World financial news

Three British bankers who pleaded guilty for their roles in a fraudulent scheme with former Enron Chief Financial Officer Andrew Fastow were each sentenced Friday to just over three years in prison.

A federal judge sentenced David Bermingham, Giles Darby and Gary Mulgrew each to 37 months.

In November, the three men each pleaded guilty to one count of wire fraud as part of a plea agreement after initially saying they did not collude with Fastow in a secret financial scam in 2000 to enrich themselves at their employer’s expense.

Their sentences matched the recommendation of federal prosecutors. All three also have agreed to pay their former employer more than $13 million.

Their attorneys have said they will work with prosecutors to see if the bankers can serve part of their sentences in Britain.

The three former executives at Greenwich NatWest, a unit of Royal Bank of Scotland Group PLC, became a cause celebre in Britain throughout extradition proceedings that lasted two years. They were dubbed the "NatWest Three."

In the United States, their case is a loose end from Enron’s collapse.

Greenwich NatWest had invested in a subsidiary of an Enron partnership controlled by Fastow, the architect of a myriad of fraudulent Enron schemes that helped fuel its spiral into bankruptcy proceedings.

In early 2000, the bank had valued its interest in the subsidiary at zero, but the three British men knew it actually had significant value.

A company under the control of Michael Kopper, Fastow’s former top aide, purchased the bank’s interest in the subsidiary for $1 million.

The bankers, who came to Houston, paid Kopper $250,000 for an interest in this company fast cash loans. Fastow falsely represented to Enron that the energy company would pay $20 million to Greenwich NatWest for its shares of the subsidiary.

But the $20 million actually went to the British bankers, Fastow and others. The bankers got $7.3 million while Fastow, Kopper and others skimmed about $12.3 million, according to the plea deal.

For their roles in Enron’s collapse, Fastow is serving a six-year sentence while Kopper was given a three-year, one-month sentence.

Enron, once the nation’s seventh-largest company, crumbled into bankruptcy in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable. The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

Enron founder Kenneth Lay and former chief executive Jeffrey Skilling were convicted in 2006 for their roles in the company’s collapse. Skilling is serving a sentence of more than 24 years. Lay’s convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease in 2006. 

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There was a time when oil prices needed the backing of a strong U.S. economy to reach record levels, but oil prices hit all-time highs again Wednesday even as a recession looms.

Clearly, a strong economy is still necessary to keep oil prices high, but it seems the United States is no longer oil’s main driver.

"The really strong economy is on the other side of the world," said Peter Tertzakian, chief energy economist at ARC Financial, a Calgary-based private equity firm.

When crude closed at over $100 a barrel Tuesday, traders were quick to point to the short-term problems that led to the nearly $14 rally over the last two weeks: The spat between Exxon Mobil and Venezuela’s Hugo Chavez, fears the Federal Reserve may cut interest rates again, sending the dollar lower, and talk of an OPEC production cut.

To some, the explanations sounded a little hollow. Antoine Halff, head of energy research at Fimat in New York, titled his research note on Tuesday’s more than $4 price spike "A rally in search of a cause," attributing much of the gain to "capital’s quest for safe havens and financial hedges against inflation."

But despite recession talk in the U.S. and, to a lesser extent, Europe, economies in the developing world are humming along quite nicely. That, along with some hefty subsidies in the Middle East and elsewhere, is the main reason oil prices have continued to break records, analysts say.

While the U.S. economy is expected to grow by an anemic 1.5 percent in 2008 and the prospects for Europe not much better, Tertzakian said developing economies in places like India and China are growing at an average rate of over 8 percent a year.

So while growth in oil consumption is nearly flat in the rich world, developing nations are eating up more and more fuel.

The world is expected to use 1.4 million barrels per day more in 2008 than it did in 2007, according to Lehman Brothers energy analyst James Crandell faxless payday loans. Developing nations account for more than 1 million barrels of that growth.

Plus, while developing economies were once dependent on the rich world to sell their manufactured goods, there’s a theory that even if a recession strikes the U.S., Europe and Japan, developing countries may be able to chug along on the strength on their own rising middle class.

"Are developing countries following the U.S. in lockstep," asked Crandell. "Our view is that even in a US recession, China and the Middle East will still show measurable oil demand growth."

Plus subsidies in many developing nations are keeping demand artificially high.

In most developed countries, gasoline prices rise and fall based on free market trading. This has led to higher gas prices as oil has risen - that price runup has also helped limit some of the demand.

But in many parts of the developing world, especially where unelected regimes are trying to make nice with the people, the government subsidies gasoline prices.

While Americans are paying over $3 a gallon at the pump and the Europeans, largely due to higher taxes, pay $7 a gallon or more, the Chinese shell out about $2.65, according to Hern

The Federal Reserve on Wednesday sharply lowered its forecast for economic growth in 2008 and said it was worried the economy could face further setbacks even after a series of aggressive interest rate cuts.

“With no signs of stabilization in the housing sector and with financial conditions not yet stabilized, the committee agreed that downside risks to growth would remain even after this action,” the Fed said in minutes of its January 29-30 meeting, when it cut rates by a half-percentage point.

The reduction brought benchmark rates to 3 percent, and followed a bold three-quarter percentage point emergency rate cut at an unscheduled meeting of the policy-setting Federal Open Market Committee just eight days before.

The January rate-cutting spree was the most abrupt reduction in borrowing costs since the early 1980s. Minutes of the end-of-month meeting and two conference calls earlier in January showed policy-makers’ mounting anxiety that financial market strains could lead to “an excessive pull-back” in credit availability and investment.

Fed officials agreed before the surprise January 22 rate cut that decisive action was necessary to provide a jolt of confidence to shaken financial markets online payday advance.

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Citing a deepening housing slump and tight credit, the Fed lowered its economic growth forecast for 2008 to between 1.3 percent and 2 percent from a range of 1.8 percent to 2.5 percent it had projected in November.

“The possibility that house prices could decline more steeply than anticipated, further reducing households’ wealth and access to credit, was perceived as a significant risk to the central outlook for economic growth and employment,” it said in its latest quarterly forecast. 

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Prime Minister Gordon Brown’s government faced accusations of mismanagement Monday as it began nationalizing stricken mortgage lender Northern Rock PLC - the first time in 20 years that a private company has been taken into public ownership.

The government repeatedly insisted a private sale was its preferred option. However, after five months of intense speculation about the future of Britain’s most public casualty of the global credit crunch, Brown said that nationalization was the best choice until market conditions improve.

"We will, and always have, put the interests of taxpayers first," he said.

The opposition Conservative Party said Britain’s reputation as a major financial services center had been dealt a serious blow.

"The nationalization of Northern Rock is a disaster for the British taxpayer, a disaster for this government and a disaster for our country," said Conservative Party leader David Cameron.

The government’s troubles were compounded by the threat of a drawn-out legal battle with unhappy shareholders and the potential of hundreds, or thousands, of workers losing their jobs.

Brown’s reputation as a guardian of financial stability in Britain has been dented, eroding some of the plaudits he received for presiding over an unprecedented stretch of economic growth as treasury chief before becoming prime minister.

On the defensive Monday, Brown and his successor in the treasury office, Alistair Darling, disputed that Britain’s international reputation has been tarnished.

"What we don’t accept is that London or Britain has been uniquely affected by world events," Brown said, referring to the credit troubles that swept global markets in the late summer and led Northern Rock to seek emergency funding from the Bank of England, triggering Britain’s first bank run in 150 years.

London would remain the world’s "pre-eminent financial center," Darling added.

The government had rejected two private proposals from Richard Branson’s Virgin Group and an in-house bid from the bank’s management team because they involved too many risks for taxpayers and a very significant government subsidy.

Brown said Northern Rock will be run "at arm’s length from the government under professional management until adverse market conditions change and then the bank can be returned to the private sector."

However, critics said that the temporary nationalization proposed by the government could last years as Northern Rock’s new management seeks to pay back around $107 billion via loans from the Bank of England and deposit guarantees.

Ron Sandler, who brought back Lloyd’s of London from the edge of bankruptcy in the late 1990s and has been appointed by the government to run Northern Rock, declined to comment on job losses, amid suggestions from analysts that as many as half the company’s 6,250 positions could be cut.

"Temporary nationalization is at last a period where the bank can move forward and away from turbulent waters where it’s been sailing in recent months," Sandler said.

Darling did not provide details on the restructuring of the bank as he announced emergency legislation to allow the nationalization, saying he would provide more information when the bill begins its passage through Parliament on Tuesday.

The new laws would give the government sweeping powers to seize any other bank that runs into trouble, but Darling stressed they have a sunset clause of one year and that the government plans to use them only in relation to Northern Rock.

The Conservative Party said it plans to oppose the legislation, but the government’s numbers are expected to push the bill through Parliament.

Meanwhile, trading in the stock was suspended to make way for nationalization, leaving shareholders unable to sell their holdings after the government first announced its plan Sunday.

Under British rules on nationalization, shareholders will be offered compensation for their holdings at a level set by a government-appointed panel.

The panel will calculate a figure based on the bank’s value without government guarantees - a figure most analysts expect to be very little or nothing at all.

The stock closed at $1.75 Friday, valuing the company at $738 million cash advance. The price has fallen more than 80% since Sept. 13, one day before Northern Rock revealed it had sought the emergency funding. 

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Merger talks between United Airlines (UAUA.O: Quote, Profile, Research) and Continental Airlines Inc (CAL.N: Quote, Profile, Research) have picked up pace, but a deal still hinges on the outcome of discussions between Delta Air Lines (DAL.N: Quote, Profile, Research) and Northwest Airlines Corp (NWA.N: Quote, Profile, Research), people briefed on the situation said on Friday.

Talks between Delta and Northwest are hurtling toward a deal, but a merger announcement is not expected this weekend, the sources told Reuters.

Pilots at both airlines are reviewing a proposal of what the merged company would look like. But a deal could be announced before the pilots’ union approves the proposal if the workers take too long, one person said.

Continental Airlines Inc has also had exploratory talks with AMR Corp’s (AMR.N: Quote, Profile, Research) American Airlines, The Wall Street Journal said on its Web site late Friday.

Analysts have said a Delta merger with Northwest — which would create the largest passenger airline in the world — would trigger a series of consolidation talks as other large airlines would need to compete with merged carriers as well as with low-cost airlines.

Many airline experts, including leaders of top U.S easy payday loan. carriers, say mergers are needed to help stabilize the volatile industry, which finally emerged from a five-year slump in 2006 after racking up $35 billion in losses.

Combined carriers could lead to higher fares, at least in some markets, as they reduce flights and use their increased market power to raise prices.

UAL Chief Executive Glenn Tilton has been a proponent of airline consolidation for the past three years, saying the U.S. industry is too fragmented to compete effectively on a global level. 

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Mortgage insurer MGIC Investment Corp. said it’s looking for ways to boost capital after announcing it lost almost $1.5 billion in the fourth quarter as more homeowners struggled to make payments.

The nation’s largest mortgage insurer still doesn’t see making money this year, if delinquencies and losses continue to rise and fewer homeowners get back on track with payments, chairman and chief executive Curt S. Culver said.

The news sent the Milwaukee-based company’s down almost 13% in afternoon trading.

MGIC said it lost $1.47 billion, or $18.17 per share, in the three months ending Dec. 31, compared with a profit of $121.5 million or $1.47 per share in the same period a year ago.

The loss includes $1.2 billion the company set aside to create a reserve relating to future losses from Wall Street bulk business.

A survey by Thomson Financial indicates Wall Street analysts had expected the company to lose, on average, $6.77 per share. Those estimates typically exclude one-time items.

The company said it has hired an advisor to assist it in exploring alternatives for increasing its capital, though Culver said MGIC has enough money to pay claims.

MGIC has been limiting its exposure to weaker housing markets by demanding higher credit scores and larger down payments in harder-hit areas such as California and Florida.

The company acknowledged in a regulatory filing last week that such changes could mean fewer new policies written, but Culver told analysts on a conference call Wednesday the changes would protect MGIC’s future.

"The business we’d lose from doing that is business better lost than insured by our company," Culver said.

MGIC said late last month that it could pay up to $2 billion in claims this year, up from previous estimates of up to $1.5 billion. It finished 2007 paying out $870 million in claims, up from $611 million in 2006.

Homebuyers typically must get mortgage insurance when they put down less than 20% of their home’s value http://fcrwizard.com. When they miss payments, the insurers pay lenders. If homes end up in foreclosure, both lenders and insurers lose money.

Stuart Plesser, an equity analyst with Standard & Poor’s, said in a research note he felt the company had enough capital. He maintained his sell recommendation on the stock.

Revenues for the fourth quarter were $399.1 million, up 8.7% from $367.2 million in the last three months of 2006. The company increased its net premiums written for the quarter nearly 25% to $380.5 million, up from $367.1 million in the same quarter in 2006.

Its shares fell $1.82, or 12.9%, to $12.36 in afternoon trading Wednesday. Its shares are near the lower end of their 52-week range of $10.40 to $67.41.

MGIC finished 2007 with a loss of $1.67 billion, or $20.54 a share. In 2006, MGIC earned $564.7 million, or $6.65 a share. For the year, revenues rose to $1.69 billion, from $1.47 billion in 2006. New insurance written was $76.8 billion, compared to $58.2 billion in 2006.

MGIC had $211.7 billion primary insurance in force at the end of 2007, compared with $176.5 billion the previous year.

MGIC (MTG) has been changing its underwriting standards for months, and more changes will go into effect starting March 3. From then on, the company will require at least 5% down on homes and 10% on condos in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metro areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta.

Culver told analysts the changes will reduce losses but they won’t get rid of them.

"We feel they are not enough to help us return to profitability in a market where real estate values are declining," he said. 

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Polaroid is dropping the technology it pioneered long before digital photography rendered instant film obsolete to all but a few nostalgia buffs.

Polaroid is closing factories in Massachusetts, Mexico and the Netherlands and cutting 450 jobs as the brand synonymous with instant images focuses on ventures, such as a portable printer for images from cell phones and Polaroid-branded digital cameras, televisions and DVD players.

This year’s closures will leave Polaroid with 150 employees at its Concord headquarters and a site in the nearby Boston suburb of Waltham, down from peak global employment of nearly 21,000 in 1978.

The company stopped making instant cameras over the past two years.

"We’re trying to reinvent Polaroid so it lives on for the next 30 to 40 years," Tom Beaudoin, Polaroid’s president, chief operating officer and chief financial officer, said in a phone interview Friday, after the company’s plans were reported in The Boston Globe.

Polaroid failed to embrace the digital technology that has transformed photography, instead sticking to its belief that many photographers who didn’t want to wait to get pictures developed would hold onto their old Polaroid cameras.

Global sales of traditional camera film have been dropping about 25 percent to 30 percent per year, "and I’ve got to believe instant film has been falling as fast if not faster," said Ed Lee, a digital photography analyst at the research firm InfoTrends Inc.

"At some point in time, it had to reach the point where it was going to be uneconomical to keep producing instant film," Lee said.

Privately held Polaroid doesn’t disclose financial details about its instant film business.

Polaroid instant film will be available in stores through next year, the company said - after which, Lee said, Japan’s Fujifilm (FUJI) will be the only major maker of instant film.

Polaroid got its start making polarized sunglasses in the 1930s, and introduced its first instant camera in 1948 free credit report and score. Film packs contained the chemicals for developing images inside the camera, and photos emerged from the camera in less than a minute.

Polaroid’s overall revenue from instant cameras, film and other products peaked in 1991 at nearly $3 billion. The company went into bankruptcy in 2001 and was bought four years later for $426 million by Minnetonka, Minn.-based consumer products company Petters Group Worldwide.

Polaroid’s newly announced job cuts include 150 positions to be eliminated over the next couple months at Massachusetts operations in Norwood and Waltham, which make large-format films for technical and industrial photography. Later this year, Polaroid will close plants employing 300 workers in the Mexican state of Queretaro and in Enschede, Netherlands.

Meanwhile, Polaroid is seeking a partner to acquire licensing rights for its instant film, in hopes that another firm will continue making the film to supply Polaroid enthusiasts.

As it seeks to gain a foothold in digital photography this year, Polaroid plans to sell an 8-ounce photo printer slightly bigger than a deck of cards that requires no ink and prints business card-sized pictures. It uses thermal printing technology from Zink Imaging, founded by private investors who bought technologies from Polaroid as it was coming out of bankruptcy.

Polaroid also has its brand name on foreign-made TVs, DVD players, digital photo frames, cameras and MP3 music players. Those products generated nearly $1 billion in revenue last year for Polaroid’s parent firm, Beaudoin said. 

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In a fresh sign that the nation’s housing crisis will worsen, home prices are likely to decline in 2008 for the second straight year, the National Association of Realtors said Thursday.

The Realtors, in its monthly economic and sales outlook, is forecasting a 1.2% drop in prices of existing homes sold this year.

Only a month ago, the association was forecasting that prices would be flat in 2008 and that the home market would rebound in the last half of the year.

The group was forecasting that the first quarter would see a record 5.3% drop from year ago levels. Now it’s expecting the current quarter to see even a larger decline in prices of 6.1%.

Last year, when the median price slipped 1.4 from 2006 levels, was the first on record that the Realtors recorded full-year decline in existing home prices.

The group is also forecasting a 4.8% decline in the number of existing homes sold this year. A month ago it was still forecasting a 0.9% pickup in the sales. Existing home sales plunged 12.8% in 2007, according to the group’s figures.

"We’re seeing a pattern that is consistent with skimming along the bottom of the cycle, and sales could ease modestly," said Lawrence Yun, the group’s chief economist, in a statement.

The Realtors forecast further decline in sales and prices even though it projects the overall U.S. economy will stay out of recession. It expects gross domestic product, the broad measure of the nation’s economic activity, to show 1.2% growth in the first quarter and 2.2% growth in the second quarter.

But a growing number of economists are forecasting that the economy has already entered into a recession and is like to see GDP in negative territory for at least the first half of the year.

In the year ahead, the Realtor’s see even greater weakness in new home sales - a 4.3% drop in median prices and a 17.7% plunge in the number of sales.

The Realtors have been recently lowering their price and sales forecasts with each monthly update. The group still has a more bullish view of the market than other outside forecasts. For example, investment firm Merrill Lynch (MER, Fortune 500) is forecasting a 15% drop in home values this year, and an additional 10% decline in 2009 http://pay-day-home.com. The Realtors are forecasting a 3.2% rebound in prices next year in this latest reading.

Christian Menegatti, lead analyst for online economic research firm RGE Monitor, is forecasting a much sharper drop in home prices in 2008 and beyond, probably double digit.

"What we’ve seen so far are still mild declines," Menegatti said. "I think we’ll see much sharper declines through this year and the next. I don’t think we are even close to a bottom yet."

Pending home sales fall again

Menegatti points to the Realtors’ Pending Home Sales Index for December, which was also released Thursday. That index showed that the number of homes under contract fell once again to the second-lowest level on record - indicating growing weakness on the demand side, which Menegatti said will keep the inventories of homes for sale at record levels.

"Our inventories are still very very high and they need to be worked off before we get to bottom," he said.

The Pending Home Sales Index fell 1.5% to 85.9. That was better than only the record low of 85.5 set in August, when the meltdown in the mortgage finance market made it difficult for many buyers to arrange financing.

While the index posted a modest rebound in September and October, it has fallen each month since then. The four weakest readings on record have come in the last five months of 2007. Before that downturn, the previous record low had been 89.8 reached in September 2001, the period in which the terrorist attack shook buyer confidence.

The pending home sales index is more forward looking than the group’s more widely followed reading on existing home sales, which tracks closings. A home is generally under contract for a month or two before closing.

The Pending Home Sales Index is only seven years old, and a 100 reading represents the level of homes under contract in 2001, the first year of the index. The December report brought the index’ annual reading in at 96.3, the first time the annual number has fallen under 100. 

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Government regulators said Friday the connection between Pfizer’s anti-smoking drug Chantix and serious psychiatric problems is "increasingly likely."

The Food and Drug Administration said it has received reports of 37 suicides and more than 400 of suicidal behavior in connection with the drug. In November, the agency began investigating reports of depression, agitation and suicidal behavior among patients taking the popular twice-daily pill.

The agency’s announcement comes two weeks after Pfizer added stronger warnings to the drug. In doing so, the company stressed that a direct link between Chantix and the reported psychiatric problems has not been established, but could not be ruled out.

Pfizer suggested that since nicotine withdrawal alone can cause mood swings and agitation, it may be impossible to determine if Chantix aggravates those behaviors.

But FDA said it found evidence of Chantix patients who experienced psychiatric problems even though they were still smoking.

"There are a number of compelling cases that look like they are the result of exposure to the drug itself and not other causes," said Bob Rappaport, a director at FDA’s drug evaluation center. Some patients experienced the same psychiatric problems after they stopped using Chantix, he said, suggesting a negative reaction to withdrawal.

In a public advisory released Friday, FDA said patients taking Chantix should tell their doctor about any history of mental illness payday advance low fees. Patients and family members should watch for any changes in mood and behavior.

"Chantix may cause worsening of current psychiatric illness even if it is currently under control," reads the statement. "It may also cause an old psychiatric illness to reoccur."

FDA noted that patients with psychiatric problems were not included in the original studies used to test Chantix’s safety.

Approved in May 2006, Chantix, already prescribed 4 million times in the United States, has been one of the few bright spots on Pfizer’s balance sheet. For full-year 2007, the drug had sales of $883 million, helping offset lower sales of older drugs, such as the antidepressant Zoloft, which face generic competition.

The tablets work by binding to nicotine receptors in the brain, reducing the symptoms of withdrawal.

GlaxoSmithKline (GSK) makes Zyban, the only other non-nicotine, anti-smoking drug for sale in the United States. Part of the antidepressant drug class, Zyban includes warnings about increased suicidal behavior.

Shares of Pfizer (PFE, Fortune 500) rose 23 cents to close at $23.59 Friday. 

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Madame Chen, who runs a private, 16-person firm making shirts in Shanghai, has had her bank loan applications rejected twice since late 2007, when the government announced it was shifting to a tight monetary policy.

“They told me the bank’s loan quota had been allocated to more important projects — they said they had to cancel many credit plans late last year,” Chen, a 49-year-old state firm manager turned private entrepreneur, told Reuters.

Cheap and easy money, which helped fuel China’s economic boom this decade, is moving beyond the reach of a growing number of companies as the central bank tightens monetary policy and enforces curbs on new bank lending to fight inflation.

Chen’s company, for one, needs 600,000 yuan ($83,500) for working capital. But since the middle of last year, banks have shifted their focus to big clients which borrow at least 50 million yuan, she says.

The tight policy is contributing to a stock market slide as firms sell equity holdings to raise money, and threatens to boost bad debt at banks as small real estate developers struggle http://payday-badcredit.com. It also makes it hard for small banks to get money market funding.

So far, the policy has done little to slow growth in the overall economy — many bigger companies and banks, with good political connections and strong relationships to the top state-run banks, still have ample cash on hand.

But the pain being suffered by many thousands of small company managers like Madame Chen — and the additional pain that could result from a threatened U.S. recession — may force China to soften its policy in coming months, analysts believe.

“Conditions for corporate financing are set to be very harsh in the first half of this year, and that doesn’t take into account the impact of the latest developments in the U.S. subprime crisis,” said economist Shi Lei at Bank of China. 

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