Oil Falls Below $90 for First Time in 4 Weeks as Supplies Rise

(Bloomberg) -- Crude oil fell below $90 a barrel for the first time in four weeks after a U.S. Energy Department report showed that supplies rose more than expected.

Inventories surged 4.29 million barrels to 287.1 million in the week ended Jan. 11, the first increase in nine weeks, the report showed. Supplies were expected to rise 1.25 million barrels, according to the median of 15 responses in a Bloomberg News survey.

``This confirms that the seasonal period of crude-oil inventory builds has begun and gotten off to a good start with a larger-than-expected build,'' said Eric Wittenauer, an analyst at A.G. Edwards & Sons Inc. in St. Louis.

Crude oil for February delivery fell $2.47, or 2.7 percent, to $89.43 a barrel at 10:56 a.m. on the New York Mercantile Exchange. Prices touched $89.35 today, the lowest since Dec. 18. Futures reached a record $100.09 a barrel on Jan. 3. Prices are up 75 percent from a year ago.

Brent crude for February settlement declined $2.09, or 2.3 percent, to $88.89 a barrel on London's ICE Futures Europe exchange. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.

Refineries operated at 87.1 percent of capacity, down 4.2 percentage points from the week before, the report showed. It was the biggest one-week drop since September 2005 when Hurricane Rita shut refineries in Texas and Louisiana after roaring in from the Gulf of Mexico.

``The big drop in refinery runs is the most shocking number inside the report,'' said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. ``It could be that we are seeing an early start to the next round of refinery maintenance.''

 

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JPMorgan Fourth-Quarter Earnings Fall, Miss Estimates

(Bloomberg) -- JPMorgan Chase & Co., the third- biggest U.S. bank, said profit dropped 34 percent on subprime- mortgage writedowns and higher provisions for future loan defaults.

Fourth-quarter net income declined to $2.97 billion, or 86 cents a share, from $4.53 billion, or $1.26, a year earlier, the New York-based bank said today in a statement. JPMorgan rose as much as 6.8 percent in New York trading as the $1.3 billion writedown was smaller than analysts estimated.

The profit decline, the first since Jamie Dimon became chief executive officer in 2005, came as trading revenue fell and JPMorgan prepared for what it said may be a substantial weakening in the U.S. economy. The company added $2.3 billion to credit reserves, bringing the total to $10 billion. Citigroup Inc., the biggest U.S. bank, said yesterday it added $5.2 billion to cover U.S. loan losses and took an $18.1 billion writedown.

``We remain extremely cautious as we enter 2008,'' Dimon, 51, said in the statement. ``If the economy weakens substantially from here -- for which, as a company, we need to be prepared --it will negatively affect business volumes and drive credit costs higher.''

JPMorgan gained $1.68, or 4.3 percent, to $40.85 in composite trading on the New York Stock Exchange at 10:28 a.m.

``Their diversified business model really continues to separate JPMorgan from a lot of their peers,'' said William Fitzpatrick, an analyst at Racine, Wisconsin-based Optique Capital Management, which oversees $1.7 billion including JPMorgan shares.

Revenue Increase

Revenue climbed 7 percent to $17.4 billion, compared with the average estimate of $17.2 billion in the Bloomberg survey. Profit fell short of the 92-cent average estimate of 17 analysts surveyed by Bloomberg. Last year's fourth-quarter earnings included a one-time gain of $622 million.

Net income at the investment-banking division tumbled 88 percent to $124 million in the fourth quarter, as credit-market turmoil reduced revenue from debt underwriting 39 percent, to $467 million. Fixed-income revenue tumbled 70 percent because of the writedown, to $615 million, and ``weaker trading results'' contributed to a 40 percent drop in equity market revenue, which fell to $578 million.

The retail bank's profit climbed 5 percent to $752 million, driven by increases in mortgage banking. Those gains were tempered by declines in the home-equity and auto-loan businesses. Charge-offs on home-equity loans totaled $248 million. Profit from auto loans was $49 million, a 25 percent drop from a year earlier.

Credit Costs

Dimon said on a conference call with analysts that he isn't predicting a U.S. recession, though credit costs will increase as the economy weakens.

JPMorgan earned 15 percent less from its card services business, as its provision for future losses rose 40 percent to $1.79 billion.

Return on equity from continuing operations, a gauge of how effectively the company reinvests earnings, was 10 percent, compared with 14 percent a year earlier.

JPMorgan lost 18 percent of its market value in the past 12 months, compared with 50 percent at New York-based Citigroup and 29 percent at Charlotte, North Carolina-based Bank of America Corp.

JPMorgan's Tier 1 capital ratio, which regulators monitor to assess banks' ability to withstand loan losses, remained unchanged from the third quarter at 8.4 percent.

 

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BEA accepts $8.5 billion Oracle offer

(Reuters) - Oracle Corp (ORCL.O: Quote, Profile, Research) on Wednesday won a three-month-long campaign to buy BEA Systems Inc (BEAS.O: Quote, Profile, Research) by raising its bid for the business software maker by 14 percent to $8.5 billion.

Activist investor Carl Icahn, BEA's largest shareholder with a nearly 13 percent stake, said he supported the deal, one of last year's highest profile corporate takeover battles.

Icahn and BEA's board initially rejected Oracle, saying it undervalued the company, but no other buyers emerged even as BEA's investment bank, Goldman Sachs, solicited bids from other software makers.

The price that BEA finally agreed to, $19.375 per share in cash, represents a compromise between the $17 that Oracle offered in October and the $21 that BEA had demanded.

"It's a fair price. It's a good deal for Oracle. It's a good deal for BEA," said Trip Chowdhry, analyst at Global Equities Research.

Shares of BEA rose 19 percent to $18.59 in morning Nasdaq trade, while Oracle shares were down 2 cents to $21.29.

BEA is a maker of "middleware," which helps business computer systems interact with each other. Oracle could sell its technology alongside its own middleware, database products and business-management software.

 

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Metorex guns for CRC control

(Fin24) - Metorex, the JSE-listed diversified mining group, said it was confident it would vacuum up the remaining 5% it needed to complete the takeover of Copper Resources Corporation (CRC), an AIM-traded company with mining prospects in the Congo.

"We already own 45% of the company," said Charles Needham, CEO of Metorex at the group's annual general meeting held in Johannesburg suburb, Rosebank. "We have approached between 7% to 8% of CRC shareholders who are outside the offer to sell us the shares on the same terms and conditions."

"What if something goes wrong?" a shareholder asked Needham.

Said Needham: "We are pretty certain about getting at least 5% of those."

Metorex bought 38.7% of CRC in July last year plus a 5% stake in its 75% held subsidiary MMK from the Forrest group for R600m. The Metorex share price stood around R24 at the time and it subsequently rose to an all-time high of 2 950c.

But by mid-January, Metorex's share price was 38% off its 12-month high and was last trading at 1 902c, another 5% decline on the day.

 Read more at Fin24

State Street's Earnings Fall 28% on Legal Fund Costs

(Bloomberg) -- State Street Corp., the world's largest money manager for institutions, said fourth-quarter earnings fell 28 percent after setting aside $618 million to settle legal claims stemming from losses on subprime mortgages.

Net income declined to $223 million, or 57 cents a share, from $309 million, or 91 cents, a year earlier, the Boston-based company said today in a statement. State Street dropped 5.5 percent in New York composite trading after the company said 2008 growth will be at the lower end of its target ranges.

State Street faces at least three class-action lawsuits from investors claiming its funds made inappropriate bets on subprime-backed securities. It disclosed the legal reserve Jan. 3 and replaced William Hunt, its chief investment officer for the past three years. State Street's 2008 forecast follows a year in which the company exceeded analysts' estimates.

``People are trying to figure out just how much of the strength State Street showed in 2007 is truly sustainable,'' Thomas McCrohan, an analyst at Janney Montgomery Scott LLC in Philadelphia, said in an interview today.

State Street fell $4.03 to $80.83 at 9:38 a.m. in New York Stock Exchange composite trading after declining to as low as $80.20. Before today, the stock had risen 19 percent in the past year, compared with the 4.9 percent gain by the Standard & Poor's Supercomposite Asset Management and Custody Banks Index.

Excluding the legal reserve of $279 million after tax, or 71 cents a share, profit was $1.38 a share, beating the $1.35 average estimate of 15 analysts surveyed by Bloomberg. State Street's earnings for 2007 were $4.57 a share, outpacing the $4.55 estimate of the 15 analysts.

 

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Citigroup, Merrill Lynch Get $21 Billion From Outside Investors

(Bloomberg) -- Citigroup Inc. and Merrill Lynch & Co., two of America's largest financial institutions, turned to outside investors for a second time in two months to replenish capital eroded by subprime mortgage losses.

Citigroup, the biggest U.S. bank, is getting $14.5 billion from investors, including the governments of Singapore and Kuwait, former Chairman Sanford Weill, and Saudi Prince Alwaleed bin Talal, the New York-based company said today in a statement. Merrill, the largest brokerage, said it's receiving $6.6 billion from a group led by Tokyo-based Mizuho Financial Group Inc., the Kuwait Investment Authority and the Korean Investment Corp.

Wall Street banks have now received $59 billion, mostly from investors in the Middle East and Asia, to shore up balance sheets battered by more than $100 billion of writedowns from the declining values of mortgage-related assets. Citigroup was propped up in November by a $7.5 billion investment from the Abu Dhabi Investment Authority. New York-based Merrill was helped by a $5.6 billion cash infusion last month from Singapore's Temasek Holdings Pte. and U.S. fund manager Davis Selected Advisors LP.

``The only reason the banks are raising capital from the Middle East and Asia is because those are the only people who have the excess capital to lend,'' said Jon Fisher, who helps oversee $22 billion at Minneapolis-based Fifth Third Asset Management, which holds shares of Citigroup and Merrill.

Citigroup declined 68 cents to $28.38 and Merrill fell $1.25 to $54.72 in early New York trading.

The writedowns have reduced Citigroup's so-called Tier 1 capital ratio, which regulators monitor to assess a bank's ability to withstand loan losses. With today's capital increase, the Tier 1 ratio would be 8.2 percent, Citigroup said, keeping it above the company's 7.5 percent target.

`Capital at a Cost'

Morgan Stanley, UBS AG, Merrill Lynch & Co. and Bear Stearns Cos. also reached out to sovereign wealth funds or state- controlled investment authorities in Asia for money after bad investments depressed profits.

``It does show that investors aren't completely ignoring the sector,'' said Peter Plaut, a senior credit analyst at Sanno Point Capital Management, a hedge fund based in New York. ``They are putting in capital but it's at a cost. Now it's up to the CEOs to be able to generate returns that exceed that cost of capital.''

The Kuwait Investment Authority, which invested in both Merrill and Citigroup, was formed by the Middle East's fourth- biggest oil producing country in the 1980s to manage the nation's wealth. Kuwait may have as much as $250 billion of assets, compared with about $875 billion for the Abu Dhabi Investment Authority, the world's largest sovereign wealth fund, according to an estimate by Morgan Stanley analyst Stephen Jen.

Singapore, Alwaleed

The Government of Singapore Investment Corp. invested almost $7 billion in Citigroup convertible preferred securities and said in a statement today that it will own about 4 percent of the bank if the securities are turned into shares. With a 4 percent stake, Alwaleed has been Citigroup's biggest individual shareholder since the early 1990s, when soured investments in commercial real estate left corporate predecessor Citicorp short of capital.

Singapore and Alwaleed, along with Los Angeles-based Capital Group Cos., the biggest U.S. manager of stock and bond mutual funds, Kuwait, the New Jersey Division of Investment and Weill, will receive a 7 percent annual dividend from the investment in Citigroup.

Merrill's convertible securities will pay a 9 percent annual dividend on the securities until they automatically turn into Merrill shares in 2 3/4 years' time. The group will get fewer shares if Merrill's stock price climbs above $61.31 and more if it drops below $52.40, according to the company's statement.

 

Read more at Bloomberg

Street Talk: How Far Will Bernanke Go?

(Businessweek) - What leading economists and market strategists are saying about the Fed's next moves

 

What will Ben Bernanke & Co. do next in the face of a weakening economy and volatile financial markets? Here's a roundup of Jan. 11 comments from Wall Street economists and market strategists on their Federal Reserve policy expectations, as compiled by Standard & Poor's and BusinessWeek editors:

Ben States His Case

David Wyss, chief economist, Standard & Poor's

[In his Jan. 10 speech] Bernanke's worries about inflation were cited with uncharacteristic clarity: "[I]nflation expectations appear to have remained reasonably well-anchored, and pressures on resource utilization have diminished a bit." However, to make sure we didn't think that the Fed was getting too complacent, he also said that, "the increase in oil prices…is also lifting overall consumer prices and probably putting upward pressure on core inflation."

But the speech stressed the risk to growth much more than inflation. "The baseline outlook for real activity in 2008 has worsened and the downside risks to growth have become much more pronounced." The bottom line is that, "we stand ready to take substantive additional action as needed to support growth and provide adequate insurance against downside risks." Markets interpret this statement to mean that the Fed will start to cut rates more aggressively, beginning with a half-point cut in January. Another cut, perhaps another half-point, is likely at the March meeting and again in April. The federal funds rate seems likely to fall to 3% by midyear, rather than the 3.5% we had been assuming.

Read more at Businessweek