Finance God

Crude prices hold steady amid supply concerns, worries about U.S. economy.

BANGKOK, Thailand (AP) - Oil held steady above 133 dollars a barrel Tuesday in Asia on worries about global petroleum supplies and the outlook for the dollar.

Reports of an attack by militants on an oil pipeline in Nigeria, one of Africa’s largest oil exporters, also supposed prices.

Midafternoon in Singapore, United States. crude for July delivery was up 95 cents from Friday at 133.14 dollars a barrel in electronic trade on the New York Mercantile Exchange.

Nymex floor trading was closed Monday for Memorial Day in the United States, and electronic trading levels were little changed from the day before during Asian hours. Monday was also a bank holiday in Britain, and trading volumes were lower than usual.

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With his picture splashed across the front pages of British newspapers, Mohammed Asha, a doctor in the National Health Service, over the last few days became the human face of a suspected plot to bomb a London nightclub and an attack at Glasgow Airport.
According to the British police, the photos should never have appeared.
Britain has some of the tightest restrictions on reporting in the Western world, limiting news organizations’ ability to publish pictures or articles about the subjects of criminal investigations. The rules are intended to ensure fair trials by keeping potentially prejudicial information from would-be jurors.
But critics say the restrictions seem increasingly out of step in an era when Britons can turn to the Internet or other sources for unfiltered information on prominent subjects like terrorism. And, based on their coverage of the recent events, news organizations seem unclear about how to apply the rules.
“I’m a bit bemused by the coverage,” said Richard Parkes, a lawyer specializing in media matters in London. “There seem to be conflicting signals given out by the press.”
Last Monday, Scotland Yard asked media organizations not to publish pictures or artists’ impressions of people involved in the case, saying that identification of the suspects could be an issue in any trial, according to editors who received the e-mail request.
A glance at the front pages and at television screens a day later showed that British news organizations were divided in their response.
Several tabloid newspapers, including The Sun and The Mirror, prominently featured pictures of Mr. Asha, one of the suspects named in news reports.
The Telegraph, a broadsheet, also published a picture of Mr. Asha on the front page. The Times used a photo inside the paper, but pixilated it to make the image unrecognizable. The Guardian, on Page 1, had a picture of Mr. Asha’s father, interviewed in Jordan, where he held a photo of his son. The picture-within-a-picture, however, was pixilated.
British television reports in general were also blurring the faces of the terrorism suspects.
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European regulators have cleared the use of mobile phones and BlackBerry devices by airline passengers during flights, Airbus announced.
Approval by the European Aviation Safety Agency means that beginning in September, passengers aboard Airbus aircraft outfitted with the OnAir system will be able to make phone calls and send and receive SMS text messages and e-mail messages while flying above 9,840 feet.
Cabin staff members will be able to turn off the system or restrict use to text services like SMS as they see fit.
The first aircraft to go into operation with the system will probably be a short-haul Airbus A318 operated by Air France. The British airline BMI, the Portuguese airline TAP and the budget airline Ryanair have also signed up to offer the services, said Graham Lake, chief commercial officer for OnAir, a joint venture between Airbus and SITA, a communications services company.
The cost of a call, however, might make for short conversations. While OnAir does not set the fees, Mr. Lake said the expected cost would be around $2.50 a minute for calls and 50 cents for each SMS message.
Approval to use mobile phones in aircraft contrasts with the no-telephone-use announcements cabin attendants often deliver before takeoff. OnAir determined that 10 percent to 25 percent of passengers and crew members leave telephones turned on despite explicit warnings.
The OnAir system can be used only above 3,000 meters, or 9,840 feet. This restriction in part reflects mobile phone operators’ concerns about disruptions that can be caused when a single cellphone tries to connect with several land-based cellphone towers.

A dispute between Groupe Danone, the French multinational company, and a brash Chinese executive has escalated into a battle for control of the country’s largest beverage maker.
The fight started in 2005, when executives at Danone say that they noticed something peculiar in the financial figures coming from their joint venture here with the Wahaha Group.
After a long investigation, Danone officials concluded that their closest partner in China, Wahaha’s longtime chairman, Zong Qinghou, was operating a series of secret companies outside the joint venture — companies that were mimicking the joint venture and siphoning off millions of dollars.
Last week, after months of negotiation between Danone and Mr. Zong had failed to resolve the dispute over those companies and who has the rights to the Wahaha brand, Danone filed a lawsuit in California against a company controlled by Mr. Zong’s relatives.
That lawsuit has escalated the quarrel into nasty and, at times, bizarre territory.
Analysts say that the Wahaha dispute is a reminder of the pitfalls that foreign companies face when doing business in China.
“This is a cautionary tale,” says Steve Dickinson, a lawyer in Shanghai at Harris & Moure. “This is not a message that you can’t do business in China. But if you come to China and let the Chinese run the business without supervision, they can do this kind of thing.”
Of course, Danone officials acknowledge that they took a risk on Mr. Zong, who is known for his brash management style. But they also say that the 61-year-old entrepreneur helped transform Wahaha into one of China’s most successful beverage makers, a company that had sales of more than $1.5 billion last year.
Now, however, Danone is trying to figure out how to deal with what suddenly looks like a corporate revolt at Wahaha.
Mr. Zong, who founded Wahaha in the 1980s and is one of China’s wealthiest businessmen, angrily resigned as chairman last Wednesday, disputing Danone’s contentions about secret companies. He said that he could no longer deal with what he called Danone’s harassment and smear campaign against him and his family.
Two days later, Wahaha — 51 percent of it owned by Danone — released a series of harshly worded letters from employees that accused Danone officials of ignorance and bullying.
In one of the letters, which Wahaha said represented large groups of employees, the workers vowed to standby “Chairman Zong” and to punish Danone’s “evil deeds.”
And then, over the weekend, Wahaha issued a statement saying the company’s management and staff “strongly disapprove” of two directors appointed by Danone.
Wahaha officials declined to comment.
But at a press conference in Shanghai on Tuesday, Danone officials defended their actions and said that they were working to resolve the dispute.
Emmanuel Faber, the head of Danone’s Asia operations, said he was worried that Mr. Zong might attempt to destroy the Wahaha brand and start his own competing company, absorbing Wahaha units.
Danone said in a statement, “We think that it is inappropriate for anyone to seek to leverage employees, business partners and the public to support their goal of maximizing their own personal wealth while endangering the business continuity of the company.”
The series of statements raises another question: who is running Wahaha? Mr. Zong has run the company with for more than 20 years, controlling many aspects of the business.
Danone says it still has contact with Wahaha. But the French company also acknowledges that it does not have a single executive based at Wahaha’s headquarters in Hangzhou and that Danone officers never played a role in the day-to-day operations of the joint venture.
The boardroom drama has cast a dark cloud over Wahaha, a beverage company known for its popular children’s drinks, fruit juices and bottled water.
According to Danone, most of the problems are tied to Mr. Zong. Danone says that he and several of his family members began operating a series of parallel companies sometime after 2003.
In 2005, Danone says, illegal Wahaha-related companies began expanding aggressively, manufacturing a growing share of the company’s products.
In late 2006, after Danone says that it discovered the parallel companies, Mr. Zong agreed to sell a majority stake in those companies to Danone, which intended to fold them into the joint venture.
But after signing the agreement, Danone says that Mr. Zong pulled out of the deal and then began creating more mirror companies, including his own separate sales division.

President Bush has chosen Robert B. Zoellick, a senior diplomat and trade envoy who became a top Goldman Sachs executive last year, to lead the World Bank and try to heal the bitter rifts left by the ouster of Paul D. Wolfowitz, the administration said Tuesday.
Treasury Secretary Henry M. Paulson Jr. said Mr. Zoellick had emerged as the first choice of economic ministers around the world, who have been calling for someone to overcome the bank’s credibility problems among donor and recipient countries alike.
“Bob has a very strong track record working with colleagues and leaders to get results,” Mr. Paulson said in an interview after word of the appointment spread. “He’s got great energy and enthusiasm and will be able to hit the ground running. I also think he’s got strong management capabilities.”
Mr. Zoellick, 53, has served in high-ranking foreign policy and economic policy posts under three Republican presidents, beginning with Ronald Reagan. His selection is to be announced by Mr. Bush on Wednesday.
Mr. Zoellick plans to visit the bank and meet its staff almost immediately, administration officials said, and the bank’s 24-member board of directors is to vote on the nomination soon afterward.
He faces an institution riven not only by the travails of Mr. Wolfowitz, who resigned this month amid charges of favoritism, but also by major disagreements among donor nations over the bank’s mission.
Many conservative supporters of the Bush administration, resentful over Mr. Wolfowitz’s resignation, are insisting the United States keep up the pressure on the bank to carry out Mr. Wolfowitz’s plans, including combating corruption and demanding concrete results in aid programs.
The bank lends about $23 billion a year to poor countries and is the principal vehicle for grants and loans to the poorest among them. But the bank is also facing challenges in raising $30 billion over the next three years to renew its lending for the poorest countries. Many rich countries had balked at new lending while Mr. Wolfowitz remained in charge.
Bank officials say Mr. Zoellick’s first job will be to raise money for the poorest countries and reshape its lending for “middle income” poor countries like India and China, which now have access to capital.
There are also lingering issues, including whether to retain several top officials Mr. Wolfowitz elevated.
Mr. Zoellick served six years in the current Bush administration, as United States trade representative from 2001 to 2005 and then as deputy secretary of state until last July. Under President Reagan and the first President Bush, he held top posts at the Treasury and State Departments. He is known as tough, strong-willed, demanding and occasionally abrasive, but has built a network of admirers and allies around the world during his years in the government.
Mr. Zoellick is continuing the tradition of Goldman Sachs executives’ returning to public service under the Bush administration. Before becoming Treasury secretary last year, Mr. Paulson was the chief executive of Goldman Sachs; another former Goldman official, Joshua B. Bolten, is White House chief of staff.
“It’s a very tight network, this Goldman one,” a European official said. “If you’re going to limit your search to an inner circle of people trusted by the Bush administration who are also acceptable to the Europeans, Zoellick is going to score very well.”
In the last year, as vice chairman for international affairs at Goldman Sachs, Mr. Zoellick worked on developing capital markets in Asia, especially China.
As deputy secretary of state, he concentrated on improving relations with China and on trying, though without much success, to negotiate a pact with Sudan to end the rebellion and killings in Darfur.
He won the attention of international economic officials for his work in starting the current global trade talks shortly after the Sept. 11 attacks. The goal was to lift trade barriers in rich countries to help poor countries reliant on exports.
Trade officials say Mr. Zoellick’s offer to lower American tariffs and subsidies on farm products impressed exporting countries and put them in his corner. He worked closely with Pascal Lamy, head of the World Trade Organization, to get the talks started. “I have known Bob Zoellick for over two decades,” Mr. Lamy said. “I have always appreciated his skills as a consensus builder and his capacity to reach out to developing countries.”
The German finance minister, Peer Steinbrück, also endorsed Mr. Zoellick’s candidacy, administration and German officials said. Mr. Zoellick was a top aide to Secretary of State James A. Baker III in helping negotiate terms of reunification after the fall of the Berlin Wall.
Administration officials acknowledged that Mr. Zoellick could be a difficult boss but said he backed subordinates and won loyalty. A 2003 review of the cabinet in the National Journal rated him as “one of the most successful members” but one who could “wear his people down.”
One issue Mr. Zoellick will have to address is the future status of Shaha Ali Riza, Mr. Wolfowitz’s companion, whose transfer, pay raise and promotion sparked the rebellion in the bank that led to his downfall.
The fact that Mr. Zoellick was the leading candidate was first reported in the Financial Times on Tuesday.
The selection of Mr. Zoellick caught the bank board by surprise. The board, which under bank bylaws elects the president, met in the day and in the evening issued criteria for the new president; it said nominations would be accepted before June 15, with a choice made by June 30.
Administration officials expressed confidence that the board members would be guided by finance and development ministries from their home countries and would quickly ratify Mr. Bush’s choice. Nevertheless, bank officials expected some lingering unease over the way the United States treated the board a kind of an afterthought.
Some at the bank said that some board members representing India, China or other developing countries might not vote for Mr. Zoellick or would even put forward candidates.

The majority of owners and workers at business with fewer than 10 employees have no access to retirement plans or savings, a recent national survey found.
In a poll of more than 3,000 employers of so-called micro-businesses, 80 percent said they don’t provide retirement plans -either for themselves or their workers - according to the National Association of the Self-Employed, a Washington-based advocacy group.
Most employers cited the costs of administering plans as the biggest obstacle, relying instead on Social Security as a source of retirement income.
“Micro-business owners and the self-employed face so many challenges, including soaring health-care costs, and as a result, retirement planning is overshadowed by those more immediate needs,” Kristie Darien, the group’s legislative director, said in a statement.
There are about 20 million micro-businesses operating across the United States, the group estimates.

John Edwards has made poverty a top issue as he stumps for the Democratic Presidential nomination. So his connections to Fortress Investment Group, a highly profitable hedge fund and private equity firm with several executives on Forbes’ latest billionaires list, have provoked quite a bit of interest from campaign watchers. Asked about his decision to join Fortress as a senior adviser in 2005, Mr. Edwards told The Associated Press on Tuesday that he did it “mainly in order to learn about the relationships between financial markets and poverty.”
But the reporters and editors at the A.P. didn’t let him off that easy.
Did he really have to join a hedge fund to learn about that? they asked Mr. Edwards, a former United States senator and trial lawyer. “How else would I have done it?” he responded. Well, you could have taken a class, it was suggested.
“That’s true,” he allowed.
He also conceded that he worked for Fortress in part because “making money was a good thing, too,” but insisted he did it “primarily to learn.”
Mr. Edwards’s year-long stint at Fortress began in October 2005, after he served as running mate to Senator John Kerry in his failed presidential bid. Since the Kerry campaign, Mr. Edwards has also run a center on work and poverty for the University of North Carolina law school.
Hedge funds are private, lightly regulated pools of capital that are usually restricted to wealthy individuals and institutional investors. The best of these funds offer returns that far exceed what the average investor could get from a mutual fund. Hedge funds have created mountains of wealth for the people who run them, some of whom have built modern-day castles in Greenwich, Conn., where many hedge funds are based.
In addition to hedge funds, Fortress also runs private equity funds, which acquire companies in hopes of profiting by selling them or taking them public.
Mr. Edwards has not disclosed how much he earned working as a consultant for Fortress. But stay tuned: He said he would do so next week when he releases his financial disclosure forms.
The Washington Post reported last week, as noted by DealBook, that Fortress is the biggest employer of donors to Mr. Edwards’ campaign. In all, Fortress employees gave about $167,000, according to the Post.

Far from being the cruelest month, April has turned out to be one of the most profitable in recent memory for investors in the stock market.
The Dow Jones industrial average, the widely followed index of 30 large companies, closed above the 13,000 mark yesterday for the first time and is up 6 percent for the month, its best performance in a single month since December 2003.
The index rose 135.95 points, or 1.05 percent, to 13,089.89. The broader Standard & Poor’s 500-stock index closed up 15.01 points, or 1 percent, to 1,495.42, and is up 5.3 percent for the month.
The rally has been broad and strong and has defied skeptics who thought stocks were due for a harder slog as the economy slows, corporate earnings grow at a less robust pace and the housing market, the engine of the recent expansion, struggles with a glut of unsold properties and problems in the mortgage business. In fact, since Feb. 27, when the Dow dropped more than 400 points because of a market slump in Asia, the index has rebounded 7.2 percent.
While investors say they are keeping an eye on the potential stumbling blocks, Wall Street seems to be far more focused on positive indicators like the announcement earlier this week by I.B.M. that it would spend $15 billion more to buy back its own shares or the $25 billion buyout of Sallie Mae by private equity firms and two big banks.
“There is a lot of money sloshing around,” said James P. Dunigan, chief investment officer for the wealth management business of PNC. “It continues to be about liquidity.”
Investors are betting, in effect, that the economy will make the financial equivalent of a rolling stop — growth will slow briefly without turning into a recession, and the pace will start quickening again as early as next year.
They note, for instance, that the problems in the mortgage business have been limited to loans that were made to people with weak, or subprime, credit, who account for a sliver of consumer spending.
Furthermore, investors are betting that the Federal Reserve will stimulate economic activity sometime this fall by cutting its benchmark interest rate, which it has left unchanged at 5.25 percent since last summer.
Skeptics note that investors are banking on a rare economic feat, the so-called soft landing. They contend that the nation has not yet felt the full brunt of the problems in housing. Construction employment, for instance, remains at its boom-era levels, even though spending on residential building has fallen sharply. Also, profit growth has only recently begun to slow for some companies.
“It took a long time for housing to have the positive impact that it did,” said Marc D. Stern, chief investment officer at Bessemer Trust. “And it is likely to take a long time for housing to have a negative impact.”
It is worth noting that even with the recent rally, stocks remain far cheaper than they were during the technology-fueled boom of the late 1990s. The price-to-earnings ratio, a commonly used measure of how expensive stocks are, relative to corporate earnings, was 17.6 for the stocks in the Dow as of yesterday, down from 25.5 in January 2000 and roughly the same as the average for the last 15 years.
The relative value of stocks today, optimists say, signals that the market still has room to run. They note that most of the money that has poured into the market in recent years has come from institutional investors, rather than individuals. In the three weeks that ended April 18, for instance, investors withdrew $3.3 billion from domestic stock funds, according to AMG Data Services, a research firm. By contrast, investors put $7.3 billion into nondomestic stock funds and $4.8 billion into taxable bond funds.
“The whole rally here has been driven by institutional investors and companies themselves doing share buybacks,” said Jeffrey Kleintop, chief market strategist for LPL Financial in Boston. “That’s taking a lot of stock off the table if you will.”
Mr. Kleintop says he thinks that the market will move higher as individual investors return their attention to domestic stocks. He and other specialists say they believe that many Americans shifted their focus away from the stock market to housing over the last few years in reaction to the bear markets of 2001 and 2002 and because low interest rates touched off the housing boom. Many investors have also turned to commodities like gold, and international stocks, which have outstripped their American peers in part because the dollar has lost ground against the euro and British pound.
“Now the pendulum is swinging back,” Mr. Kleintop said.
Still, other specialists caution that many individual investors may not have the financial wherewithal to jump into the stock market, especially if the values of their homes are declining. Many homeowners will also have to contend with rising house payments because of the resetting of adjustable-rate mortgages. Even those who are able to refinance into a fixed-rate mortgage will pay somewhat more for housing because interest rates, while still near historic lows, are higher now than they were in recent years.

WASHINGTON:The mortgage lending subsidiaries of national banks are immune from state regulation, the Supreme Court ruled in a decision that upheld a controversial regulation issued six years ago by the office of the comptroller of the currency, the chief federal bank regulator.
The attorneys general and bank regulators of all 50 states had urged the justices to find the regulation out of bounds, either as a misinterpretation of the National Bank Act or as a matter of constitutional federalism. Consumer groups told the court that a decision upholding the federal agency’s claimed power of pre-emption would displace state oversight at a time when the mortgage lending industry urgently needed close supervision.
But by a vote of 5 to 3, the court held in an opinion by Justice Ruth Bader Ginsburg that the assertion of regulatory power by the comptroller of the currency was fully, if implicitly, authorized by federal law. Referring to the National Bank Act by its initials, Justice Ginsburg said, “Diverse and duplicative superintendence of national banks’ engagement in the business of banking, we observed over a century ago, is precisely what the NBA was designed to prevent.”
Justice Ginsburg said it was appropriate to treat a bank’s operating subsidiary as “subject to the same terms and conditions that govern the national bank itself.” A national bank’s authority to engage in mortgage lending through a subsidiary, a power the comptroller of the currency granted 41 years ago, “cannot be significantly impaired or impeded by state law,” Justice Ginsburg said.
Justice John Paul Stevens wrote a vigorous dissenting opinion that Chief Justice John G. Roberts Jr. and Justice Antonin Scalia also signed. Justice Clarence Thomas recused himself because his son and daughter-in-law both work for Wachovia Bank, which filed the lawsuit that led to the Supreme Court case.
The regulation that the court upheld pre-empts state regulation of any banking activity that a national bank conducts through an operating subsidiary. The decision therefore presumably applies beyond mortgage lending to other activities that subsidiaries commonly engage in, like the sale of annuities, automobile loans, small-business lending and investment advice.
The office of the comptroller of the currency has licensed nearly 500 national bank subsidiaries that deal directly with consumers in these and other types of retail activities.
Wachovia began the legal action in 2003 by bringing suit against Michigan’s bank regulator, Linda A. Watters. The bank, which is based in Charlotte, N.C., and has no branches in Michigan, sought a declaration from the Federal District Court in Grand Rapids that under the comptroller of the currency’s recent rule, its mortgage lending unit was no longer subject to state regulation.

Those words, from Jeffrey L. Matthews, a general partner at Ram Partners, a hedge fund worth approximately $60 million, were meant to comfort members of the House Financial Services Committee last month as they pondered whether hedge funds posed any systemic risk to the financial system.
The conclusion from the hearing and the President’s Working Group seemed to be: not particularly. Yet a closer look at the ballooning leverage market shows a murkier picture.
By the conventional reasoning, hedge funds have helped decease risk by assuming more of it, thus spreading it out. In other words, having 1,000 hedge funds own failing bonds or loans is apparently better than having 10 banks holding all of them.
Most people think of leverage in hedge funds in terms of the funds’ borrowing from their prime brokers to amplify their trades. But there are other kinds of leverage — lots of them. For example, a booming business for banks is providing leverage to investors dealing in hedge funds and funds of hedge funds.
Let’s say you are very wealthy and have $25 million to invest in a portfolio of hedge funds. Banks like BNP Paribas, Royal Bank of Canada or Barclays will leverage your investment, say four to one, allowing you to invest $100 million, using derivatives. Barclays estimates that roughly $60 billion to $80 billion in leverage is being put on by investors in hedge funds or funds of hedge funds. Other market players say it is more than double that.
More leverage means more money to put to work, thus potentially producing higher returns. Banks take comfort from the diversity of many strategies in many hedge funds.
Investors are naturally jazzed by this prospect. Returns at funds of funds have come down, and volatility from fund of funds is often low, making leverage look like a reasonable way to jump-start returns. And private banking executives say it is not uncommon for their wealthy clients to have portfolios with 100 percent allocation to hedge funds.“It’s like a retail investor buying on margin,” said Marty Malloy, managing director in charge of Prime Services at Barclays Capital in New York. “The investor wants to increase the overall return on capital.”
Exctact this time around, the investor is buying into an entity that is already leveraged, a hedge fund. The ripple effect — leverage upon leverage — looks a little scary. Go back to the $25 million example. You take on four to one leverage to create a portfolio of $100 million. You invest $5 million in 20 hedge funds. The markets have a bad month and the portfolio falls 5 percent, to $95 million.
Your equity is now $20 million, down from $25 million and your leverage is now 4.75 to one rather than the four required by your agreement with the bank. So you have to sell an additional $15 million.
As investors redeem, funds may be forced to sell to meet those redemptions. If the markets continue to fall, hedge fund managers are stuck selling into a falling market, perhaps setting off their own margin calls from their prime brokers. Strategies that were not supposed to be correlated are tied together, and it becomes apparent that many funds and banks are in the same trades. Suddenly the world does not look so rosy.
There are other fun variations, like start-up leverage, or money that hedge funds borrow at the outset to enable them to put more money to work.
Say you have $10 million from your friends and family to start a hedge fund. But to be considered a player you have to have $50 million. You borrow $40 million from a bank in the form of preferred equity. Presto! You run a $50 million fund.
“Each half point of return puts you in a new ball park in terms of ability to raise capital,” said Victor L. Zimmermann, a lawyer at Curtis, Mallet-Prevost, Colt & Mosle. He estimates preferred equity deals are used for funds up to $1 billion in size.
These structures can do wonders for compensation. Recall that hedge fund managers generally take home 2 percent of assets under management and 20 percent of profits as “incentive” or performance fees. According to Mr. Zimmermann, managers get to take home 20 percent of profits on the leveraged portfolio.
So funds are levered, investors are levered and funds’ investments are levered.
“The concern is, how many people are on that chain?” says Jonathan Ende, managing member of Ende Capital Group, structured products consulting firm.
Still, he thinks it is all within reason. “If it does break, the markets are pretty resilient.”
Prime brokers and regulators agree with Mr. Ende, saying that leverage levels are fine these days. But the markets have not been tested in any significant way. There have been terrorist attacks around the world, the collapse of Amaranth, a $9.5 billion hedge fund, and a messy and seemingly unsolvable war in Iraq. And the markets have rallied at every turn.