Business this week
Aug 16th 2007
From The Economist print edition
Financial markets around the world endured another tumultuous week as nervousness spread about the full extent of the credit squeeze. Several central banks, led by the European Central Bank, intervened to shore up liquidity by providing short-term cash infusions. In an effort to calm investors, Jean-Claude Trichet, the ECB's president, put out a statement declaring that the money markets were returning “progressively back to normal”. But in his first public comments on the situation, Hank Paulson, America's treasury secretary, said he believed the turmoil would slow growth in America, without causing a recession. See article
Stockmarkets in America, Europe and Asia continued to plunge. Investors took fright at an analyst's report that suggested Countrywide Financial, America's biggest mortgage lender, might seek bankruptcy protection. Several banks, including UBS, Europe's biggest, said their profits would suffer if the present conditions persisted. See article
Goldman Sachs said it and other investors would inject $3 billion into one of Goldman's quantitative funds that had “suffered significantly” in the market. The firm said it was not rescuing the fund and described the move as an investment. Nevertheless, the news underscored the recent problems encountered by various “quant funds”, which trade on the basis of mathematical models. See article
Iceland's Kaupthing Bank agreed to buy NIBC, a Dutch merchant bank, for euro3 billion ($4 billion). NIBC is one of a number of banks that has reported losses stemming from mortgage defaults in America's housing market. As part of the takeover deal, Kaupthing will avoid that portfolio of debt, leaving it in the hands of NIBC's present owners, a consortium led by J.C. Flowers, a private-equity firm.
Every cloud has a silver lining
Blackstone Group reported that its second-quarter net profit was almost $775m when it released its first earnings statement since making its stockmarket debut in June. The private-equity firm also predicted that the rate of multi-billion dollar buy-out deals would slow in light of the credit markets' difficulties, a situation which, it said, also offered an opportunity to buy debt securities at a discount.
America's two biggest retailers, Wal-Mart and Home Depot, lowered their profit forecasts for the year, citing the sluggish housing market.
Quarterly net income at Macy's, a department store chain that includes the Bloomingdale's brand, slumped by 77%, compared with a year earlier, to $74m. The company (which recently changed its name from Federated Department Stores) acquired May Department Stores in 2005 for $11 billion, but sales have been tepid.
Toy-story two
Mattel's share price fell after it issued a second global recall for some of its toys in as many weeks. This time the company recalled 436,000 toy cars because of “impermissible levels of lead” and up to 18.2m toys containing small magnet pieces that were “potential safety risks”. The products were made in China. See article
Nokia said that 100 reported incidents of overheating mobile-phone batteries had prompted it to offer replacements to customers. Nokia identified a dodgy batch of 46m batteries supplied by a Japanese firm (but made in China). Last year Sony had to replace 9.6m laptop batteries because of fears they could overheat.
China's inflation rate jumped to 5.6% in July, year-on-year, up from 4.4% in June and its highest level for more than ten years. Rising food prices were to blame; the central bank expressed concern.
Two months after a deal was first proposed, Britain's Imperial Chemical Industries agreed to an £8 billion ($16.2 billion) takeover from Akzo Nobel, its Dutch rival. To help secure the transaction, Akzo teamed up with Henkel, a German consumer-goods group, to which it will sell ICI's adhesives business (glue products, which include Loctite and Pritt, account for 44% of Henkel's sales). However, the deal must still be approved by Akzo's investors, some of which think Akzo is paying too much for ICI.
One bright spot amid another dismal week for the markets was the stockmarket flotation of VMware. The software and data-systems company saw its share price rise by 76% on its first day of trading, drawing comparisons with the successful IPO of another technology company, Google. See article
Warning sign
The rate of economic growth in the euro area slowed to 0.3% in the second quarter compared with the previous quarter, raising some doubts about whether the European Central Bank would soon raise interest rates.
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