Wells Fargo Breaks From Pack in Swaps

Posted on March 29, 2012 by admin

Wells Fargo & Co.’s perceived creditworthiness is rising relative to peers at the fastest rate in almost three months as investors reward the bank for limited risk from mortgage litigation and the European debt crisis.

Credit-default swaps tied to the bonds of the San Francisco-based lender have held steady in February as contracts on JPMorgan Chase & Co. (JPM) and other banks climb, according to data provider CMA. The difference, 112 basis points, has more than doubled since August.

Concern is growing that Europe’s credit crisis, costs tied to faulty mortgages and pending regulation of proprietary trading will damage bank balance sheets. Wells Fargo has had fewer costs in the mortgage crisis than JPMorgan on an absolute basis and as a percentage of assets, according to data compiled by Bloomberg.

“Wells Fargo looks like a much more stable business, almost like an industrial company,” George Strickland, who helps oversee about $12 billion in fixed-income assets at Santa Fe, New Mexico-based Thornburg Investment Management Inc. said in a telephone interview. “They’re much more of a commercial bank. They didn’t get caught up in the mortgage fiasco as much as the other banks and they also aren’t nearly as involved in the capital markets as the others.”

Ancel Martinez, a Wells Fargo spokesman, declined to comment. Joe Evangelisti, a JPMorgan spokesman in New York, didn’t immediately respond to a voice message seeking comment.

Swaps Gap

While credit-default swaps on Wells Fargo, which investors use to hedge against losses on the company’s debt or to speculate on creditworthiness, have climbed to 110 basis points since this year’s low of 95.5 basis points, contracts tied to its peers have risen faster, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

The gap between Wells Fargo swaps and the average of those linked to the six biggest U.S. banks, including Bank of America Corp., JPMorgan, Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley (MS), widened to 112 basis points yesterday, compared with 42 basis points at the beginning of August and 23 basis points this time last year.

That difference, which grew to as much as 180.8 basis points in October as Greece’s debt woes roiled markets, grew 22.3 basis points for the two weeks ended Feb. 15, the fastest since Nov. 25, the data show. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

‘Domestic-Focused’

Bond investors are accepting the lowest interest rates from Wells Fargo, among the six biggest U.S. banks. Its debt yields to 2.85 percent, Bank of America Merrill Lynch index data show. JPMorgan debt yielded 3.53 percent and Goldman Sachs 4.73 percent as yesterday, the data show.

“The view that they are very domestic-focused is helping, so the improving U.S. economy benefits them and they have less exposure to the rest of the world,” said Peter Tchir, founder of TF Market Advisors in New York. “Markets are getting concerned about bank trading desk ability to generate revenue as Dodd-Frank is on the horizon,” which doesn’t impact Wells Fargo in the way it does Morgan Stanley, Goldman Sachs, Citigroup, or Bank of America.

Little Sovereign Risk

Wells Fargo had $3.2 billion of exposure to Europe, of which “very little” is sovereign risk, Chief Financial Officer Timothy J. Sloan said in a July 19 teleconference to discuss earnings with analysts and investors. The six biggest U.S. banks had $50 billion in risk tied to five troubled nations of Europe on Sept. 30, according to Fitch Ratings.

Against JPMorgan, the Wells Fargo swap contracts have diverged by the most since November 2008 this week, reaching 19.7 basis points on Feb. 13, CMA data show. Credit swaps, which typically decline as investor confidence improves, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

Moody’s Investors Service said yesterday it was reviewing 17 banks and securities firms with global capital markets operations for downgrades, including Morgan Stanley, Goldman Sachs (GS), JPMorgan, Citigroup, and Bank of America. Wells Fargo is not under review. The ratings company cited “more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions.”

Volcker Rule

Banks may suffer as financial reform crimps profits and funding costs become increasingly sensitive to investor confidence, Moody’s said. U.S. regulators are planning to implement a ban on proprietary trading in five months called the Volcker rule, part of the Dodd-Frank financial regulation overhaul.

The potential downgrades may raise borrowing costs and force banks to increase collateral, and bank funding costs have already climbed worldwide. Moody’s downgraded Bank of America and Wells Fargo in September, when it said the possibility of emergency government support had decreased.

With European financial leaders struggling to bail out Greece, the mortgage overhang unresolved and capital markets volatile, “there is still a healthy degree of skepticism across the group,” Andrew Marquardt, an analyst at New York-based Evercore Partners Inc., said in a telephone interview. “Of the big banks, Wells is the one that gives investors the greatest amount of comfort in this very uncertain time.”

Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks through the end of last year. JPMorgan accounts for about $18.5 billion, or 0.8 percent of its assets at the end of last year, while Wells Fargo is about $6 billion, or 0.5 percent, Bloomberg data show.

“Wells Fargo has managed through the housing situation very well, they have less global capital markets exposure, and therefore European risks and concerns, than JPMorgan,” said David Brown, a money manager who helps oversee $88 billion of fixed-income assets at Neuberger Berman LLC in Chicago. “JPMorgan has more capital markets exposure. Some of that’s out of their control, and they’re just being a little bit subject to the volatility there.”

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net

To contact the editors responsible for this story: Alan

Goldstein at agoldstein5@bloomberg.net; David Scheer at dscheer@bloomberg.net

Will Apple have to pay to sell iPads in China?

Posted on March 25, 2012 by admin

Apple must offer proper compensation to computer display maker Proview if it wants to use the iPad trademark in China, Yang Rongshan, Proview chairman said Friday.

“If we are not compensated properly, then Apple doesn’t use the iPad trademark in mainland China,” Yang said, who is also the main shareholder of Proview International Holdings, a Hong Kong-listed company that has been suspended from trading.

Yang added that authorities in more than 30 Chinese cities have taken action in connection to the dispute with Proview, which recently filed for bankruptcy.

Proview claims it holds the exclusive rights to sell the iPad in China and has sought injunctions against the import and export of Apple’s now iconic tablet device. A ban on the iPad’s export from China could have wide-ranging implications for Apple, which relies on manufacturers in the country to make many of the devices it sells around the globe.

Proview earlier this month attempted to bar the sale of iPads within China through a complaint filed with a Shanghai court, alleging that an earlier deal with Apple for the iPad trademark did not include the China market.

In December, a local Chinese court, in a different lawsuit, dismissed Apple’s claims that it owns the iPad trademark in mainland China. In its decision, the court said Apple lacked legal proof.

Yang did not give a figure for acceptable compensation but a Proview creditor at the news briefing said that U.S. lawyers for the company suggested a figure of $2 billion.

Yang also said that Proview turned out 10,000-20,000 iPad products since 1998 but recently stopped production due to the trademark battle with Apple.

U.S. Stocks Advance Amid Optimism Greece to Get Second Bailout

Posted on March 24, 2012 by admin

(Bloomberg) — U.S. stocks advanced, sending the Standard & Poor’s 500 Index near the highest level in about three years, as the cost of insuring European debt declined the most in two weeks on optimism Greece will get a bailout.

Applied Materials Inc., the largest producer of chipmaking equipment, rose 2 percent after predicting higher profit than estimated. H.J. Heinz Co., the world’s biggest ketchup maker, and Campbell Soup Co., the largest soup maker, added at least 3.7 percent as earnings beat projections. Gilead Sciences Inc., which bought Pharmasset Inc. for $10.8 billion last year to gain an experimental hepatitis C drug, plunged 14 percent as some patients on that medicine relapsed after stopping therapy.

The S&P 500 rose 0.2 percent to 1,360.27 at 10:07 a.m. New York time. It’s near its peak nine months ago of 1,363.61, which was the highest level since June 2008. The Dow Jones Industrial Average added 24.90 points, or 0.2 percent, to 12,928.98. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments slid 11 basis points to 337.

“Greece is the word,” Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion, said in a phone interview. “We’re just reacting to what the euro zone is telling us in terms of the state of negotiations. Do I believe that the euro zone will give Greece more money? Yes. Otherwise, Greece defaults.”

U.S. stocks joined a global rally. German Chancellor Angela Merkel, Italian Prime Minister Mario Monti and Greek Prime Minister Lucas Papademos discussed efforts to secure a second bailout for Greece and are confident that euro-area finance ministers will “find a solution for open questions” on Feb. 20, Steffen Seibert, Merkel’s chief spokesman, said in a statement.

Biggest Gains

Seven out of 10 groups in the S&P 500 advanced as consumer discretionary, industrial and telephone shares had the biggest gains. The Morgan Stanley Cyclical Index of companies most-tied to the economy added 0.6 percent. The KBW Bank Index of 24 stocks added 0.4 percent as JPMorgan Chase & Co. climbed 1.4 percent to $38.53.

Applied Materials rallied 2 percent to $13.48. Customers are stepping up equipment spending to ensure they can meet demand for chips used in smartphones, tablets and other mobile devices. Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. are helping fuel the rebound, according to Patrick Ho, an analyst at Stifel Nicolaus & Co.

H.J. Heinz gained 3.9 percent to $54.13. The company reported third-quarter earnings excluding some items of 95 cents a share, beating the average analyst estimate of 85 cents.

Campbell Soup

Campbell Soup added 3.7 percent to $33.25. The company reported second-quarter earnings excluding some items of 64 cents a share. On average, the analysts surveyed by Bloomberg estimated profit of 62 cents.

First Solar Inc. rose 12 percent to $44.62. The biggest maker of thin-film solar panels resolved a permitting issue with Los Angeles County for a $1.36 billion power project under construction, paving the way for financing to resume.

Gilead tumbled 14 percent to $47.30. Among eight patients with hepatitis C genotype 1 in a clinical trial, six had a viral relapse within four weeks after stopping a 12-week treatment with the medicine, GS-7977, plus ribavirin, Gilead said today in a statement. The two other patients are two weeks out from stopping treatment, and haven’t relapsed, the company said.

General Mills Inc. dropped 3.3 percent to $38.45. The maker of Cheerios cereal and Yoplait yogurt reduced its earnings forecast for this year, citing “weak” demand in the U.S.

Most Hated

The companies investors hated the most in 2011 have returned twice as much as the S&P 500 this year, burning speculators who bet stocks from Sears Holdings Corp. to Netflix Inc. would keep falling.

The 26 companies in the S&P 500 with the highest so-called short interest relative to shares available for trading rallied 18 percent this year, compared with 8 percent for the full index, data compiled by Bloomberg show. Speculators who borrowed Sears shares and sold them to profit from a drop got hammered as the stock surged 73 percent. Netflix, with short interest of 17 percent at the end of 2011, rose 76 percent.

Banks, commodity and industrial companies, the only groups to post losses last year, are leading stocks higher on signs the U.S. economy is gaining momentum. That’s forcing speculators to cut bearish wagers after pushing them to the highest levels since the market bottomed in 2009, according to a survey by International Strategy & Investment Group.

“It’s been a rotation back into fundamentally sound, economically sensitive companies that had been unduly punished in the second half of last year,” David Spika, who helps oversee $13 billion as an investment strategist at Westwood Holdings Group Inc. in Dallas, said in a telephone interview. “When the market turns, those shorts have to be covered and that creates momentum.”

–With assistance from, Lu Wang in New York. Editor: Jeff Sutherland