Rock raises £2.25bn from mortgage sale

(FT.com) - Northern Rock expects to raise £2.25bn through the sale of its portfolio of Lifetime home equity release mortgages to JPMorgan Chase at a premium to its balance sheet value.

 

The move is likely to be seen as an encouraging sign that buyers are beginning to emerge for mortgage assets owned by the stricken bank that are regarded as good quality.

 

However it may raise concerns that Northern Rock is selling off the better quality assets, leaving the government and shareholders with less attractive portfolios.

A spokesman for Northern Rock said: "It's not a question of degrees of quality. This was an opportunity to sell a relatively small percentage of our assets."

In another twist in the Northern Rock saga, trustees of the pension scheme have asked the company to place members on the same footing as depositors by setting aside enough mortgage assets to guarantee that all promised benefits could be fully paid if the bank becomes insolvent.

The move, detailed in a letter to scheme members sent on Friday, puts yet more pressure on a government that has already extended more than £25bn in loans to keep Northern Rock solvent.

But the bank would be unable to meet the trustees' request to pledge assets as security without the permission of its regulator and the guarantors of its loans - the Financial Services Authority, Bank of England and the Treasury.

In the letter, Sir David Chapman, chairman of the Trustees, notes that if Northern Rock were to become insolvent immediately "significant additional funds would need to be paid into the scheme" of around £150m to £200m.

Last October, as the lender's woes mounted, Trustees moved to shift the scheme's assets into much less risky areas. Nearly half is currently invested in index-linked government gilts.

But Friday's sale of the mortgage portfolio may raise hopes at the Treasury, the FSA and the Bank that a private sale may still be possible.

However, among leading shareholders concerns that the bank is selling the lender's most desirable assets may rise.

The sale value of £2.2bn, represents a premium of 2.25 per cent or about £50m over the balance sheet value, bringing the total cash proceeds from the agreed sale to £2.25bn. The Lifetime assets comprise about 2 per cent of the company's total assets.

Andy Kuipers, new chief executive, welcomed the sale.

"This...is a positive development in the company's ongoing strategic review," he said in a statement.

"It illustrates the quality of our assets, which has enabled us to achieve a sale at a premium despite continuing difficult financial markets, and will allow the company to reduce its debt to the Bank of England."

Read more at FT.com

FTSE falls amid global weakness, food stocks weigh

(Reuters) - Britain's top share index fell on Friday amid global weakness in equities fuelled by fears of more subprime-related writedowns and as food stocks suffered from a brokerage downgrade and profit-warning talk.

Britain's FTSE 100 .FTSE shed 0.3 percent to end at 6,202.0 points, while the pan-European FTSEurofirst 300 benchmark hit its lowest level in over a year before ending down 0.5 percent.

The New York Times reported Merrill Lynch (MER.N: Quote, Profile, Research) is expected to suffer $15 billion in losses stemming from soured mortgage investments, reminding investors the jury was still out on the extent of the fallout of the credit crisis.

This came on the heels of a profit warning from American Express (AXP.N: Quote, Profile , Research).

Worries over global growth pushed the price of crude further off record highs hit last week, taking oil stocks along with it. BP (BP.L: Quote, Profile, Research) fell 0.7 percent and Royal Dutch Shell (RDSa.L: Quote, Profile, Research) shed 1.6 percent as crude slipped to near $93 a barrel.

Unilever (ULVR.L: Quote, Profile, Research) was among the biggest percentage losers on the index after Morgan Stanley downgraded its rating on the consumer goods giant late on Thursday to "underweight" from "equal weight".

Elsewhere in the sector Reckitt Benckiser (RB.L: Quote, Profile, Research) fell 3.4 percent and Associated British Foods (ABF.L: Quote, Profile, Research) fell 0.9 percent. Cadbury (CBRY.L: Quote, Profile, Research) shed nearly 3 percent, with traders citing market talk the confectionery group would issue a profit warning. The company had no immediate comment.

 

Read more at Reuters

Zapatero seeks to dispel fears over economy

(FT)  - Spain's Socialist prime minister on Wednesday accused his conservative opponents of "unpatriotically" sowing alarm about the economy as he sought to dispel fears that the country was succumbing to the international credit squeeze ahead of a general election in early March.

José Luis Rodríguez Zapatero said he was confident Spain would grow by "at least" 3 per cent in 2008, compared with 3.7 per cent in 2007 and that, with the end of the construction boom, growth would be "more balanced, more productive and more sustainable".

 

Read more at FT.com

 

 

Bank of England holds rates, cut seen in Feb

(Reuters) - The Bank of England left interest rates unchanged on Thursday, following a week of intense speculation over whether it would cut them for a second month running to shore up economic growth.

The Bank held the main rate at 5.5 percent, having lowered it a quarter percentage point in December.

Still, the pause is likely to be short-lived and the Bank is widely tipped to cut rates again in February, when it publishes new growth and inflation forecasts.

The pound rose after the decision while Britain's index of leading shares .FTSE turned negative with retail stocks taking a sharp knock.

Most economists had predicted a no-change verdict but money markets, spooked by signs of a consumer retrenchment, were pricing in a 60 percent chance of a cut.

"We suspect that the deteriorating growth outlook, particularly for the household sector, was balanced by worries on inflation," said James Knightley at ING Bank.

 

Read more at Reuters

Bear and T.Rowe vie for China fund firm stake

(Reuters) - Wall Street investment bank Bear Stearns (BSC.N: Quote, Profile, Research) is in talks to buy around 10 percent of China's biggest fund house, looking to tap the country's red-hot mutual fund market, two sources with knowledge of the situation told Reuters on Thursday.

China Asset Management Co, wholly-owned by China's top broker CITIC Securities (600030.SS: Quote, Profile, Research), has been talking to several potential foreign investors including Bear Stearns and U.S. fund manager T. Rowe Price Group ( TROW.O: Quote, Profile, Research), said the sources, who have been briefed on the talks.

The talks between China Asset Management and Bear Stearns follow an announcement in October that the U.S. bank, battered by a mortgage market slump, and Beijing-based CITIC Securities would take investment stakes in each other and form a broad strategic alliance.

However, that announcement didn't include the plan to allow Bear Stearns to invest in CITIC Securities' fund arm.

T. Rowe Price approached China Asset Management earlier than Bear Stearns, but the partnership with CITIC Securities would help Bear Stearns secure its tie-up with China Asset Management, though no agreement has been reached, said the two sources.

 

Read more at Reuters

Wal-Mart Beats Estimates; Limited Brands' Sales Fall

(Bloomberg) -- Wal-Mart Stores Inc., the world's largest retailer, said December sales climbed 2.4 percent, higher than analysts' estimates. Limited Brands Inc. cut its fourth-quarter profit forecast after sales declined during what may have been the worst holiday season since 2002.

Women's clothing retailers AnnTaylor Stores Corp., Chico's FAS Inc., and Cato Corp. also projected earnings less than analysts' estimates after December sales at stores open at least a year fell.

A drop in customer visits at American Eagle Outfitters Inc. and other retailers have hurt profit. Consumers facing $3- a-gallon gasoline and the worst housing market in 27 years reined in spending and only bought items on sale. Stores typically count on November and December for about a fifth of their annual sales.

``It's a very challenging period for the retailers,'' Steven Baumgarten, an analyst at PNC Wealth Management in Philadelphia, with $77 billion in assets including retailers' shares, said on Jan. 8. ``The sales numbers obviously don't look that great, and the promotional activity in most cases was above last year, so margins are probably going to suffer.''

The International Council of Shopping Centers on Jan. 8 said same-store sales in November and December probably increased ``a little under'' its 2.5 percent forecast. Same- store sales are considered a key measure of a retailer's performance because they exclude locations that have recently opened or closed.

Food, Drugs

Discounters benefited as cash-strapped consumers sought out lower prices. Wal-Mart's December gains were driven by sales of food, prescription drugs and consumer electronics. The results were within the company's forecast of a 1 percent to 3 percent increase and beat analysts' estimates of a 1.8 percent rise.

Costco Wholesale Corp., the largest U.S. warehouse-club chain, said December sales at stores open at least a year rose 7 percent, exceeding analysts' projections for a 5.5 percent gain. TJX Cos., which sells designer clothes at discounted prices at its Marshalls chain, raised its fourth-quarter forecast.

American Eagle, the U.S. retailer of clothes for 15- to 25-year-olds, fell 6 cents to $17.72 yesterday in New York Stock Exchange composite trading. Limited Brands, based in Columbus, Ohio, dropped 4 cents to $15.69. Wal-Mart, based in Bentonville, Arkansas, climbed 93 cents, or 2 percent, to $46.90.

The Standard & Poor's 500 Retailing Index rose less than 1 percent to 375.15 yesterday. The index has dropped 8.5 percent this year through yesterday following an 18 percent decline in 2007.

Macy's Falls

Macy's Inc., the second-largest department-store company, said sales dropped 7.9 percent, missing analysts' estimate for 6.4 percent fall.

``Macroeconomic trends led customers to spend cautiously for the holiday,'' Chief Executive Officer Terry Lundgren said in a statement.

Gap Inc., the biggest U.S. clothing retailer, said same- store sales fell 6 percent, more than double Retail Metrics LLC's estimate for a 2.4 percent decline. Abercrombie & Fitch Co. said comparable-store sales retreated 2 percent. Analysts estimated a 0.9 percent decline.

December sales may have gained at a pace slower than the council's 1.5 percent estimate as shoppers waiting for discounts spent less at the beginning of the month, Michael Niemira, the ICSC's chief economist, said last week.

A calendar shift moved a week of holiday sales into November from December, hurting last month's results and helping November post a 3.5 percent increase.

 

Read more at Bloomberg

Heavy vehicles speeding ahead

(FIN24) - The motor retail industry finds itself in a period of consolidation following three years of significant growth, says Brand Pretorius, McCarthy Motor Holdings chairperson.

 

Pretorius said the passenger vehicle segment was the only part of the market that showed a decline on 2006's overall performance, with a 9.7% decrease to a total of 434 633 units in 2007.

"This market segment is usually the most sensitive to any negative developments in the market such as a decline in business and consumer confidence, an increase in interest rates and the introduction of the National Credit Act in June 2007," said Pretorius

 

Read more at FIN24