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1. Ford Posts Biggest Loss in 14 Years
2. HFR: Hedge Fund Assets Swell To $1.34 Trillion
3. Derivatives Market Predicts Worsening Housing Slump
4. Saudi Arabia Informs Asia, U.S. Cos. of Supply Cut
1. Ford Posts Biggest Loss in 14 Years
Ford Motor Co. said Monday its loss widened to $5.8 billion in the third
quarter, weighed down by the costs of its massive restructuring plan aimed at
reshaping the company and cutting expenses so it can compete better against
lower-cost rivals from overseas.
Ford's new Chief Executive, Alan Mulally, called the latest results "clearly
unacceptable." It was the largest quarterly loss for the nation's second biggest
automaker in more than 14 years.
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Ford also said it plans to restate its earnings for 2001 due to accounting
errors involving derivative transactions. The restatement is expected to affect
financial results from 2001 until the third quarter of this year.
The company expected the restatement would improve results for 2002, but said
other periods are under study.
Ford's net loss of $3.08 per share for the July-September period was larger than
last year's third-quarter loss of $284 million, or 15 cents per share.
Revenue fell 10 percent to $36.7 billion from the same period a year ago.
Excluding restructuring costs, the company said it lost $1.2 billion, or 62
cents per share, from continuing operations. Excluding special items in the
third quarter of last year, Ford lost $191 million, or 10 cents per share.
Wall Street had been expecting a loss of 61 cents per share for the quarter,
according to a survey of analysts by Thomson Financial.
Ford shares fell 15 cents to $7.86 in premarket trading.
"We are committed to dealing decisively with the fundamental business reality
that customer demand is shifting to smaller, more efficient vehicles," Mulally
said in a statement. "Our focused priorities are to restructure aggressively to
operate profitably at lower volumes, and to accelerate the development of new,
more efficient vehicles that customers really want.
Dearborn-based Ford's turnaround plan aims to cut $5 billion in costs by the end
of 2008 by slashing 10,000 white-collar workers and offering buyouts to all of
its 75,000 unionized employees.
The loss including restructuring costs was Ford's largest quarterly loss since
the first quarter of 1992, when the company lost $6.7 billion due mainly to
accounting changes.
Excluding charges, Ford would have lost $2 billion on its North American
automotive operations in the latest quarter. It blamed its decline in market
share, intense competition, a drop in U.S. and European sales and a market shift
away from its high-profit trucks and sport utility vehicles.
The company lost $1.2 billion in North America in the third quarter of last
year.
Ford said special charges for the third quarter of 2006 totaled $5.26 billion
before taxes. The charges included $2.2 billion to re-value assets in North
America and $1.6 billion to decrease the value of Jaguar and Land Rover assets.
Ford also took at $861 million charge for jobs bank benefits and employee
separations due to its plans to idle factories in North America, a $259 million
charge for continued global personnel reduction and a $437 million charge for
the cost of employee retirements that occurred earlier than planned.
The company also reported a $99 million gain due to the release of a reserve
from excise taxes in South America due to a recent court ruling.
© 2006 Associated Press.
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2. HFR: Hedge Fund Assets Swell To $1.34 Trillion
Hedge fund assets rose to $1.34 trillion in the third quarter as investors
poured a record $44.5 billion into the industry, says industry watcher Hedge
Fund Research Inc.
The inflow of funds indicates that hedge funds haven't lost their appeal to
wealthy investors despite unremarkable performance and the collapse of $6.5
billion Amaranth Advisors.
Hedge funds averaged a paltry 1 percent return in the third quarter. The S&P
500, on the other hand, gained 5.66 percent in the third quarter. The MSCI World
Index gained 4.05 percent.
"While quarterly performance was again less than spectacular, the flow of new
assets into the industry remained remarkably strong," said HFR president Joshua
Rosenberg, to Dow Jones Newswires. "This may suggest that investors are taking a
longer-term perspective with regards to how they allocate assets to hedge
funds."
HFR says that more than half of the new money was earmarked for relative value
arbitrage, equity hedge, and event-driven strategies.
The best performance came from convertible arbitrage strategies, which were up
2.74 percent in the third quarter and emerging market strategies, which climbed
2.6 percent in the quarter, says HFR.
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3. Derivatives Market Predicts Worsening Housing Slump
Traders of mortgage-backed securities (MBS) and the derivatives on which they
are based predict that the current housing slump is about to get a lot worse,
reports Bloomberg.
The ABX index, which measures the risk of mortgage-backed securities, rose 30
percent since August 9, says Bloomberg. That's its highest level since January.
The ABX index tracks the cost of so-called credit-default swaps, which are
instruments that are used as insurance by traders in the event of a default. An
increase in the cost of a credit-default swap indicates that the risk that
underlying loans in the MBS and their derivatives will default is rising.
The index, which was created by London-based Markit Group Ltd., tracks 20
asset-backed securities with ratings of BBB-, the lowest level of
investment-grade debt. Based on the index, the cost of insuring against a
default rose to $267,000 to protect $10 million of bonds against default for a
five-year term from $205,000 in August.
There are more than $500 billion worth of these credit-default swap notes
outstanding, says Bloomberg.
According to Moody's, the percentage of home loans that are late on their
payments for more than 60 days rose to 7.23 percent in July from 5.9 percent the
year before. That's the fastest rate of increase since 1998, says Moody's.
Freddie Mac, which buys mortgages and packages them into mortgage-backed
securities, expects sales of new and existing homes to drop 9.4 percent in 2006
after five consecutive years of increases, says Bloomberg.
Even asset-backed securities with higher ratings are suffering. Merrill Lynch's
index of debt securities derived from home-equity loans rated AA to BBB fell
0.01 percent, it's worst month this year.
But subprime loans are leading the pack in defaults. The default rate on a
subprime loan rose to 7.35 percent in July from 5.51 percent the year prior,
says investment bank Friedman Billings Ramsey.
Glenn Schultz, head of asset-backed securities at Wachovia, said in a report
that 9 percent of all subprime loans issued in 2006 could default within five
years, says Bloomberg.
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4. Saudi Arabia Informs Asia, U.S. Cos. of Supply Cut
Top oil exporter Saudi Arabia on Monday told core customers in Asia and the
United States it would cut supplies next month, making good on OPEC's pledge to
implement its first formal output cut since 2004.
Asian refiners said they had been notified of supply reductions that could total
around two thirds of Saudi Arabia's production cut under an OPEC deal reached
last week.
"Saudi Arabia has already informed its customers in Asia and North America of
its plan to cut 380,000 bpd from the beginning of November," a senior OPEC
delegate said.
"Other OPEC producers will cut their designated volumes from their actual
production regardless of how it is being estimated."
OPEC last week said it would reduce production by a deeper than expected 1.2
million bpd.
But to sidestep the issue of quotas and market share, OPEC published only a list
of individual cutbacks, while leaving official output quotas unchanged.
Even before the meeting, Saudi Arabia had told majors with global refining
systems it was reducing its contracted supply in November by around five
percent, industry sources told Reuters on Oct. 9.
At that time, Saudi Arabia told Asian refiners it would keep crude supplies in
November steady at 100 percent of full contract volume, trade sources said.
Customers usually find out how much oil they will receive before the middle of
the month preceding their scheduled shipments.
Up to 8 Percent
But over the weekend, Asian refiners received the news they would be receiving
up to 8 percent less, or around 280,000 bpd, oil in November.
"Our company received notification from Saudi Arabia at the weekend," one source
at a Japanese refiner said.
Unipec, the trading arm of top Asian refiner Sinopec, which is Saudi Arabia's
largest independent customer in Asia, will see a 7-8 percent cut to its
supplies, a trade source said. Unipec lifts about 90 percent of China's 500,000
bpd of Saudi imports.
Sources with two South Korean refiners that buy Saudi crude also confirmed cuts
of 5-7 percent.
Taiwan's Chinese Petroleum Corp (CPC) received a cut of about 7 percent, while
India's Bharat Petroleum Corp. Ltd. (BPCL) got a similar reduction.
One refiner in Europe was also receiving a token cut, a source said, but two
others said they had not been notified of any change.
"It's a notional cut, but the message is clear," the source said of the token
reduction. "They want to signal they're following the OPEC agreement."
A company with a global refining system said on Monday Saudi Arabia had not
notified it of any cutback in addition to that signaled early this month.
There was no word yet on cuts from other OPEC members such as Kuwait, United
Arab Emirates and Iran, which are also to curb exports, but not as deeply as
Saudi Arabia, which shoulders the largest share of OPEC production.
Oil traders have voiced skepticism OPEC would enforce its output agreement and
prices remained below $60 a barrel for U.S. crude on Monday, near to this year's
low of $56.55 touched on Friday.
But many analysts have said OPEC means business and OPEC has said it will cut
production further if necessary when it next meets in December.
© 2006 Reuters.
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