• The U.S. government yesterday (Thursday) sued UBS AG (UBS) to force Switzerland’s largest bank to release the identities of 52,000 Americans who allegedly hid their secret Swiss accounts from U.S. tax authorities, Bloomberg reported. U.S. customers failed to report income earned and pay U.S. taxes on accounts that held about $14.8 billion in assets during this decade, according to the court filing. The lawsuit came a day after UBS agreed to pay $780 million and disclose the names of about 250 account holders to avoid U.S. charges that it helped thousands of wealthy Americans evade taxes.

• The number of U.S. workers seeking unemployment aid jumped to a record high of nearly 5 million, the government said yesterday (Thursday), as the slumping economy made it increasingly difficult to find jobs. The number of unemployed still on the benefits rolls after drawing an initial week of aid surged 170,000 to 4.99 million in the week ended February 7, the Labor Department said.  It was the highest reading on records dating to 1967, Reuters reported.

• The benefits of the Obama administration’s housing plan will be limited by restrictions on which mortgages are eligible, according to Bank of America Corp. (BAC) analysts.  Only about 50% to 60% of securitized prime jumbo or Alt-A loans meet the loan-modification standards under terms of the $275 billion plan, which includes government payments to lenders, mortgage servicers and borrowers, Bloomberg reported.

• Oil prices jumped 14% to top $39 a barrel yesterday (Thursday) after U.S. government data showed an unexpected fall in crude inventories last week due to lower imports and higher demand. The data snapped a seven-week streak of crude buildups in the U.S., where the flagging economy has dragged down fuel use, Reuters reported. U.S. crude futures for March delivery, which expire on Friday, rose $4.86 to settle at $39.48 a barrel, marking the biggest settlement gain since December 31. April delivery contracts traded up $2.77 to settle at $40.18 a barrel.

• Hewlett-Packard Co. (HPQ) lowered its forecast for 2009 profit yesterday (Thursday), as revenue in the fiscal first quarter was only $28.8 billion, about $3 billion shy of analysts’ expectations. The computermaker showed it isn’t immune to the pullback in consumer and corporate spending as sales of personal computers rose at the slowest pace in six years over the holidays, according to research firms Gartner and IDC.  Sales of personal computers, which make up about one-third of HP’s total sales, fell 19% to $8.87 billion, and sales in HP’s revenue and imaging business fell 19% to $6 billion.  HP expects revenue of $27.4 billion to $27.7 billion in the current quarter, which would be a 2% to 3% decline from revenue in the second quarter of 2008, MSNBC reported.

• Brazilian aircraft maker Embraer (ADR: ERJ) said yesterday (Thursday) it will lay off about 20% of its workforce or about 4,200 employees around the world, citing a sharp downturn in the aviation market amid the global economic crisis, Reuters reported. The company, which also makes business jets and military aircraft, cut its delivery forecast for this year to 242 jets from a previous estimate of 270. With the new delivery forecast, Embraer estimates it will bring in $5.5 billion in revenue in 2009, much less than it had initially expected. It also cut its investment plan for this year to $350 million from $450 million.

Source: Global Investment News Briefs Friday, February 20th, 2009

• Live Nation Inc. (LYV), the world’s largest concert promoter, said it is buying Ticketmaster Entertainment Inc. (TKTM), the world’s largest ticketing company, for $2.5 billion including debt, Reuters reported. The merger will create a music powerhouse, already unpopular with fans and likely to receive intense scrutiny from government antitrust investigators.

• China inflation continued slowing in January, rising 1%, the slowest pace in nearly seven years. “Inflation could have been close to zero or worse if not for the Chinese New Year, because vegetable prices and grain prices went up,” Wang Tao, China economist at UBS AG in Beijing, told Bloomberg.

• MillerCoors, the U.S.-targeting joint venture between Molson Coors Brewing Co. (TAP) and SABMiller plc (ADR:SBMRY), said fourth-quarter profit slid 40%. The fall is mainly due to the costs to integrate the brands and impairment charges to its Sparks brand, the Associated Press reported.

• Switzerland’s largest bank, UBS AG (UBS), said it plans to cut another 2,000 jobs, this time at its security unit. Chief Executive Officer Marcel Rohner said the bank will return to profit in 2009, aided by help from the Swiss government to split off toxic assets, Bloomberg reported.

• Prices of call options to buy gold have almost doubled since Jan 15, as financial turmoil boosts demand for the precious metal, Bloomberg reported. Options contracts that allow holders to buy 100 ounces of gold for $1,000 each by April  traded as high as $17.50 yesterday on the New York Mercantile Exchange, as compared with $7.70 on Jan. 15. In that same period, options contracts that allow traders to sell gold at $800 by April plunged 82 percent.
• Oil prices fell below $39 a barrel on Tuesday after the U.S. Energy Information Administration revised downward its 2009 global oil demand forecast by 400,000 barrels per day predicting demand will fall by 1.17 million bpd from 2008, Reuters reported. The agency said it revised its demand forecasts on concerns the U.S. stimulus plan unveiled by the Obama administration will not stem the recession.  U.S. crude fell 63 cents to $38.93 a barrel. London Brent traded down 1 cent to $46.01 a barrel.
• Wal-Mart Stores Inc. (WMT) is cutting 700 to 800 jobs at its home office in Arkansas, as the world’s largest retailer looks to realign its corporate structure and reduce costs, Reuters reported. The discount retailer, which has roughly 14,000 employees at its headquarters, is eliminating jobs in merchandising, real estate and marketing in its Wal-Mart U.S. division, while cutting merchandising positions at its Sam’s Club division.
• Cisco Systems Inc. (CSCO) the giant network equipment maker, launched a surprisingly large $4 billion debt sale on Monday, raising speculation that was poised to make an acquisition, Reuters reported.  The offering came on the same day Cisco said it would offer senior notes to help pay back $500 million of debt due this month. The company said it would also use the proceeds of the offering to bolster its domestic cash position of $3 billion to $4 billion.

Source: Global Investment News Briefs Wednesday, February 11th, 2009

Less than two months later, however, BofA sold $2.8 billion of its shares in the Beijing-based China Construction Bank, a jarring about face made necessary by the U.S. bank’s need to raise cash.

And Bank of America isn’t the only Western lender making such a move.

Just this week, the Royal Bank of Scotland Group PLC (ADR: RBS), Great Britain’s biggest government-controlled bank, sold its $2.3 billion stake in the Bank of China Ltd. (Pink: BACHF), the No. 3 Chinese lender – also because RBS needed to replenish its capital position. That stake represented 4.3% of the Bank of China’s outstanding shares.

RBS, BofA and UBS AG (UBS) – all early “strategic investors” in China’s biggest banks – have now each trimmed their investments in those banks, thanks to the expiration of restrictive “lockup periods.” UBS said last month that it had sold its entire 1.33% stake in the Bank of China.
More divestitures are expected.

“Undoubtedly, foreign banks will continue to expand their footprints in China,” Zhao Xijun, deputy director of the School of Finance at Renmin University of China, told The Wall Street Journal. “But they will be more focused on developing their own businesses, rather than buying a Chinese lender.”

Cash-strapped Western banks – desperate to raise money in the face of the worst financial crisis since the Great Depression – are paring their stakes in top China banks. That will bring in needed capital today but at the cost of lost future profits tomorrow in an economy that’s the world’s fastest-growing, and a market in which a burgeoning middle class figures to create all sorts of lucrative businesses for players with the ability to stay in the game.
On China’s end, the divestitures are forcing Beijing to reassess its strategy of using foreign know-how to assemble a world-class banking system.

Since 2005, foreign financial institutions such as Bank of America and the RBS have pumped more than $25 billion into Chinese banks as part of a high-dollar game of quid pro quo engineered by the Red Dragon’s regulators: Foreign investors would gain access to China’s banking market, and in return would show China’s banks how to make money in a free-market environment.

As these developments demonstrate, the global financial crisis continues to worsen, meaning the bailout strategies used so far haven’t had the desired benefit. BofA received a $15 billion infusion from the U.S. Treasury Department’s $250 billion “recapitalization” effort. The Edinburgh-based RBS received $29 billion in bailout money of its own after taking $10.2 billion in write-downs in 2008.

As a Money Morning investigation has demonstrated, many U.S. banks used bailout money to go on a global shopping spree, instead of retiring bad debts or boosting lending to businesses and consumers. The payback has been rather quick in some cases.

As the divestments have now demonstrated, the worsening financial crisis is forcing financial institutions to sell promising assets, and to do so at a point when the value of those holdings is probably at or near their nadir.

“For RBS, they don’t really have much choice,” Samuel Chen, a Hong Kong-based analyst at JPMorgan Chase & Co. (JPM), told Bloomberg News. “They would probably rather hold it.”

Indeed, as one analyst said, Western banks are selling out at prices where they should actually be buying.

“Although the selling by foreign strategic investors may put some short-term pressure on prices, bank stocks are undervalued given their long-term growth prospects,” Zhang Xi, a Beijing-based analyst at China Galaxy Securities Co., told Bloomberg News.. “Now is a good time to buy Bank of China and other big lenders.”

Goldman Sachs Group Inc. (GS) still owns 16.5 billion shares in Industrial & Commercial Bank of China, the world’s largest bank by market value, and has agreed not to sell the shares until after April 28, according to published reports. American Express Co. (AXP) and Allianz SE (ADR: AZ) are among the Commercial Bank of China’s other U.S. and European shareholders.

Source: The Global Financial Crisis Will Cost Western Banks a Share of Future China Profits

That concern came into particularly sharp focus last week, when Switzerland’s largest bank, UBS AG, said it expected to write off a staggering US$40 billion in sub-prime losses.

So far, financial regulators have succeeded in preventing a widespread banking panic. The closest we’ve come to that nightmare scenario is in the United Kingdom, where the government nationalized Northern Rock Bank after a run on the bank by depositors last September. Not to mention last month’s mysterious acquisition by JP Morgan-Chase of Bear Stearns.

It remains to be seen whether regulators can continue to sweep multi-billion-dollar portfolio problems under the rug through expanded borrowings, selective capital injections, or further nationalizations. But if you have substantial assets in any bank – either abroad or in your home country – you don’t want to wait for the regulators to act. You should take action now to evaluate how safe your assets really are in your accounts.

The assets in your account at any bank are either on or off the bank’s balance sheet. If your assets are on the bank’s balance sheet, and the bank becomes insolvent, then your assets are at risk. Your funds may or may not be protected by a national deposit insurance scheme. If they’re not, you’re simply another unsecured creditor of the bank.

Assets that are on the bank’s balance sheet include checking accounts, savings accounts, money market accounts the bank operates, “unallocated” holdings of precious metals, and (at some banks) CDs. The basic operating account for a bank (called a current account, giro account, or other names) is also on the balance sheet. At offshore private banks, this operating account is the springboard for all other investments.

When you purchase securities – stocks, bonds, etc. – through your offshore account, the bank establishes a “safe custody” account for these investments. Those assets are off the bank’s balance sheet. Precious metals the bank holds for you in “allocated” storage are also off its balance sheet.

Naturally, investments in safe custody are subject to market risk, but they won’t be affected if the bank becomes insolvent. However, if your offshore bank goes belly up, it will likely be part of a larger economic catastrophe that would decrease the value of any securities portfolio. Also, there may be a period of time where the securities an insolvent bank holds in safe custody can’t be traded.

I’ll be discussing additional ways to protect yourself from catastrophic losses in your bank accounts, both domestic and offshore, in an upcoming issue of The Sovereign Individual, the members-only newsletter for The Sovereign Society.

MARK NESTMANN, Privacy Expert &
President of The Nestmann Group
www.nestmann.com

Financial stocks were among the big winners after Lehman Brothers Holdings Inc. and Switzerland’s UBS AG issued new stock to help bolster their balance sheets. With that upbeat news and a fresh quarter ahead of them, investors appear quite willing to make some bets that the worst of the damage from the nation’s credit struggles has been felt. Moreover, the moves buttressed the view that financial services companies are taking aggressive action to improve their capital bases and stave off the potential of a collapse similar to Bear Stearns Cos. Analysts believe there must be a recovery in bank and brokerage stocks to lead major stock indexes higher. Some of the biggest financial players had their biggest moves of the year Tuesday — Citigroup Inc. shot up 10 percent, JPMorgan Chase & Co. rose 7 percent, and Lehman surged 11 percent.

Read on at Yahoo! Finance.