World financial news

Janet Reuther-Schopp doesn’t like to remember what happened to Reuther Automotive Group three years ago this week.

Her family’s 53-relationship with the Chrysler and Jeep brands came to an abrupt end during Chrysler’s government-orchestrated bankruptcy. Thinking about it still makes Reuther-Schopp sad and angry, so she’d rather talk about the positive things that have happened since May 14, 2009.

Many such “takings” suits are thrown out quickly, but a judge has already rejected the government’s attempt to dismiss this one. It’s now in the discovery phase, and Bellavia says he believes that emails and other documents from the federal automotive task force will bolster his case.

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Search teams found at least 10 bodies Friday near where a Russian-made jetliner crashed into the side of an Indonesian volcano while on a demonstration flight for potential buyers from airlines, an official said.

All 45 aboard the Sukhoi Superjet-100 are feared dead.

The search team used ropes to climb up to the wreckage on the near-vertical slopes of Mount Salak, search and rescue agency spokesman Gagah Prakoso said. The 10 bodies they found are being prepared to be transported from the crash site by helicopter.

Local television showed what appeared to be the plane’s tail with the blue-and-white Sukhoi logo, part of a wing and bits of twisted metal scattered along the slope like confetti.

The jetliner slammed into the dormant volcano Wednesday at nearly 800 kph (480 mph). Russian and French investigators have arrived to join the ongoing investigation into the cause.

The Superjet-100 is Russia’s first new model of passenger jet since the fall of the Soviet Union two decades ago and was intended to help resurrect its aerospace industry business cards.

The ill-fated Superjet was carrying representatives from local airlines and journalists on what was supposed to be a 50-minute demonstration flight. Just 21 minutes after takeoff from a Jakarta airfield, the Russian pilot and co-pilot asked for permission to drop from 10,000 feet to 6,000 feet (3,000 meters to 1,800 meters). They gave no explanation, disappearing from the radar immediately afterward.

It was not clear why the crew asked to shift course, especially since they were so close to the 7,000-foot (2,200-meter) volcano, or whether they got an OK, officials have said.

Communication tapes will be reviewed as part of the investigation, but it’s unlikely they will be released to the public any time soon.

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Federal Reserve Chairman Ben Bernanke says further bond purchases by the Fed remain “very much on the table” if the economy needs further support.

Bernanke says the central bank remains prepared to take additional actions, referring to a possible third round of bond buying. Two now-expired programs of Fed bond purchases have been intended to push down long-term interest rates to encourage borrowing and spending.

Bernanke is speaking at a news conference after a two-day policy meeting.

He says the central bank believes that while inflation has risen lately, it will remain within the Fed’s 2 percent target.

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Japan

A growing number of U.S. companies such as Facebook and Carlyle Group lining up to go public and a smattering of U.S. and European secondary offerings are once again giving investment bankers hope that the moribund equity capital markets may finally be waking up.

The S&P 500 has risen 12 percent in the first quarter and the market volatility tracker VIX is at five-year lows as fears about the U.S. economy and the euro zone debt crisis ease, prompting more companies to tap the public markets after being effectively shut out for the last few months.

Global equity fundraising, including IPOs and secondary offerings, tumbled 25.8 percent in the first quarter of 2012 to $150.2 billion, compared with the same period in 2011, Thomson Reuters data shows.

Global IPO proceeds, which reached $17.4 billion in 173 issues, sank to their lowest volume since the second quarter of 2009, the data shows.

Many risks to a recovery still persist, such as the impact of slowing growth in China on Asian markets, but bankers said they expect volumes at least in the United States to improve over the rest of the year.

“The IPO market had been very slow to get out of the gate in the first half of the quarter, but the last half has really been catching up,” said David Hermer, head of Americas syndicate at Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz). “A number of recent landmark deals will materially change the landscape, in a positive way.”

Technology deals, which captured nearly a third of all U.S. IPOs during the quarter, are expected to lead the market again, as investors pile into sectors like cloud computing, social media and mobile.

Bankers said even European companies, particularly those with a tech focus, are thinking about U.S. listings.

British vacuum technology firm Edwards, which pulled a London float last year due to choppy markets, and German high-tech lighting company Novaled this month filed with U.S. regulators for IPOs.

In a sign that the recovery might be more broad-based, companies in other sectors are beginning to test the markets as well. Private equity giant Carlyle Group (CG.O: Quote, Profile, Research, Stock Buzz), crafts retailer Michaels Stores MCHST.UL and real estate investment trust Empire State Realty Trust (ESB.N: Quote, Profile, Research, Stock Buzz) are all planning IPOs.

“You’re going to see more industrial companies coming out, many with higher levels of financial leverage, along with technology, energy and consumer retail,” said James Palmer, New York-based managing director of equity capital markets at UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz). “You’ll see a much broader spectrum in both the quality and type of product.”

A big chunk of the activity is expected to come from private equity firms, as they look to exit investments, many of which date back to the buyout boom of 2006-2007, and sell down stakes through follow-on offerings.

“Sponsors are going to play an important role in overall capital formation,” said Phil Drury, co-head of equity capital markets in the Americas at Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz).

For banks, more activity means more underwriting fees fast cash loans. In the first quarter, Citigroup topped the global ranking of equity underwriters with 76 deals accounting for proceeds of $14.3 billion, up from No. 7 in the first quarter of 2011.

Goldman Sachs (GS.N: Quote, Profile, Research, Stock Buzz) came in at No. 2, down from its No. 1 slot in the prior year, and JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) took No. 3, up from its No. 5 position.

Guosen Securities, a Chinese investment bank, was the leader for global IPOs, raising $1.4 billion for clients, thanks to a number of solo deals like a $337.7 million IPO for computer knitting machine producer Ningbo Cixing Co and a $249.8 million offering for silicon maker Xi’an LONGi Silicon Materials.

“The IPO market has been slow to start, but the stars are finally starting to align,” said Brian Reilly, head of U.S. equity capital markets at Barclays (BARC.L: Quote, Profile, Research, Stock Buzz).

TENTATIVE RECOVERY

While the level of activity is expected to rebound from the lows seen over the last six months, bankers said the global markets are far from getting back to normal. Risks such as worries about a fragile global economy, Europe’s debt problems and escalating tensions with Iran continue to add uncertainty and weigh down the markets.

Investors’ concerns over a slowdown in China’s economy put a damper on the Asia-Pacific market, which had dominated equity capital market issuance as the West grappled with the aftermath of the financial crisis of 2008.

“The problems are much closer to home,” said Rupert Mitchell, head of equity syndication for Asia-Pacific at Citigroup. “The world is worried about China right now, where growth is going to be more measured this year.”

Activity in the region tumbled 37 percent in the first quarter from a year earlier to $36.7 billion, the lowest quarterly volume since the second quarter of 2009. IPOs were down 75 percent, accounting for most of the weakness in the beginning of the year.

The major listings expected in Asia this year include the $1 billion IPO by high-end jeweler Graff Diamonds and $1.5 billion offering by Haitong Securities in Hong Kong; the $1 billion IPO by football club Manchester United MNU.UL in Singapore; and nearly $4 billion from two deals in Malaysia: Felda Global Ventures and healthcare company Parkway Pantai.

In Europe, German chemicals maker Evonik and insurance group Talanx and Italian aero-engine parts maker Avio are among those seen as most likely to launch their IPOs in the first half. The sale of the Russian central bank’s stake in Sberbank (SBER.MM: Quote, Profile, Research, Stock Buzz), worth around $6 billion, could also be launched in mid-April.

But overall companies are likely to wait at least until the second half of the year before tapping the markets, bankers said.

“The market in Europe is open and investors are engaged, but every deal will be evaluated on its own merit and on a case-by-case basis,” said Viswas Raghavan, global head of equity capital markets at JPMorgan.

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U.S. stocks recovered quite a bit of lost ground but still finished in the red Monday, following the path of world markets, after China lowered its annual growth target.

The Dow Jones industrial average () lost 15 points, or 0.1%, the S&P 500 () slipped 5 points, or 0.4%, and the Nasdaq composite () decreased 26 points, or 0.9%.

World markets fell Monday, after Chinese Premier Wen Jiabao set a lower target for China’s economic growth, underscoring the need to make the country’s breakneck development more sustainable.

The government is aiming for economic growth of 7.5% in 2012, Wen said — lower than the 2011 goal of about 8%. The Chinese economy often exceeds the official objective; last year it grew 9.2%.

"Even though China only lowered its target by half a percentage point, it’s a telegraph to the rest of the world that the second largest economy is slowing," said Tom Schrader, managing director at Stifel Nicolaus.

American manufacturers importing workers

China’s lower forecast also suggests that the country’s recent steps to ease monetary policy — in an effort to maintain strong economic growth while getting inflation under control — may not be working, said Schrader.

Aluminum-maker Alcoa (, Fortune 500) and Caterpillar (, Fortune 500), which makes construction equipment, were the biggest laggards in the Dow amid worries that slower growth in China could pressure demand for their products.

Trading could be choppy this week, leading up to a big news day on Friday. On the domestic front, investors will get the latest snapshot of the U.S. labor market, with the release of the February jobs report.

In Europe, Friday marks the deadline for private creditors to sign off on Greece’s debt write-down. Greece needs the debt deal to secure its €130 billion rescue package from the eurozone and avoid default.

Lehman Brothers to boost the market?

Stocks closed modestly lower last Friday, with the Dow snapping a two-week winning streak.

World markets: European stocks closed lower. Britain’s FTSE 100 () lost 0.6%, while the DAX () in Germany dropped 0.9% and France’s CAC 40 () shed 0.3%.

Asian markets ended lower. The Shanghai Composite () closed down 0.6%, while the Hang Seng () in Hong Kong lost 1 payday advances.4% and Japan’s Nikkei () dropped 0.8%.

Economy: The February ISM services index rose to 57.3, up from 56.8, which beat expectations.

Washington’s $5 trillion interest bill

Last week, the ISM manufacturing index for February slipped to 52.4, from 54.1 in January, indicating a slowdown in the sector’s expansion.

Meanwhile, factory orders in January decreased 1% — less than the 1.9% decline analysts were expecting. Factory orders rose 1.4% in December.

Companies: IBM (, Fortune 500) shares hit all-time high above $200 share. Citigroup (, Fortune 500) announced that it is exploring possible uses for Watson, IBM’s supercomputer that was famous for beating two human contestants on the game show "Jeopardy" last year.

Online reviews site Yelp () retreated, falling more than 14% after spiking 64% to top $24 a share in their debut on the New York Stock Exchange Friday.

AOL () became the latest advertiser to pull advertising from Rush Limbaugh’s radio show in response to his comments about a Georgetown law student who advocated healthcare coverage for contraception. AOL shares were flat Monday.

BP () shares were higher Monday, after the British oil giant and plaintiffs involved in the legal battle over the Gulf of Mexico oil spill said Friday they reached an agreement. BP estimated it would have to pay about $7.8 billion in the Deepwater Horizon disaster settlement.

Apple (, Fortune 500) said in a post on its website that the tech company has "created or supported" some 514,000 jobs in the United States, either through direct employment, the "App economy" or other means. Shares were down more than 2%, however, ahead of the company’s highly-anticipated iPad announcement Wednesday.

Currencies and commodities: The dollar lost ground against the British pound, the euro and the Japanese yen.

Take advantage of rising gas prices

Oil for April delivery rose 6 cents to settle at $106.75 a barrel.

Gold futures for April delivery fell $5.90 to settle at $1,703.90 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, with the yield rising to 2% from 1.99% late Friday. 

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Asking prices for London homes rose to close to a record in February, helping push national values the most in almost a decade, Rightmove Plc said.

Average asking prices in the U.K. capital rose 2.5 percent from January to 449,252 pounds ($710,300), less than 1,000 pounds below the record reached in October, the operator of Britain

Throughout the extraordinary surge in Apple Inc.’s share price, a persistent question has lingered:

Why is the stock still so cheap? One overlooked answer may be that Apple’s accounting isn’t as conservative as it used to be.

After topping $500 a share last week, the iPhone and iPad maker now has a $468 billion market capitalization. Yet Apple trades for only 14.3 times its earnings for the previous four quarters — about the same as the Standard & Poor’s 500 index’s price-earnings ratio — in spite of growth that’s far above average. Revenue last quarter rose 73 percent to $46.3 billion, while earnings more than doubled to $13.1 billion.

Many theories have been floated for why such a rapidly expanding company with such loyal customers would trade for so little. Perhaps investors believe Apple will cling to its $97.6 billion hoard of cash and marketable securities, rather than pay a fat dividend. Others have suggested a lack of confidence about the future. It’s a consumer electronics company, after all, and competition is brutal.

While each of those points has merit, here’s an explanation that hasn’t gotten enough attention: Thanks to an accounting rule change for which it lobbied, Apple gets to book revenue from sales of bundled products such as iPhones — which include hardware, software, services and upgrade rights — more quickly than it used to.

The easiest way to see the rule change’s impact is to look back at the two sets of numbers Apple reported for fiscal 2009.

Originally, the company said it had $5.7 billion of net income for the year on $36.5 billion of revenue. Then in January 2010 Apple retroactively adopted the new accounting principles and restated its previous numbers. The restatement boosted Apple’s fiscal 2009 net income 44 percent to $8.2 billion. Revenue was revised to $42.9 billion, 17 percent higher than originally reported.

Nothing changed economically, of course. Only the accounting did. On the surface, though, Apple’s valuation looked cheaper under the new reporting regime.

On Dec. 31, 2009, for instance, Apple had a market capitalization of about $191 billion low fee pay day loans. Using the fiscal 2009 earnings that Apple initially reported, its price-earnings ratio that day was about 33. Using its restated numbers, the ratio would have been about 23.

“It would appear that the market continues to consider a significant component of Apple’s revenues and gross profit to be presently unearned and not deserving of a normal market multiple,” said Charles Mulford, an accounting professor and director of the Financial Reporting and Analysis Lab at Georgia Institute of Technology in Atlanta.

Apple was one of a handful of companies that lobbied the Financial Accounting Standards Board for the new rules in 2009.

The impact for Apple seems to have been greater than for most others, probably because of the nature of its products. Dell Inc. said the rule switch had no material impact on its results.

Microsoft Corp. and Oracle Corp. said the same. Hewlett-Packard Co.’s earnings got a slight boost.

The FASB rule change had two main parts. One related to so-called multiple-deliverable arrangements, while another covered software sales. When Apple sells an iPhone, for example, the hardware and software are delivered at the time of sale. Other deliverables include the rights to future software upgrades and other features.

The old accounting rules required Apple to defer large chunks of its revenue and recognize the amounts gradually over each product’s economic life. While the details are complicated, the gist under the new rules is that Apple is allowed to record more revenue upfront.

Let me be clear: I’m not opining on whether Apple is overvalued or undervalued, and I’m certainly not making any predictions about its stock price. The point here is that it makes sense for Apple’s earnings multiple to have declined significantly once you consider how the company’s accounting has changed.

The bottom line: Not all iEarnings are created equal.

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Swiss central bank interim Chairman Thomas Jordan