Oil Falls Below $97 as Ike Spares Refineries, Lehman Collapses
By Grant Smith
Sept. 15 (Bloomberg) -- Crude oil fell below $97 a barrel to the lowest in seven months as refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike and Lehman Brothers Holdings Inc. filed for bankruptcy.
Refiners reported no major damage after Ike struck the Houston area, home to more than 20 percent of U.S. refining capacity, and said preparations are under way to restart plants. Investment bank Lehman Brothers Holdings Inc. filed for bankruptcy, raising concern a worsening credit crisis will slow the economy and cut fuel demand. ICE Futures, the exchange for Brent oil, suspended Lehman's access to the exchange.
``The oil sector has escaped a nightmare scenario here,'' said Rob Laughlin, senior broker at MF Global Ltd. in London. ``There has been very little structural damage to onshore oil operations and I expect production to start cranking up during the week.''
Crude oil for October delivery fell as much as $4.87, or 4.8 percent, to $96.31 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since Jan. 22. The contract was at $96.80 at 10:56 a.m. in London.
Crude has declined 33 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce energy demand.
A total of 14 Texas and Louisiana refineries, with combined crude processing capacity of 3.57 million barrels a day, are shut because of Ike.
Valero Energy
Brent crude oil for October settlement fell as much as $4.74, or 4.9 percent, to $92.84 a barrel on London's ICE Futures Europe exchange. It was trading at $93.37 a barrel at 10:47 a.m. in London. Prices have tumbled 13 straight days.
Valero Energy Corp., the largest U.S. refiner, said it found ``no significant structural damage'' at three Houston-area refineries shut before the storm.
Exxon Mobil Corp. said its Baytown refinery, the largest in the U.S., has power and damage appears ``limited,'' while it is checking its Beaumont, Texas, plant, which is without power.
Royal Dutch Shell Plc said it was assessing its Texas plants and it was too early to say when they will restart.
ConocoPhillips said its Sweeny, Texas refinery has power and its condition is being assessed. LyondellBasell Industries' Houston refinery will be down for at ``least several days,'' said David Harpole, a company spokesman. Marathon Oil Corp. and Motiva Enterprises LLC said they were evaluating their plants.
Hedge Funds
Hedge-fund managers and other large speculators cut their net-long position in New York crude-oil futures in the week ended Sept. 9, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 6,336 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 7,995 contracts, or 56 percent, from a week earlier.
To contact the reporter on this story: Grant Smith in Vienna at gsmith52@bloomberg.net.
Monday, September 15, 2008
Gas Prices Climb Quickly as Refineries Remain Closed
September 15, 2008
Gas Prices Climb Quickly as Refineries Remain Closed
By CLIFFORD KRAUSS
HOUSTON — Oil companies were warning motorists on Sunday that they would not be able to produce adequate supplies of gasoline in the days ahead because so many of their refineries were still not operating in the aftermath of Hurricane Ike. As a result, prices at the pump began soaring again.
Already in the last two days the average price for a gallon of gasoline has increased to nearly $3.80 from $3.68, according to AAA, a jump that has been rare since the oil price spikes of the 1970s and 1980s. Drivers throughout the South and Midwest, which depend on Gulf refineries, are reporting increases of 30 to 40 cents at some gasoline stations over the last couple of days.
The culprit is a combined blow from Hurricanes Gustav and Ike, which have shut down almost all oil and natural gas production in the Gulf of Mexico for over two weeks and thrown a wrench into refinery operations in Texas and Louisiana.
At least 14 Texas refineries, representing nearly a quarter of the nation’s refining capacity, will probably remain shut for the next week or more. Three more Louisiana refineries may be damaged from widespread flooding.
“It may not be possible for us — and other manufacturers — to maintain normal supplies in the coming days,” Chevron stated in a bleak assessment on its Web site on Sunday, warning of “severe supply disruptions in the wake of Hurricane Ike.”
The Energy Department said it would release more than 300,000 barrels of reserves from the Strategic Petroleum Reserve to refiners, and indicated that it would help to keep supplies going to refineries that were still running. But oil companies said power outages at refineries and pipelines and at hundreds of gasoline stations around the Gulf area were going to make distribution of fuel difficult for awhile.
Refiners began to send crews as early as Saturday afternoon to visit refineries along the coast after Hurricane Ike passed quickly through the area. Preliminary reports indicated that the refineries in Texas did not suffer significant flooding or other damage, but company officials said they did not want to speculate about how long it would take to resume normal operations.
It will also take time for companies to fly over and board hundreds of oil and gas platforms on the Gulf that were jostled by Hurricane Ike’s extensive wake and gusts. The United States Minerals Management Service reported that at least 10 platforms — out of 3,800 in the Gulf — had been destroyed. At least two oil drilling rigs broke loose from their moorings. There has been no estimate yet of any environmental damages.
Platforms and other production facilities around the Gulf account for about 25 percent of domestic oil production and nearly 15 percent of domestic natural gas output.
“We don’t even know when we can start the restart process, let alone how long the restart process will take,” said Bill Day, a spokesman for Valero Energy, the country’s biggest refiner. Valero has three big refineries in Houston, Port Arthur, Tex., and Texas City, Tex., that have been closed since a few days before the hurricane made landfall as a Category 2 storm Saturday morning.
Mr. Day said that crewmen had not found any serious structural damage at the three facilities, but there was no power for the Texas City and Port Arthur refineries because of a regional blackout. Meanwhile none of the three facilities have adequate fresh water supplies to generate steam because the storm surge pushed salt water through the region’s waterways.
Since most of the Houston refineries are clustered in a small area, are supplied by the same utilities and most are expected to face similar problems.
Senator Kay Bailey Hutchison, Republican of Texas, said on CBS’s “Face the Nation” on Sunday, “We are looking at another week or eight or nine days before refineries are up and going, so refined gasoline is going to be in a shortage situation because of the power outages and flooding.”
“It is going to be felt for the next week that we have gasoline shortages,” Ms. Hutchison said, “so people need to be prepared for that.”
The disruptions come as drivers were just getting used to lower gasoline prices.
Just before Hurricane Gustav hit Louisiana on the Labor Day weekend, the national average for a gallon of unleaded regular gasoline was $3.69, more than 40 cents below the highs in July. Gasoline prices had fallen sharply until the last few days mainly because oil prices have dropped since early summer by more than $40 dollars a barrel to about $100, about the level at the beginning of the year.
Crude prices on the New York Mercantile Exchange declined again on Sunday by more than 2 percent, to $99.70 a barrel a six-month low, as traders continued to view declining economic trends as more important than an active hurricane season. Declining oil prices mean that once the disruption subsides, gas prices could easily drop as quickly as they are now rising.
Hurricanes Gustav and Ike are the first major challenge to Gulf oil operations since Hurricanes Katrina and Rita of 2005, which crippled more than 100 production platforms, disrupted refinery operations and sent oil and gas prices rising for weeks.
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Gas Prices Climb Quickly as Refineries Remain Closed
By CLIFFORD KRAUSS
HOUSTON — Oil companies were warning motorists on Sunday that they would not be able to produce adequate supplies of gasoline in the days ahead because so many of their refineries were still not operating in the aftermath of Hurricane Ike. As a result, prices at the pump began soaring again.
Already in the last two days the average price for a gallon of gasoline has increased to nearly $3.80 from $3.68, according to AAA, a jump that has been rare since the oil price spikes of the 1970s and 1980s. Drivers throughout the South and Midwest, which depend on Gulf refineries, are reporting increases of 30 to 40 cents at some gasoline stations over the last couple of days.
The culprit is a combined blow from Hurricanes Gustav and Ike, which have shut down almost all oil and natural gas production in the Gulf of Mexico for over two weeks and thrown a wrench into refinery operations in Texas and Louisiana.
At least 14 Texas refineries, representing nearly a quarter of the nation’s refining capacity, will probably remain shut for the next week or more. Three more Louisiana refineries may be damaged from widespread flooding.
“It may not be possible for us — and other manufacturers — to maintain normal supplies in the coming days,” Chevron stated in a bleak assessment on its Web site on Sunday, warning of “severe supply disruptions in the wake of Hurricane Ike.”
The Energy Department said it would release more than 300,000 barrels of reserves from the Strategic Petroleum Reserve to refiners, and indicated that it would help to keep supplies going to refineries that were still running. But oil companies said power outages at refineries and pipelines and at hundreds of gasoline stations around the Gulf area were going to make distribution of fuel difficult for awhile.
Refiners began to send crews as early as Saturday afternoon to visit refineries along the coast after Hurricane Ike passed quickly through the area. Preliminary reports indicated that the refineries in Texas did not suffer significant flooding or other damage, but company officials said they did not want to speculate about how long it would take to resume normal operations.
It will also take time for companies to fly over and board hundreds of oil and gas platforms on the Gulf that were jostled by Hurricane Ike’s extensive wake and gusts. The United States Minerals Management Service reported that at least 10 platforms — out of 3,800 in the Gulf — had been destroyed. At least two oil drilling rigs broke loose from their moorings. There has been no estimate yet of any environmental damages.
Platforms and other production facilities around the Gulf account for about 25 percent of domestic oil production and nearly 15 percent of domestic natural gas output.
“We don’t even know when we can start the restart process, let alone how long the restart process will take,” said Bill Day, a spokesman for Valero Energy, the country’s biggest refiner. Valero has three big refineries in Houston, Port Arthur, Tex., and Texas City, Tex., that have been closed since a few days before the hurricane made landfall as a Category 2 storm Saturday morning.
Mr. Day said that crewmen had not found any serious structural damage at the three facilities, but there was no power for the Texas City and Port Arthur refineries because of a regional blackout. Meanwhile none of the three facilities have adequate fresh water supplies to generate steam because the storm surge pushed salt water through the region’s waterways.
Since most of the Houston refineries are clustered in a small area, are supplied by the same utilities and most are expected to face similar problems.
Senator Kay Bailey Hutchison, Republican of Texas, said on CBS’s “Face the Nation” on Sunday, “We are looking at another week or eight or nine days before refineries are up and going, so refined gasoline is going to be in a shortage situation because of the power outages and flooding.”
“It is going to be felt for the next week that we have gasoline shortages,” Ms. Hutchison said, “so people need to be prepared for that.”
The disruptions come as drivers were just getting used to lower gasoline prices.
Just before Hurricane Gustav hit Louisiana on the Labor Day weekend, the national average for a gallon of unleaded regular gasoline was $3.69, more than 40 cents below the highs in July. Gasoline prices had fallen sharply until the last few days mainly because oil prices have dropped since early summer by more than $40 dollars a barrel to about $100, about the level at the beginning of the year.
Crude prices on the New York Mercantile Exchange declined again on Sunday by more than 2 percent, to $99.70 a barrel a six-month low, as traders continued to view declining economic trends as more important than an active hurricane season. Declining oil prices mean that once the disruption subsides, gas prices could easily drop as quickly as they are now rising.
Hurricanes Gustav and Ike are the first major challenge to Gulf oil operations since Hurricanes Katrina and Rita of 2005, which crippled more than 100 production platforms, disrupted refinery operations and sent oil and gas prices rising for weeks.
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Back to Top Copyright 2008 The New York Times Company
Lehman and Merrill to pound already bloody job market
Lehman and Merrill to pound already bloody job market
Mon Sep 15, 2008 2:33am EDT
By Jonathan Spicer
NEW YORK (Reuters) - The likely disappearance of investment banks Lehman Brothers and Merrill Lynch presents a double-barreled hit to an already wounded job market, and will likely depress salaries on Wall Street.
With Lehman headed for bankruptcy and Merrill swallowed by Bank of America, two of Wall Street's four pillars have crumbled overnight.
Headhunters and consultants said the U.S. financial services sector, already suffering from a glut of unemployed talent after shedding more than 100,000 jobs this year, must now brace for up to 50,000 more.
"The resume flow will start on Monday like there's no tomorrow," said Michael Karp, chief executive at executive search and consulting firm Options Group in New York.
"This is seriously going to impact compensation this year, across the Street and all over the world as well," he said.
"The golden years of compensation in the financial services industry are over, and it doesn't help with the Bear Stearns people still looking for work."
On Sunday, eleventh-hour talks to sell Lehman failed, making bankruptcy a certainty.
At the same time, Bank of America, the second-largest U.S. bank, was wrapping up a surprise acquisition of Merrill, the world's largest brokerage, in a deal that would save Merrill from Lehman's fate.
The takeover would make Bank of America the top U.S. bank, and was likely to put 40 percent, or about 24,000 of Merrill's 60,000 non-broker employees, out of work, said Gustavo Dolfino, president at New York-based recruiting firm WhiteRock.
'BEGGARS, NOT CHOOSERS'
That, combined with Lehman's approximately 26,000 workers, will send shockwaves through the job market.
The two firms' probable disappearance would also squeeze New York City, which relies heavily on the financial services industry.
"Some of these professionals are not going to get what they usually get because they're beggars, not choosers, and they're competing with others," Dolfino said, adding there will be "a lot less money for the state and the federal government."
"We're going to ride it out, but what it truly means for the tax base is that the government will have no option than to raise taxes," he said.
Although Wall Street is not New York's biggest employer, it is the city's economic anchor. Each financial-sector worker is believed to create as many as four other New York jobs, due to their high salaries.
The year-long credit crunch has led to deficits in both the city and state budgets.
Democratic City Comptroller William Thompson said last week he was "very concerned" about the resolution of the Lehman saga, and warned it would impact New York's economy and tax revenues.
Further tremors could hit that tax base in coming months, as Lehman's undoing was expected to spark a drop in world stock markets that could push other wobbly financial companies to the brink.
The recruiters said the job losses would drive even more talent to the buy-side and to overseas countries, despite the global economic slowdown, which was spawned by the breakdown in the U.S. subprime mortgage market last year.
Karp said "hedge funds, money managers and family offices" should benefit from the job losses at Lehman and Merrill.
Dolfino pointed to the Middle East and Russia as regions hungry for U.S. financial professionals: "The demand is on the buy-side and it's international and it's opportunistic," he said.
(Reporting by Jonathan Spicer; editing by Simon Jessop)
Mon Sep 15, 2008 2:33am EDT
By Jonathan Spicer
NEW YORK (Reuters) - The likely disappearance of investment banks Lehman Brothers and Merrill Lynch presents a double-barreled hit to an already wounded job market, and will likely depress salaries on Wall Street.
With Lehman headed for bankruptcy and Merrill swallowed by Bank of America, two of Wall Street's four pillars have crumbled overnight.
Headhunters and consultants said the U.S. financial services sector, already suffering from a glut of unemployed talent after shedding more than 100,000 jobs this year, must now brace for up to 50,000 more.
"The resume flow will start on Monday like there's no tomorrow," said Michael Karp, chief executive at executive search and consulting firm Options Group in New York.
"This is seriously going to impact compensation this year, across the Street and all over the world as well," he said.
"The golden years of compensation in the financial services industry are over, and it doesn't help with the Bear Stearns people still looking for work."
On Sunday, eleventh-hour talks to sell Lehman failed, making bankruptcy a certainty.
At the same time, Bank of America, the second-largest U.S. bank, was wrapping up a surprise acquisition of Merrill, the world's largest brokerage, in a deal that would save Merrill from Lehman's fate.
The takeover would make Bank of America the top U.S. bank, and was likely to put 40 percent, or about 24,000 of Merrill's 60,000 non-broker employees, out of work, said Gustavo Dolfino, president at New York-based recruiting firm WhiteRock.
'BEGGARS, NOT CHOOSERS'
That, combined with Lehman's approximately 26,000 workers, will send shockwaves through the job market.
The two firms' probable disappearance would also squeeze New York City, which relies heavily on the financial services industry.
"Some of these professionals are not going to get what they usually get because they're beggars, not choosers, and they're competing with others," Dolfino said, adding there will be "a lot less money for the state and the federal government."
"We're going to ride it out, but what it truly means for the tax base is that the government will have no option than to raise taxes," he said.
Although Wall Street is not New York's biggest employer, it is the city's economic anchor. Each financial-sector worker is believed to create as many as four other New York jobs, due to their high salaries.
The year-long credit crunch has led to deficits in both the city and state budgets.
Democratic City Comptroller William Thompson said last week he was "very concerned" about the resolution of the Lehman saga, and warned it would impact New York's economy and tax revenues.
Further tremors could hit that tax base in coming months, as Lehman's undoing was expected to spark a drop in world stock markets that could push other wobbly financial companies to the brink.
The recruiters said the job losses would drive even more talent to the buy-side and to overseas countries, despite the global economic slowdown, which was spawned by the breakdown in the U.S. subprime mortgage market last year.
Karp said "hedge funds, money managers and family offices" should benefit from the job losses at Lehman and Merrill.
Dolfino pointed to the Middle East and Russia as regions hungry for U.S. financial professionals: "The demand is on the buy-side and it's international and it's opportunistic," he said.
(Reporting by Jonathan Spicer; editing by Simon Jessop)
Presidential hopefuls spell out China policy
Presidential hopefuls spell out China policy
Mon Sep 15, 2008 1:54am EDT
BEIJING (Reuters) - Presidential contenders John McCain and Barack Obama both vowed to press China on trade and to work with it on climate change if elected, and Obama said he would make shifting Beijing's currency policies a priority.
Democratic candidate Obama and Republican candidate McCain laid out their views on Beijing's rising diplomatic and economic power in position papers published by the American Chamber of Commerce in China on Monday (http://www.amcham-china.org.cn).
Both senators want China to grant citizens wider rights, but stressed security, economic and environmental issues that make ties between Washington and Beijing globally important and often contentious.
The U.S. trade deficit with China hit a record $256.3 billion in 2007. "Central to any rebalancing of our economic relationship must be change in currency practices," Obama said in his policy paper.
"I will use all the diplomatic avenues available to seek a change in China's currency practices," he said.
Obama said China pegs its yuan currency at an "artificially low rate," making its exports unfairly cheap.
He has backed legislation that would define currency manipulation as an illegal subsidy so that the United States could slap duties on more Chinese goods.
In his paper, McCain accused his Democrat rival of "preying on the fears stoked by Asia's dynamism," but the Republican candidate also said "China has its obligations as well".
"(China's) commitment to open markets must include enforcement of international trade rules, protecting intellectual property, lowering manufacturing tariffs and fulfillment of its commitment to move to a market-determined currency," McCain said.
The yuan has appreciated a further 18.47 percent since it was revalued by 2.1 percent to 8.11 per dollar in July 2005, and freed from a dollar peg to float within managed bands. Now one U.S. dollar buys about 6.85 yuan.
While the Republican and Democratic candidates have sparred over energy policy, they found some common ground in vowing to bring China into firmer international commitments to control greenhouse gases stoking global warming.
The U.S. and China are the world's two biggest emitters of the main greenhouse gas, carbon dioxide, and they will play a decisive role in negotiations to forge a global climate pact to build on the Kyoto Protocol, which expires in 2012.
China has insisted that, as a developing country, it must grow first and not accept any caps until wealthier. Washington has refused to ratify the Kyoto Protocol, noting it did not impose caps on China and other big, developing economies.
"Given the environmental challenges so evident in China today, pressing on with uncontrolled emissions is in no one's interest," said McCain. The U.S. could in turn "take the lead" in spreading low-carbon technology to poorer countries.
Obama said the two nations must "develop much higher levels of cooperation without delay" to produce new means of reducing the threat from climate change.
(Reporting by Chris Buckley; Editing by Paul Tait)
Mon Sep 15, 2008 1:54am EDT
BEIJING (Reuters) - Presidential contenders John McCain and Barack Obama both vowed to press China on trade and to work with it on climate change if elected, and Obama said he would make shifting Beijing's currency policies a priority.
Democratic candidate Obama and Republican candidate McCain laid out their views on Beijing's rising diplomatic and economic power in position papers published by the American Chamber of Commerce in China on Monday (http://www.amcham-china.org.cn).
Both senators want China to grant citizens wider rights, but stressed security, economic and environmental issues that make ties between Washington and Beijing globally important and often contentious.
The U.S. trade deficit with China hit a record $256.3 billion in 2007. "Central to any rebalancing of our economic relationship must be change in currency practices," Obama said in his policy paper.
"I will use all the diplomatic avenues available to seek a change in China's currency practices," he said.
Obama said China pegs its yuan currency at an "artificially low rate," making its exports unfairly cheap.
He has backed legislation that would define currency manipulation as an illegal subsidy so that the United States could slap duties on more Chinese goods.
In his paper, McCain accused his Democrat rival of "preying on the fears stoked by Asia's dynamism," but the Republican candidate also said "China has its obligations as well".
"(China's) commitment to open markets must include enforcement of international trade rules, protecting intellectual property, lowering manufacturing tariffs and fulfillment of its commitment to move to a market-determined currency," McCain said.
The yuan has appreciated a further 18.47 percent since it was revalued by 2.1 percent to 8.11 per dollar in July 2005, and freed from a dollar peg to float within managed bands. Now one U.S. dollar buys about 6.85 yuan.
While the Republican and Democratic candidates have sparred over energy policy, they found some common ground in vowing to bring China into firmer international commitments to control greenhouse gases stoking global warming.
The U.S. and China are the world's two biggest emitters of the main greenhouse gas, carbon dioxide, and they will play a decisive role in negotiations to forge a global climate pact to build on the Kyoto Protocol, which expires in 2012.
China has insisted that, as a developing country, it must grow first and not accept any caps until wealthier. Washington has refused to ratify the Kyoto Protocol, noting it did not impose caps on China and other big, developing economies.
"Given the environmental challenges so evident in China today, pressing on with uncontrolled emissions is in no one's interest," said McCain. The U.S. could in turn "take the lead" in spreading low-carbon technology to poorer countries.
Obama said the two nations must "develop much higher levels of cooperation without delay" to produce new means of reducing the threat from climate change.
(Reporting by Chris Buckley; Editing by Paul Tait)
AIG Seeking Capital, May Sell Units to Help Ratings (Update2)
AIG Seeking Capital, May Sell Units to Help Ratings (Update2)
By Hugh Son
Sept. 15 (Bloomberg) -- American International Group Inc., the largest U.S. insurer by assets, was working on plans late yesterday to raise capital and sell units to forestall credit downgrades from hobbling the company.
AIG asked the Federal Reserve for a $40 billion bridge loan after rejecting an offer from J.C. Flowers & Co. that would have given the buyout firm an option to acquire the whole company, the New York Times said, citing an unidentified person. AIG may get access to the Fed's borrowing window in an ``extreme liquidity scare,'' Citigroup Inc. analyst Joshua Shanker said Sept. 12.
Chief Executive Officer Robert Willumstad is under pressure to raise capital after three quarterly losses totaling $18.5 billion. AIG fell 27 percent in German trading today on investor concern the New York-based insurer can't raise enough cash to withstand further writedowns from credit-default swaps, contracts AIG sold to protect fixed-income investors.
``The driving force in this is to raise capital to give them more of a cushion to stave off a downgrade,'' said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance.
Standard & Poor's said Sept. 12 it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital.
AIG slumped to $8.84 by 11:12 a.m. in Germany, after closing at $12.14 on the New York Stock Exchange on Sept. 12. The stock has fallen 79 percent this year in New York.
`The Public Good'
A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said.
``We would not be surprised to see the Federal Reserve open its borrowing window to AIG,'' Shanker said in a note to investors Sept. 12. ``The Fed could argue the action is for the public good as it protects the security of many housing loans.'' AIG has units that originate, guarantee and invest in mortgages.
AIG spokesman Nicholas Ashooh and the Fed's Michelle Smith didn't return phone calls seeking comment.
The Federal Reserve yesterday widened the collateral it accepts for loans to Wall Street bond dealers as the financial industry braced for a Lehman Brothers Holdings Inc. bankruptcy filing. The 158-year-old securities firm filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today.
``The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement released in Washington yesterday.
J.C. Flowers
The insurer was in discussions with buyout firms including KKR & Co. and J.C. Flowers to raise $20 billion in capital, said people familiar with the situation. The firms met with AIG executives in New York, said one of the people, who declined to be named because the talks were private. AIG is said to be working with advisers JPMorgan Chase & Co., Citigroup Inc. and Blackstone Group LP.
J.C. Flowers had offered $8 billion for a stake in the insurer that would have given the firm an option to buy the rest of AIG, the Times said.
The insurer may also seek $20 billion through asset sales, said a person familiar with AIG's planning.
American General Finance, AIG's consumer lender, could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc. is worth about $2.2 billion, based on the Sept. 12 share price.
Dinallo, Paterson
Bank of America Corp. analyst Alain Karaoglan said Willumstad, 63, should reconsider the decision to keep its aircraft-leasing unit, International Lease Finance Corp. which could sell for $7 billion to $14 billion.
The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said Aug. 7.
New York Governor David Paterson and Insurance Superintendent Eric Dinallo have been ``very, very closely involved,'' in AIG's planning, said David Neustadt, a spokesman for Dinallo, in an interview yesterday. ``We've spent the last two days at AIG headquarters.''
AIG's former CEO and Chairman Maurice ``Hank'' Greenberg, who controls the largest stake in the insurer, wasn't involved in the company's planning this weekend and has ``repeatedly offered'' to assist the firm, said spokesman Glen Rochkind.
Greenberg, 83, saw the holdings decline by $3.1 billion last week. He controls 11 percent of AIG shares through two investment firms and personal holdings.
To contact the reporter on this story: Hugh Son in New York at hson
By Hugh Son
Sept. 15 (Bloomberg) -- American International Group Inc., the largest U.S. insurer by assets, was working on plans late yesterday to raise capital and sell units to forestall credit downgrades from hobbling the company.
AIG asked the Federal Reserve for a $40 billion bridge loan after rejecting an offer from J.C. Flowers & Co. that would have given the buyout firm an option to acquire the whole company, the New York Times said, citing an unidentified person. AIG may get access to the Fed's borrowing window in an ``extreme liquidity scare,'' Citigroup Inc. analyst Joshua Shanker said Sept. 12.
Chief Executive Officer Robert Willumstad is under pressure to raise capital after three quarterly losses totaling $18.5 billion. AIG fell 27 percent in German trading today on investor concern the New York-based insurer can't raise enough cash to withstand further writedowns from credit-default swaps, contracts AIG sold to protect fixed-income investors.
``The driving force in this is to raise capital to give them more of a cushion to stave off a downgrade,'' said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance.
Standard & Poor's said Sept. 12 it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital.
AIG slumped to $8.84 by 11:12 a.m. in Germany, after closing at $12.14 on the New York Stock Exchange on Sept. 12. The stock has fallen 79 percent this year in New York.
`The Public Good'
A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said.
``We would not be surprised to see the Federal Reserve open its borrowing window to AIG,'' Shanker said in a note to investors Sept. 12. ``The Fed could argue the action is for the public good as it protects the security of many housing loans.'' AIG has units that originate, guarantee and invest in mortgages.
AIG spokesman Nicholas Ashooh and the Fed's Michelle Smith didn't return phone calls seeking comment.
The Federal Reserve yesterday widened the collateral it accepts for loans to Wall Street bond dealers as the financial industry braced for a Lehman Brothers Holdings Inc. bankruptcy filing. The 158-year-old securities firm filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today.
``The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement released in Washington yesterday.
J.C. Flowers
The insurer was in discussions with buyout firms including KKR & Co. and J.C. Flowers to raise $20 billion in capital, said people familiar with the situation. The firms met with AIG executives in New York, said one of the people, who declined to be named because the talks were private. AIG is said to be working with advisers JPMorgan Chase & Co., Citigroup Inc. and Blackstone Group LP.
J.C. Flowers had offered $8 billion for a stake in the insurer that would have given the firm an option to buy the rest of AIG, the Times said.
The insurer may also seek $20 billion through asset sales, said a person familiar with AIG's planning.
American General Finance, AIG's consumer lender, could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc. is worth about $2.2 billion, based on the Sept. 12 share price.
Dinallo, Paterson
Bank of America Corp. analyst Alain Karaoglan said Willumstad, 63, should reconsider the decision to keep its aircraft-leasing unit, International Lease Finance Corp. which could sell for $7 billion to $14 billion.
The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said Aug. 7.
New York Governor David Paterson and Insurance Superintendent Eric Dinallo have been ``very, very closely involved,'' in AIG's planning, said David Neustadt, a spokesman for Dinallo, in an interview yesterday. ``We've spent the last two days at AIG headquarters.''
AIG's former CEO and Chairman Maurice ``Hank'' Greenberg, who controls the largest stake in the insurer, wasn't involved in the company's planning this weekend and has ``repeatedly offered'' to assist the firm, said spokesman Glen Rochkind.
Greenberg, 83, saw the holdings decline by $3.1 billion last week. He controls 11 percent of AIG shares through two investment firms and personal holdings.
To contact the reporter on this story: Hugh Son in New York at hson
China Cuts 1-Year Lending Rate; Reduces Lending Curb (Update1)
China Cuts 1-Year Lending Rate; Reduces Lending Curb (Update1)
By Li Yanping
Sept. 15 (Bloomberg) -- China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside after economic growth slowed and amid tumult on Wall Street.
The People's Bank of China cut the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio by 1 percentage point at some banks. The changes were in a statement on the central bank's Web site today.
Cooling inflation has given the central bank more room to move, while global financial turmoil adds to the risk of bigger slowdowns in China's export markets. Policy makers want to protect jobs and prevent a slump in the world's fourth-biggest economy after four quarters of slowing growth.
``This is the first tangible sign of a move to a pro-growth stance by the Chinese government,'' said Mark Tan, who helps oversee about $3 billion in Asian equities at UOB Asset Management in Singapore.
The central bank pushed the reserve requirement to a record 17.5 percent in June. The nation's largest banks were excluded from the cut. The requirement for smaller banks drops by 1 percentage point from Sept. 25. For lenders in earthquake- affected areas, the reduction is 2 percentage points.
-- With reporting by Chua Kong Ho in Shanghai. Editors: Paul Panckhurst, Michael Dwyer
To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net
By Li Yanping
Sept. 15 (Bloomberg) -- China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside after economic growth slowed and amid tumult on Wall Street.
The People's Bank of China cut the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio by 1 percentage point at some banks. The changes were in a statement on the central bank's Web site today.
Cooling inflation has given the central bank more room to move, while global financial turmoil adds to the risk of bigger slowdowns in China's export markets. Policy makers want to protect jobs and prevent a slump in the world's fourth-biggest economy after four quarters of slowing growth.
``This is the first tangible sign of a move to a pro-growth stance by the Chinese government,'' said Mark Tan, who helps oversee about $3 billion in Asian equities at UOB Asset Management in Singapore.
The central bank pushed the reserve requirement to a record 17.5 percent in June. The nation's largest banks were excluded from the cut. The requirement for smaller banks drops by 1 percentage point from Sept. 25. For lenders in earthquake- affected areas, the reduction is 2 percentage points.
-- With reporting by Chua Kong Ho in Shanghai. Editors: Paul Panckhurst, Michael Dwyer
To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net
Zimbabwe rivals in historic pact
Zimbabwe rivals in historic pact
Zimbabwe's President Robert Mugabe has signed a historic power-sharing deal with his long-time rival, opposition leader, Morgan Tsvangirai.
The two smiled and shook hands at the ceremony in the capital, Harare, attended by African dignitaries.
Mr Tsvangirai said the agreement provided the best hope for Zimbabwe and called on President Mugabe to work together to implement the deal.
Details are still emerging of how exactly power will be shared.
Mr Mugabe, MDC leader Morgan Tsvangirai and Arthur Mutambara - leader of a breakaway MDC faction - signed the agreement in front of some 3,000 invited guests in Zimbabwe's International Conference Centre.
REPORTED DEAL Robert Mugabe:
President
Heads armed forces
Chairs cabinet
Zanu-PF has 15 ministers Morgan Tsvangirai:
Prime minister
Chairs council of ministers
Controls police force
MDC has 16 ministers - 3 from smaller faction
The signatories were introduced in the terms used in the agreement; Robert Mugabe as president, and Mr Tsvangirai as prime minister.
To rapturous applause, the leaders shook hands after exchanging signed copies of the accord.
Mr Tsvangirai said the agreement was a "product of painful compromises" and that it did not provide "an instant cure" to the fortunes of Zimbabwe.
"I've signed this agreement because I believe it represents the best opportunity for us to build a peaceful and prosperous democratic Zimbabwe," he said.
He said his hope for the future was stronger than the grief felt for "the needless suffering of the past years".
He called for the support of the international community and African neighbours in helping to rebuild the country - healthcare, education and economy.
The new deputy prime minister, Mr Mutambara, said the compromise agreement was a victory for Zimbabwe.
"This is a victory of Zimbabweans saying to each other there is more that brings us together than that which divides us," he said.
The BBC's George Alagiah in Harare says that the mood among ordinary Zimbabweans is one of relief rather than outright jubilation; people just want to get on with their lives.
'Highly polarised'
Negotiations started at the end of July, but stalled over the allocation of executive power between Mr Mugabe and Mr Tsvangirai.
The breakthrough came late on Thursday after months of difficult negotiations mediated by South African President Thabo Mbeki.
Details of the agreement were expected to be made public on Monday.
HAVE YOUR SAY Let's just say the deal is a step in the right direction GS, Harare
As prime minister, Mr Tsvangirai is expected to chair a council of ministers which is responsible for the day-to-day managing of the country's affairs.
According to the leaks, the MDC and another MDC faction will together have 16 ministers, while President Mugabe's Zanu-PF will have 15 ministers.
Some members have called it a climb-down, although others have said it is the best available.
David Coltart, an MP from the smaller MDC faction, said on Friday that most MDC members who are due to become ministers "have at some stage in the last nine years been brutalized on the instructions of those they will now have to work with".
The MDC accuses the army and Zanu-PF of organising a campaign of violence against opposition activists to ensure victory in the June presidential run-off.
"Zimbabwe remains highly polarised and it will take statesmanship on all sides to make this work," he said in an e-mail to his supporters.
Mr Tsvangirai and President Mugabe have not commented on the agreement.
'A new page'
The deal opens the way for international donors to help to revive Zimbabwe's collapsing economy, where inflation is at more than 11,000,000%.
The BBC's Allan Little in Johannesburg says Morgan Tsvangarai's trump card was that he alone could attract the foreign-funded reconstruction effort that Zimbabwe needs.
But he also knows that the foreign donor countries will want to see hard evidence - and soon - that power really has shifted away from Robert Mugabe, our correspondent says.
European Union foreign policy chief Javier Solana said a decision on lifting sanctions on Zimbabwean officials had been postponed until October.
Mr Solana said the EU needed to study the details of the power-sharing agreement but that he expected it to open "a new page" for Zimbabwe.
Mr Mugabe, in power since independence from Britain in 1980, won a controversial presidential run-off election in June.
He ran unopposed after Mr Tsvangirai withdrew, claiming the MDC was the target of state-sponsored violence.
In the first round of the presidential election in March, Mr Tsvangirai gained more votes than Mr Mugabe, but official results say he did not pass the 50% threshold for outright victory.
Zimbabwe's President Robert Mugabe has signed a historic power-sharing deal with his long-time rival, opposition leader, Morgan Tsvangirai.
The two smiled and shook hands at the ceremony in the capital, Harare, attended by African dignitaries.
Mr Tsvangirai said the agreement provided the best hope for Zimbabwe and called on President Mugabe to work together to implement the deal.
Details are still emerging of how exactly power will be shared.
Mr Mugabe, MDC leader Morgan Tsvangirai and Arthur Mutambara - leader of a breakaway MDC faction - signed the agreement in front of some 3,000 invited guests in Zimbabwe's International Conference Centre.
REPORTED DEAL Robert Mugabe:
President
Heads armed forces
Chairs cabinet
Zanu-PF has 15 ministers Morgan Tsvangirai:
Prime minister
Chairs council of ministers
Controls police force
MDC has 16 ministers - 3 from smaller faction
The signatories were introduced in the terms used in the agreement; Robert Mugabe as president, and Mr Tsvangirai as prime minister.
To rapturous applause, the leaders shook hands after exchanging signed copies of the accord.
Mr Tsvangirai said the agreement was a "product of painful compromises" and that it did not provide "an instant cure" to the fortunes of Zimbabwe.
"I've signed this agreement because I believe it represents the best opportunity for us to build a peaceful and prosperous democratic Zimbabwe," he said.
He said his hope for the future was stronger than the grief felt for "the needless suffering of the past years".
He called for the support of the international community and African neighbours in helping to rebuild the country - healthcare, education and economy.
The new deputy prime minister, Mr Mutambara, said the compromise agreement was a victory for Zimbabwe.
"This is a victory of Zimbabweans saying to each other there is more that brings us together than that which divides us," he said.
The BBC's George Alagiah in Harare says that the mood among ordinary Zimbabweans is one of relief rather than outright jubilation; people just want to get on with their lives.
'Highly polarised'
Negotiations started at the end of July, but stalled over the allocation of executive power between Mr Mugabe and Mr Tsvangirai.
The breakthrough came late on Thursday after months of difficult negotiations mediated by South African President Thabo Mbeki.
Details of the agreement were expected to be made public on Monday.
HAVE YOUR SAY Let's just say the deal is a step in the right direction GS, Harare
As prime minister, Mr Tsvangirai is expected to chair a council of ministers which is responsible for the day-to-day managing of the country's affairs.
According to the leaks, the MDC and another MDC faction will together have 16 ministers, while President Mugabe's Zanu-PF will have 15 ministers.
Some members have called it a climb-down, although others have said it is the best available.
David Coltart, an MP from the smaller MDC faction, said on Friday that most MDC members who are due to become ministers "have at some stage in the last nine years been brutalized on the instructions of those they will now have to work with".
The MDC accuses the army and Zanu-PF of organising a campaign of violence against opposition activists to ensure victory in the June presidential run-off.
"Zimbabwe remains highly polarised and it will take statesmanship on all sides to make this work," he said in an e-mail to his supporters.
Mr Tsvangirai and President Mugabe have not commented on the agreement.
'A new page'
The deal opens the way for international donors to help to revive Zimbabwe's collapsing economy, where inflation is at more than 11,000,000%.
The BBC's Allan Little in Johannesburg says Morgan Tsvangarai's trump card was that he alone could attract the foreign-funded reconstruction effort that Zimbabwe needs.
But he also knows that the foreign donor countries will want to see hard evidence - and soon - that power really has shifted away from Robert Mugabe, our correspondent says.
European Union foreign policy chief Javier Solana said a decision on lifting sanctions on Zimbabwean officials had been postponed until October.
Mr Solana said the EU needed to study the details of the power-sharing agreement but that he expected it to open "a new page" for Zimbabwe.
Mr Mugabe, in power since independence from Britain in 1980, won a controversial presidential run-off election in June.
He ran unopposed after Mr Tsvangirai withdrew, claiming the MDC was the target of state-sponsored violence.
In the first round of the presidential election in March, Mr Tsvangirai gained more votes than Mr Mugabe, but official results say he did not pass the 50% threshold for outright victory.
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