Tuesday, February 19, 2008
MBIA Former Chief Returns as Credit Rating Cut Looms
(Bloomberg) -- MBIA Inc., the world's largest bond insurer, brought back former Chief Executive Officer Joseph Brown to run the company and expedite talks with regulators to help preserve its AAA credit rating.
Gary Dunton, who succeeded Brown as CEO in 2004 and added the title of chairman last year, will leave the company, Armonk, New York-based MBIA said today in a statement.
Brown, 59, will be tasked with forging a plan to restructure and revive MBIA, which has recorded losses of more than $5 billion on subprime-mortgage securities, threatening its credit rating and sending its shares plunging 83 percent in the past year. New York Insurance Superintendent Eric Dinallo said last week bond insurers may need to be split into two businesses to protect more than $1 trillion of insured municipal debt from subprime losses.
``MBIA faces meaningful challenges,'' Brown said in the statement. Brown said he is seeking to ``frame a new model,'' for MBIA.
Brown said he has already discussed MBIA's plans with Dinallo who provided ``helpful guidance.'' Dinallo, who is taking the lead among the nation's insurance regulators, brought in Warren Buffett to start a new insurer and also asked the billionaire investor to value the guarantors' municipal business.
Insurers Splitting
FGIC Corp., the third-largest bond insurer, sought permission to split up last week. Dinallo said MBIA and Ambac Financial Group Inc., the market leaders, may do the same if they can't raise capital.
The companies and Security Capital Assurance Ltd. insure about $580 billion of asset-backed debt, including collateralized debt obligations that package bonds into new securities.
MBIA, New York-based Ambac and FGIC of New York are struggling after more than $8 billion in losses tied to the slumping value of subprime debt.
MBIA rose 53 cents to $12.77 in early New York Stock Exchange trading. Ambac, down 88 percent this year, fell 24 cents to $9.98. FGIC is owned by New York-based leveraged buyout firm Blackstone Group LP and mortgage insurer PMI Group Inc. of Walnut Creek, California.
Under Dunton, 52, MBIA sold about $2.5 billion in the sale of shares and notes in the past three months.
Foodmakers squeezed by costs, strapped consumers
(Reuters) - For more than a year, food makers and other consumer products companies have passed on much of the burden of rising commodity costs to consumers.
In fact, companies such as H.J. Heinz (HNZ.N: Quote, Profile, Research) and Hormel Foods Corp (HRL.N: Quote, Profile, Research) proved again with earnings forecasts and announcements on Friday that this was still the case early this year, fueling a rally in food stocks.
But that relief could prove short-lived, as 2008 could be the year consumers say "enough!" and start shunning branded products for less expensive private-label alternatives, industry experts warn.
"The next round of (increases) will actually start to impact consumer behavior in a profound way," Ken Harris, a principal at consulting firm Cannondale Associates, said.
That could hit profits at the companies that already have exhausted most measures to cut costs and become more efficient over the past several years in the wake of soaring prices for wheat, cocoa, milk and energy, just to name a few.
"When you say input costs are going up 6 percent and you are only getting 4 percent net pricing, where do you make up the rest?" asked Gregg Warren, an analyst at Morningstar.
Rising commodity costs and economically stressed consumers are expected to be the key topics when consumer products company executives meet with analysts at the Consumer Analyst Group of New York conference in Florida that begins Tuesday.
Penny-pinching shoppers boost Wal-Mart profit
(Reuters) - Wal-Mart Stores (WMT.N: Quote, Profile, Research) posted better-than-expected quarterly profit on Tuesday as penny-pinching U.S. shoppers scoured its discount stores for low prices on necessities like food to offset tough economic conditions.
"We know that the economy remains a critical factor in this new fiscal year," said Lee Scott, CEO of the world's largest retailer, in a statement. "Customers were more cautious in their spending in January."
For the first quarter, it forecast sales at its U.S. stores open at least a year, a key retail gauge known as same-store sales, to be flat to up 2 percent, citing the "challenging" economic environment.
Net income rose 4 percent to $4.096 billion, or $1.02 per share, for its fiscal fourth quarter ended January 31, from $3.94 billion, or 95 cents per share, a year earlier.
The most recent quarter's results included charges of 3 cents per share for dropped real estate projects and a restructuring charge for its Japanese operations, and a 1 cent per share benefit from the sale of certain real estate properties.
Excluding the items, Wal-Mart reported earnings of $1.04 per share, above analysts' average estimate of $1.02 per share, according to Reuters Estimates.
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