trippitt, an analyst at Oriel Securities Ltd. in London who rates RBS ``hold.'' ``These businesses, even if they hadn't been merged, would be making job losses. Credit businesses and asset-backed businesses are going nowhere.''

RBS rose 5.75 pence, or 1.7 percent, to 354.75 pence by 3:04 p.m. in London trading. The stock has fallen 20 percent this year, compared with the 13 percent decline in the Bloomberg Europe Banks and Financial Services Index.

The planned cuts were reported earlier today by the Financial Times.

Record Takeover

Chief Executive Officer Fred Goodwin announced plans last week to raise 12 billion pounds ($23.9 billion) and sell RBS's insurance operations to shore up its balance sheet after the ABN Amro acquisition and credit market losses. RBS, Citigroup Inc. and UBS AG are among banks seeking about $217 billion from investors to replenish capital, data compiled by Bloomberg show.

Banks and brokerage firms around the world have cut about 49,000 jobs in the past 10 months as revenue from fixed income and investment banking tumbles.

Last year, RBS led Spain's Banco Santander SA and Fortis in the three-way, 72 billion-euro ($113 billion) acquisition of Amsterdam-based ABN Amro, the largest Dutch bank. RBS, which kept the investment-banking and Asian operations, announced 5.9 billion pounds of writedowns last week on U.S. mortgages, credit-related assets and leveraged loans. About a third came from ABN Amro.

RBS will eliminate ``notably more'' corporate banking jobs than it originally planned because of the seizure in credit markets, corporate lending head Johnny Cameron said last week.

The bank's global corporate unit includes rates, commodities, currencies and credit trading as well as corporate lending and loans for leveraged buyouts. The bank may hire in areas such as commodities, foreign exchange and emerging markets, said the people.

Mars Agrees to Buy Gum Maker Wrigley for $23 Billion

Mars Inc. agreed to purchase Wm. Wrigley Jr. Co. for $23 billion, with financing from Warren Buffett's Berkshire Hathaway Inc., combining the world's biggest maker of chewing gum with the producer of M&Ms chocolate.

Wrigley, with $5.39 billion in sales in 2007, surged 23 percent in New York trading today after the companies said Mars would pay $80 for each Wrigley share. Mars, which generates $22 billion in annual revenue, is offering 28 percent more than Wrigley's closing price on April 25.

Uniting Mars, which also makes Snickers, and the 117-year- old Wrigley creates a company to compete with chocolate maker Hershey Co. and Cadbury Schweppes Plc, the world's largest candy maker. U.S. confectionary companies are exploring combinations as competition intensifies and milk and sugar prices rise. Gum has higher margins than chocolate and is growing faster, Mirabaud Securities analyst Julian Lakin said.

``There's really nothing that can go wrong with something like the Wrigley and Mars brands,'' Buffett, Berkshire's billionaire chief executive officer, said today in an interview on the CNBC television network. ``People are eating more and more of their products every day.''

The purchase will be financed with $11 billion from Mars, $4.4 billion from Berkshire and $5.7 billion from Goldman Sachs Group Inc. Berkshire will also buy a $2.1 billion stake in the Wrigley unit once the purchase is completed.

Wrigley jumped $14.14 to $76.59 at 10:27 a.m. in New York Stock Exchange composite trading. The shares had gained 6.7 percent this year before today. McLean, Virginia-based Mars is closely held.

`Great Price'

``It's a great price,'' said Thomas Burnett, director of research at New York-based Wall Street Access. ``Nobody is going to pay more than that. Who is going to go up against Mars and Buffett?'' He doesn't own shares of Wrigley or Berkshire.

Sales at Wrigley may rise 9 percent this year, the slowest pace since 2000, according to the average estimate of nine analysts surveyed by Bloomberg. Competition from London-based Cadbury's Trident and Dentyne gums in the U.S. has eroded its market share. Cadbury, the maker of Dairy Milk chocolate, bought Pfizer Inc.'s Adams candy unit for $4.2 billion in 2003 to become the world's second-largest maker of chewing gum.

Since November 2006, Mars has been winning market share in the U.S., while Hershey's has dropped, Alexia Howard, a Sanford C. Bernstein analyst who recommends investors sell Hershey, wrote in an April 11 note to investors.

`Strategic Sense'

``The deal appears to make strategic sense for Mars as it would give the global confection leader even greater scale as well as global distribution,'' Eric Katzman, an analyst with Deutsche Bank Securities Inc., wrote in a research note today before the announcement. Other companies may be forced to consider a merger, he said.

The trust that controls Hershey discussed ways to merge the chocolate company with Cadbury in a way that wouldn't decrease the trust's ownership, the Wall Street Journal reported last year. Cadbury will split off its U.S. drinks unit May 7 and begin trading as two separate companies: Cadbury Plc in London and Dr Pepper Snapple Group in the U.S.

Hershey rose as much as 7.3 percent in New York trading, while Cadbury climbed 2.4 percent in London.

In 2006, Wrigley named former Nike Inc. chief William Perez president and CEO, the first person outside the Wrigley family to head the company.

Gum Growth

Gum is the ``fastest-growing sector,'' said Lakin, who is based in London and recommends investors ``hold'' Cadbury stock. ``The consumer finds it attractive because it's mostly calorie free. This could give Cadbury a tough time.''

William Wrigley Jr. began selling soap in Chicago in 1891 and eventually turned to chewing gum, an item he was giving away for free with each sale, according to Wrigley's corporate Web site. He introduced Juicy Fruit and Wrigley's Spearmint in 1893, two brands the company still sells today.

Mars, founded in 1911 by Frank C. Mars, is still family owned. The company gets about 45 percent of revenue from chocolates and other snacks. Its biggest division is pet food, which sells Whiskas cat food and Pedigree for dogs, and accounts for 46 percent of sales, according to the company's Web site.

Berkshire Hathaway, based in Omaha, Nebraska, has about $40 billion to spend on acquisitions. Buffett, 77, has built Berkshire over four decades from a failing textile maker into a $195 billion holding company with businesses ranging from candy making to insurance.

Berkshire has stakes in companies including Coca-Cola Co. and Buffett ranks as the world's richest person, according to Forbes magazine.

Additional financing as well as advice is coming from JPMorgan Chase & Co, Mars said. Simpson Thacher & Bartlett LLP is acting as its legal counsel.

Goldman Sachs and William Blair Inc. provided Wrigley with financial advice. Skadden, Arps, Slate, Meagher & Flom, LLP served as legal adviser.

Merrill CEO Thain says no plans to take White House job if McCain wins

Merrill Lynch & Co. Chief Executive John Thain said Thursday he has no plans to leave the brokerage and work at the White House if John McCain is elected president.

Thain, who is chairman of McCain's finance committee, said at the company's annual meeting that he is not posturing to become Treasury secretary or to take any other economy-related post. A number of Wall Street executives have moved into public service, including the current Treasury Secretary, Henry Paulson, who had been CEO of Goldman Sachs.

Merrill Lynch brought Thain on board last year after the ouster of former CEO Stan O'Neal amid steep losses linked to the credit crisis. Thain has pledged to beef up the company's balance sheet and cut back on expenses.

The world's largest brokerage last week said it would cut another 3,000 jobs after more than $6.5 billion (€4.1 billion) of fresh write-downs pushed it to a loss for the first quarter.

Despite the losses, Thain on Thursday dismissed speculation he was considering a plan to raise capital by selling the brokerage's 20 percent stake in news and financial data provider Bloomberg LP.

"We intend to keep it," Thain said, adding that Bloomberg has not offered to repurchase the stake.

Thain, like other investment bank chiefs, said he sees some improvement in the credit crisis that began last summer but that it "hasn't totally gone away."

He did not provide any earnings guidance for the year, but suggested the financial climate would be difficult.

"When I look out over the course of the rest of 2008, I look at the economic environment in the U.S. — I think it's going to be challenging," he said. "Falling home prices, high energy costs, higher food prices, and you have to look at rising unemployment. All of that is likely to put downward pressure on the economy."

Merrill Lynch said after the meeting that it declared a regular quarterly dividend of 35 cents per share that is payable to shareholders of record on May 8. It also declared dividends for a number of preferred stock holdings.

Shares of Merrill Lynch rose $2.06, or 4.6 percent, to $46.97 in midday trading.

Japan May Escape Recession on Chinese Export Demand

Japan has followed the U.S. into every recession in the past three decades. This time may be different.

Since 1970, when the U.S. accounted for 30 percent of Japanese exports, each of its five recessions triggered a decline in Japan's shipments abroad. Now, that figure is only 20 percent, reflecting the success of companies including Toyota Motor Corp. and Hitachi Construction Machinery Co. to take advantage of the opening of Chinese and Russian markets.

Japanese companies have also streamlined production and reduced debt since the bursting of the late-1980s stock and property-price bubbles that ushered in more than 10 years of stagnation. The result: The world's second-largest economy is better positioned to withstand a slump in the biggest economy.

``The U.S. is no longer the absolutely dominant market it used to be,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London. ``Japan itself is in much better health. It's transformed itself after the lost decade.''

This month the two most bearish brokers on Japan -- Goldman Sachs Group Inc. and Morgan Stanley -- backed off from predictions that Japan would slide into a recession this year.

The catalyst was an April 17 revision to figures for February industrial production that showed output rose to a record rather than fell.

Interest-Rate Shift

By the end of that day, bets the Bank of Japan would lower its key overnight rate by year-end had fallen to 4 percent, down from 71 percent on March 20, according to calculations by JPMorgan Chase & Co. Now investors see an 83 percent chance of a rate increase by December.

``I had to retreat from my call,'' said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo, who since February had been predicting a dual U.S.-Japan recession. He now predicts Japan's economy will go through a ``soft patch.''

Goldman, which since January had been telling clients that Japan was already in a recession, now forecasts the economy will expand at an annual rate of about 2 percent in the first quarter. That would match the average growth over the past five years.

Exports have risen in each of the past seven months, even as shipments to the U.S. fell. Shipments to China grew 45 percent in the past two years. Those to Russia doubled.

Toyota Sales

A 5.6 percent drop in U.S. vehicle sales didn't stop Toyota's total unit sales from rising in the first quarter. Last week its president, Katsuaki Watanabe, made his first visit to the Beijing Auto Show. The carmaker forecasts sales in the world's fastest growing major economy will double by 2010.

Hitachi Construction, the world's biggest maker of giant excavators, last week reported a 76 percent gain in the three months ended March 31. Building and mining booms in China and the rest of Asia drove sales.

``Japan's manufacturing sector is actually a showcase for how to implement globalization,'' said Jesper Koll, director of Tantallon Research Japan, a hedge fund. ``Whether it's Russia, the Middle East or Latin America, take your pick, Japan's on top of it.''

Japan isn't completely protected from faltering American growth. The U.S. housing crisis has activated a ``chain reaction'' that will hit Japan indirectly, according to Tetsuro Sugiura, chief economist at Mizuho Research Institute Ltd. in Tokyo.

Bernanke Warning

Gross domestic product in the U.S. grew at an annual pace of 0.6 percent in the fourth quarter. The economy could shrink in the first half of this year, and a recession is possible, Federal Reserve Chairman Ben S. Bernanke told legislators on April 2.

``First Europe and China will slow, then exports from Japan to those countries will slow,'' said Mizuho's Sugiura. ``The hit will come after a time lag.''

Whatever the external conditions, corporate Japan is in better shape than it's been at any time since the bubble burst.

The average ratio of corporate liabilities to assets has dropped to about 65 percent, the lowest level since 1955, from about 80 percent in the mid-1990s, according to Takuji Okubo, senior economist at Merrill Lynch & Co. in Tokyo.

Companies have soaked up excess production capacity. An index that measures manufacturing capacity against demand has been at or below zero for nine quarters, indicating there are few idle factories, according to the central bank's Tankan survey of business sentiment. The index stood at 31 points in March 2002 as the economy emerged from its last recession.

``People tend to blow hot or cold on Japan,'' Jessop said. ``At the moment, the pendulum has swung too far. If you're looking at developed economies, Japan is going to be one that surprises on the upside this year.''

Debt adds drama to Alliance's summer film slate

The movie industry is less than a week away from its all-important summer blockbuster season, and what happens at the box office this year may be more crucial than ever for Canada's biggest distributor, Alliance Films.

Heading into one of the busiest and most lucrative periods for the industry, debt rating agencies have begun raising concerns about the company's financial outlook since it was taken over by Goldman Sachs Group Inc. last year.

The distributor, which was acquired in the buyout of Alliance Atlantis Communications Inc., has dominated the Canadian distribution industry for years.

But Moody's Investor Service and Standard & Poor's warn Alliance Films may soon be unable to meet its financial commitments amid a heavy debt load.

By the end of June, Alliance Films could require a significant infusion of cash from its two main investors, Goldman and the Société générale de financement du Québec, the investment arm of the Quebec government, to meet its bank covenants, the agencies warn.

"Alliance Films' ability to avoid a payment default and to execute its business plan will be contingent upon cash injections from investors and continued support from its creditors in agreeing to waive or amend the financial covenants," Standard & Poor's analyst Greg Pau said in a recent report.

Moody's also raised concerns with a downgrade of Alliance's credit rating last week, due to "high leverage, weak liquidity and risk associated with film quality and contract renewal."

Alliance Films is not commenting on the downgrades, but a source at the company said they will have no effect on its ability to do acquisitions or its ongoing sales operations. The distributor has talked about expanding in Europe, and cash flow is stable, the person said. The problems come as the movie industry is salivating at what could be a lucrative summer; one that could see Alliance on the outside of the biggest box office returns.

The summer season starts Friday with the release of Iron Man. Other so-called tent-pole films that prop up studio and distributor revenues for the rest of the year are the latest Indiana Jones instalment, The Incredible Hulk, and Batman's The Dark Knight.

All of those movies arrive in the next three months. And none of them are in Alliance's roster. The company will instead be looking to the late-May release of Sex and the City, based on the hit television show, to provide some of its strongest returns of the season.

Alliance traditionally hasn't been a major player in the summer, but observers say it could use a strong performance from its 2008 titles, including Journey to the Centre of the Earth 3D, a promising children's release in July.

The company buys film rights from major studios and profits from their theatrical performance in Canada and other countries outside the U.S., and through subsequent DVD and television sales. Alliance has performed well in recent years, distributing major hits including the Lord of the Rings trilogy. However, the recent loss of a key output deal with New Line Cinema has curtailed revenue.

While Sex and the City is expected to do well in theatres, it may only gross roughly $100-million in North America, meaning the Canadian take will be considerably smaller, one analyst said. For those reasons, even a windfall likely won't be enough to take pressure off the company. Rather, Alliance will likely be forced refinance the terms of its debt.

Last year was a record summer for blockbusters in general, and it's unclear whether this season's slate can top that performance.

Summer 2007 made $4.1-billion (U.S.) in box office receipts, led by titles such as Shrek the Third and Spider-Man 3.

The Big Summer Blockbusters of 2008

Coming this summer

Iron Man May 2

Indiana Jones and the Kingdom of the Crystal SkullMay 22

The Incredible Hulk June 13

The Dark KnightJuly 18

Alliance Films' Summer Releases

Sex and The CityMay 30

The Strangers May 30

Journey to the Centre of the Earth 3D July 11

Recent Hits for Alliance

No Country for Old Men, 2007

Atonement, 2007

Lord of the Rings Trilogy, 2001-03

Recent Disappointments

for Alliance

The Golden Compass, 2007

$10-million Canadian box office

Lehman warns that oil boom will deflate

Could the bottom drop out of the oil market in the next year?
The roaring oil boom of the last few months may be on its last legs as economic growth slows hard across the world and a clutch new refineries come into operation, Lehman Brothers has warned in a hard-hitting report.

“Supply is outpacing demand growth,” said Michael Waldron, the US bank’s oil strategist.

“Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,” he said.

The Saudi Khursaniya field has just opened with 500,000 barrels a day (b/d) of production, and the new Khurais field will start next year with a further 1.2m b/d.
...
Lehman Brothers said the price of oil had been pushed to inflated levels by a $40bn inflow into commodity index funds this year, much of it coming from Mid-East sovereign wealth funds.

The petro-investors may have second thoughts about gaining “double exposure” to commodity prices.

“Financial flows have been the marginal driver of prices since the onset of the credit crunch. Investors are using oil as a hedge against inflation and a falling dollar,” said Mr Widmer.

The index effect has lifted prices by $20 to $30 a barrel. This could reverse sharply once the dollar starts to stabilize against the euro, since the euro/dollar exchange has become the proxy watched by oil traders for signals."

American Express lifts Dow and S&P; Nasdaq dips

The Dow and S&P rose on Friday, after signs that American Express Co was holding its own amid the economic slowdown, but Microsoft Corp's weak profit forecast pulled down the Nasdaq.

American Express said its quarterly profit fell, but the results beat expectations and the company affirmed its full-year earnings forecast, lifting its shares 5.7 percent and helping to boost the Dow.

The three major indexes ended Friday at their highest closing levels since January, continuing a rally started in mid-March after the Federal Reserve pumped cash into the financial system following the collapse of Bear Stearns.

But Microsoft weighed on indexes on Friday after it reported weak Windows software sales and a below-target profit forecast a day earlier, driving the software maker's shares down 6.2 percent.

Higher oil prices underpinned the market's rise by lifting shares of oil services companies nearly 2 percent after a cargo ship chartered by the U.S. military fired warning shots at two small boats in the Gulf.

American Express' results suggested that while many U.S. consumers may be hit by the credit crisis, upscale consumers have been unscathed, said Victor Pugliese, director of listed equity trading at Broadpoint Securities in San Francisco.

"Maybe the economy isn't as bad as people think," Pugliese said, but he acknowledged: "People are looking for good news."

The Dow Jones industrial average <.DJI> rose 42.91 points, or 0.33 percent, to end at 12,891.86. The Standard & Poor's 500 Index <.SPX> gained 9.02 points, or 0.65 percent, to 1,397.84. But the Nasdaq Composite Index <.IXIC> fell 5.99 points, or 0.25 percent, to 2,422.93.

For the week, the Dow ended up 0.3 percent, the S&P gained 0.5 percent and the Nasdaq rose 0.8 percent.

GOODYEAR GAINS, BUT 3M DROPS

Also on the plus side were shares of Goodyear Tire & Rubber Co , which rose 6.1 percent to $28.91, after the company posted stronger-than-expected quarterly profit driven by price hikes, sales of more expensive tires and favorable foreign-exchange rates.

Stocks turned lower shortly after the opening after a survey showed U.S. consumer confidence at its weakest point in 26 years in April.

U.S. consumer confidence fell for a third straight month in April on heightened worries over inflation and the sagging housing market, according to a survey by The Reuters/University of Michigan Surveys of Consumers.

The market reversed course later in the day, with financials leading the way higher. An index of financial shares <.GSPF> rose 1.7 percent, while American Express gained $2.59 to $47.77.

Also advancing was the Philadelphia stock exchange oil service index <.OSX>, up 1.8 percent. On the New York Mercantile Exchange, June crude rose $2.46, or 2.12 percent, to settle at $118.52 a barrel.

Limiting the Dow's advance was diversified manufacturer 3M Co , whose shares fell 1.7 percent to $77.82 and exerted the heaviest weight on the blue-chip average. The stock fell a day after the company reported stronger-than-expected quarterly profit but backed away from a previous target of 5 percent to 8 percent in volume growth this year, excluding the effect of the weak dollar.

Microsoft fell $1.97 to $29.83 on the Nasdaq. The stock's decline also helped to limit the gains of both the Dow and the S&P 500.

Trading was low on the New York Stock Exchange, with about 1.28 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.00 billion shares traded, also below last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones on the NYSE by 5 to 3 and on Nasdaq by 4 to 3.

Goldman Sachs, L&M Launch Urban Investment Fund

Goldman Sachs' Urban Investment Group and L&M Development Partners Inc. are launching a new urban opportunity investment fund through the formation of GSLM Capital Partners LLC. The purpose of the fund is to identify and invest in urban development opportunities throughout the New York Metropolitan Area, the Northeast, Mid-Atlantic regions and California.
The fund will focus on investments in mixed-income housing development, land acquisition in urban areas, partnerships with local community-based development groups, and partnering in businesses with a mission of socially responsible development, according to a prepared company statement. With investments ranging from $2 million to $20 million of equity, the fund will target projects that provide affordable and work-force housing and community-serving retail in New York City and other dense and ethnically diverse markets around the country.

Alicia Glen, managing director of Goldman Sachs UIG, tells GlobeSt.com that the firm has been doing business with L&M for a while now and this fund further expands their relationship. "We are doing six projects with them right now, some of which are in various stages of development or predevelopment," she notes.

"We share a very strategic approach to urban investing and are taking the relationship to the next level," she explains, noting that the synergy is perfect between the two—as far as how they want to use their collective capital to rebuild and revitalize underserved transitioning neighborhoods—is in tune. Although Glen says, that they cannot disclose specific projects the partnership is looking at, as of yet, she did note that there are a bunch that are in the pipeline that will go into the fund, which she says will cap out at $100 million--$90 million from Goldman and $10 million from L&M.

Glen notes that they are looking into areas with opportunity for revitalization such as Los Angeles, San Francisco, Washington, DC, and Philadelphia, for example and other smaller cities such as New Rochelle, NY and Newark. She notes that the fund will be invested in a three- to four-year period.

Among the projects that the groups have successfully worked together on is the Kalahari on 116th Street in Harlem. The Kalahari is a mixed-income home ownership project being constructed here. Occupancy of the 250 condominium unit, mixed-use "green" building is expected in the third quarter of 2008.

"We are very excited to enter into this new relationship with Goldman Sachs," says Ron Moelis, CEO of L&M Development Partners, in a prepared statement. "We think that by combining L&M's outstanding reputation and creative approach to affordable and mixed use market rate housing, with UIG's strong national reputation, we will be able to leverage our already successful partnership into new markets and into new ventures."

Expect gasoline to hit $1.40 a litre this summer and $2.25 in 2012: CIBCWM

- National average gasoline prices will top $1.40 a litre this summer and $2.25 by 2012, according to a forecast from CIBC World Markets which says tightening supplies will drive crude oil over US$150 a barrel by 2010 and to US$225 a barrel in four years.

Thursday's report from economists at the investment banking division of Canadian Imperial Bank of Commerce coincided with news that Bank of Nova Scotia's commodity price index jumped by five per cent during March to its third record high in as many months.

"The oil and gas index soared by 11.8 per cent in March, climbing above its previous peak in October 2005, and will rise further in April," said Scotiabank economist Patricia Mohr.

At CIBC World Markets, chief economist Jeff Rubin - one of the first to predict $100-a-barrel oil, which he did three years ago - updated a forecast he issued in January saying oil would hit US$150 a barrel within four years, raising that projected price by $75.

Rubin said his group has "re-examined our projected supply increases" to discount expected rises in production of natural gas liquids, which he said account for virtually all the growth in global petroleum liquids production since 2005.

Gas liquids, "while valuable hydrocarbons, are not a viable substitute for oil and cannot be economically used as a feedstock for gasoline, diesel or jet fuel," the new report says.

"Stripping out natural gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why oil prices have doubled over that period," Rubin said.

"Whether we have already seen the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity."

At Scotiabank, the overall commodity index has climbed 181.2 per cent from its cyclical low in October 2001 - a stronger advance than the surge between 1972 and mid-1978.

Oil and mineral prices posted new highs in March, and crude oil has continued booming to a record of US$119.90 per barrel Tuesday on the New York Mercantile Exchange.

"Recent news that Russian oil production dropped by 0.9 per cent in the first quarter of 2008, the first year-over-year decline in a decade, set off another wave of concern over supplies to meet growing emerging-market demand," Mohr said.

She added that after a deep plunge in natural gas drilling activity in Western Canada since the autumn of 2006, activity "appears to be steadying, and we expect a big improvement in 2009 and 2010."

Scotiabank's metal and mineral index rose 8.3 per cent in March, surpassing its previous peak in May 2007, on "widespread gains in base and precious metals and huge jumps in fertilizer-related mineral prices."

The forest products index edged higher as rising newsprint and paper prices offset ongoing weakness in lumber. And while the agricultural index lost ground in March as wheat prices eased from record highs, it remains 57.8 per cent above a year earlier.

Bear's Greenberg and Mayer seen joining JPMorgan

JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), which is buying the troubled investment bank Bear Stearns Cos (BSC.N: Quote, Profile, Research), said on Thursday it has reached oral agreements with former Bear Chief Executive Alan "Ace" Greenberg and current co-head of fixed-income Jeffrey Mayer to join the third-largest U.S. bank.

In a U.S. Securities and Exchange Commission filing, JPMorgan said other senior Bear officials may also eventually accept employment with the bank, including Chief Executive Alan Schwartz, Chief Financial Officer Sam Molinaro, Controller Jeffrey Farber and General Counsel Michael Solender.

Bear agreed last month to sell itself to JPMorgan for $10 per share after clients and lenders fled in the equivalent of a run on the bank, putting Bear on the brink of bankruptcy.

As part of the merger, the U.S. Federal Reserve agreed to guarantee $29 billion of Bear's assets.

JPMorgan has not said how many of Bear's roughly 14,000 employees it plans to retain. It expects to complete the merger by the end of June. The bank did not immediately return a request for comment.

According to the filing, Mayer would become a vice chairman of JPMorgan's investment banking unit, and could receive awards totaling more than $27 million.

Mayer would receive a $250,000 salary and $12 million bonus for 2008, and could be eligible for $15 million of restricted stock that would vest over three years, the filing shows.

Greenberg would become a vice chairman in retail operations, and be entitled to 40 percent of commission revenue he generates, according to the filing.

Greenberg told Reuters on April 17 that he expected to join JPMorgan. He was Bear's chief executive from 1978 to 1993.
Farber and Solender would receive a respective $2.25 million and $2.75 million of restricted stock, plus bonuses, if they join JPMorgan, the filing shows.

U.S. Economy: Durables Orders, Ex-Transportation, Up

Foreign demand for U.S.-made durable goods helped American factories weather a collapse in new-home sales to the lowest level in almost 17 years last month, reports indicated today.

Bookings for durable goods, those meant to last several years, rose 1.5 percent excluding transportation equipment, the Commerce Department said today in Washington. Manufacturers are benefiting from a 9 percent drop in the dollar against currencies of major trading partners over the last year, spurring record exports. Separate figures showed new-home sales slid 8.5 percent.

Treasuries fell, sending two-year note yields to their highest since January, on speculation the Federal Reserve will pause its series of interest-rate cuts after this month. Morgan Stanley and Lehman Brothers Holdings Inc. economists raised their estimates of first-quarter economic growth.

``Manufacturing is holding up due to strength in the global economy, the weak dollar and the fact that businesses are still pretty profitable,'' said Gus Faucher, head of macroeconomics at Moody's Economy.com in West Chester, Pennsylvania, which correctly forecast the gain in durables orders excluding transportation. ``Weakness is going to be concentrated in housing.''

Separate figures today showed first-time jobless claims unexpectedly fell to a two-month low last week.

New-home sales dropped to an annual pace of 526,000, the lowest since October 1991, from 575,000 the prior month, the Commerce Department said. The median sales price declined 13.3 percent from a year before, the most in almost four decades.

Glut of Properties

``We're certainly not out of the woods on housing,'' Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Radio.

Two-year Treasury yields climbed to 2.39 percent at 4:17 p.m. in New York, up from 2.19 percent late yesterday. The Standard & Poor's 500 Index rose 0.6 percent to close at 1,388.82. Futures had fallen as much as 0.8 percent before the market opened.

Traders anticipate the Fed will lower its benchmark rate a quarter point to 2 percent next week and then hold off on further reductions, future prices show.

``People are starting to adjust to a world in which the federal funds rate is going to be falling at a slower rate if at all,'' said Tyrone Smith, managing director of the government trading desk at Citigroup Global Markets in New York. ``The market's really reacting to the ex-transportation number and jobless claims.''

Total Orders

Total orders for durable goods fell 0.3 percent, restrained by a decrease in defense-related hardware. Orders for February were revised to a drop of 0.9 percent, less than the 1.1 percent previously estimated.

The Labor Department said that initial claims for unemployment benefits dropped to 342,000 last week. The number of people staying on benefit rolls declined to 2.934 million from close to a four-year high of 2.999 million the week earlier.

Economists forecast total orders would rise 0.1 percent, according to the median of 78 projections in a Bloomberg News survey. Excluding transportation equipment, orders were projected to rise 0.5 percent, after a previously reported 2.4 percent decline for February.

A rebound in demand for machinery and metals, combined with continued increases in computer bookings, paced the increase in the non-transportation category.

Influence on GDP

Bookings for non-defense capital goods excluding aircraft, a measure of future business investment, was unchanged following a 2 percent decline in February that was smaller than previously estimated. Shipments of those items, a number used in calculating gross domestic product, increased 1.2 percent.

Total orders excluding defense equipment orders increased 0.3 percent as bookings for military gear dropped 20 percent.

Companies that export have fared better during the current slowdown in growth. A shrinking trade gap added 1 percentage point to fourth-quarter economic growth, according to Commerce Department figures. Without that, the economy would have contracted in the final three months of 2007.

Parker Hannifin Corp., the world's largest maker of hydraulic equipment, said April 22 that third-quarter earnings gained 22 percent, propelled by international sales. The company also boosted its full-year forecast.

``Orders are growing in Europe, Asia, Latin America and North America,'' Chief Executive Officer Donald Washkewicz said in a statement. ``Many of our key markets, including aerospace, continue to grow. For other markets, especially those in North America, which have been in recession, we are positioned to benefit when they return to more normal growth levels.''

GDP Report

Today's figures are one of the last that may influence forecasts ahead of the Commerce Department's advance report on first-quarter gross domestic product due April 30. Growth slowed to a 0.3 percent annual pace from January through March, the weakest in more than five years, according to the median estimate of economists surveyed by Bloomberg News.

The Fed last week said economic growth slowed in nine of 12 districts since February, hurt by ``anemic'' real estate markets and a slowdown in consumer spending, according to its regional business survey known as the Beige Book.

So far, manufacturing has done better than in past downturns. While the Institute for Supply Management's factory index fell to a five-year low of 48.3 in February, it was still well above the 42.1 reading reached in February 2001, a month before the start of the 2001 recession. A figure of 50 is the dividing line between growth and contraction.

Inventories Rise

One troubling sign in today's report was that inventories of durable goods jumped 1.1 percent, the most this year, and shipments fell. That indicates that, while gains in stockpiles may have contributed to economic growth last quarter, companies will need to pare production in coming months.

``We have recession-type conditions,'' Mickey Levy, chief economist at Bank of America Corp. in New York, said in an interview with Bloomberg Television. ``I expect over the next three to four months continued weakness in durable goods, which means continued weakness in capital spending.''

Orders for computers and electronic products rose 1.9 percent. Demand for metals increased 0.2 percent and climbed 6.2 percent for machinery.

Bookings for aircraft increased 5.5 percent in March, while automobiles dropped 4.6 percent.

Boeing Co. orders dropped to 99 in March, from 125 a month earlier. Deliveries rose to 42, from 39.

MBIA, Ambac Financial: Back to the trough?

One Goldman analyst says the bond insurers will need $3.4 billion each in added capital thanks to more quarterly losses.

MBIA Inc. and Ambac Financial Group Inc. could yet again be forced to raise additional capital, according to one analyst, as quarterly losses come in “significantly” higher than prior estimates.

The two bond insurers will likely need around $3.4 billion each in additional capital, Goldman Sachs analyst James Fotheringham wrote in a note to investors Thursday. He expects Ambac to post a loss of around $18.05 per share this year, compared with a previous estimate of a profit of 95 cents per share. MBIA will lose $21.75 per share, compared with a previous estimate of $1.81 per share, he said.

New York state Insurance Superintendent Eric Dinallo, who earlier this year called on the industry to tighten regulations, conceded Thursday that bond insurers may be forced to boost capital reserves. “I think it's possible that they may need to raise additional capital," he said in an interview with Bloomberg Television.

On Wednesday, Manhattan-based Ambac reported a larger-than-expected $1.66 billion loss for the first quarter, after taking $3.1 billion in charges related to mortgage-backed securities.

“We should take a step back and observe one thing, which is in the wake of the earnings that Ambac came out with, the across-the-board market response was calm,” Mr. Dinallo said.

Still, the first-quarter loss renewed concerns that the bond insurer’s “AAA” credit rating could be in jeopardy. Ambac Chief Executive Michael Callen said the company remains “committed” to preserving their rating, but on Wednesday said the company has no immediate plans to raise more capital.

Both Ambac and MBIA have posted a series of losses after expanding from guarantees on municipal bonds that rarely default to insuring risky mortgage-backed securities. Ambac saw new business drop 87% last quarter, and the company’s shares lost over 90% of their value in 2007.

Mr. Fotheringham reduced his share price target for Ambac to $2 from $7 and his share price on MBIA to $8 from $12. Shares of Ambac rose 2.6% to $3.55 Thursday morning on a better-than-expected quarterly report from fellow insurer Aetna. Shares of MBIA were down 3.4% at $8.50.

SEC charges Wall Street trader with profiting from false rumors on Blackstone-Alliance deal

The Securities and Exchange Commission on Thursday charged a Wall Street trader with spreading lies about Blackstone Group's attempted purchase of Alliance Data Systems Corp. and profiting from the scheme.

The SEC's action comes as agency officials hint they are also investigating rumors surrounding Bear Stearns before the investment bank collapsed last month.

Last November, Paul Berliner, a trader formerly associated with the Schottenfeld Group LLC, spread a rumor that Blackstone would renegotiate its offer for ADS from $81.75 a share to $70 per share, the agency said.

The rumor, which Berliner spread through instant messages to other traders at brokerage firms and hedge funds, caused ADS's shares to plummet 17 percent, from $77 to $63.65, in 30 minutes, the SEC said. The shares later recovered after ADS said the rumor was false.

Berliner, meanwhile, bet that ADS shares would fall by selling the company's shares short and profited from doing so, the agency said.

The story disseminated by Mr. Berliner was a figment of his imagination," Scott Friestad, associate director of the SEC's enforcement division, said in a statement. "Conduct like this is particularly insidious because it harms investors by distorting the information they use to make investment decisions."

Rick Schottenfeld, chairman of the New York-based firm, said "compliance is a top priority."

"There is no place at our firm for individuals who violate securities laws," he said, adding that Berliner was suspended in December.

Berliner agreed to settle the charges, without admitting or denying the allegations, by paying a fine of more than $156,000, the agency said. The fine included disgorgement of $26,000 in profits and interest.

ADS, a Dallas-based credit-card services provider, said it terminated the $6.5 billion deal with Blackstone, a New York-based private equity firm, earlier this month.

NextWave Looks To Sell Spectrum, Hires Investment Banks

San Diego-based NextWave Wireless, a provider mobile multimedia and wireless broadband technology, said late Wednesday that it has retained Deutsche Bank and UBS Investment Bank, to explore the sale of the firm's spectrum holdings in the United States. Nextwave Wireless said that its spectrum--which covers New York, Los Angeles, Chicago, San Francisco, Boston, Philadelphia, Denver, Houston, and Detroit--reaches over 251 million people. The firm said it would use the sale of its spectrum to strengthen the firm's balance sheet, retire debt, and for the commercial introduction of its WiMax and RFIC chipsets and other products.

Banks' credit crisis over? Not so fast

BANK CEOs missed the mark in forecasting the destructive path of today's credit crisis. That's why we shouldn't take too seriously their predictions that it is almost over now.

Some of Wall Street's biggest names have been proclaiming in recent weeks that the worst of the financial market turmoil is likely done. JPMorgan Chase's Jamie Dimon thinks it is "maybe 75 percent to 80 percent over," while Goldman Sachs' Lloyd Blankfein says "we're closer to the end than the beginning."

Those kind of comments helped put a positive spin on what otherwise would have been a tough earnings season for financial companies, which have tallied massive losses as mortgage and other debt woes continued to weigh on their businesses.

It's in the CEOs' best interests to steer sentiment higher. If people feel better about the state of the economy or financial markets, that will lead to more deals or stock trading and will boost bank profits.

The data don't back up their happy views, however. We're still stuck in a painful housing downturn, mortgage defaults continue to soar, and rising inflation is hurting businesses and consumers.

Credit-risk worries, which have ravaged financial markets since last summer, haven't diminished either. The gap between the interest rate on the three-month Treasury bills and the three-month London Interbank Offered Rate — referred to as the closely

watched "TED" spread — has been widening, indicating that lenders are avoiding risk.

The credit crisis has led to more than $200 billion in write-downs taken by banks and financial firms over the last year — far more than anyone had expected, given the optimism of those companies' CEOs last summer.

As the housing market contraction accelerated and subprime borrowers were increasingly defaulting on their home loans in the first part of 2007, those executives were telling us not to worry.

Last June, Bear Stearns CFO Sam Molinaro talked about how the high level of subprime mortgage defaults hadn't "spilled" into other areas of the market. Merrill Lynch CEO Stan O'Neal said the subprime crisis was "reasonably well contained."

And in July Citigroup's CEO Chuck Prince said: "When the music stops in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."

All those executives are now out of work and all their banks are now wallflowers.

By August, risk aversion spread through the marketplace, and has since paralyzed credit markets and caused a tightening of lending standards for consumers and businesses.

That's why we might want to listen cautiously to what the bank CEOs are saying now.

Richard Fuld, CEO of Lehman Brothers, commented at the company's annual meeting that the worst is "behind us." Morgan Stanley CEO John Mack told investors that the collapse of the subprime market in the U.S. has reached its eighth inning or maybe the "top of the ninth."

Weighing against that are findings of a new CEO survey from the Financial Services Forum, which represents 20 of the largest U.S. financial companies.

The survey showed that executives by a wide margin believed that the current credit turmoil has far to go; one in three of those CEOs polled put the likelihood of a recession at 100 percent.

Among the trade group's members is current Merrill Lynch CEO John Thain, who reported on Thursday that the investment bank had a $2.14 billion first-quarter loss and write-downs of $6.5 billion on its debt including mortgage-related securities and leveraged loans.

"I hope those who say we are at the end are correct. I am somewhat more skeptical," Thain told the Financial Times after the earnings were released.

Last summer, Bank of America's Ken Lewis seemed confident that the end was nearing for the housing slump. On Monday, the Charlotte, N.C.-based bank said its profits tumbled 77 percent in the first quarter due to trading losses and a $3.3 billion increase in reserves for problem loans.

"I think first it would be too early to strike up the band and sing happy days are here again," Lewis said Monday on a conference call with analysts during which he said the situation in the capital markets was particularly tough in March.

Forget about ninth, or even eighth inning. Maybe we haven't even gotten to the seventh inning stretch yet.

U.S. Existing Home Sales Fell in March; Prices Lower

Sales of previously owned homes in the U.S. fell in March as loan restrictions and the prospect of further price declines kept buyers away.

Purchases dropped 2 percent, less than forecast, to an annual rate of 4.93 million, from 5.03 million in February, the National Association of Realtors said today in Washington. The median sales price fell 7.7 percent from a year earlier.

Defaults on subprime mortgage loans have led banks to tighten borrowing rules, while home values are decreasing as foreclosures add to the glut of unsold properties. The housing slump, now in its third year, is one reason some Federal Reserve policy makers are concerned the U.S. is heading into a recession.

``There still is an imbalance in the existing housing market that needs to be corrected through lower inventories and higher sales,'' said Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, which correctly forecast the sales level. ``The market will remain out of balance this year and most of next. As long as the housing market remains weak we think the economy will remain weak as well.''

Resales were forecast to fall 2.3 percent to a 4.92 million annual rate, according to the median projection of 72 economists in a Bloomberg News survey. Estimates ranged from 4.8 million to 5.08 million.

Treasuries were little changed after the report, with the benchmark 10-year note yielding 3.73 percent, up 1 basis point from yesterday. Stocks were lower.

Sales fell 19.3 percent in March compared with a year earlier. Resales averaged 5.67 million in 2007.

Homes for Sale

The number of homes for sale at the end of March increased by 40,000 to 4.06 million. At the current sales pace, that represented 9.9 months' worth, up from 9.6 months' worth at the end of the prior month.

The median price of an existing home dropped to $200,700 from $217,400 a year earlier. A report today from the government's Office of Federal Housing Enterprise Oversight showed February home prices were down 2.4 percent from a year earlier.

Existing-home sales account for about 85 percent of the U.S. housing market while new-home sales make up the rest. Monthly figures on resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier.

Many economists consider new-home purchases, which are recorded when a contract is signed, a more timely barometer of the market.

New-Home Sales

Figures from the Commerce Department later this week may show sales of new houses fell in March to an annual pace of 580,000, a 13-year low.

Resales of single-family homes fell 2.7 percent to an annual rate of 4.35 million. Sales of condos and co-ops increased 3.6 percent to a 580,000 rate.

Purchases rose 2.2 percent in the Northeast and the West. They fell 6.5 percent in the Midwest and 3.5 percent in the South.

Falling sales are prompting builders to slash construction and reduce prices. Work began on 947,000 homes at an annual rate in March, less than forecast and the fewest in 17 years, Commerce figures showed last week.

Decline in Homebuilding

Residential construction has subtracted from economic growth since the first three months of 2006, culminating in a 25 percent decline in homebuilding last year that was the biggest since 1980.

Fed Chairman Ben S. Bernanke said on April 2 that slumping home construction, employment and consumer spending may cause a recession. Other policy makers echo his concern.

``I'm expecting a contraction in economic activity in the first half of the year,'' Richmond Fed President Jeffrey Lacker said in a press briefing April 17. Financial turmoil continues to hurt economic activity, Lacker said, and ``the crucial variable is stability in the retail housing market.''

As interest rates on adjustable-rate mortgages reset higher, more Americans are defaulting on loans and walking away from their homes. Foreclosure filings surged 57 percent and bank repossessions more than doubled in March from a year earlier, Irvine, California-based RealtyTrac Inc., a seller of default data, said this month.

Leaving Cincinnati

Ryland Group Inc., a U.S. homebuilder that targets first- time buyers, will exit a market for the first time in a decade when it leaves the Cincinnati area next year. The company last week cited ``ongoing sluggish conditions'' in the local market. RealtyTrac data showed Ohio ranked third in foreclosure filings last month and had the seventh-highest foreclosure rate.

Unpaid debts are rising, hurting lenders. Bank of America Corp., the second-largest U.S. bank, yesterday said profit fell for a third straight quarter as it set aside $6.01 billion for bad loans.

``We remain concerned about the health of the consumer given the prolonged housing slump, subprime issues, employment levels and higher fuel and food prices,'' Chief Executive Officer Kenneth Lewis said in a statement.

GE hikes cost-cutting goal to $3 billion

General Electric Co (GE.N: Quote, Profile, Research) chief Jeffrey Immelt said on Wednesday U.S. capital markets have improved since the end of the first quarter but the overall U.S. economic picture is unchanged, and the company has raised its 2008 cost-cutting goal by $1 billion.

"The capital markets are a little better" than they were at the end of March, when turmoil prompted by the near-collapse of Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research) made it difficult for GE to complete deals, Immelt said at the company's annual meeting.

GE's inability to close some financial asset sales at the end of the first quarter contributed to its unexpected drop in profit, which triggered the sharpest sell-off in its shares in two decades. Some of these deals have now been completed, Immelt said.

"The U.S. economy hasn't gotten any worse or any better and the global economy still seems to be pretty good," Immelt, GE chairman and chief executive, told reporters ahead of the conglomerate's annual meeting in Erie, Pennsylvania.

GE, the second-biggest U.S. company by market value, has raised its 2008 cost-cutting goal to $3 billion from $2 billion, Immelt said. Last year the company cut costs by $2 billion.

GE slashed its full-year profit forecast to a range of $2.20 to $2.30 per share -- meaning profit would be flat to up 5 percent -- in the wake of the grim first quarter. It had previously forecast a rise in profit of at least 10 percent.

"We are in the toughest economy since 2001 and the worst housing crisis since the depression," Immelt told shareholders, standing in front of a bright yellow GE-built hybrid railroad locomotive.

Asked about the slump in GE's stock and questions raised about his credibility in the wake of the company's unexpected drop in profit this month, Immelt said, "I think my track record over a long period of time with this company has been good. I expect it to be good in the future. ... You don't do a job like this if you can't take a punch."
GE shares were up 33 cents, or 1 percent, at $32.66 in early trading on the New York Stock Exchange. They are down 12.5 percent so far this year, a steeper drop than the 4 percent slide of the Dow Jones industrial average .DJI.

Immelt told shareholders he had started doing more frequent reviews of GE's segments to "insure that there are no time gaps between how we describe the company and what we deliver."

Immelt spoke in Erie, Pennsylvania, a city of about 102,000 people in the state's far northwestern corner, where GE manufactures railroad locomotives, engines for steamships and gear boxes used in electricity-producing wind turbines. The Fairfield, Connecticut-based company holds its annual shareholders meeting in a different location each year, selecting cities where major units are based.

Legg Mason’s Bill Miller still bullish

Despite his poor performance in recent years, Legg Mason (LM) portfolio manager Bill Miller remains bullish on stocks. He writes in a letter to Legg Mason Value Trust shareholders Wednesday that “with most investors being fearful, I think it makes sense to allocate some capital to the greedy side of that pendulum, and that means putting cash to work in equities.”

Miller’s comments come after the Value Trust posted a 20% decline in the first quarter, weighed down by big bets on Bear Stearns (BSC), Countrywide (CFC) and Washington Mutual (WM), among others. But Miller says the fund has been doing better in April’s healthier market. And he notes that despite the criticism of his money-losing Bear Stearns investment, Legg Mason actually has had a much bigger position in JPMorgan Chase (JPM) - whose shares have risen since the big bank agreed to buy Bear in a Fed-induced rescue.

Miller’s 15-year-long streak of outperforming the S&P 500 is history now, in the wake of poor performances in 2006 and 2007. But that doesn’t mean Miller is ready to let go. “My friend Jeremy Hosking, who has delivered around 400 basis points per year of excess return over two decades at Marathon (in London), corrected me recently when I spoke about our underperformance,” Miller writes. “‘You mean, your deferred outperformance,’ he said. I thought it a clever line, but it contains an important point.”

You might assume the point is that no one should ever bring up Miller’s recent negative returns, but that’s not quite it. “For value investors, price is one thing, and value is another,” Miller explains. “When prices move against us, it usually means that the gap between price and value is growing, and our future expected rates of return are higher.”

While that sounds nice, the recent action in some big Miller holdings - his top 10 positions at March 31 included UnitedHealth (UNH) and General Electric (GE), both of which recently saw big stock price drops after poor earnings performances - offers a reminder that high expectations can be tough to live up to.

Stocks slide on oil prices:Despite good earnings news from big companies, fears of inflation produce losses in major indexes

Wall Street pulled back Tuesday, with the Dow Jones industrials tumbling more than 100 points as a rush of quarterly results from bellwethers like AT&T Inc., DuPont and McDonald's Corp. failed to impress investors. Oil prices also reached fresh highs, raising concerns about inflation.

AT&T's earnings met Wall Street's forecast while McDonald's and DuPont reported stronger-than-expected numbers. But DuPont said a U.S. slowdown will offset growth abroad and McDonald's said an important indicator of its sales showed a decline for March. All three companies are among the 30 stocks that make up the Dow.

The comments gave trading a cautious tone. With hundreds of companies still to report results, investors are anxious about what the figures might say about the prospects for the economy.

''We've melted here, but it isn't a plunge,'' said Art Hogan, chief market analyst at Jefferies & Co. ''We're in a day-to-day assessment of how good earnings season is, and right now there's more bad news than good news — the parade has been less positive than we've anticipated.''

Investors appeared little moved by news of continued weakness in the housing sector. Sales of existing homes fell 2 percent in March to a seasonally adjusted annual rate of 4.93 million units, while the median sales price dropped for a seventh straight month. The National Association of Realtors said sales rose in the Northeast and West, but fell in the Midwest and South.

Oil's march higher this year raises the specter of higher inflation that would lead consumers to cut back their discretionary spending. It would also make the Federal Reserve less likely to keep lowering interest rates.

Light, sweet crude for May delivery rose as high as $119.90 a barrel, then slipped back to settle at $119.37, up $1.89. But it appeared inevitable crude would pass $120.

The Dow fell 104.79, or 0.82 percent, to 12,720.23.

Broader stock indicators also declined. The Standard & Poor's 500 index fell 12.23, or 0.88 percent, to 1,375.94, and the Nasdaq composite index fell 31.10, or 1.29 percent, to 2,376.94.

SEC mum about aborted Bear probe

The Securities and Exchange Commission has turned down a congressional request to disclose why it dropped an investigation into whether The Bear Stearns Cos. Inc. hurt investors by improperly determining the value of complex debt securities, according to a report in The Wall Street Journal.
Earlier this month, Sen. Charles Grassley, R-Iowa, asked the inspector general of the SEC to probe the reasons why the agency's enforcement division did not bring a case against New York-based Bear Stearns in December for improperly valuing mortgage-related products.

SEC Chairman Christopher Cox replied to Mr. Grassley in a letter dated April 16 stating that the SEC "does not disclose" the existence or non-existence of an investigation unless it was made a matter of public record, the Journal said.

At the center of the case is a move by the SEC to abort an enforcement case into activities at Bear Stearns several months before the company imploded in March and was acquired for a fire sale price by JPMorgan Chase & Co. of New York.

"Given the later collapse and federally backed bailout of Bear Stearns, Congress needs to understand more about this case and why the SEC ultimately sought no enforcement action," Mr. Grassley wrote in the letter.

U.S. Stocks Gain on Earnings; Intel, JPMorgan, Wells Fargo Rise

U.S. stocks rose the most in two weeks as better-than-forecast profits from Intel Corp., JPMorgan Chase & Co. and Wells Fargo & Co. eased concern that the slowing economy is dragging down earnings.

Intel gained the most since January after the world's largest chipmaker said a weakening economy hasn't hurt sales. JPMorgan, the third-biggest U.S. bank, advanced after Chief Executive Officer Jamie Dimon said the credit-market crisis is nearing an end. Wells Fargo climbed as the biggest West Coast bank limited losses from slumping California home prices.

The Standard & Poor's 500 Index added 19.97, or 1.5 percent, to 1,354.4 at 1:20 p.m. in New York as all 10 industry groups advanced. The Dow Jones Industrial Average rallied 176.11, or 1.4 percent, to 12,538.58. The Nasdaq Composite Index rose 50.9, or 2.2 percent, to 2,336.94. More than six stocks gained for each that fell on the New York Stock Exchange.

``You're seeing broad participation, which is a good thing,'' said Richard Campagna, portfolio manager at Provident Investment Counsel in Pasadena, California, which manages $3 billion. ``If the market's going to rally you need to broaden out the leadership, which is what you're seeing today.''

The S&P 500 posted its first back-to-back gains in more than a week after falling in four of the previous five trading sessions following disappointing results from Alcoa Inc., General Electric Co. and Wachovia Corp. Stocks gained today even after government reports showed housing starts and building permits fell more than forecast last month, while consumer prices matched economists' projections.

Intel, JPMorgan

Intel climbed $1.30, or 6.2 percent, to $22.21, the most in the Dow average. It led semiconductor companies in the S&P 500 to a 4.8 percent gain, the biggest in four years. Intel's sales rose 9.3 percent to $9.67 billion, topping analyst estimates. Second- quarter revenue will be $9 billion to $9.6 billion, the company said, also beating forecasts. Chief Executive Officer Paul Otellini said yesterday there were no signs of economic weakness hurting sales in the U.S. or Europe.

``Companies and individuals will keep demanding those microprocessors,'' Michael Shinnick, portfolio manager at 1st Source Bank in South Bend, Indiana, which manages $3 billion, said in an interview on Bloomberg Television. ``The demand now is much more global'' than during the last U.S. slowdown in 2001.

KLA-Tencor Corp., the second-biggest U.S. chip-equipment maker, rose $3.54, or 8.9 percent, to $43.41 for the second- -biggest gain in the S&P 500.

JPMorgan Chase rose $2.14 to $44.26. First-quarter profit fell 50 percent to $2.37, or 68 cents a share, after $5.1 billion of writedowns and provisions linked to the collapse of the subprime mortgage market and bad home-equity loans. The results matched the average estimate in a Bloomberg survey of analysts and topped the consensus forecast in a Thomson Financial survey by 4 cents a share.

`Working Itself Out'

Dimon said on a conference call with reporters that the credit-market crisis may be as much as 80 percent over.

The problem ``is working itself out,'' Dimon said. The heads of Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc. in the past week also have said the credit-market contraction sparked by falling U.S. housing prices is winding down.

Wells Fargo & Co. rose $1.38 to $29.19. The bank earned $2 billion, or 60 cents a share, compared with 66 cents a share a year earlier. Analysts surveyed by Bloomberg estimated a profit of 57 cents a share on average.

Earnings Watch

The latest batch of earnings reports helped assuage concern that profits will continue to tumble as the economy slips into a recession. Earnings at companies in the S&P 500 are forecast to fall 12.3 percent in the first quarter from the year-earlier period and 3.8 percent in the second quarter, according to analyst estimates compiled by Bloomberg.

Earnings fell 2.5 percent in the third quarter and 23 percent in the fourth quarter of 2007. At the end of last year, analysts forecast increases of 4.7 percent for the first quarter of 2008 and 3.3 percent for the second quarter, according to Bloomberg data.

GE on April 11 lost 13 percent, the most in 20 years, after reporting quarterly profit that fell short of analyst estimates and less revenue than the company had projected. CEO Jeffrey Immelt forecast profit of $2.20 to $2.30 a share for 2008, down from a prediction of $2.42 he had repeated as recently as March 13.

Commodity Producers Rally

Producers of energy and raw materials rallied as oil touched a record $114.95 a barrel on an unexpected decline in U.S. supplies and metal prices advanced.

Exxon Mobil Corp., the largest U.S. oil company, climbed 92 cents to $91.72. Freeport-McMoRan Copper & Gold Inc., the world's second-biggest copper producer, jumped $5.90 to $111.40.

Monsanto Co. rose $6.21 to a record $128.89. Goldman Sachs Group Inc. analysts raised their 2008 and 2009 earnings estimates for the world's biggest seed producer and lifted their share- price target to $140 from $135. Monsanto is ``executing brilliantly'' and likely to benefit from rising corn prices, the Goldman analysts wrote in a report.

Nucor Corp. led steelmakers in the Russell 3000 index to a 4.7 percent gain as all 13 companies in the group advanced. ArcelorMittal, the world's largest steelmaker, plans to boost prices on some steel shipments in the U.S. by $250 a ton, or about 33 percent, to recoup surging costs for energy and iron ore, according to an April 14 company memo to sales personnel. Nucor, the largest U.S.-based steelmaker by market value, rose $3.97 to $72.78. U.S. Steel Corp., the second-biggest, added $5.87 to $152.50.

Huntington, Johnson Controls

Huntington Bancshares Inc. rose 88 cents, or 9.5 percent, to $10.18 for the biggest gain in the S&P 500. The Ohio bank that has lost more than half of its value in the past year plans to sell $500 million of convertible preferred stock to replenish capital.

Johnson Controls Inc. rose $1.50 to 34.13. The largest operator of climate-control systems for commercial buildings said second-quarter profit jumped 27 percent on higher demand for energy-efficiency products.

CSX Corp. rose $2.73 to $60.50. The third-largest U.S. railroad said first-quarter profit increased to 85 cents a share because of higher shipping revenue. The result beat the 74-cent average estimate of analysts surveyed by Bloomberg.

LSI Corp., the maker of computer chips for companies including Seagate Technology, was the only semiconductor company in the S&P 500 to fall, losing 34 cents, or 6.4 percent, to $5.03. Merrill Lynch & Co. analysts downgraded LSI to ``neutral'' from ``buy'' after Seagate yesterday reported revenue and profit in the quarter ended March 28 that fell short of analyst estimates and forecast earnings for the current quarter that may trail the average projection.

BlackRock Inc. fell $2.13 to $203.06. The biggest publicly traded asset manager in the U.S. reported first-quarter earnings that fell short of analysts' estimates because of declines in hedge-fund and real-estate investments.

Talbots Inc. had the biggest decline since its November 1993 initial public offering, falling 29 percent to $9.17. The women's clothing-store chain said HSBC Holdings Plc and Bank of America Corp. are canceling their letters of credit to the company.

JPMorgan Net Drops 50%, Matching Analysts' Estimates

JPMorgan Chase & Co., the third- biggest U.S. bank, said the credit-market crisis is almost over after it reported a 50 percent drop in first-quarter profit on $5.1 billion of writedowns and provisions.

JPMorgan rose as much as 5.4 percent in New York trading as the losses from home-equity loans, financing for leveraged buyouts and subprime mortgages were smaller than analysts predicted and revenue exceeded expectations. Net income dropped to $2.37 billion, or 68 cents a share, matching estimates.

``In this environment, being able to post earnings as they did is I think all-in good news,'' Charles Bobrinskoy, vice chairman of Ariel Capital Management LLC in Chicago, which owned more than 611,000 JPMorgan shares as of Dec. 31, said in a Bloomberg Television interview.

JPMorgan, which has posted about $10 billion of writedowns and losses since the beginning of last year, is now grappling with a sagging labor market that has hurt clients' ability to pay credit cards and consumer loans on time. The New York-based company set aside $1.1 billion in the first three months of 2008 for future home-equity loan defaults, after boosting those provisions by $395 million in the fourth quarter.

Chief Executive Officer Jamie Dimon, 52, said on a conference call with reporters that the credit-market crisis is more than halfway finished as financial firms reduce leverage, and may be as much as 80 percent over.

``That side is working itself out,'' Dimon said. ``That doesn't mean the recession won't get worse or better.''

Revenue Declines

Revenue fell 11 percent to $16.9 billion, compared with the average estimate of $16.8 billion among analysts surveyed by Bloomberg. Return on equity, a gauge of how effectively the company reinvests earnings, was 8 percent, compared with 17 percent a year earlier.

Profit declined from $4.79 billion, or $1.34 a share, in the same quarter a year earlier. Earnings matched the average estimate of 15 analysts surveyed by Bloomberg, and beat Thomson Financial's survey by 4 cents a share.

Wells Fargo & Co., the biggest bank on the U.S. West Coast, said first-quarter profit dropped 11 percent to $2 billion, a smaller decline than analysts estimated because the company was able to limit losses from home-price declines in California.

JPMorgan rose $2.16, or 5.2 percent, to $44.28 in composite trading at 12:26 p.m. on the New York Stock Exchange. The shares had fallen almost 16 percent in the past 12 months through yesterday, compared with 57 percent at bigger rival Citigroup Inc. Bank of America Corp., the second-largest U.S. bank by assets, has declined 30 percent.

Investment Banking

The investment-banking division lost $87 million in the first quarter, compared with profit of $1.5 billion in the year- earlier period. Revenue from that business fell by half as JPMorgan marked down $1.1 billion of leveraged loans and $1.2 billion of mortgage-related securities.

Profit from asset management dropped 16 percent to $356 million.

Consumer banking had a loss of $227 million after the bank increased its subprime-related provisions by $417 million. Chief Financial Officer Michael Cavanagh said on the call that the bank expects credit-card charge-offs to gradually rise during the rest of this year.

Dimon said home prices could fall another 7 percent to 9 percent this year, putting pressure on all mortgage-related assets including loans made to people with the best credit.

``The banks have a lot of credit losses they're going to have to work through,'' Ryan Lentell, an analyst at Morningstar Inc. in Chicago, said in a Bloomberg Television interview.

Writedown Estimates

CreditSights Inc. analyst David Hendler estimated in an April 7 research note that JPMorgan's first-quarter losses and provisions would be $7.5 billion, including leveraged loans and mortgages.

Credit-default swaps tied to JPMorgan's bonds fell 6 basis points to 90 basis points, according to broker Phoenix Partners Group. The contracts, used to speculate on corporate creditworthiness or to hedge against losses, decline as investor confidence improves.

U.S. employers cut 80,000 jobs in March -- the most workers in five years -- and the unemployment rate rose to 5.1 percent, the highest since September 2005. The economy also lost jobs in January and February, according to Labor Department figures released April 4.

Consumers fell behind on credit-card, home-equity and auto loans at the fastest pace in 15 years during the fourth quarter of last year, according to a survey by the American Bankers Association released April 3.

Bear Stearns

JPMorgan agreed to acquire New York-based Bear Stearns Cos., once the fifth-biggest U.S. securities firm, on March 16 after lenders and clients fled on concern the company faced a cash shortage. JPMorgan, which got financial support from the Federal Reserve, raised the purchase price from $2 a share to $10 a week later to quell concerns that Bear Stearns shareholders would reject the deal.

Cavanagh said on the conference call with reporters that it's ``too early'' to say how many jobs will be lost in the takeover.

The acquisition doesn't preclude JPMorgan from pursuing other deals and the bank is ``looking at everything,'' Dimon said.

JPMorgan recently made a bid for Washington Mutual Inc., the largest U.S. savings and loan, according to a person familiar with the talks. Washington Mutual sold $7 billion in shares to an investor group led by private-equity firm TPG Inc. instead of accepting a buyout.

O'Neill Says U.S. `Strong Dollar' Policy Is `Vacuous Notion'

Former Treasury Secretary Paul O'Neill said the ``strong dollar'' policy that he and every other Treasury chief since 1995 endorsed is ``a vacuous notion.''

``It implies in it that somehow we have the ability to manage the relationship between the value of the U.S. dollar and other currencies around the world,'' O'Neill, now a special adviser to Blackstone Group LP, today said in an interview with Bloomberg Television.

O'Neill roiled currency markets when he was in office from 2001 to 2002, at one point with comments in an interview with a German newspaper that the U.S. pursued a policy of a strong economy, rather than currency. The current Treasury Secretary, Henry Paulson, has repeatedly stated that he is a ``very strong'' supporter of the ``strong dollar'' policy.

``When I was Secretary of the Treasury I was not supposed to say anything but `strong dollar, strong dollar,''' O'Neill said today. ``I argued then and would argue now that the idea of a strong dollar policy is a vacuous notion.''

The U.S. currency today fell to a record low against the euro, and has declined 15 percent against its European counterpart in the past year.

``The markets actually have control over those relationships. When people say strong dollar, if they don't mean that `we believe intervention can work and we're prepared to intervene,' then `strong dollar' is ridiculous.''

G-7 Meeting

Finance chiefs from the Group of Seven major nations ended their April 11 meeting in Washington with a statement signaling concern over the slide in the dollar by denouncing ``sharp fluctuations in major currencies,'' and their ``possible implications for economic and financial stability.''

Paulson emphasized to the G-7 ``our commitment to a strong dollar,'' he said at a press conference after the meeting.

O'Neill, President George W. Bush's first Treasury secretary, said during his tenure he repeated the mantra originated by Clinton Treasury chief Robert Rubin that a ``strong'' dollar is in the best interests of the U.S.

Every secretary since Rubin has repeated the phrase, regardless of whether the dollar was rising or falling.

The dollar traded at $1.5973 per euro at 12:01 p.m. in New York, after reaching an all-time low of $1.5979 earlier. It was also at 101.45 yen, and has dropped about 14 percent against the Japanese currency in the past 12 months.

ArcelorMittal to Increase U.S. Prices by $250 a Ton

ArcelorMittal, the world's largest steelmaker, plans to boost prices on some steel shipments in the U.S. by $250 a ton, or about 33 percent of current prices, to recoup surging costs for energy and iron ore. The shares gained.

The surcharge will be added to contracted orders of flat- rolled steel for shipment May 5 and later, according to an April 14 memo to sales personnel from D.G. Mull, executive vice president for sales and marketing. The Luxembourg-based company won't add the charge to spot sales or contracts that already allow prices to fluctuate, the memo said.

ArcelorMittal is trying to take advantage of soaring global demand to pass on higher costs for iron ore, the main ingredient in steel, and the energy to produce and ship the metal. U.S. prices for flat-rolled steel rose to $740 a ton in March from $665 a month earlier, according to Purchasing magazine.

``The key is going to be, does everybody else go along with this?'' said Charles Bradford, a metals and mining analyst at Soleil Securities in New York. ``You can bet that the auto guys are going to be yelling and screaming about it.''

ArcelorMittal advanced 1.69 euros, or 3.2 percent, to 54.94 euros in Amsterdam. The gain was the biggest since March 12. The shares have added 3.6 percent this year.

U.S. steel prices are climbing even as demand stagnates because higher prices in other regions and a weak dollar are attracting the exports usually destined for North America. Hot- rolled coil, another key industry product, may now cost a record $1,000 a ton on the spot market, according to Robert Miller of Miller Mathis, a New York investment bank focused on steel.

`Gutsy Move'

``This is a pretty gutsy move testing the contract provisions,'' said Scott Burns, an analyst at Morningstar Inc. in Chicago. ``I can imagine if they signed contracts at $400 or $425 a ton they would want to bring prices up to spot levels.''

Haroon Hassan, a London-based spokesman for ArcelorMittal, declined to comment.

U.S. Steel Corp., the largest U.S.-based steelmaker, will work to get the ``market price'' for its steel, spokesman John Armstrong said. He declined to say whether the company will follow ArcelorMittal's move.

Nucor Corp. Chief Executive Officer Dan DiMicco declined to comment in an e-mail to Bloomberg News.

``We will continue to honor our contracts,'' said Alan McCoy, a spokesman for AK Steel Holding Corp., the third-largest U.S.-based steelmaker. ``Most of our contracts for the last seven years have had a variable pricing component,'' he said.

Steel Dynamics Inc. spokesman Fred Warner said in an e-mail that ``virtually all'' of the company's flat-rolled product sales contracts allow prices to rise with a scrap-metal cost index. The company is the fourth-largest U.S.-based steelmaker.

General Motors

General Motors Corp. sued Steel Dynamics in March 2004, arguing that the steelmaker reneged on an agreement to sell it 50,000 tons of the metal at a specific price. Steel Dynamics said that no agreement existed.

Nucor rose $3.85, or 5.6 percent, to $72.66 as of 1:06 p.m. in New York Stock Exchange composite trading. U.S. Steel added $6.13, or 4.2 percent, to $152.76. AK Steel added $2.45, or 3.7 percent, to $68.60. Steel Dynamics climbed $2.25, or 6.4 percent, to $37.29 on the Nasdaq Stock Market.

Billionaire Lakshmi Mittal bought Arcelor for $38.3 billion in 2006 to boost bargaining power with customers such as Toyota Motor Corp. The company, which controls about 10 percent of global steel production, became the largest steelmaker in the U.S. after Mittal's Ispat Inland unit bought Wilbur Ross's International Steel Group in April 2005.

`Adequate Return'

``Where ArcelorMittal's preceding group of family companies in the U.S. gave away steel for a price that didn't cover the cost of capital, Mittal is requiring an adequate return,'' said Michelle Applebaum, who runs a steel-equities research firm in Highland Park, Illinois.

ArcelorMittal also is trying to mitigate greater concentration in the global iron-ore industry, where BHP Billiton Ltd., Rio Tinto Group and Cia. Vale do Rio Doce control about 80 percent of the seaborne trade in the steelmaking ingredient. ArcelorMittal is investing about $6 billion to boost iron-ore output from its own mines to 110 million metric tons, from about 60 million tons at the end of 2007.

ArcelorMittal earlier this month agreed to pay Vale, the world's largest exporter of iron ore, 87 percent more for the ingredient. Vale is charging Asian steelmakers about 65 percent more.

``The steel industry has seen unprecedented volatility in 2008, primarily as a result of cost increases related to iron ore, coke, scrap, energy and transportation,'' ArcelorMittal said in the memo. ``ArcelorMittal has attempted to mitigate the impact of these costs, however, the magnitude of the changes require us to implement a raw material surcharge.''

`Market Conditions'

The surcharge will be adjusted ``as the market conditions warrant,'' according to the memo.

The charge might add as much as $1 billion to costs at General Motors Corp. next year, according to Soleil's Bradford.

GM spokeswoman Deborah Silverman declined comment on the price increase in an interview.

``We don't, as a matter of policy, comment on specific changes in material costs,'' Ford Motor Co. spokesman Todd Nissen said in an e-mail. ``However, we closely monitor raw-material and commodity costs on a regular basis and adjust our internal business plans as necessary.''

The U.S. needs to import steel because domestic producers make only about 100 million tons a year while the nation uses about 130 million tons.

``By the end of the year, the concept of fixed-price steel will be virtually done away with,'' Applebaum said. ``The entire pricing mechanism was something that didn't exist until the commodity price deflation of the 1980s/90s, so it makes sense that this would disappear in the current environment,'' she said.

Irony: Bear Stearns receives SEC notice, accused of anticompetitive practices

To quote Karen from Will & Grace, the latest twist in the demise of Bear Stearns (NYSE: BSC) is "funny because it's sad."

In a filing with the SEC, Bear Stearns disclosed (subscription required) that it had received notice that civil charges could be en route related to allegations of anticompetitive practices in bidding for municipal securities. The FTC is also alleging that Bear Stearns has violated consumer protection laws.

Let me get this straight. The executives at Bear Stearns managed to run a once-proud investment bank to the brink of ruin while simultaneously cheating their customers and competitors? That's pretty impressive stuff!. It's a little bit like hearing a rumor that the Miami Dolphins were illegally videotaping their opponents while compiling a 1 win and 15 loss season.

But this is pretty much par for the course for Bear Stearns. Gary Weiss recently wrote that Bear Stearns regularly flouted the law" and referred to its "history of sliminess." Check out Weiss' blog post for a compendium of Bear's regulatory run-ins disclosed in its 10-K

Chevron lawsuit attorneys earn Goldman environmental award

Two Ecuadorian attorneys have been awarded the Goldman Environmental Prize for their efforts to force San Ramon-based oil giant Chevron to clean up contaminated land and waterways in the northeastern Amazon.

Pablo Fajardo Mendoza and Luis Yanza co-founded the Amazon Defense Front and organized 30,000 inhabitants of the northeastern Ecuadorian Amazon in a class-action lawsuit first filed against Texaco in 1993, according to the Goldman Environmental Prize, a San Francisco-based foundation that honors grassroots environmentalists with annual awards.

Fajardo and Yanza have alleged that between 1964 and 1990 Texaco dumped nearly 17 million gallons of crude oil and 20 billion gallons of contaminated drilling wastewater into more than 1,000 unlined open pits and directly into waterways, according to the foundation.

Plaintiffs have also alleged that prolonged exposure to the contamination has led to major health problems for people living near the now-abandoned drilling sites and rates of cancer for people living in surrounding villages are seven times higher than in the rest of the country’s population. Residents also suffer higher rates of skin disease, respiratory ailments and reproductive disorders, according to the foundation. The 1993 class-action lawsuit, which was filed on behalf of residents of 80 villages, was dismissed by a New York state superior court judge in 1996.

Chevron acquired Texaco and the company’s alleged liability in 2001. In 2002, the U.S. Court of Appeals sent the case to Ecuador.

In May 2003, Fajardo’s team filed a civil lawsuit in Ecuador in an effort to force Chevron to pay for a complete cleanup of the region, rehabilitation of the plant and animal life and to monitor and help improve the health of local residents, according to the foundation.

A recent report estimated damages to be between $8.3 billion and $16 billion, according to the foundation.

Chevron, meanwhile, has claimed that Fajardo and Yanza have “twisted the facts” and that the attorneys have sued the company for financial gain only.

Chevron has also alleged that Petroecuador, Ecuador’s national oil company, is responsible for polluting the area, not Texaco. The oil giant has accused Fajardo and Yanza of deceiving the Goldman Environmental Prize foundations and trying to block cleanup efforts and “extended miserable conditions of those they say they are defending.”

The $150,000 Goldman Environmental Prize will be presented to Fajardo and Yanza along with five other environmental activists during a ceremony Monday to be held at the San Francisco Opera House.

Lehman eyes brokerage JV as part of China push

U.S. investment bank Lehman Brothers (LEH.N: Quote, Profile, Research) is looking to team up with a local partner to establish a joint venture brokerage in China, as part of a drive to significantly expand its presence there, an executive said.

Lehman joins a growing list of Western financial firms that are planning to set up brokerage JVs after the government lifted a two-year moratorium on new approvals late last year. Rules require them to work with local partners.

Zhizhong Yang, chairman of Lehman Brothers China, told Reuters that the firm had been in "active discussions" with prospective partners for the venture.

"We are talking to a number of potential partners; this is definitely something that we want to do. The firm's management is very focused on building a platform in China," Yang said in an interview over the weekend.

"Our vision for the China business is to offer our clients the full range of the firm's products and services," he said, speaking on the sidelines of the Boao Forum for Asia on the southern Chinese island of Hainan.

Yang declined to name the securities firms Lehman was in talks with or to estimate when it might be able to launch a JV.

"I hope it won't be too long. The government has lifted the moratorium, so we want to take the opportunity," he said.

"Once we have the domestic platform ... then we would have to grow our headcount in accordance with the
Lehman also plans to keep beefing up other arms of its China investment banking business, Yang said, helping both major domestic firms and smaller private firms with overseas share offerings, as well as mergers and acquisitions.

"Last year, our China investment banking revenue was almost three times the revenue in the previous year," he said, adding that he expected further "significant" revenue growth this year.

The firm also plans to expand its principal investments in China, Yang said.

He declined to estimate how much Lehman would invest in the near term, but said it was looking at opportunities in the financial services industry, as well as consumer and retail, real estate and technology.

The recent credit crunch would not hinder that expansion, Yang said. "I think the company will be very willing to put up a reasonable amount of money in one single investment. It's not constrained by capital."

Lehman shored up its capital base on April 1 by selling $4 billion in convertible preferred securities.

Yang added that Lehman was looking into getting involved in the clean and alternative energy markets in China.

"It could involve investing in clean coal and clean energy projects. We have invested in similar projects in the U.S., and we'd like to do something in China as well. It's still in the planning stage, though," he said.

Delta to Buy Northwest, Form World's Largest Airline

Delta Air Lines Inc., one year removed from bankruptcy, agreed to buy Northwest Airlines Corp. in a $3.63 billion stock deal that would create the world's largest carrier and may unleash more industry consolidation.

The airline will keep Delta's name, Atlanta headquarters and Chief Executive Officer Richard Anderson, 52. The purchase will produce a total of $1 billion in new revenue and savings and won't shut any hubs, the companies said yesterday.

Delta, the third-biggest U.S. airline by traffic, is betting that combining with Northwest, the fifth-largest, will help overcome a 77 percent increase in jet fuel over 12 months. It will control about 25 percent of the U.S. air-travel market, estimates Ray Neidl, a Calyon Securities analyst in New York.

``The assumptions are fairly optimistic,'' said George Hamlin, managing director of New York-based consulting firm ACA Associates. ``Given high fuel prices and going into a recession, it makes you wonder how things will improve.''

The move also is likely to hasten merger talks among rivals including United Airlines to counter Delta's wider network.

Continental Airlines Inc., No. 4 in the U.S. by traffic, has held talks with UAL Corp.'s United, the world's second- largest carrier, and has met with American, a person with knowledge of the matter said Feb. 15.

`Dominoes'

``Expect dominoes to fall,'' Bear Stearns & Co. analyst Frank Boroch in New York said today in a note to investors. He rates Delta and Northwest as ``outperform,'' while the New York- based Neidl recommends Delta as ``add'' and has a ``neutral'' rating on Northwest.

Delta gained 2.1 percent to $10.70 at 9:12 a.m. before the start of regular New York Stock Exchange composite trading, while Northwest climbed 7.8 percent to $12.10.

Delta and Northwest and their regional partners carried 176 million people last year. The combined carrier would vault past AMR Corp.'s American Airlines as the world's largest by traffic, and would have 800 aircraft and 75,000 employees.

Each Northwest share will be exchanged for 1.25 Delta shares, giving Northwest investors $13.10, or 16.8 percent more than yesterday's closing price, the airlines said. The deal will include one-time cash costs of $1 billion, the companies said.

Northwest CEO Doug Steenland, 57, will sit on the new airline's board and Delta's Ed Bastian will keep his roles as president and chief financial officer.

Shareholder Approval

Shareholders of Delta and Eagan, Minnesota-based Northwest will have to approve the transaction, which also would need clearance from federal antitrust regulators. While Delta pilots would get a 3.5 percent equity stake in the airline and a board seat under a new contract, Northwest's pilots said they would ``aggressively oppose'' the tie-up.

The projected revenue and savings are in line with expectations, UBS Securities analyst Kevin Crissey in New York said today in a note to investors. Still, he said he may reduce his earnings estimates because of the rising price of jet fuel. He has a ``neutral'' rating on Delta and Northwest.

The slowing U.S. economy, which is starting to damp travel demand, also is weighing on the industry.

Industry Losses

The eight largest U.S. carriers may post a combined first- quarter loss of $1.4 billion, Merrill Lynch & Co. analyst Michael Linenberg wrote yesterday in a note to clients. AMR leads off the airlines' earnings reports tomorrow.

Four small U.S. airlines filed for bankruptcy in the past month: Frontier Airlines Holdings Inc., Skybus Airlines Inc., Aloha Airgroup Inc. and ATA Airlines Inc.

Delta's biggest contributions to the new carrier include trans-Atlantic routes to Europe and a network in Latin America, while Northwest has Pacific routes including access to the restricted Narita airport in Tokyo.

Adding overseas flying was part of each airline's strategy to return to profit after bankruptcy.

``With Delta and Northwest bulked up, they can compete globally,'' former Continental CEO Gordon Bethune said yesterday in an interview. ``They will have enough of the market that if they say, we need another $5 per ticket, they can get it.''

Bethune was an adviser to hedge fund Pardus Capital Management LP, which backed a Delta-UAL tie-up last year.

U.S. Hubs

Delta has U.S. hubs at Atlanta, New York's Kennedy airport, Cincinnati and Salt Lake City. Northwest's are in Minneapolis, Detroit, and Memphis, Tennessee. Northwest also operates hubs in Amsterdam and Tokyo.

The new Delta doesn't plan to further cut capacity as part of the tie-up, Anderson said yesterday on a conference call with reporters. Delta said in March it will cut 2,000 jobs and lower capacity by 10 percent, double its previous goal, and Northwest said it would halt hiring and cut capacity by 5 percent.

``No, there's not any contemplated,'' Anderson said of additional capacity cuts. ``Until we have antitrust approval, you can't really jointly plan.''

Delta's financial advisers were Greenhill & Co. and Merrill Lynch & Co., and its legal advisers were Wachtell, Lipton, Rosen & Katz and Hunton & Williams.

Northwest's financial advisers were Morgan Stanley and JPMorgan Chase & Co., and the carrier's legal advisers were Simpson Thacher & Bartlett and O'Melveny & Myers.

The deal caps five months of industry speculation about Delta's intentions after revealing on Nov. 14 that it created a board committee to study merger options.

Grinstein's Prediction

For Delta's Anderson, the accord fulfills the prediction made 13 months ago by predecessor Gerald Grinstein that Delta would become ``an acquirer'' after spurning a hostile takeover bid from US Airways Group Inc. in bankruptcy. Delta and Northwest discussed a tie-up before leaving court protection in April and May of 2007, respectively.

Acquiring Northwest also puts Anderson back in charge of the airline where he was CEO from 2001 through 2004. His lieutenants at Northwest included Steenland.

Talks on the transaction stalled in February after pilots couldn't agree on how to mesh union seniority lists.

Delta and its 7,000 pilots broke the impasse in the past few days with a new labor agreement running through 2012 that includes the equity stake. Northwest's 5,000 pilots would be asked to join a unified contract before the deal closes.

`Aggressively Oppose'

``This agreement clearly disadvantages NWA pilots,'' Dave Stevens, chairman of the Northwest chapter of the Air Line Pilots Association, said in a statement. Stevens said pilot leaders at Northwest ``will use all resources available to aggressively oppose this merger.''

Non-pilot employees of both companies in the U.S. will be given a 4 percent equity stake when the deal closes, the companies said, adding that they don't expect to make any involuntary layoffs.

In addition to the board seat going to the Delta pilots, the new airline will have seven directors from Delta and five from Northwest, the companies said.

Delta's 6.8 percent bond due August 2022 fell 0.45 cents to 96.41 cents per dollar face value on Feb. 12, the last day with trading data, according to Trace, the bond-price reporting system of the NASD. The yield rose at that time to 7.22 percent.

Northwest's 7 percent bond due November 2019 fell 4.74 cents to 93.5 cents on April 7, the last day Trace has trading data. The yield rose to 7.894 percent.

Credit-default swaps on Delta debt were unchanged at 1,183 basis points on April 9, the last day with such data, according to CMA Datavision in New York. The contracts are designed to protect bondholders against default. A drop in price indicates an increase in the perception of a company's credit quality.

Northwest had 277 million shares outstanding, Delta's Bastian said yesterday. It had 236.4 million shares as of Jan. 31, according to Bloomberg data.