Tuesday, July 31, 2007

FBI Searches Sen. Stevens' Alaska Home


By DAN JOLING

ANCHORAGE, Alaska (AP) - Federal agents with cameras searched the home of U.S. Sen. Ted Stevens amid questions about an oil company official's involvement in a 2000 renovation project that doubled the home's size, law enforcement officials said.

Stevens, 83, is under a federal investigation for his connections to Bill Allen, founder of VECO Corp., an Alaska-based oil field services and engineering company that has reaped tens of millions of dollars in federal contracts.

Allen was convicted earlier this year of bribing state lawmakers. He also oversaw the renovation of Stevens' home in the ski resort community of Girdwood, contractors involved in the work say.

Agents from the FBI and Internal Revenue Service started their search at the senator's home Monday afternoon, said Dave Heller, FBI assistant special agent. He said he could not comment on the nature of the investigation.

About 15 agents took photos and video, climbing onto the roof at one point. They later carried out a garbage bag full of unidentifiable materials and loaded it into a van. The curtains were drawn during most of the search.

A law enforcement official familiar with the case confirmed the raid on Stevens' home was focused on records related to the ongoing VECO investigation. The official was not authorized to discuss the matter publicly and spoke only on condition of anonymity.

An e-mail statement issued by Stevens through his Washington, D.C., spokesman said federal agents had alerted his attorneys that they wanted to search his home.

Stevens said the interests of justice would be best served if he commented after the investigation.

"I continue to believe this investigation should proceed to its conclusion without any appearance that I have attempted to influence its outcome," Stevens said. "The legal process should be allowed to proceed so that all the facts can be established and the truth determined."

(AP) A federal agent takes photos at the home of U.S. Sen. Ted Stevens, R-Alaska's home Monday, July 30,...
Full Image
Located 40 miles south of Anchorage, Girdwood is nestled in a valley next to Mount Alyeska and has evolved from a gold mining town into Alaska's only year-round resort community.

The Justice Department's probe into Allen's relationships has led to charges against state lawmakers and contractors. Last year, FBI raids on the offices of several Alaska lawmakers included Stevens' son, former Alaska Senate President Ben Stevens.

Neither the U.S. senator nor his son has been charged.

Stevens has served since 1968 and is Alaska's most powerful elected official, responsible for bringing billions in federal dollars to a state that lacks infrastructure, from road money to basic sewer and water systems in remote villages. Anchorage's international airport is named for Stevens, and he has faced only token opposition in recent elections.

Alaska's only U.S. representative, Don Young, also is under federal investigation as part of an on-going corruption probe, a federal law enforcement official told The Associated Press last week, commenting only on condition of anonymity. Part of the Young investigation involves his campaign finance practices, the law enforcement official said.

Consumer Confidence Hits 6-Year High

By ANNE D'INNOCENZIO (AP Business Writer)

NEW YORK (AP) - Consumer confidence hit a six-year high in July, a widely watched gauge of sentiment showed on Tuesday, as Americans shrugged off falling home prices to focus on a healthy jobs market, instead.

The New York-based Conference Board said that its Consumer Confidence Index, rebounded to 112.6, its highest level since August 2001 when it recorded a 114.0 reading. That compared to a revised 105.3 in June. The July 24 cutoff for the preliminary survey of 5,000 U.S. households was before last week's stock market tumble, however.

"An improvement in business conditions and the job market has lifted consumers' spirits in July," said Lynn Franco, director of The Conference Board Consumer Research Center. "Looking ahead, consumers are more upbeat about short-term economic prospects, mainly the result of a decline in the number of pessimists, not an increase in the number of optimists. This rebound in confidence suggests economic activity may gather a little momentum in the coming months."

The Present Situation index, which measures how shoppers feel now about economic conditions, increased to 139.2 from 129.9 in June. That was the highest level since August 2001's 144.5 reading. The Expectations Index, which measures shoppers' outlook for the next six months, rose to 94.8 from 88.8.

Economists closely monitor confidence since consumer spending accounts for two-thirds of all U.S. economic activity.

The report on consumer confidence was encouraging and may help alleviate investor concerns about consumer spending amid a softening housing market that shows no sign of improvement. There have been also worries that high gasoline prices will continue to eat into consumers' ability to spend for other things. While prices at the pump have declined recently, they are still higher than a year ago and are expected to tick up after the Labor Day weekend.

"It is encouraging in light of high energy prices, volatility of the stock market and the weak housing market that consumers didn't flinch," said Mark Vitner, senior economist with Wachovia Securities in Charlotte, N.C. "My general sense is that the economy is finding its footing."

On Tuesday, Standard & Poor's reported that its home prices index fell for a fifth consecutive month in May, marking the gauge's steepest drop in about 16 years.

Last week, the Commerce Department said that sales of single-family homes fell 6.6 percent in June, the fifth decline in the last six months and the largest drop since January. The National Association of Realtors reported last week that sales of existing homes fell by 3.8 percent in June to the slowest level in nearly five years.

Concern about the housing market and jitters about the lending environment led to a stock market tumble late last week, though the market clawed back some territory this week as investors focused on the good news such as strong earnings reports. The Standard & Poor's 500 index gained 2.63, or 0.18 percent, at 1,476.54 in trading Tuesday.

The Commerce Department allayed some inflation fears Tuesday when it reported that year-over-year core personal consumption expenditures increased 1.9 percent. That rate is within the Federal Reserve's comfort zone.

Investors seemed to ignore Tuesday's report from the Commerce Department that personal spending rose 0.1 percent, its slowest pace in nine months.

A healthy outlook for jobs has been helping consumers. The Labor Department is expected to show an increase in 135,000 jobs in July when it reports monthly figures on Friday. The unemployment rate is projected to be steady at 4.5 percent.

In the Conference Board report, consumers were more upbeat about the job market than the prior month. Those saying that jobs are "hard to get" declined to 18.4 percent from 20.5 percent. Those claiming jobs are "plentiful" improved to 30.5 percent from 27.6 percent in June.

The six-month outlook for the labor market continued to be mixed. Consumers expecting more jobs in the months ahead was unchanged at 14.1 percent, while those anticipating fewer jobs decreased to 15.1 percent from 17.0 percent. The proportion of consumers expecting their incomes to increase in the months ahead declined to 18.8 percent from 19.4 percent in June.

Treasurys Gain on Inflation Data


By LESLIE WINES

Treasury prices came off earlier lows Tuesday, keeping yields in a tight range, after the Commerce Department reported benign increases in core consumer inflation and employment costs in June.

The 10-year note was off 2/32, or 63 cents per $1,000 invested, at 97-18/32, while its yield stood at 4.816%. The 30-year long bond was 1/32 lower at 96-26/32 with a yield of 4.957%. The two-year note fell 3/32 at 99-31/32 with a yield of 4.642%. Prices and yields move in opposite directions.

Although the day's economic reports were supportive of Treasurys, a rebound in the stock market put the government-bond market under mild pressure.

Treasury prices opened lower, but losses lightened after the Commerce Department said core consumer inflation increased 0.1% for the fourth consecutive month in June, pushing the yearly gain in core inflation down to the lowest level in three years. Overall inflation also increased 0.1% in June.

Separately, the Labor Department said U.S. employment costs increased 0.9% in the second quarter, in line with expectations.

Both numbers suggest inflation pressures are moderating, a positive development for inflation-sensitive fixed-income assets. In addition, soft inflation trends might eventually help open the door for the Federal Reserve to cut interest rates.

"As recently as February, [core consumer inflation] was up 2.5% year over year, so the speed of the decline has been impressive," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Still, the Fed is yet to be convinced it is sustainable."

"With productivity growth slowing -- though not collapsing -- the unit labor cost picture is not quite so good, but there is nothing here to suggest inflationary pressure is building," Mr. Shepherdson said.

In addition, the Chicago purchasing managers reported that business activity in the Chicago region worsened in July. Signs of economic weakness support the fixed-income market.

The group's index dropped to 53.4% in July from 60.2% in June. The number was below economists' expectations. Readings of more than 50% indicate that more companies were expanding than contracting.

In another report pointing to possible economic softness, the Commerce Department said spending on U.S. construction projects fell 0.3% in June to an annual rate of $1.18 trillion, the Commerce Department said Tuesday. The result marked the first drop in construction outlays since January. Separately, the Conference Board reported that consumer confidence reached its most boisterous level since Sept. 11, 2001.

MGIC, Radian Shares Fall on C-BASS Stake (AP)


NEW YORK - Shares of private-mortgage insurer MGIC Investment Corp. and credit risk manager Radian Group Inc. fell in Tuesday a day after the companies said their investments in subprime mortgage investor Credit-Based Asset Servicing and Securitization LLC could be worthless.

Shares of MGIC fell $4.05, or 8.9 percent, to $41.39 in midday trading. Shares reached a 52-week low of $40.53 earlier in the session. Shares had ranged between $43.46 and $70.10 during the past 12 months.

Shares of Radian fell $4.18, or 10.4 percent, to $36.02. Radian hit a 52-week low of $35.64 earlier. Shares had traded between $38.98 and $67.35 during the past year.

C-BASS is jointly owned by MGIC, Radian and the management of C-BASS. Radian is in the process of acquiring MGIC, and the deal is expected to close near the end of the third quarter.

Rising delinquencies and defaults among subprime mortgages - loans given to customers with poor credit histories - pushed banks to make margin calls on credit lines held by C-BASS.

Neither MGIC nor Radian have revealed how much of an impairment they will take related to the investments, but it could be up to 100 percent, less any tax benefit. As of June 30, MGIC had invested approximately $516 million in C-BASS, including a $50 million unsecured credit line. Radian has invested approximately $518 million in C-BASS, including a $50 million unsecured credit line.

Based on its investment in C-BASS, Keene, Brunette & Woods Inc. analyst Geoffrey Dun downgraded MGIC's stock to "Market Perform" from "Outperform" and cut his price target on the shares to $45.

"Given the market conditions, we believe that an assumption of a complete write-off is correct at this point in time," Dun wrote in a research note. In a separate note, Dun said he also expects Radian to take a complete write-off of it's investment in C-BASS. He downgraded Radian to "Market Perform" from "Outperform."

Bear Sterns analyst David Hochstim said he estimates that an impairment charge for a total loss of C-BASS would generate a third-quarter loss of $3.30 per share for MGIC. He had previously estimated that C-BASS would contribute about 20 cents per share to quarterly earnings. He lowered his MGIC rating to "Peer Perform" from "Outperform."

Strong international growth drives GM into profit (Financial Times)


By Bernard Simon in Toronto

Published: July 31 2007 13:11 | Last updated: July 31 2007 13:11

Strong growth in Europe, Asia and Latin America helped General Motors overcome a small loss in its North American operations to post a sizeable second-quarter profit.

The Detroit-based carmaker, which is at risk of losing its crown as the world’s biggest vehicle manufacturer to Toyota, on Tuesday reported net income of $891m, or $1.58 a share, compared with a $3.4bn loss, or $5.98 a share, a year earlier.

The latest figure includes $520m in one-time charges, or 92 cents a share, stemming mainly from contributions to the restructuring of Delphi, the bankrupt parts supplier spun off by GM in 1999, and from charges for the restructuring of GM’s own North American operations, resulting in buyouts and retirement packages for tens of thousands of workers.

Analysts polled by Thomson Financial had projected earnings per share of $1.13.

Rick Wagoner, chief executive, expressed optimism for continued growth in key emerging markets in the second half of 2007, but cautioned that the outlook for the US economy and vehicle market “remains challenging”.

The net loss from continuing operations in North America narrowed to $39m from $3.95bn a year earlier, due mainly to a more profitable vehicle mix and lower structural costs.

“It’s true that our North America team has made huge improvements”, Mr Wagoner said. “But our current earnings clearly demonstrate we’ve got more to do.”

He singled out healthcare costs as a key competitive disadvantage. These costs are a vital issue in talks on new labour contracts between the Detroit carmakers and the United Auto Workers union, which formally began last week. The current contracts expire on September 14.

GM Europe posted its best quarterly performance in 11 years, recovering to a net profit of $217m from a $39m loss in the second quarter of 2006. The improvement was ascribed to favourable pricing and “solid” cost performance.

Earnings in the Asia-Pacific region totalled $227m, compared with $376m a year earlier. More than half of last year’s profit came from the sale of GM’s stake in Isuzu, the Japanese vehicle maker.

The rise in operating profits was driven mainly by China and by GM Daewoo, the carmaker’s South Korean affiliate. Asia-Pacific sales grew by 8 per cent, with GM China setting record volumes in the second quarter.

Earnings in Latin America, Africa and the Middle East reached $213m, the highest in a decade. Sales in Venezuela reached a new record.

GM said that its liquidity position remained strong, with operating cash flow of $1.1bn in the second quarter. Cash reserves rose to $27.2bn on June 30 from $24.7bn three months earlier.

The carmaker is due to receive another $5.6bn in the current quarter from the recently-announced sale of Allison Transmission, a maker of truck transmissions.

J&J Will Cut 4 Percent of Jobs to Save $1.6 Billion


By Lisa Rapaport

July 31 (Bloomberg) -- Johnson & Johnson, the world's largest health-care company, unexpectedly cut about 4 percent of its workforce to save as much as $1.6 billion next year.

The job reductions will result in charges of as much as $750 million in the second half this year, New Brunswick, New Jersey- based J&J said in a statement today. Johnson & Johnson employs 120,500 people worldwide, the company said.

Chief Executive Officer William Weldon's cost savings will help the company weather lost revenue when two of its top-selling drugs, the migraine pill Topamax, with $2 billion in sales last year, and the schizophrenia treatment Risperdal, with $4.2 billion in 2006 revenue, face competition starting in 2008 from cheaper generic copies.

J&J ``has never really given a plan before'' on how it will respond to the patent expirations, Sara Michelmore, an analyst with Cowen & Co. in New York, said in a telephone interview today. ``They have two of their biggest drugs coming off patent in the pharmaceutical division at the same time that they need to invest heavily in research.''

``They also had a major setback recently in developing their next-generation stent,'' Michelmore said. J&J in May stopped selling the Costar II heart stent outside the U.S. and suspended plans to market it inside the country after the device failed to beat a competitor in a trial.

Other Drugmakers

Many drugmakers are cutting costs as the result of generic competition to older medicines that are losing patent protection. Last year Merck & Co. began eliminating 7,000 jobs and closing plants, and in January, Pfizer Inc., the world's largest drugmaker, said it would eliminate 10,000 jobs.

On July 26, London-based AstraZeneca Plc said it would decrease its workforce by 11 percent and Bristol-Myers Squibb Co. said it would announce job cuts by the end of the year.

J&J reaffirmed its earnings forecast of $4.02 to $4.07 a year excluding some items, and said it will maintain its investments in research and development. The company may introduce as many as 10 medicines by 2011.

The company on July 17 lowered its revenue growth forecast for 2007, citing reduced prospects for U.S. sales of Cypher stents and the anemia drug Procrit, both linked to heart attacks in studies. J&J projected 2007 revenue growth of 11.5 to 12 percent, down from 11.5 to 12.5 percent.

Most of the savings will occur in the pharmaceuticals division, ``which faces significant patent expirations over the next few years'' and in the Cordis division, which makes drug- coated heart stents, the company said in its statement. The company plans to eliminate 3 percent to 4 percent of jobs.

Cypher Stent

Sales of the Cypher drug-coated stent, a tiny mesh tube used to prop open arteries after surgery, fell 41 percent to $210 million in the U.S. in the second quarter, the company said on July 17. Sales outside the U.S. dropped 30 percent to $240 million. The Cordis unit makes Cypher stents.

Procrit revenue fell 6 percent to $758 million, spurred by a 15 percent drop in U.S. sales, the company said. Outside the U.S., revenue for the drug grew 9 percent to $309 million. Procrit use slowed after studies showed it may raise the risk of heart attacks, strokes and deaths when given at high doses.

Company spokesman William Price declined in an e-mailed statement to comment on the number of jobs to be cut in the U.S. or outside the U.S. He also declined to comment on how many jobs would be eliminated from specific divisions in the company.

Earlier this month, the company said it will start a $10 billion share buyback to bolster the stock price until new products reach the market.

J&J said in June it planned to introduce medicines over then next four years, including remedies for schizophrenia, cancer, AIDS, blood clots, diabetes and tuberculosis.

Foreclosures soar in Arizona: Financing deals now haunt borrowers, but 'correction' no surprise to experts


Andrew Johnson from The Arizona Republic

The fallout from the country's real-estate slump continues to reverberate in Arizona and across the nation as more homeowners and lenders turn to foreclosure to solve their financial woes.

New data released Monday show that foreclosure-related filings in Arizona jumped during the first half of 2007, compared with the same period a year ago, meaning that an increasing number of residents have been unable to keep up with mortgage payments.

The news, while not unexpected, is the latest indication that the housing market has not yet stabilized.

Last week, Wall Street had its worst week in five years, in part because investors feared that mortgages awarded to borrowers with poor credit would lead to a widespread economic slowdown. The Dow dropped more than 580 points over the course of just a few days.

Experts say it will likely take time before things get better.

"By any calculation, things are going to look bad compared to 2004 and 2005," local economist Elliott Pollack said. "There will be a transition period over the next couple of years as those people who took loans that maybe they shouldn't have taken have to deal with the issue."

Numbers released Monday by Irvine, Calif.-based RealtyTrac show that foreclosure-related filings in Arizona increased by 128 percent in the first half of 2007, over the same period a year ago.

In Maricopa County, for example, there were 19,394 properties in some stage of foreclosure in the first half of the year, up from 7,671 during the year-ago period, the company said.

Nationally, the increase in filings was 55 percent, with other Sun Belt states like California and Florida seeing the biggest jumps.

1 of every 92 households

In total, RealtyTrac has estimated that one of every 92 households in Arizona is in some stage of foreclosure, meaning the situation is likely affecting both speculators and average homeowners.

Data from Glendale-based Information Market are different but reflect the same upward trend.

That firm shows that 2,952 homes were foreclosed on in Maricopa County from January through June, up from 208 during the first half of 2006.

The two firms' numbers are different because RealtyTrac's calculation includes properties in various stages of foreclosures, including those in which the borrower has defaulted but is working to get the loan out of delinquency and those in which the property has been repossessed.

In some instances, that means the same property is counted twice.

By comparison, the data from Information Market reflect only those properties that were actually foreclosed upon.

Regardless of which figure are used, industry analysts say the calculations signal the same growing problem: Foreclosures are on the rise.

"They are at an all-time high, but it's also following a period of very high sales back in 2005," said Tom Ruff, a principal with Information Market. "I just look at it as a market correction, myself."

What it means

Many experts say the increase in foreclosures was not unexpected. During the heyday of the 2004 and 2005 housing boom, people who normally wouldn't have purchased a home were able to do so, thanks to extraordinarily low interest rates and specialty financing deals like adjustable rate and subprime mortgages.

Now, those factors have come back to haunt borrowers. Many are facing higher payments or balloon payments as part of their financing terms, and have been unable to refinance or sell because of the slumping market. The result? Poor credit scores for overextended homeowners and depressed property values in neighborhoods with large pockets of foreclosed homes.

While most experts agree the rising number of foreclosures signals a return to normalcy both locally and nationally, it still can have a very negative impact on neighborhoods.

"If you go into a neighborhood and there's a lot of foreclosed properties, they're empty, you don't know who's going to buy them, they're probably not being maintained at the moment," said Jay Butler, director of realty studies at Arizona State University's Morrison School of Management and Agribusiness.

Verizon profit helped by cellphone subscriptions


By Crayton Harrison Bloomberg News

DALLAS: Verizon Communications, the second-largest U.S. phone company, said profit rose in the second-quarter as the number of cellphone subscribers jumped.

The company said its Verizon Wireless unit, co-owned by Vodafone Group, will pay $757 million to buy Rural Cellular of the United States to lift its subscriber rolls in suburban parts of 15 states after trailing AT&T in new customers last quarter.

Verizon Communications had 62 million wireless subscribers at the end of the second quarter, compared with 54.8 million a year earlier. The deal gives Verizon Wireless 716,000 more clients.

The acquisition will help the company add business in "areas where previously we had little or no presence," the Verizon Wireless chief executive, Lowell McAdam, said Monday.

Verizon has relied on the wireless unit for profit growth as home-phone customers switch to cellphones or voice plans from cable companies. The unit added 1.3 million clients in the second quarter, compared with 1.5 million for AT&T, which began selling the Apple iPhone in June.

"What you're seeing to some degree is a head-to-head battle between Verizon and AT&T," said Bruce Allen, president of Bruce G. Allen Investments in Denver. "They continue to try and maintain customer count, and if they can't maintain it, they're going to look at buying that."

The wireless unit will pay $45 a share for Rural, based in Minnesota, compared with the $31.81 closing stock price Friday. The company has networks in rural and suburban parts of U.S. states like North Dakota, Wisconsin and Alabama. The price offered by Verizon is 41 percent more than Rural's closing stock price on Friday. Verizon shares dropped.

Net income rose 4.5 percent to $1.68 billion, or 58 cents a share, from $1.61 billion, or 55 cents, a year earlier. Sales climbed 6.3 percent to $23.3 billion.

Excluding some items, profit was 58 cents a share, Verizon said.

This is at least the third purchase this year of a U.S. mobile phone service that caters to rural and suburban areas. AT&T, the largest U.S. phone company, last month agreed to buy Dobson Communications for $2.8 billion. In May, Goldman Sachs Group and TPG announced plans to purchase Alltel for $27.5 billion.

Including the assumption of debt, the price for Rural Cellular is $2.67 billion, Verizon Wireless said. The company expects to complete the purchase in the first half of 2008.

Verizon Communications had 26.3 million home phone lines at the end of June, a 10.3 percent drop from a year ago. The phone-line unit's operating profit margin, a measure of the company's efficiency, fell to 9 percent from 9.1 percent in the previous quarter, less than the 9.6 percent forecast of William Power, an analyst at Robert W. Baird & Co. in Dallas.

"Their sales and marketing expense was up" to help lift revenue, said Power, who rates the shares "neutral" and does not own any. "Their view is that the scale advantages of higher revenue will benefit margins over time. The question mark is whether those sales and marketing expenses will stay higher."

Verizon added 203,000 Internet users and 167,000 television subscribers to its new fiber-optic network, topping the estimates of the UBS analyst John Hodulik, who expected 200,000 Internet and 160,000 TV customers.