Business Blog Posts

Commodity prices including crude oil were subdued after Federal Reserve Chairman Ben Bernanke suggested U.S. economic conditions were still too weak for the central bank to pull back on its vast monetary stimulus, despite a welcome drop in the jobless rate.

Japan's Nikkei .N225 slipped, while shares elsewhere in Asia .MIAPJ0000PUS slid 0.7 percent.

Hong Kong's Hang Seng index .HSI and South Korea's KOSPI .KS11 have completely erased this year's gains and were back at levels not seen since late December.

In contrast, last year's laggards like the Nikkei remained well in the black for the year.

"It's not like buying in Japanese stocks has completely stopped, but investors have been looking for a reason to take profits and now they're cautious about overheating in the market," said Norikazu Kitta, strategist at Nikko Cordial Securities.

Despite the generally downbeat mood, there were patchy bright spots in the market, among them, shares in Australian bourse operator ASX (ASX.AX) jumped more than 4 percent, while Singapore Exchange (SGXL.SI) gained about 1.6 percent.

Investors are hoping that merger news between major bourses like the NYSE Euronext and Deutsche Boerse would boost prospects of ASX's own planned merger with Singapore Exchange, which is facing political hurdles.

Global miner Rio Tinto (RIO.AX) edged up 0.3 percent ahead of its December-half results. Investors, however, pushed SingTel shares (STEL.SI) down 1 percent after the telecom company unveiled a 2.2 percent fall in quarterly profit.

DOLLAR SUBDUED

Meanwhile, the dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, limped up 0.06 percent to 77.690 after a steep decline overnight.

Still, many traders think the dollar is in a holding pattern for the near term as the euro was also lacking upward momentum of its own after the European Central Bank last week quelled expectations of an early rate hike.

The euro traded at $1.3715, down slightly from late U.S. levels but still up about 1 percent on the week.

"It's difficult for now for the euro to rise above the peak hit earlier this month. It will need a fresh factor to go beyond that peak," said Keiji Matsumoto, a strategist at Nikko Cordial Securities.

The Australian dollar dipped slightly in the wake of solid jobs numbers as investors bet they were not so strong as to make a rate rise more likely anytime soon.

In December, Twitter raised $200 million in financing in a deal that valued it at $3.7 billion. The company, which allows users to broadcast 140-character messages to groups of followers, had 175 million users as of September.

The Wall Street Journal reported on its website that executives at Twitter have held "low level" talks with executives at Facebook and Google in recent months about a possible takeover of Twitter.

Citing people familiar with the matter, the WSJ said other companies have also held similar talks.

"But what's remarkable is the money that people familiar with the matter say frames the discussions with at least some potential suitors; an estimated valuation in the neighborhood of $8 billion to $10 billion," the report said.

The paper said the talks have so far gone nowhere and that Google, Facebook and Twitter all declined to comment.

Despite the valuation, the report said Twitter's executives and board were working on building a large, independent company.

"People familiar with the situation said the company believes it can grow into a $100 billion company," the WSJ said.

Twitter, created in 2006, is among a crop of popular Internet social networking services that includes Facebook, Zynga and LinkedIn.

A growing secondary market has developed in shares of the privately held Web sensations and investors are monitoring the companies closely in the hope they might float shares.

It was only in the middle of 2010 that Twitter offered marketers a way to advertise on the service.

Industry research firm eMarketer said last month that Twitter, which doesn't disclose financial information, generated an estimated $45 million from advertising in 2010 and is expected to generate some $150 million this year.

Google, the world's number 1 Internet search engine, generated roughly $29 billion in revenue in 2010 and Facebook, recently valued at $50 billion, produced about $1.9 billion, eMarketer said.

(Additional reporting by Alexei Oreskovic; writing by Neil Fullick, Editing by Dean Yates)

Deutsche Boerse's advanced talks to buy NYSE Euronext to create the world's biggest trading powerhouse was a wake-up call for Asian bourses which face increasing competition in equity trading from new platforms.

The deal came just hours after the London Stock Exchange announced a bid for Canada's TMX.

The latest consolidation mounts pressure on Southeast Asian exchanges, which have avoided mergers because of tight ownerships and political obstacles, although these bourses are taking steps to promote cross-border trading [ID:nSGE71101M].

"The competitive threat from the alternative trading pools makes strategic sense for traditional exchanges to combine resources so they can compete better," said Neo Chiu Yen, vice president of equity research at ABN AMRO Private Bank in Asia.

SGX's $7.9 billion bid for the ASX faces major political and regulatory hurdles in Australia but investors said the latest deals appeared to strengthen the case for a tie-up.

Shares in both companies outperformed their wider markets on Thursday. ASX shares were trading 4.5 percent higher, while SGX shares were up 1.3 percent in Singapore.

"That whole game's moving very fast now. Maybe it gives the ASX-Singapore Exchange (deal) a bit of a kick along," said John Sevior, head of equities at Perpetual Investments, ASX's biggest shareholder.

"It just depends on how broad the government's horizons are. At the moment, it's mired very much in domestic political issues."

Sources close to the deal said there had been informal dialogue in recent weeks between SGX-ASX and Australian politicians and the country's Foreign Investment Review Board (FIRB), which has the power to block any deal. However, SGX had not yet formally submitted its application to FIRB.

The ASX said the two deals highlighted its argument that consolidation was necessary.

"The developments overseas do underline the global trend toward exchange consolidation in response to the dynamic changes that are shaping the market," an ASX spokesman said.

However, the leader of Australia's powerful Greens party reaffirmed his strong opposition to the ASX-SGX tie-up.

"If I was in New York I would be advocating that the stock exchange remains in American hands," Greens leader Bob Brown said.

While many analysts said the deals should bolster the case for a SGX-ASX merger, one analyst said the LSE could now be seen as an alternative partner for ASX.

Cisco shares fell 10 percent after hours on Wednesday. Shares of peers such as Juniper Networks Inc, F5 Networks Inc and Riverbed Technology Inc also declined, but the recurring let-downs raised questions about whether Cisco is still the industry bellwether it once was.

Chambers upset investors last August with a warning of "unusual uncertainty," and followed up last quarter with a weaker-than-expected outlook that he blamed on weak orders from debt-burdened government agencies.

He offered no relief this quarter.

"Unfortunately, we believe that our concerns in the public sector will continue to be challenging in the developed world for the next several quarters," he said, adding that Cisco's government accounts in the United States, Europe and Japan had all been hit in the fiscal second quarter.

"The challenges at state, local, and eventually federal level in our opinion will worsen over the next several quarters," he said of the U.S. market.

Chambers is one of Silicon Valley's longest-serving executives, and investors take his views on industry trends seriously. He was one of the first tech executives to flag the impact of the financial crisis on the sector in late 2007.

Investors have also looked to Cisco for signs of overall technology spending due to the breadth of its customer base, which ranges from small U.S. businesses to foreign governments.

WEAK MARGINS

Cisco's second-quarter gross margin fell to 62.4 percent from 64.3 percent in the previous quarter, raising analysts' concerns that growing competition may be forcing the company to cut prices to protect market share.

The company forecast margins to be around 62 to 63 percent for the rest of the fiscal year, which ends in July.

Cisco also let down investors with a third-quarter outlook of earnings excluding items of 35 cents to 38 cents per share, below Wall Street expectations for 40 cents. And it said sales growth for the full year would likely be at the mid- to low-end of a previous 9 to 12 percent outlook.

Analysts said the outlook and low margins, a signal it may be cutting prices in response to tough pressure from competitors like Hewlett-Packard Co, overshadowed stronger-than-expected results for the second quarter.

Revenue for the quarter ended January 29 rose 6 percent from a year earlier to $10.41 billion. Analysts had expected $10.23 billion, according to Thomson Reuters I/B/E/S.

Quarterly net profit fell to $1.5 billion from $1.9 billion a year earlier. Excluding items, the company had earnings per share of 37 cents, beating the market's average forecast of 35 cents and Cisco's own forecast of 32 to 35 cents.

The discussions, announced on Wednesday, came only hours after the London Stock Exchange's said it had agreed to buy Canadian stock market operator TMX, marking a shake-up for an industry under intense cost pressure from upstart electronic rivals, but one that offers new opportunities after the financial crisis in on-exchange derivatives trading.

The deals sent shares in other exchanges soaring on speculation that further match-ups would follow.

"People are staking their positions today with the intention of being a survivor," said Michael Holland, chairman of New York-based money manager Holland & Co. "It may be a good time to be Darwinian."

The LSE's purchase of the Toronto stock market operator would make it the world's fourth largest and a top center for growth sectors of mining and energy, with $4.1 trillion of stock changing hands each year.

But that deal would be dwarfed by a Deutsche Boerse-NYSE Euronext merger, which would give it annual trading volume exceeding $20 trillion.

The combined group would have headquarters in New York and Frankfurt, with Deutsche Boerse shareholders holding about 60 percent of the combined company and NYSE shareholders owning the rest.

The companies said NYSE Euronext Chief Duncan Niederauer would be chief executive of the merged company and Deutsche CEO Reto Francioni would be chairman.

Deutsche Boerse and NYSE Euronext said they could cut costs by 300 million euros ($400 million) a year in a merger that European sources said should be finalized this month.

Aggressive, upstart trading venues have eaten deeply into the market shares of these traditional exchanges, forcing the Big Board, the LSE and others to invest heavily in trading technology and to look to higher-margin areas to grow.

"The smaller players have really changed the face of these larger players around the world, and so they're forced to merge," said William Karsh, former chief operating officer at Direct Edge, one of two privately run U.S. venues that took on the New York Stock Exchange and Nasdaq in recent years.

Shares of NYSE Euronext and Nasdaq OMX Group Inc, its chief U.S. rival, soared on Wednesday, reaching their highest levels in more than two years.

The takeovers of such national capital markets, and indeed prominent symbols of a country's business prowess, require the approval of securities regulators.

In Canada, the pact met a lukewarm response and may run into political hurdles. Early signals out of Ottawa suggested the government will not quickly approve the takeover of the Toronto Stock Exchange's parent company.

The U.S. Securities and Exchange Commission declined to comment on the possibility of a German-based company acquiring the NYSE, which lies at the heart of Wall Street and long has been a proud symbol American finance where share trading first began under a buttonwood tree in 1792.

Together, Deutsche Boerse and NYSE Euronext would dominate exchange trading in continental Europe. The companies said they could cut costs by 300 million euros ($408.7 million) a year.

The combined group would have headquarters in New York and Frankfurt, with Deutsche Boerse shareholders holding about 60 percent of the combined company and NYSE shareholders holding the rest. The companies disclosed their talks on Wednesday.

Earlier in the day, LSE said it would buy TMX, forming the world's fourth-largest exchange and a top center for trading mining and energy shares, with $4.1 trillion of stock changing hands a year. The exchanges are looking to regain market share lost to upstart electronic trading platforms.

Other exchanges could face similar pressure to merge, analysts said.

"These mergers don't take place on a one-off basis; they come in clusters," said Thomas Caldwell, chief executive of Caldwell Securities Ltd in Toronto, which invests in exchanges.

One exchange seen as a possible acquisition target is CBOE Holdings Inc, experts said. Options exchanges have been growing fast, while stock market trading volume has been moving away from traditional exchanges and toward electronic trading venues like privately held BATS Global Markets. CBOE shares rose 9.6 percent to $26.88.

"The next logical step would be for the Nasdaq or CME Group or even the ICE to take out CBOE Holdings Inc," said Jon Najarian, a co-founder of web information site Optionmonster.com in Chicago.

LSE shares rose 9 percent after the TMX deal was announced, which is unusual; acquirers' share prices often fall. The rising price signals LSE could be getting a good deal, which in turn could mean another buyer might offer a higher price for TMX.

But some bankers dismissed such speculation.

"You would need to put a cash bid on the table and a premium, which might require cuts at TMX, and the Canadian regulators would not like that one bit," one banker said.

If the combination survives likely political opposition in Canada, a group will emerge with a market value of 4.3 billion pounds ($6.9 billion) based on Tuesday's prices, with LSE shareholders holding 55 percent.

(Writing by Douwe Miedema and Dan Wilchins; additional reporting by Victoria Howley and Sudip Kar-Gupta; Editing by Andrew Callus, David Cowell, John Wallace)

($1 = 0.6223 pound)

(1 euro = $1.36238)

In testimony to the U.S. House of Representatives' Budget Committee that largely echoed a speech he delivered last week, Bernanke also warned about the dangers of unsustainable budget deficits.

He acknowledged fresh data showing a drop in the jobless rate to 9 percent in January from 9.8 percent in November, the biggest two-month drop since 1958, calling it "grounds for optimism."

However, Bernanke reiterated concern about the anemic pace of hiring.

"The job market has improved only slowly," he said, noting the economy had only made up just over 1 million of the more than 8 million jobs lost during the deepest recession in generations.

"This gain was barely sufficient to accommodate the inflow of recent graduates and other new entrants into the labor force and, therefore, not enough to significantly erode the wide margin of slack that remains in our labor market."

In November, the Fed launched a plan to buy $600 billion in government debt to keep a lid on long-term borrowing costs.

That program drew ire from many policy-makers in emerging markets, who accused the United States of unfairly driving down the value of the U.S. dollar to boost exports. At home, many Republican lawmakers in Congress attacked the program as potentially sowing the seeds of inflation.

Bernanke said inflation remains quite low in the United States, a tough message to deliver amid headlines of rising food and commodity costs across the globe.

He also said expectations of future inflation had remained "stable," suggesting little worry an inflationary psychology was building despite rising gasoline costs.

"Inflation is expected to persist below the levels that Federal Reserve policymakers have judged to be consistent" with their mandate, Bernanke repeated.

The chairman of the committee, Republican Rep. Paul Ryan of Wisconsin, took issue with that view. In his opening comments, he criticized the Fed's policies as providing the fuel for future bubbles and inflation, suggesting the Fed's bond purchases were eroding the U.S. dollar's value.

"There is nothing more insidious that a country can do to its citizens than debase its currency," Ryan said.

Bernanke was sure to be peppered with questions on both Fed policy and the budget by a Republican-led Congress that has become increasingly impatient with the Fed.

Preemptively, the Fed chairman had much the same message that he has offered repeatedly: either legislators bring the budget under control or the markets will force them into it.

"Creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit," he said. If unheeded, the adjustment could "come as a rapid and painful response to a looming or actual fiscal crisis."

The second-largest U.S. bank said court-appointed trustee Irving Picard is exceeding his power by suing in bankruptcy court, where a judge rather than a jury would decide the case.

"The trustee's massive damages action against JPMorgan bears no resemblance to a typical lawsuit commenced by a bankruptcy trustee," JPMorgan's lawyers said in a court filing late Tuesday.

"In substance," the bank said, "the trustee is trying to pursue an enormous back-door class action."

A spokesman for Picard did not immediately respond to a request for a comment.

JPMorgan asked U.S. Bankruptcy Judge Burton Lifland, who oversees the Madoff proceedings, to move Picard's lawsuit to federal district court, where it can demand a jury trial.

In court papers unsealed on February 3, Picard accused JPMorgan of having significant doubts about Madoff but silently acquiescing in his fraud, hoping to preserve its own investments and a more than 20-year business relationship.

JPMorgan has said it did not know about or assist in the estimated $65 billion Ponzi scheme.

Madoff, 72, pleaded guilty in March 2009 and is now serving a 150-year sentence in a North Carolina federal prison.

The case is Picard v. JPMorgan Chase & Co et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-04932.

(Additional reporting by Santosh Nadgir in Bangalore, editing by Maureen Bavdek)

At 0913 GMT futures for the Dow Jones, S&P 500 and Nasdaq were down between 0.1 and 0.2 percent.

The FTSEurofirst 300 .FTEU3 index of leading European shares was flat at 1,176.32 points.

The London Stock Exchange (LSE.L) is to buy the Toronto Stock Exchange operator TMX (X.TO) in an all-share deal to create a major center for trading in mining shares, if likely political opposition in Canada can be overcome. LSE shares were up 8 percent. In Frankfurt shares in TMX (XQ.F) were up 2.8 percent.

French drugmaker Sanofi-Aventis (SASY.PA) reported progress in talks to buy U.S. biotech firm (GENZ.O) as it predicted 5-10 percent lower earnings this year due to increased competition from generic drugs.

Apple (AAPL.O) has begun to make a new version of its iPad tablet computer with a front-facing camera and faster processor, the Wall Street Journal reported, citing people familiar with the matter.

Federal Reserve Chairman Ben Bernanke testifies at a congressional budget committee hearing chaired by one of the most prominent Republican proponents of spending cuts -- Representative Paul Ryan, who has said any vote to increase the debt ceiling must be twinned with a commitment to lower long-term spending.

Profit is expected to rise in IntercontinentalExchange's (ICE.N) quarterly report. It is likely that the futures exchange and swaps clearinghouse will show that growing derivatives volumes and expansion into new business lines has paid off.

Tech bellwether Cisco (CSCO.O) is among companies reporting after the market close.

On Tuesday the Dow notched up a seventh straight day of gains, and reached the highest in more than two and a half years. Surprisingly strong sales by McDonald's (MCD.N) boosted optimism on consumer spending and drove the Dow's gains on what turned out to be the quietest day of trading so far in 2011, with total volume about 17 percent below last year's daily average.

The Dow Jones industrial average .DJI was up 0.6 percent; the Standard & Poor's 500 Index .SPX was up 0.4 percent; the Nasdaq Composite Index .IXIC was up 0.5 percent.

Walt Disney Co's (DIS.N) shares rose 3.2 percent after the bell as it posted results.

(Reporting by Brian Gorman; Editing by Greg Mahlich)