Friday, February 29, 2008

Ambac bail-out fears dent Wall Street

By Stacy-Marie Ishmael in New York (Financial Times)

US equity markets opened lower on Friday, setting the stage for a fourth consecutive month of declines, after reports that the proposed rescue of bond insurer Ambac was at risk and record losses at AIG. The S&P 500 fell 1.2 per cent to 1,351.99 in early trade, while the Dow Jones industrial average fell 1.1 per cent to 12,445.74. The Nasdaq composite traded 0.9 per cent lower at 2,309.79. The Short View: Brazil’s bull run - Feb-28 CNBC said the Ambac bail-out had hit a “significant snag” over the amount of capital the consortium of banks are willing to put up. Ambac’s shares fell 5.7 per cent to $11.13; CNBC said the deal was “far from dead.” Ambac’s rival MBIA fell 4.1 per cent to $13.48 after the bond insurer said it could incur claims payments amounting to a “significant portion” of its reserves. Elsewhere in the insurance sector, Assured Guaranty’s shares soared 14.2 per cent to $26.01 after Wilbur Ross agreed to buy up to $1bn in shares of the triple-A rated bond insurer. But AIG fell 5.9 per cent to $47.18 after the world’s largest insurer posted a fourth-quarter net loss of $5.3bn due to $11.5bn in writedowns on its derivatives portfolio. A report from UBS that credit-market losses at financial firms might top $600bn added to the jitters around financial stocks, which have sold-off sharply this week. “Leveraged risk positions are a cancer in this market and the sooner it is treated the better,’’ UBS strategist Geraud Charpin wrote in a note to clients on Friday. AIG’s $11.5bn writedown “is also the clearest indication that banks are not the only ones to suffer potential losses,” he said. An index of financial stocks fell 2.2 per cent, while an investment banking index declined 1.7 per cent. But there was good news for technology, media and telecommunications companies. Technology consulting company Sapient rose 15.9 per cent to $7.23 after its first quarter sales would exceed analysts’ estimates. Novell rose 4.1 per cent to $6.88 after the Linux software distributor reported a fiscal first-quarter profit that beat estimates. Video game publisher Take-Two Software rose 1.5 per cent to $26.40 after it said had received “informal indications of interest” from other potential bidders following Electronic Arts’ unsolicited $2bn takeover offer for the company earlier this week. The company added that it had not received any written offers and was not in any discussions for a buyout with any party, including EA, according to a filing with the Securities and Exchanges Commission. 3Com leapt 19.6 per cent to $3.48 after the Wall Street Journal said Bain Capital and Huawei Technologies planned to reapply for approval to acquire the networking systems and services provider in a deal worth $2.2bn. On the economic front, data showed US personal income and personal spending in January rose more than expected, but inflation ate up a bigger portion of these as a key price index also rose. In the bond market, yields on the 2-year Treasury note fell 17 basis points 1.7 per cent. The 10-year Treasury note fell 12bp to 3.60 per cent.

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