Business Blog Posts

Temporary pauses in foreclosures have expanded among major lenders as the courts, lawmakers and state attorneys general investigate whether banks supplied shoddy paperwork to support evictions of delinquent borrowers.

While homeowners may cheer efforts to get tough with banks, an increasing number of analysts warn that that a blanket ban on foreclosures could further hobble the economy.

A major securities lobbying group said on Monday that a U.S.-wide foreclosure moratorium would be "catastrophic."

The Securities Industry and Financial Markets Association said foreclosure processing mistakes should be fixed but said dramatic nationwide action could unjustly impose losses on the investors who help provide credit to the $11 trillion U.S. mortgage market.

"It is imperative...that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy," SIFMA Chief Executive Tim Ryan said in a statement.

Disclosures that some big mortgage processors filed affidavits without proper scrutiny in thousands of foreclosure cases has drawn calls from some prominent lawmakers and civil rights groups for foreclosures to be halted in all 50 states.

But it's not clear if any individual or single regulator has the power to impose a nationwide moratorium, with most mortgage regulation conducted on a state-by-state basis.

President Barack Obama has so far declined to back such calls, despite polls showing that voters angry about the sluggish economy and high jobless rate are set to punish his fellow Democrats in the November 2 congressional elections.

Investors who buy mortgage-backed securities free up money that can be used by lenders to make new loans.

The market for such securities nearly dried up during the height of the 2007-2009 financial crisis, but the instruments have rallied since March 2009 as investors bet depressed prices more than account for losses that will come as homes backing bad loans are liquidated.

Moody's Corp warned on Monday that most residential mortgage-backed securities could see losses increase because of delays in foreclosures.

Moody's said in its weekly credit outlook that foreclosure delays would impose higher carrying costs on loans and reduce the ultimate recovery amount once the properties are liquidated.

Bank of America, the nation's largest mortgage servicer, said on Friday it would temporarily halt foreclosures nationwide as it reviews its foreclosure processes.

JPMorgan and Ally Financial Inc's GMAC Mortgage have announced partial moratoriums, but some other leading mortgage servicers have said they have no plans for a systematic halt.

The Fed's November meeting is now the market's focal point, and minutes from its meeting on September 21, when it said it stood ready to provide more support for the economy and expressed concern about low inflation, are due at 2 p.m. ET.

The Australian dollar fell from near three-decade highs seen last week to $0.9792, but many traders still see the currency on track to hit parity and put Tuesday's falls down to short term profit taking.

Gold edged lower pressured by a stronger dollar, but expectations of further monetary easing by the U.S. Federal Reserve are likely to support the bull run in bullion. Spot gold inched down $1.6 to $1,351.35 an ounce in early trading reversing gains in the previous session.

Asian stocks dipped slightly with the MSCI Asia ex-Japan index .MIAPJ0000PUS down 0.87 percent in early trade.

China's central bank auctioned 22 billion yuan ($3.3 billion) of one-year bills in its open market operation on Tuesday at a yield of 2.0929 percent, unchanged from the last sale and in line with market expectations.

Traders had expected the People's Bank of China to keep the one-year bill yield steady because of its reluctance to send any market signals that it wants to lift benchmark interest rates.

The euro was down 0.2 percent in early trading at $1.3853 with one market player noting stops building in the $1.3830-35 area.

The dollar index .DXY was up 0.12 percent at 77.531, still close to its lowest in nearly nine months.

(Editing by Tomasz Janowski)

China temporarily raised reserve requirements for six large commercial banks, four sources told Reuters, a surprise move aimed at draining cash from the economy.

Thailand, also on edge about a rapidly rising currency that has alarmed exporters, said it may impose a tax on foreigners' bond purchases.

With interest rates in the developed world at record lows, investors have poured money into higher-yielding emerging market assets, driving up local currencies in the process.

Governments, afraid that rising exchange rates will hurt exports and stunt economic growth, have tried to limit currency appreciation, sparking fears of a "race to the bottom" that may trigger trade tariffs and a sharp decline in global growth.

"If each country insists on its own interest during the recovery phase, it will bring about trade protectionism and will cause the world economy very big problems," South Korean President Lee Myung-bak told foreign journalists during a lunch meeting at his residence.

World finance leaders made no headway on currency disputes at a weekend International Monetary Fund meeting, and Lee urged an agreement before his country hosts a G20 summit next month.

HOT MONEY

But China's central bank governor said Monday it will take time to correct the uneven pattern of global growth that has contributed to exchange rate tensions, warning that attempts at a quick fix could create more problems.

"People may not have that kind of patience, so they would like to see a quick changes in the balance, but it may cause a kind of overshooting," Zhou Xiaochuan said during a discussion with other central bank governors at the National Press Club.

U.S. and European officials hold that limiting emerging market currency gains is the main cause of imbalances and has urged China in particular to let its yuan rise more rapidly.

Analysts said China's reserve requirement hike should be seen as an attempt to slow massive foreign capital inflows rather than a prelude to tighter monetary policy.

"Hot money inflows have been rising. But I don't think this is a tightening move. It's just part of liquidity management," said Qing Wang, chief China economist at Morgan Stanley.

The move comes weeks ahead of a Federal Reserve policy meeting at which markets expect the U.S. central bank to begin a second round of quantitative easing, which would heap even more downward pressure on the U.S. dollar and send more money into developing economies, including China and Thailand.

Thai Deputy Finance Minister Pradit Phataraprasit told reporters the Cabinet may consider a bond tax on Tuesday, though he would not comment on local reports of a possible 15 percent withholding tax on capital gains on government bonds.

While the Fed is widely expected to start printing money again in November to jump-start a faltering recovery, Vice Chairwoman Janet Yellen does appear aware of the risks.

At a time of growing concern about the international repercussions of another possible round of monetary easing by the U.S. central bank, Yellen's comments suggested Fed officials are cognizant of the risks to its zero rate policy.

"It is conceivable that accommodative monetary policy could provide tinder for a buildup of leverage and excessive risk-taking in the financial system," Yellen said in prepared remarks to the National Association for Business Economics.

Countries from Latin America to Asia have complained rather loudly that the Fed's push toward renewed monetary easing is unduly pushing up their currencies against the U.S. dollar, hurting their competitiveness.

Yellen, until recently the president of the San Francisco Fed and a strong dovish voice at the U.S. central bank, did not directly address the outlook for the economy or monetary policy. Nor did she imply that the threat of bubbles, which has underpinned a string of dissents on the Federal Open Market Committee by Kansas City Fed President Thomas Hoenig, would be enough to dissuade the Fed from easing further.

Markets have all but priced in an expectation that the central bank will boost its purchase of Treasury bonds at its November meeting, an effort to prop up an ailing recovery that has left inflation at levels that some Fed officials consider dangerously low.

Employment, which along with price stability forms the central bank's dual mandate, has also been a key driver of policy. The country's jobless rate is currently hovering at 9.6 percent, and is expected to edge lower only slowly over the next few years.

Still, Yellen spent the bulk of her remarks reviewing the lessons for regulators from the financial crisis. One important thing to remember, she said, is that markets left to their own devices can cause tremendous instability.

"(Financial markets) were viewed as self-correcting systems that tended to return to a stable equilibrium before they could inflict widespread damage on the real economy," she said.

"That view lies in tatters today as we look at the tens of million of unemployed and trillions of dollars of lost output and lost wealth around the world.

The Securities Industry and Financial Markets Association said foreclosure processing mistakes should be fixed but warned against dramatic nationwide action.

"It is imperative, however, that care be taken in addressing these issues to ensure that no unnecessary damage is done to an already weak housing market and, in turn, that there is no further negative impact on the economy," SIFMA Chief Executive Tim Ryan said in a statement.

On Sunday, White House adviser David Axelrod said he was "not sure" about a national halt to foreclosures.

Disclosures that some big mortgage processors filed affidavits without proper scrutiny in thousands of foreclosure cases has drawn anger from Congress and advocacy groups, with some prominent lawmakers calling for foreclosures to be halted in all 50 states.

Bank of America (BAC.N), the nation's largest mortgage servicer, said on Friday it would temporarily halt foreclosures nationwide as it looks into reports of shoddy paperwork.

Other institutions, including JPMorgan (JPM.N) and Ally Financial Inc's GMAC Mortgage, have announced partial moratoriums but some leading mortgage servicers have said they have no plans for a systematic halt.

The health of the U.S. housing market is a key concern as the economy recovers fitfully from its worst downturn since the 1930s.

Politicians are acutely aware of voter anxiety as the congressional election looms on November 2 and regulators are under heavy pressure to prevent a repeat of the 2007-2009 financial crisis that began when the U.S. housing bubble burst.

(Editing by John O'Callaghan)

Shares of the San Francisco-based retailer were up 23 percent at $64.97 in morning trade Monday. Rival Children's Place Retail Stores Inc (PLCE.O) rose 5 percent to a year high, while Carter's Inc (CRI.N) rose 3 percent.

Under the deal, Gymboree shareholders will get $65.40 in cash for each share held, a premium of 23.5 percent to the stock's closing on Friday. The offer is at a 57 percent premium to the stock's price before reports on a possible sale of the company made the rounds on September 30.

On October 5, sources said the company had hired Goldman Sachs to begin a formal auction.

Gymboree, which runs retail stores and play centers, said it will solicit acquisition proposals from third parties for a period of 40 days.

Gymboree owns the Gymboree, Gymboree Outlet, Janie and Jack, and Crazy 8 brands. As of October 2, it operated a total of 1,037 retail stores, including in Canada, Puerto Rico and Australia.

Goldman Sachs is acting as financial advisor to the special committee of the board.

Under the terms of the deal, it is expected that affiliates of Bain Capital will start a tender offer for all of the outstanding shares of Gymboree shortly following the execution of the agreement.

Gymboree shares were trading close to the buyout offer at $64.99 in morning trade on Nasdaq. They touched a high of $65.18 in early trade.

(Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Gopakumar Warrier)

Bernstein analyst Paul Galloway said getting the financial clout needed to improve on the terms of the biggest takeover bid this year required either aligning a diverse consortium or relying on the politically contentious backing of China.

The latest in weeks of speculation about ways BHP could be stymied saw reports that Canadian and Singaporean funds were talking about a possible deal, that China's preferred counterbidder was canvassing an Indian partner, and that Potash itself was examining a huge payout.

On the latter point, Galloway said Potash would find it challenging to demonstrate it can deliver more value by returning cash to shareholders.

Liberum Capital analysts said it was hard to see "a testosterone-filled bidding war" over Potash.

"With six weeks to go before the BHPB offer closes it is clear that the Chinese look unlikely to enter the fray and the schemes being tabled now are becoming increasingly political, complex and difficult to execute," they said in a note.

Still, Potash stock is more than 13 percent above BHP's $130 per share offer -- signaling investors anticipate a sweetened offer from BHP or a rival. BHP has set a November 18 bid deadline.

Potash has rejected BHP's bid as too cheap, and said it expected other investors to enter the fray.

Paul Cliff, head of European metals and mining research at Nomura, said the reports seemed to be "clutching at straws" and his base-case assumption remained a successful BHP takeover at a raised $150-$160.

ONTARIO

British newspaper The Sunday Times reported Canada's Ontario Teachers Pension Plan (OTPP) was talking to Singapore investment fund Temasek about launching an offer for Potash, possibly with Canadian miner Teck Resources.

The Sunday Times and rival The Sunday Telegraph also both said Potash was considering defensive moves, including a break-up. Both said Potash could sell its nitrogen and phosphate operations and return up to $70 per share to investors.

The Telegraph said Potash was talking to OTPP and others, which had received strong support from the Canada.

Teachers and Teck were not available to comment on Sunday, but both have said previously they would not be interested in bidding. Potash and Temasek declined to comment.

"Everybody is talking to everyone," said a person familiar with the situation, who did not deny that Temasek had been approached.

* But there were worries of a monetary tightening in China. The country has raised reserve requirements for six large commercial banks on a temporary basis, a move to drain cash from the economy but avoid over-tightening, four sources told Reuters on Monday.

* China's top offshore oil producer CNOOC Ltd (0883.HK) has agreed to pay $1.1 billion for a stake in a U.S. shale oil and gas field, testing the market for the first time since its 2005 failed bid for Unocal.

* Rival bidders may be looking to derail BHP Billiton's (BHP.AX) $39 billion bid for Canada's Potash Corp (POT.TO), with China's Sinochem and a Canadian pension fund among those working on plans, according to newspaper reports.

* Microsoft Corp (MSFT.O) is set to unveil a new line of phones running its Windows software on Monday, as it attempts to pull back market share from Apple Inc's (AAPL.O) iPhone and Google Inc's (GOOG.O) Android system in the fast-growing market for multi-featured 'smartphones'.

* The dollar fell to a 15-year low of 81.40 yen on Monday but later clawed higher and stabilized, with the chances of a short-term bounce growing, despite expectations the Federal Reserve will have to print money to support the economy.

* The dollar was affected by discord in international currency policies after the IMF's member countries failed to agree on a concrete plan to tackle global imbalances at multilateral meetings over the weekend. ID:ID:nN10287368

* Oil rose for a second straight session on Monday to top $83, lifted by the dollar's slide that bolstered the appeal of commodities as an alternative investment.

* European stocks inched higher, led by tech shares such as Nokia (NOK1V.HE), helped by a share price target upgrade from Goldman Sachs. Japanese markets were closed for a national holiday.

* U.S. stocks rallied on Friday, with the Dow closing above the 11,000 mark for the first time in five months as a surprisingly weak jobs report strengthened the case for a further monetary injection by the Federal Reserve.

* The Dow Jones industrial average .DJI gained 57.90 points, or 0.53 percent, to close at 11,006.48. The Standard & Poor's 500 Index .SPX rose 7.09 points, or 0.61 percent, to 1,165.15. The Nasdaq Composite Index .IXIC climbed 18.24 points, or 0.77 percent, to 2,401.91.

(Reporting by Blaise Robinson; Editing by Greg Mahlich)

Major European stocks opened slightly higher, mirroring gains in Asia and on Wall Street with the FTSEEurofirst 300 .FTEU3 rising 0.2 percent in early trade to 1,072.60.

Finance leaders meeting over the weekend in Washington produced no quick fix for global economic imbalances, suggesting the cheap money trade of selling dollars to buy emerging market assets and commodities looks set to continue for now.

That was further spurred by weaker-than-expected jobs data in the United States on Friday that raised the chances the Federal Reserve would inject fresh funds into the economy as soon as its November 2-3 meeting.

"At the end of the day we are going to have QE2 one way or the other and we are going to have currency rebalancing. The question is how to play this now," said Geoff Howie, sales and markets strategist at MF Global in Singapore, referring to a second round of quantitative easing.

One group that stands to benefit is commodities that stand to gain on the back of rapid growth in developing Asian economies as well as persistent dollar weakness.

Metals rallied with London copper hitting a fresh 27-month peak while Shanghai zinc futures rose 5 percent to its upside limit of 18.875 yuan a metric ton.

The dollar weakened broadly against a basket of currencies .DXY and against the yen fell as far as 81.37 yen, its lowest level in 15 years. It later recovered to 81.99.

Although Japan is closed for a national holiday on Monday, the dollar's slide put markets on alert for potential intervention by the Bank of Japan, especially since the G7 and the IMF didn't produce any overt criticism of Tokyo's yen selling.

But with the yen already trading above the levels at which the BOJ intervened last month and the dollar's persistent weakness, any impact from intervention may be short-lived.

"Corporate Japan is just going to have to wake up and deal with a yen at or around 80. No amount of intervention is going to make much difference," said Howie.

The MSCI Asia ex-Japan stock index .MIAPJ0000PUS rose 0.6 percent on expectations that a flood of investment funds into emerging markets would continue.

Hong Kong shares .HSI hit a more than 2-year peak, breaking out of a trading range that has held since November 2009 and leading a broad rally in Asian markets.

CORN RISES MOST SINCE 1972

Chicago corn jumped 8.5 percent for its biggest gain in 28 years, boosted by a U.S. government forecast that supplies in the world's top exporter would shrink to their lowest in 14 years.

CNOOC shares hit a three-year high on news of the deal with Chesapeake Energy Corp (CHK.N), which could be the start of more outbound acquisitions as the Chinese company races to meet its aggressive production growth forecasts to feed the country's fast-growing economy, analysts and bankers said.

"We expect them to expand their footprint in the Canadian oil-sands and also in Brazil's deepwater. That's the last frontier where you can extract big oil volumes," said Gordon Kwan, head of Asian energy research for Mirae Asset Securities, adding that Nigeria and Angola could also be attractive.

Canadian oil firm Opti Canada Inc (OPC.TO) and its peer Nexen Inc (NXY.TO) have drawn interest from CNOOC, Asia- and Canada-based bankers have said in recent months.

CNOOC, along with its peer Sinopec Group, is also bidding for stakes in assets owned by Brazilian oil and gas start-up OGX SA (OGXP3.SA) in a potential $7 billion deal, sources with direct knowledge of the matter said in mid-September.

The 10 deals so far this year for China's oil and gas companies have been worth $18.6 billion, already eclipsing the $15.8 billion in deals for all of 2009, according to data from Thomson Reuters.

Most of the outbound acquisitions by China's oil firms have been in risky areas such as Africa, which Western rivals have avoided, or in locations with aging assets.

Now they are also eyeing the United States, which was once deemed off limits to the Chinese due to protectionist sentiment.

"Ninety-five percent of the world's E&P (exploration and production) companies are in North America," said an Asia-based investment banker who has advised Chinese oil firms on outbound deals. "If you have to move the reserve needle, you have to buy U.S. companies."

U.S. oil and gas companies are gradually warming to Chinese investment, partly because their companies are now short of cash, Kwan of Mirae Asset said.

In contrast, China's state oil giants including PetroChina (0857.HK) (601857.SS) (PTR.N) and Sinopec (0386.HK) (600028.SS) (SNP.N) have access to ample credit, giving them more firepower to execute deals.

NO REGULATORY HURDLES

The Chesapeake agreement shows that China is confident that the purchase of a 33 percent stake in the Eagle Ford acreage in South Texas will get the backing of U.S. regulators and politicians, who stepped in five years ago to block CNOOC's effort to buy U.S. oil company Unocal.

Outside the energy realm, political concerns have also surfaced from time to time involving efforts by Huawei HWT.UL, China's top telecoms equipment maker, to crack the U.S. market.

While U.S.-China tensions over the value of China's currency persist, ties between the two countries have grown since 2005, with China becoming a major global economic force.