Analysts say that the housing market has not recovered yet and that it will be next year before any improvement is seen.
The outlook for the home market dimmed this week as residential construction and mortgage applications fell and loan delinquencies reached a record.
"I don't think the housing crisis is over," Mark Zandi, chief economist with Moody's Economy.com, said in a telephone interview. "I think we’re going to see another leg down."
New home sales may begin to pick up by the start of the so-called spring selling season, said Toll Brothers Inc., the largest U.S. luxury homebuilder. Existing house sales may take longer. Residential construction and property sales led the way out of the previous seven recessions going back to 1960, said David Berson, chief economist of PMI Group, the mortgage insurer in Walnut Creek, California.
Mortgage applications for home purchases fell to a 12-year low last week and foreclosures rose to record highs in the third quarter, according to reports from the Mortgage Bankers Association.
An index measuring November homebuilder confidence came in lower than the median forecast of 45 economists this week. The Commerce Department on Nov. 18 said residential building dropped 11 percent in October to the lowest level since April’s all-time bottom.
Unemployment is at a 26 year high, which is driving more homeowners into foreclosure and keeping new mortgage applications low. The U.S. has lost
7.3 million jobs since December 2007. That is a record number not seen since the Great Depression.
Pinnacle Foods is buying Birds Eye Foods, Inc., the U.S.' biggest frozen vegetable company. The purchase price is $1.3 billion. Pinnacle also owns Duncan Hines and Swanson.
The transaction should close by the first quarter of next year, Pinnacle said today in a statement. The deal will be funded with new debt financing at the company and an equity contribution from New York-based Blackstone, the world's biggest private-equity company.
The Birds Eye purchase is the seventh-largest U.S. private equity deal of 2009 and Blackstone's second-biggest of the year, after its planned acquisition of Anheuser-Busch InBev NV's theme-park business for as much as $2.7 billion, according to data compiled by Bloomberg. Rochester, New York-based Birds Eye has annual sales of more than $930 million and says it holds a 27 percent share of the U.S. market for frozen vegetables.
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Buyouts are coming back from a two-year drought. Through yesterday, the Standard & Poor's 500 Index rallied 64 percent from its March 9 low, and loan prices as measured by the S&P/LSTA U.S. Leveraged Loan 100 Index gained a record 46 percent this year.
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Debt financing for the purchase will consist of senior secured credit facilities and senior unsecured bonds, according to today's statement. Barclays Capital, Credit Suisse Group AG, Bank of America Merrill Lynch, HSBC Holdings Plc and Macquarie Capital will arrange the financing.
Pinnacle has been on a buying spree, under the direction of venture capitalist Blackstone Group. Now it has top brand names for cake mixes, frozen foods and frozen vegetables. Many venture capitalists see this as the perfect time to go around buying up top name brands at a good price.
Playboy Enterprises, Inc. is reportedly in talks to be sold to Iconix Brand Group, Inc., which also owns Candie's, Danskin, Mossimo's and London Fog clothing.
Hugh Hefner still owns 70% of the voting stock, so the final decision about what to do with the company rests with him. So what does a fashion brand like Iconix want with Playboy? It wants the name to license out new lines. Bloomberg reports:
Iconix Chairman and Chief Executive Officer Neil Cole is looking for acquisitions to add more brands that the New York- based company can license to retailers and manufacturers.
"Neil Cole has done a phenomenal job of taking some of these lost brands and developing them into something," said Gilbert Harrison, chairman and CEO of Financo Inc., a New York- based adviser and investment bank specializing in retail. "Certainly Playboy would fit that mold."
Playboy's management has been looking for a buyer since Scott Flanders was appointed as CEO in June, one person close to the situation said. Flanders, the former CEO of Freedom Communications Inc., replaced Christie Hefner, who had run Playboy since 1988 and is the daughter of Hugh Hefner.
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In addition to its magazine, Playboy licenses products bearing its bunny logo, and creates videos for its Web site and cable-television networks. Licensing revenue in the first nine months of the year declined 14 percent to $28.1 million.
Playboy magazine garnered a following for its fiction, including selections by Margaret Atwood and Vladimir Nabokov, and American football coverage, as well as its photos of nude women. The company ran a chain of branded clubs, staffed by women dressed in bunny outfits, as well as a premium cable channel and branded videos and DVDs.
Playboy's circulation is down 9.2% to 2.45 million. Consumer magazine subscriptions in general is down 1.2%. Ad revenues at Playboy have fallen 33% this year and revenues are down. Playboy has been doing quite a bit of cost-cutting and a sale is seen as a way to rejuvenate the brand.
Drug makers are rushing to raise prices on brand name drugs before a healthcare reform bill is passed.
In the last year, the industry has raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That will add more than $10 billion to the nation's drug bill, which is on track to exceed $300 billion this year. By at least one analysis, it is the highest annual rate of inflation for drug prices since 1992.
The drug trend is distinctly at odds with the direction of the Consumer Price Index, which has fallen by 1.3 percent in the last year.
"When we have major legislation anticipated, we see a run-up in price increases," says Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota. He has analyzed drug pricing for AARP, the advocacy group for seniors that supports the House health care legislation that the drug industry opposes.
A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.
Drug makers claim that they have valid reasons to raise prices and that it has nothing to do with the proposed healthcare reform bill. They say that many of their biggest patents for brand name drugs will expire in a few years and that they must increase prices to maintain profitability. This is pretty much the same thing the credit card industry is doing; right now credit card companies are raising rates and fees before the credit card reform bill takes effect.
The Wall Street Journalreports that the Federal Reserve Board has announced proposed rules to limit gift card fees and expiration dates.
Gift card retailers and issuers are prohibited from charging fees to customers who have used their cards in the previous year.
Gift card issuers can only charge one inactivity, dormancy or service fee per month.
Expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.
The proposed new rules are not in effect for this holiday season. They don't go into effect until next August. They are the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009.
Retailers make cards much less attractive if they implement penalties, expiration dates and inactivity fees. If retailers want consumers to buy their gift cards the less restrictions on the card the better.
There more banks failed on Friday bringing the total number of banks closed by federal regulators in 2009 to 123. Here is a list of the recent bank failures.
Still determined to take over British chocolate maker Cadbury, Kraft Foods has offering a premium to lenders for financing the deal. Kraft is offering lenders 2-3 percentage points more than the benchmark rates on a loan of $9.2 billion to complete the purchase. Bankers leaked the information to Bloomberg.
On Nov. 9 the maker of Oreos and Ritz crackers bid 300 pence in cash and 0.2589 of new Kraft shares for each share of Cadbury. The interest on the loan being provided by nine lenders will be pegged to the London interbank offered rate, said the bankers, who declined to be identified because the negotiations are private.
Richard Jacques, a London-based external spokesman for Northfield, Illinois-based Kraft declined to comment.
The range of potential interest margins includes possible increases should the borrower be downgraded, the bankers said. Kraft is rated A- by Standard & Poor's, the fourth-lowest investment grade, while Moody's Investors Service ranks it two levels lower at Baa2.
Kraft's bid for Cadbury is considered hostile and the Cadbury board of directors has asked its shareholders to reject the bid.
Hilton Worldwide is
expanding in the Middle East. The hotel chain is planning on opening more hotels in Mecca to take advantage of all the religious tourists needing a place to stay. Mecca is the birthplace of Islam and many Muslims make religious pilgrimages there. But accommodations in Saudi Arabia are insufficient for the traffic, according to Hilton.
"We don't have enough of a supply of hotel rooms," Shuja Zaidi, Hilton's vice president of projects in Saudi Arabia, said in an interview in Riyadh yesterday. "There is a tremendous amount of money going into Mecca."
Hoteliers and property developers are tapping new business opportunities in the Islamic holy cities of Mecca and Medina as the Saudi government seeks to accommodate more pilgrims. Saudi Arabia is building a $5.3 billion rail line that can transport 3 million people between the two cities and is expanding Jeddah international airport to handle 30 million passengers by 2012.
Over the next 10 years, developers and hotel companies will invest as much as 150 billion riyals ($40 billion) in Mecca, Zaidi said. Kingdom Holding Co., the investment company controlled by billionaire Prince Alwaleed, will open a five-star hotel with 1,000 rooms, restaurants and retail space.
Jabal Omar Development Co., a real-estate developer in Mecca, is building 27 hotels with a combined 15,000 rooms, with the first to open in 2011. There will be multiple Hilton properties there, Zaidi said.
"Every major hotel brand in the world will be present in Jabal Omar,” Zaidi said. "Hilton is a small portion of that."
As Paris Hilton might say, religious tourism is huge. Hilton Worldwide was purchased by the Blackstone Group in 2007.
As expected, lender CIT Group filed
for Chapter 11 bankruptcy today. It is the fifth largest bankruptcy proceeding in U.S. history, behind Lehman Brothers Holdings Inc., Washington Mutual Inc., Worldcom Inc. and General Motors Corp. CIT listed $71 billion in assets. CIT has a Utah bank which is not part of the filing: it has $10 billion in assets.
CIT is going into Chapter 11 with a prepackaged plan that the bondholders, including billionaire Carl Icahn, have already signed off on.
If the bankruptcy goes as planned, CIT will emerge from bankruptcy and go back into the lending business. Common shareholders and the U.S. government will lose big.
One loser from a bankruptcy would be the U.S. Treasury. Late last year it injected $2.3 billion of funds from the Troubled Asset Relief Program to help stabilize the lender, which was weighed down by billions of dollars of bad student loans and subprime mortgages. The government investment is likely to be wiped out, said people familiar with the matter. Common shares would likely drop to zero, too, these people said.
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Under the bankruptcy plan, senior bondholders would trade their current debt for new debt maturing later worth about 70 cents on the dollar. They would get 92.5% of the equity in a restructured CIT. Junior bondholders would get the remaining equity in a reorganized CIT, but no new debt.
Analysts have mixed opinions on whether the strategy is going to work. Some say that even if CIT emerges from bankruptcy it will only be able to make 20% of the loans it used to make to keep small businesses -- and many retailers -- afloat. Others disagree, saying that the capital markets are recovering and with certain needed FDIC approvals regarding the Utah bank that CIT will be back in business as before.
Embattled lender CIT Group has finally made peace
with billionaire Carl Icahn, who is the company's biggest bondholder. Icahn had been opposing CIT Group's latest plan to reorganize with a bondholder debt swap. But after furious negotiations, all parties have tentatively agreed on a solution. CIT Group is so deep in debt that the fix had to be a big one.
CIT will file for chapter 11 bankruptcy this weekend and present the court with a prepackaged plan of reorganization that all creditors have supposedly agreed to. The court will approve it and then CIT emerges from bankruptcy. That's the plan, anyway.
CIT has agreed to accept $1 billion in backup financing from Mr. Icahn, which it would tap if it needs more than $4.5 billion it recently received from other bondholders, these people said. CIT stock was halted on the news.
As part of further discussions with CIT, Mr. Icahn has agreed to back down while the company restructures in bankruptcy court. CIT launched a debt-exchange offer about a month ago while also asking bondholders to vote on a prepackaged bankruptcy plan.
The results of CIT's debt-exchange offer have not yet been finalized, but people close the company said it had likely failed. Meanwhile, the company had cleared significant hurdles that would give it more support than it needs for its prepackaged bankruptcy plan, a person familiar with the matter said.
The company plans to file for bankruptcy in New York as soon as Sunday night or early Monday, said people familiar with the matter. CIT is poised to enter bankruptcy with enough creditor support to approve its reorganization plan and shorten its stay in Chapter 11, these people said.
CIT and Mr. Icahn declined to comment.
The deal comes as Mr. Icahn has so far failed to persuade bondholders to block CIT's restructuring plan, these people said. The billionaire investor tried to derail CIT's restructuring plan by offering bondholders 60 cents on the dollar to vote down the lender's debt-exchange offer and prepackaged bankruptcy plan.
So why is everyone so determined that CIT Group not fail? Well, other than the fact that the investors don't want to lose their money, there is the fact that if CIT Group fails, it will cause a chain reaction in the U.S. economy as potentially thousands of businesses which rely on CIT Group for short term financing could also fail if they can't find other sources of credit to finance inventories. That would be very bad indeed.
Cadbury stock prices have been dropping since U.S.-based Kraft said it wants to buy the company. At the time, analysts thought that Hershey and Nestle would also bid, but that never happened. Kraft made a low offer in August which was rejected. Now Kraft has until November 9 to come up with a formal offer, but it's appearing more likely that the offer won't be that great, because no one else is bidding. So people are dumping the shares in the meantime.
Cadbury dropped for a sixth straight day to 772.5 pence at 9 a.m. in London trading today. The difference between Kraft's offer, valuing the maker of Trident gum at about 726 pence a share, and Cadbury's stock price has narrowed by 44 percent from a Sept. 15 peak in the spread. Investors are less confident about a competing bid from companies such as Nestle SA or Hershey Co.
"We haven't heard anything from the other rumored protagonists," said William Hobbs, who helps manage 134 billion pounds ($220 billion) in assets, including Cadbury shares, at Barclays Wealth in London. "It would be very surprising if Kraft went for a knock-out bid when they come back if they’re not feeling any pressure from Nestle or Hershey."
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Kraft, based in Northfield, Illinois, has less than two weeks to come back with a formal offer for Cadbury after proposing a cash-and-stock takeover on Aug. 28, valued at 9.92 billion pounds based on yesterday's closing stock prices. A purchase would add Cadbury's Dairy Milk chocolate to Kraft products including Oreo cookies and Philadelphia cream cheese.
Cadbury is most likely going to be sold to somebody eventually. If Kraft decides to walk away, the chocolate company could stay independent for awhile longer.
Jeffry Picower, a Florida philanthropist and friend of Bernard Madoff, has died. He was found dead in his pool on Sunday. Reuters reports that Jeffrey Picower is alleged to have benefited from the Madoff ponzi scheme. He is being sued for $7.2 billion by the trustee handling the Madoff fraud cause.
The trustee handling the Madoff fraud case, Irving Picard, said in court documents filed in U.S. Bankruptcy Court in New York late last month that Picower, newly listed as one of the 400 wealthiest Americans by Forbes magazine, was complicit in the fraud.
Part of Picard's filing said: "Based upon the trustee's investigation to date, Picower was the biggest beneficiary of Madoff's scheme, having withdrawn either directly or through the entities he controlled more than $7.2 billion of other investors' money."
Picower was being sued for the $7.2 billion, $2 billion more than the trustee in the case demanded in May.
He was listed 371st and worth $1 billion on the latest published Forbes list.
Palm Beach police say they are doing a standard investigation of the drowning. Take a look:
The parliament of Kuwait is pondering a unique response to the recession: it is considering a bailout of all its consumer debt. The $21 billion proposal would work like this. The government would buy all consumer loans from the banks: car loans, credit card loans, mortgages, the works. The interest will be written off and everyone will be given a repayment schedule to pay of the principal. The banks are paid. People won't go bankrupt over outrageous interest charges. And the government presumably will be paid back the principal amount. The plan only applies to Kuwaiti citizens, not to residents. Government officials don't like the plan, and Parliament has been shut down several times because of the issue.
Lawmakers in Kuwait, which is richer per capita than Germany, are demanding a government bailout of all consumer loans, reviving a power struggle that's already shut down the assembly twice in 18 months.
At least half of the 50 elected lawmakers say they'll back a plan for the government to buy all 6 billion dinars ($21 billion) of bank loans taken by Kuwaiti citizens to buy homes, cars, holidays and other purchases, write off interest payments and reschedule the rest. The government opposes the bailout. Parliament convenes on Oct. 27 after a four-month break.
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The row has dominated the local media during parliament's recess, signaling a fresh dispute between Kuwait's government, appointed by the emir, and elected lawmakers who are seeking broader powers and have blocked key investment programs in the past. Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah last dissolved parliament in March saying relations with the legislature were "ruined."
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Repayment problems escalated in 2006 as the central bank raised interest rates as high as 6.25 percent to curb inflation. Legislators have criticized the government and central bank for failing to regulate lending properly.
"I will not hesitate to use any constitutional tool to pass a bill for purchasing and rescheduling citizens' consumer loans," lawmaker Daifallah Bu Ramiah said in a phone interview.
Bu Ramiah said at least 100,000 Kuwaiti borrowers face legal charges after falling behind on debt repayments. The government says that's exaggerated. A total of 278,000 Kuwaitis held consumer loans at the end of last year, according to Kuwait-based Al-Shall Economic Consultants. There's no official data on defaults.
It's an unusual idea -- and one that is being watched closely by other nations. Currently, only about 1/3 of the people living in Kuwait are actually citizens. In many parts of the Middle East, defaulting on a debt can lead to serious legal consequences. In Dubai, a defaulting debtor can end up in prison.
Pinnacle Foods is 
