Sprint Returns A Shot in the Battle of the Bundle

By Saul Hansell (New York Times)

What do you do when you just lost nearly $30 billion and customers are fleeing? How about slashing prices to win back business? Sprint Thursday, as expected, introduced its version of an unlimited use wireless plan. Called “Simply Everything,” the plan is at the same $99 price point plans introduced by Verizon, AT&T and T-Mobile. But Sprint includes everything: voice, messages, data, G.P.S. and TV broadcasts. Verizon, for example, charges $139 for the same package. Daniel R. Hesse, Sprint’s new chief executive, told investors in the conference call that the unlimited plan will not be anywhere near enough to stem Sprint’s losses of customers, according to Silicon Alley Insider’s write up of the call. Fewer than 10 percent of wireless customers are in the market for plans that expensive, he said. But the high-end customers are worth fighting for. More interesting will be whether Sprint takes the price war to the mainstream. Mr. Hesse said the company would also introduce an $89 unlimited voice plan with fewer features. And it will streamline its cheaper plans, seemingly lowering the prices for bundles of voice and data services. For now the leading companies are saying they won’t need to cut prices. Dennis F. Strigl, Verizon’s president, told CNBC earlier this week that its unlimited plan “isn’t about launching a price war.” And he dismissed the prospect of further price cuts from Sprint:

What Sprint may go after is not our market. Our market is the customer who wants the high-quality network, good customers service and the dependability of a bill that they know will be about the same every month. So if Sprint goes after the low-end market, that’s not what we’re focused on.

Of course, that is what you would expect him to say. My guess is that the average price for the wireless plans may not fall. But customers will see fewer add-on charges for text messages and other services as the battle of the bundle escalates.

Alcoa to fight Bahrain allegations (Pittsburgh Business Times)

Alcoa Inc., accused of overcharging and fraud by a company controlled by the Persian Gulf state of Bahrain, said it is unaware of wrongdoing and will "vigorously defend" itself in a lawsuit. The lawsuit was filed in federal court in Pittsburgh by Aluminum Bahrain BSC, the Wall Street Journal reported in its Thursday edition. According to the suit, Aluminum Bahrain alleged that New York-based Alcoa (NYSE:AA) steered payments for an aluminum precursor ingredient to a group of companies abroad in order to pay kickbacks to a Bahrani government official. The firm also alleged that Alcoa had overcharged it for the precursor material, alumina. Alcoa spokesman Kevin Lowery said the suit was filed late Wednesday, "so we have not had an opportunity to completely review the allegations. "However, we are completely unaware of any wrongdoing by any Alcoa employees or representatives," Lowery said. But, Lowery said, Aluminum Bahrain contacted Alcoa two weeks ago. "They gave us two weeks to investigate the claims and to settle. That's not enough time to do any serious work. In that time frame, we did a fast review and haven't found anything that deviates from our normal practices. We offered (Aluminum Bahrain) an opportunity to do a full review of the last 20 years, but obviously they chose to immediately file a lawsuit instead. "We will vigorously defend ourselves in the matter. We have a strong commitment to compliance and don't tolerate any improper conduct by any employee," he said. Attorney Mark J. MacDougall of Akin, Gump, Strauss, Hauer & Feld, which represents the Bahraini manufacturing firm, could not immediately be reached for comment.

Fannie Mae Has $3.55 Billion Fourth-Quarter Loss

By James Tyson

Feb. 27 (Bloomberg) -- Fannie Mae, the largest source of money for U.S. home loans, posted a $3.55 billion fourth-quarter loss and said the slump will continue through this year as rising foreclosures send credit costs soaring. The net loss was wider than analysts anticipated, sending the shares down 6 percent in early New York trading. The loss included a $3.2 billion drop in the value of derivative contracts and $2.9 billion in credit expenses, the Washington-based company said today in a Securities and Exchange Commission filing. ``We are working through the toughest housing and mortgage markets in a generation,'' Fannie Mae Chief Executive Officer Daniel Mudd said in an accompanying statement. Homeowners falling behind on their loan payments and an economy teetering near recession are reducing the value of the $2.3 trillion of mortgages the government-chartered company owns or guarantees. The slump may force Fannie Mae, which sold preferred stock in December to bolster capital, to raise more money, said Paul Miller, an analyst at Friedman Billings Ramsey & Co. in Arlington, Virginia. Fannie Mae ``will continue to have trouble with both credit losses and capital levels,'' said Miller, who on Feb. 25 downgraded the stock to ``underperform.'' Credit impairments will exceed company estimates and ``the Street's expectations.'' The company, which accounts for at least one in five home loans, has lost more than half its market value in the past year as the housing slump deepened. Analysts at Goldman Sachs Group Inc. and Merrill Lynch & Co. cut their recommendations to ``sell'' in the past week on concern that falling home prices will restrict earnings.

Loan Losses

Fannie Mae fell $1.30, or 4.6 percent, to $26.97 yesterday in New York Stock Exchange composite trading. The shares dropped to as low as $25.10 in early trading today. Freddie Mac, which ranks second to Fannie Mae, dropped 97 cents to $25.21 yesterday and is down more than 61 percent in the past year. The net loss amounted to $3.80 share, compared with profit of $604 million, or 49 cents, a year earlier, Fannie Mae said. Excluding some items, the per-share loss was $3.79, compared with the $1.20 average estimate of 12 analysts in a Bloomberg survey.

Fannie Mae's loan loss ratio was 9 basis points in 2007, up from 0.3 basis points at the end of 2006. Miller says credit losses will rise to a range of 15 basis points to 25 basis points this year and in 2009. Howard Shapiro, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York, forecasts a range of 11 basis points to 14 basis points. A basis point is 0.01 percentage point. Freddie Mac is scheduled to report tomorrow. The McLean, Virginia-based company had losses of $2.02 billion in the third- quarter and $480 million in the year-earlier fourth quarter.

Timely Earnings

Fannie Mae, by reporting timely audited financial results for the first time since 2004, met conditions for the removal of a federal limit on its $724 billion in mortgage investments imposed after a $6.3 billion overstatement of earnings. Its portfolio of home loans and mortgage-backed securities is one of its two main sources of profit. Still, the need to bolster capital against the worsening housing market will inhibit growth this year, Miller said. Fannie Mae sold its preferred shares in December after its third-quarter loss of $1.4 billion. ``For me to get very comfortable in recommending this stock, I'd like to see something above $15 billion in capital raising,'' Miller said. Fannie Mae needs to complete the final items on a list of 81 changes in accounting, internal controls and governance in order to shed a requirement that it set aside 30 percent more reserve capital than normal, the company's regulator told a Senate committee on Feb. 8.

Credit-Default Swaps

The cost of protecting Fannie Mae bonds from default have doubled this year. Credit-default swaps tied to the bonds rose 8 basis points to 87 basis points today, according to broker Phoenix Partners Group in New York. A basis point on a credit-default swap contract protecting $10 million of debt for five years is equivalent to $1,000 a year. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. Congress created Fannie Mae and Freddie Mac to increase mortgage financing by buying loans from lenders. The publicly traded companies profit by holding mortgages and mortgage bonds as investments and by charging a fee to guarantee and package loans as securities. They record losses when defaults rise.

Foreclosures Rise

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Fannie Mae and other companies use derivatives to hedge against losses on assets and investments including home loans and mortgage bonds. Bank seizures of U.S. homes almost rose 90 percent to 45,327 last month from the same period a year ago, according to RealtyTrac Inc., a seller of foreclosure statistics that has a database of more than 1 million properties. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent. More than 233,000 properties were in some stage of default last month, RealtyTrac said in a statement. The foreclosures are plunging the housing industry deeper into recession by pushing more houses onto a market where existing home sales are now at the lowest level since records began nine years ago and prices are dropping. There's a 10-month supply of unsold homes, the highest in at least eight years. Senate Banking Committee Chairman Christopher Dodd and other lawmakers have urged the Bush administration for more than seven months to ease constraints on Fannie Mae and Freddie Mac to help revive the housing market. ``The restrictions imposed on Freddie and Fannie have a direct impact on their flexibility to assist the struggling housing markets,'' Senator Charles Schumer, a Democrat from New York, said in a Feb. 25 letter to James Lockhart, the director of the Office of Federal Housing Enterprise Oversight.

The Ben Bernanke Show

Brian Wingfield (Forbes)

Federal Reserve Chairman Ben Bernanke spends so much time testifying before Congress these days, it might seem he barely has time for his day job as the central bank's top regulator. Wednesday, Bernanke heads back to Capitol Hill, where he'll give his mandatory, semi-annual report on monetary policy to the House Financial Services Committee. He'll repeat those remarks to the Senate Banking Committee on Thursday. They'll be the 12th and 13th times he's faced Congressional panels since January 2007. In all probability, he'll parrot much of what he has said in the three appearances he's made on the Hill since September: The economy is growing more slowly than usual, it will rebound later this year, recession isn't likely, more rate cuts are possible, inflation remains a concern, etc., etc. Tedious? Absolutely. But lawmakers can't seem to get enough of Bernanke. So far this year, he's appeared before the Senate Banking Committee and the House Budget Committee for routine oversight hearings. Committee chairmen are well aware that Bernanke is a big draw, especially in an election year, when the economy is ailing. Of course, every time he's speaks publicly, he might hint at a further rate cut. Rep. Paul Ryan, Wisc., the top Republican on the House Budget Committee, says that when a Fed chairman testifies before his committee in early January, he is simply trying to get a better understanding of how the Fed is deriving its monetary policy decisions. Allan Meltzer, a professor of political economy at Carnegie Mellon University who has written a history of the Federal Reserve, says it doesn't necessarily sully Bernanke's reputation to repeat the same mantra every time he visits the Hill. "What will hurt him is the fact that he's not saying things like 'I have to watch both inflation and the unemployment rate,'" he adds. And surprising as it may seem, Bernanke actually appears before Congress less than his predecessor Alan Greenspan did. Not counting his re-nomination hearings, Greenspan testified an average of more than 10 times per year between 2000 and 2005. In 2005, his last year at the central bank's helm, Greenspan saw a Congressional panel 12 times. The year before that, he was there 11 times. Bernanke, by contrast, appeared before lawmakers 9 times in 2007 and 6 times in 2006.

The figures for both men include the Fed chairman's semi-annual reports to Congress, which account for four separate hearings each year (two each for the House and Senate). In addition to the House Financial Services and Senate Banking Committees, where the semi-annual remarks are delivered, Fed chairmen often face the Joint Economic Committee and the budget panels of both chambers. Every one of Bernanke's appearances before Congress has focused on the general economic outlook, the subprime mortgage mess or fiscal challenges for the United States--often a combination the three issues. No surprise there, given the state of the economy in recent months. Congress summoned Greenspan for his wisdom on a range of topics outside the overall health of the U.S. economy. Examples: China's exchange-rate policy (June 2005), education (March 2004), the nation's natural-gas supply (twice--in June 2003 and again the next month), the aging global population (also 2003), U.S. trade policy (April 2001) and commodity futures trading (June 2000). "What Greenspan did was somewhat on the unusual side," says Meltzer. "He had a view and he wanted it to be heard." Bernanke, on the other hand, has deliberately stayed relatively far from the policy debate.

Markets generally don’t like the Fed chairman’s remarks. On the dates coinciding with Bernanke’s four most recent appearances before Congressional panels, the Dow Jones industrial average closed slightly down. The most severe example was on Jan. 17, 2008, when it closed at 12,159.21 from an opening of 12,467.05--a 2.5% slide. During his semi-annual testimony on July 19, 2007, the Dow closed just half a percentage point higher. The day before, down 0.2%. The Wall Street barometer treated Greenspan in much the same way. On the day of his final testimony as Fed chairman, the market closed up 0.5%. During his last semi-annual address, it ended the first day of testimony up 0.6%, the second day down 0.5%. But a month earlier, when Greenspan addressed the Senate Finance Committee on China’s exchange rate, the Dow dropped 1.6%, from 10,587.09 at the start of the day to a close of 10,421.44. Nonetheless, markets and policymakers will be paying close attention to what he says this week. During his semi-annual report last July, Bernanke made this pronouncement: "Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend."

"Moderate" growth isn't exactly what happened. The economy grew at a 4.9% rate during the third quarter of 2007 before dropping sharply to 0.6% growth for the final three months of the year. Amid a deluge of economic data to be released this week are revised figures for growth in the fourth quarter, due out Thursday. If the update is worse than the previous estimate and the economy continues to falter, expect the Ben Bernanke Show to become a running feature this year on Capitol Hill.

Ahead of the Bell: Senate's Mortgage Fix

AP - WASHINGTON

The Senate could begin debating Tuesday another round of remedies for homeowners caught in the worsening housing crisis. Senators may vote this week on a package of legislative proposals, designed by Democrats, that includes easing bankruptcy rules and boosting funds for foreclosure-prevention counseling. The proposed revision to the U.S. bankruptcy code would allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages. At stake are potentially millions of dollars of profits for mortgage lenders, which have been lobbying against the measure. Their opposition is echoed by many Republican lawmakers. Consumer advocates, meanwhile, are pushing senators to approve the change. Currently, lenders can foreclose against a homeowner in default on a primary residence 90 days after a bankruptcy filing, and judges have no authority to order changes in mortgage terms.

The Mortgage Bankers Association has said the proposal would hurt more borrowers in the long run by requiring "higher interest rates and larger down payments to offset the risk" of bankruptcy court intervention for some homeowners. The measure is expected to face tougher resistance than the recently approved economic stimulus package, which narrowly touched on the mortgage crisis. Democratic backers consider the new legislation a way to make up for shortcomings in the Bush administration plan to freeze interest rates on a relatively small percentage of loans made to high-risk borrowers.

Monday brought more evidence of the housing sector's ills. The National Association of Realtors reported that sales of existing homes fell to the lowest level in nearly a decade in January while the median price for a home dropped for the fifth straight month. "Today's dismal housing news reinforces the need for congressional Republicans to join Democrats to address the bulls-eye of our economic troubles by passing a housing recovery package this week," said Sen. Charles Schumer, D-N.Y. "The housing crisis has mushroomed in part due to Washington's inaction, and declining home values cut to the very heart of families' sense of financial security and our economy's overall health." Also included in the Senate package is a measure mandating $200 million for foreclosure-prevention counseling services -- a near doubling of funds already committed by Congress -- and an allowance for states to issue more tax-exempt bonds so that housing agencies could help homeowners refinance high-cost mortgages.

GTx Surges on Late-Stage Trial Results (The Street)

Shares of GTx(GTXI) soared nearly 50% Monday after the biopharmaceutical company said its Acapodene drug showed success in a late-stage study in reducing side effects from certain prostate cancer treatments. The Memphis, Tenn.-based company's shares recently were up $6.21, or 48%, to $19.10. The phase III trial looked at Acapodene in patients receiving androgen deprivation therapy, a common first line treatment for advanced prostate cancer patients. Acapodene, or toremifene citrate 80 mg, is designed to fight the side effects of the hormone therapy, such as loss of bone density, fractures and increased cholesterol and heart attack risk. GTx said the drug reduced vertebral fractures by 50% in patients who were given at least one dose of the drug or placebo and who had at least one evaluable study radiograph. There was a 5% rate of these fractures in the placebo group. Of those who were more than 80% compliant with the treatment, the drug reduced the fractures by 61%. GTx said Acapodene also resulted in a statistically significant increase in bone mineral density. It also showed a statistically significant decrease in LDL, or "bad," cholesterol, and an increase in HDL, or "good" cholesterol, among other things. The company said the drug had a favorable safety profile and was well tolerated. Based on the results, it will file a new drug application for Acapodene by this summer. GTx licensed the rights to toremifene citrate from Finnish drug company Orion for all indications worldwide, except breast cancer outside the U.S. GTx also has a development and collaboration agreement with French specialty pharmaceutical company Ipsen in Europe. Ipsen is responsible for filing the drug for regulatory approval in Europe, but GTx will seek its approval and commercialize it in the U.S. GTx also markets Fareston, a treatment for metastatic breast cancer in postmenopausal women.

U.S. Stocks Fall, Led by Financials; Fannie Mae, Goldman Drop

By Michael Patterson

Feb. 22 (Bloomberg) -- U.S. stocks fell for a second day, led by financial shares, on concern that profits at brokerage firms will decline and dropping demand for mortgages will curb growth at Fannie Mae and Freddie Mac. Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. slumped after Sanford C. Bernstein & Co. analyst Brad Hintz slashed his first-quarter profit estimates by more than 40 percent. Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, tumbled after Merrill Lynch & Co.'s Kenneth Bruce said the worst housing market in a quarter century will stifle earnings through 2011. The Standard & Poor's 500 Index retreated 8.4 points, or 0.6 percent, to 1,334.13 at 11:55 a.m. in New York. The Dow Jones Industrial Average slid 77.42, or 0.6 percent, to 12,206.88. The Nasdaq Composite Index decreased 22.83, or 1 percent, to 2,276.95. More than two stocks declined for every one that rose on the New York Stock Exchange. Shares in Asia and Europe also fell. ``People are coming to grips with what is the degree of financial issues,'' David Darst, the New York-based chief investment strategist at Morgan Stanley Global Wealth Management, which oversees $734 billion, said in a Bloomberg Television interview. ``We think caution is called for.'' The S&P 500 has lost 1.1 percent this week and is down 9.1 percent in 2008 after a worse-than-forecast manufacturing report yesterday added to evidence that the economy is falling into a recession. The world's largest banks and securities firms have reported about $160 billion of credit losses and asset writedowns since the beginning of 2007 as the collapse in subprime mortgages spreads across debt markets.

Weekly Declines

Financial shares in the S&P 500 lost 1.2 percent today, bringing their decline over the past year to 30 percent, the worst performance among 10 industries. The 92-member S&P 500 Financials Index is still 3.5 percent above its four-year low on Jan. 18, buoyed by the Federal Reserve's fastest easing of monetary policy since 1990. Goldman, the biggest U.S. securities firm by market value, dropped $1.11 to $174.06. Lehman Brothers fell 95 cents to $53.19. Hintz said slumping credit markets, combined with weak revenue from underwriting and advisory fees, will hurt profits this quarter. Fannie Mae declined $1.24 to $27.75 today. Freddie Mac fell $2.24 to $25.51. Bruce downgraded the shares to ``sell'' from ``neutral.''

`More Pain'

``We do not think the stocks fully reflect the severity or duration of the financial headwinds facing the companies,'' he wrote in a research note to clients dated today. There is ``more pain than gain.'' Intuit Inc. lost $3.60 to $26.19. The world's largest maker of tax-preparation software lowered its third-quarter profit forecast to between $1.31 and $1.34 a share. Analysts predicted profit of $1.37, according to the average in a Bloomberg survey. Express Scripts Inc. gained $1.95 to $66.71. The third- largest U.S. manager of drug benefits raised its 2008 earnings forecast and reported profit that beat analysts' estimates as clients used a higher proportion of cheaper generic medicines. Eli Lilly & Co. added 38 cents to $50.20. The drugmaker said its experimental blood-thinning drug prasugrel will get a priority review by U.S. regulators. With no major economic reports due today, investors will look to next week for further clues on the economy. A report on Feb. 25 will probably show existing home sales declined in January, while a release on Feb. 27 is likely to show a drop in durable goods orders for the same month, according to economists' estimates compiled by Bloomberg News.