Stocks close higher on US rebound, banks up

The Australian share market closed firmly in positive territory driven by a strong lead from Wall Street on Friday.

The benchmark S&P/ASX200 index was up 61.7 points, or 1.11 per cent, at 5,621.6 points while the broader All Ordinaries index rose 55.3 points, or 0.98 per cent, to 5,699.8

On the Sydney Futures Exchange at 4.19pm, the March share price index futures contract was 81 points higher at 5601 points on volume of 24,087 contracts.

CommSec chief equities economist Craig James said financial stocks were stronger today, buoyed by speculation that US banks were putting together a rescue plan to bail out bond insurer Ambac Financial, a deal that could prevent further damage to the banking industry and credit markets.

Mr James said it had been a strong day for local banks.

"Also, Citigroup has come out with upgrades for a number of the banks, in particular Commonwealth Bank and Westpac, which are benefiting from that news,'' he said.

"A number of institutions now believe that the banking sector has become cheap.''

The major four banks were stronger. Commonwealth gained $2.08, or 4.88 per cent, to $44.67, ANZ Banking Group firmed 24 cents, or 1.07 per cent, to $22.60, National Australia Bank put on 53 cents, or 1.85 per cent, to $29.12 and Westpac rose $1.05, or 4.67 per cent, to $23.52.

Mr James said solid performers today included Suncorp-Metway, up 35 cents, to $15.28 and AMP, up 20 cent to $7.75.

Profit reports released today by Transfield, BlueScope Steel and Zinifex Ltd were above market expectations, sending those shares higher.

Of those, Transfield was the best performer, adding $2.30, or 24.21 per cent, to $11.80 after nearly doubling its first half profit to $41.22 million.

In the US on Friday, the Dow Jones industrial average rose 96.72 points to 12,381.02, the Standard & Poor's 500 Index gained 10.58 points to 1,353.11 and the Nasdaq Composite Index added 3.57 points to close at 2,303.35.

Mr James said retail stocks were higher today as the market realised that consumers continued to spend despite high interest rates, thanks to strong employment levels.

Coles owner Wesfarmers closed up $1.23 to $39.14, Woolworths was up $1.20 to $29.01.

Gold and base metal prices were slightly softer and this had not provided a convincing lead for the miners, Mr James said.

BHP Billiton was down 68 cents to $39.05 and Rio Tinto finished 17 cheaper at $135.43.

Making headlines today, Allco Finance Group revealed its first half profit was down 10 per cent to $83.94 million, sending its shares down 63.61 per cent, or $1.94, to $1.11.

Ramsay Health Care says it is on track to produce low double-digit growth for 2008 after announcing a 7 per cent drop in net profit in the half year, to $50.934 million from $54.754 million in the prior corresponding period.

Its shares finished 22 cents higher at $10.62.

The spot price of gold in Sydney was $US947.00 per fine ounce at 4.30pm, down $US1.30 on Friday's close of $US948.30 per fine ounce.

The gold miners were mixed. Lihir Gold was steady at $3.88, Newcrest was 38 cents stronger to $36.30 and Newmont lost five cents to $5.40.

Energy stocks were also mixed. Oil Search rose eight cents to $4.53, Woodside Petroleum was 78 cents firmer at $55.78 and Santos fell 39 cents to $12.21.

Among the media stocks, Fairfax was down two cents at $4.07, News Corp gained seven cents to $21.45, its non-voting scrip dipped seven cents to $20.54, and Consolidated Media shed three cents to $4.40.

The most heavily traded stock was satellite communication services firm Newsat, which had a total of 113.51 million shares changing hands, collectively worth $548,154.

Its shares close 0.1 of a cent lower at 0.4 cents.

Preliminary market turnover was 1.42 billion shares changed hands worth $5.61 billion, with 571 shares up, 606 down and 357 unchanged.

Nasdaq to offer $425m in convertible bonds

Nasdaq is going to offer its first convertible bond to fund recent acquisitions less than two years after selling equity to raise money for an indicative bid for the London Stock Exchange that ultimately failed.

The Nasdaq Stock Market is planning to offer $425m (€290m) in five-year convertible bonds subject to market conditions.

In a statement, Nasdaq said it intends to use the proceeds to fund its combination with OMX, the Nordic exchange operator, for investment in the Dubai International Financial Exchange and proposed acquisitions of The Philadelphia Stock Exchange and the Boston Stock Exchange.

JP Morgan is advising Nasdaq on its OMX acquisition alongside SEB, the Nordic investment bank, so the US bank is in a strong position to be the bookrunner of the convertible offering. JP Morgan and Nasdaq officials were unavailable for comment.

This past May, JP Morgan and Bank of America were bookrunners of a $2.2bn leveraged loan that Nasdaq was also going to use to finance its acquisition of OMX.

Nasdaq and Borse Dubai struck a complex deal in September whereby the Dubai group would proceed with its takeover offer for OMX on the understanding that it would sell the exchange to Nasdaq.

Last week Borse Dubai, the Middle Eastern holding company, bought Nordic exchange operator OMX on behalf of Nasdaq.

The US exchange confirmed that the transaction, which involves Borse Dubai flipping OMX to Nasdaq in return for cash and stock, will be complete by February 27 paving the way for the formation of Nasdaq OMX.

Nasdaq had struck a deal with OMX in May last year but that came under threat when Borse Dubai snapped up a 27.4% stake in the Nordic group through a series of share and option transactions.

The deal will represent Nasdaq’s first large acquisition in Europe, having failed twice to acquire the London Stock Exchange, in 2006 and last year.

In April 2006, Nasdaq sold $691m in equity, in a deal led by Bank of America and Credit Suisse, to fund its attempted LSE acquisition.

Société Genérale report backs up single-trader theory

A Société Genérale special committee preliminary report appeared to uphold the initial findings of the bank that trader Jérôme Kerviel acted alone in allegedly perpetrating a €4.9bn ($7.2bn) fraud and that a lack of “certain controls” paved the way for the deception.

The report was published ahead of this morning's final full-year results statement from SG, which confirmed a combination of the fraud and the US financial crisis pushed its corporate and investment banking unit to a €2.2bn net loss last year from a €2.3bn profit the previous year.

Net revenues at the bank's fixed income, currencies and commodities business plunged from €2.3bn in 2006 to a €885m loss last year in the face of €2.6bn of US mortgage-related writedowns and losses, SG said. Stripping out the effects of the fraud, operating profits at the corporate and investment bank would have made a profit but 64% down on last year.

Société Genérale derivatives trader Kerviel is being investigated by the French and US regulators for allegedly fraudulent trades that have cost the bank billions and created an international scandal.

The committee yesterday released an analysis of how the trades were carried out, revealing that the trader departed from his normal arbitrage positions and established buy and sell positions in regulated markets. He concealed his true positions by setting up false transactions. Some of the methods he allegedly used included purchases or sales of securities as well as warrants with a deferred start date and futures transactions with a counterparty, according to a Société Genérale statement.

According to the committee findings, Kerviel allegedly took positions in small amounts in 2005 and 2006 and began taking positions in larger amounts from March 2007 onward.

The committee added that the bank's general inspection department refrained from placing any responsibility on front office managers supervising the trader due to ongoing legal investigations that have prevented the committee from interviewing all the relevant people.

The committee statement said: “At this stage... there is no evidence of embezzlement or internal or external complicity. The investigations are continuing… to cover a wider area than the activities of the author of the fraud.”

Last month judges investigating the case against Kerviel threw out the most serious charge put forward by prosecutors of attempted fraud and released Kerviel under judicial supervision after two days of police questioning. The prosecutor's office said it would appeal the decision.

Kerviel has been placed under formal investigation for lesser allegations concerning breach of trust, computer abuse and falsification, according to his lawyer.

As for the lax controls, the bank's committee concluded that the operating staff failed to carry out systematic, detailed checks of the bad trades, which led to a record €4.9bn loss for the bank. It said if the checks had been executed, the bank might have caught the fraud sooner. The committee also concluded that the “efficiency and variety of the concealment techniques used” prevented the trader from being detected earlier.

The committee will provide another update on May 27 at SG's annual general shareholders meeting.

Credit Suisse quarterly profits plummet 72%

Swiss giant Credit Suisse has announced a 72% fall in quarterly profits. Net profit in the fourth quarter of 2007 was SFr1.33 billion (£619 million), slightly worse than the analysts had predicted.

However, the bank said losses on sub-prime investments were SFr2 billion last year - less than it anticipated. The banking giant has been relatively unhurt by the sub-prime mortgage crisis.

In addition, the bank said its money management unit was performing well, attracting an additional SFr12 billion in new funds during the fourth quarter of 2007.

However, in spite of a weak trading environment, investment banking remained profitable in the 3 months to December with pre-tax earnings of SFr328 million, down 86% year-on-year. Earnings before tax for the full year fell 19% to SFr4.83 billion.

The biggest impact of market turbulence came in the group’s small asset management division which, in the fourth quarter as in the third, suffered impairments on funds bought back from clients. Asset management reported a pre-tax loss of SFr247 million on the back of value reductions of SFr774 million in the period.

Brady Dougan, chief executive, commended the bank’s strong foundation for 2008, its good business and geographical mix and its strong risk management capabilities. He added these strengths make me confident in our ability to deliver a superior performance over market cycles.

At the end of last month, the bank announced it was to shed some 500 jobs within its bond trading unit as a result of a slowdown in earnings in the sector from the sub-prime mortgage crisis.

Over the last few months, at least 25,000 jobs have been trimmed in financial institutions globally as a result.

HSBC puts French retail branches up for sale

HSBC is putting hundreds of its French regional retail branches up for sale.

Britain’s biggest bank is trying to find buyers for around half of its 800-strong French bank network, estimated to be worth around £2 billion.

It is believed that Goldman Sachs has been appointed to review options for the French network, acquired when it purchased Credit Commercial de France for £6 billion in April 2000 and renamed it HSBC France.

The move is a further indication that the bank is shifting its focus to emerging markets. Its November strategy review confirmed that its priority is to invest primarily in developing markets.

A sale of a large portion of its French retail banking network would stop speculation that the bank may bid for France’s Société Générale, which has been weakened by losses of €4.9 billion (£3.65 billion) as a result of a rogue trader scandal.

Analysts are forecasting 2007 pre-tax profits of approximately £12.3 billion - up from £11.34 billion in 2006. This time last year it shocked the market with the first profits warning in its 142-year history, blaming increasing problems with US mortgages. This problem escalated into the sub-prime mortgage collapse in the US which has now been a problem for many financial institutions worldwide.

Gas prices jump to highest level since June

Some analysts believe pump prices will hit a record in the spring, even as crude prices fall below $98 a barrel on large supply reports.

Gas prices jumped Friday to their highest level since June, a possible preview of what many analysts believe will be a record spike in pump prices this spring.

But the current price surge could be short-lived. While gas prices have risen sharply in recent days in response to oil's dramatic climb to a new record above $101 a barrel, gasoline supplies have quietly grown to their highest level in 14 years.

"We've got a major supply cushion," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

Oil and gasoline futures, indeed, fell Friday on a view that supplies are growing while demand is weakening. A drop last week in heating oil supplies has so far failed to prop up oil prices, analysts said.

At the pump, gas prices rose 2.9 cents overnight to a national average of $3.115 a gallon, according to AAA and the Oil Price Information Service. But on the New York Mercantile Exchange, March gasoline futures fell 4.27 cents to $2.4793 a gallon. Light, sweet crude for April delivery fell 49 cents to $97.74 a barrel.

Many analysts believe gas prices will rise this spring to new records near $3.75 or $4 a gallon. But not everyone agrees. Ritterbusch thinks the large level of supplies, and an eventual decline in oil prices, will pull pump prices down. He doubts prices will rise as high as $3.75 without a major overseas supply disruption or domestic refinery outage.

Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., argues that while gasoline prices won't rise as much this spring as they have in previous years, they are starting from a much higher level. Indeed, prices at the moment are 83 cents higher than a year ago. That means retail prices will peak between $3.50 and $3.75 a gallon, Kloza said, well above May's record of $3.227 a gallon.

The Energy Department's latest forecast calls for gas prices to peak near $3.40 a gallon this spring.

Of course, gasoline prices also respond to oil prices. Oil has traded in a band between about $86 and $100 a barrel for months, a trend many analysts expect to continue throughout the year. That will likely keep gas prices oscillating in their own narrow band around $3 a gallon for most of the year.

Energy traders on Friday shrugged off word that Turkish troops pursued separatist Kurdish rebels into northern Iraq. Concerns that the Kurds would retaliate against Turkish attacks last fall by sabotaging oil shipments out of Iraq had much to do with oil's rise to $100, analysts say.

Other energy futures also fell Friday. March heating oil futures fell 0.66 cents to $2.7315 a gallon on the Nymex and March natural gas futures lost 5.1 cents to $8.84 per 1,000 cubic feet.

In London, April Brent crude futures fell 19 cents to $96.05 a barrel on the ICE Futures exchange.

British bankers sentenced in Enron case

Three British bankers each get 37 months in jail for Enron-related wire fraud.

Three British bankers who pleaded guilty for their roles in a fraudulent scheme with former Enron Chief Financial Officer Andrew Fastow were each sentenced Friday to just over three years in prison.A federal judge sentenced David Bermingham, Giles Darby and Gary Mulgrew each to 37 months.
In November, the three men each pleaded guilty to one count of wire fraud as part of a plea agreement after initially saying they did not collude with Fastow in a secret financial scam in 2000 to enrich themselves at their employer's expense.
Their sentences matched the recommendation of federal prosecutors. All three also have agreed to pay their former employer more than $13 million.
Their attorneys have said they will work with prosecutors to see if the bankers can serve part of their sentences in Britain.
The three former executives at Greenwich NatWest, a unit of Royal Bank of Scotland Group PLC, became a cause celebre in Britain throughout extradition proceedings that lasted two years. They were dubbed the "NatWest Three."

In the United States, their case is a loose end from Enron's collapse.

Greenwich NatWest had invested in a subsidiary of an Enron partnership controlled by Fastow, the architect of a myriad of fraudulent Enron schemes that helped fuel its spiral into bankruptcy proceedings.
In early 2000, the bank had valued its interest in the subsidiary at zero, but the three British men knew it actually had significant value.
A company under the control of Michael Kopper, Fastow's former top aide, purchased the bank's interest in the subsidiary for $1 million.
The bankers, who came to Houston, paid Kopper $250,000 for an interest in this company. Fastow falsely represented to Enron that the energy company would pay $20 million to Greenwich NatWest for its shares of the subsidiary.
But the $20 million actually went to the British bankers, Fastow and others. The bankers got $7.3 million while Fastow, Kopper and others skimmed about $12.3 million, according to the plea deal.
For their roles in Enron's collapse, Fastow is serving a six-year sentence while Kopper was given a three-year, one-month sentence.
Enron, once the nation's seventh-largest company, crumbled into bankruptcy in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable. The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

Enron founder Kenneth Lay and former chief executive Jeffrey Skilling were convicted in 2006 for their roles in the company's collapse. Skilling is serving a sentence of more than 24 years. Lay's convictions for conspiracy, fraud and other charges were wiped out after he died of heart disease in 2006

Class action suit against Microsoft gets greenlight

Suit says labeling of some PCs as "Windows Vista Capable" was misleading because many could not run all of Vista's features.

A federal judge said Friday that consumers may go ahead with a class action lawsuit against Microsoft Corp. over the way it advertised computers loaded with Windows XP as capable of running the Vista operating system.

The lawsuit said Microsoft's labeling of some PCs as "Windows Vista Capable" was misleading because many of those computers were not powerful enough to run all of Vista's features, including the much-touted "Aero" user interface.

U.S. District Judge Marsha Pechman certified the class action suit but whittled down its scope to focus primarily on whether Microsoft's "Vista Capable" labels created artificial demand for computers during the 2006 holiday shopping season, and inflated prices for computers that couldn't be upgraded to the full-featured version of Vista, which was released at the end of January 2007.

Neither of the two people who filed the original lawsuit participated in a program Microsoft (MSFT,Fortune 500) devised to help people who bought new computers before Vista's launch upgrade later to the new operating system, but they argued nonetheless that people who bought "Vista Capable" computers were harmed because they could only run a basic version of Vista.

The judge said if they added a named plaintiff who did take part in Microsoft's "Express Upgrade" program, they could pursue that claim as well.

Microsoft said it was reviewing the ruling.

Northern Rock board submits revised buyout offer: officials

The board of Northern Rock has submitted a revised offer to buy out the troubled British bank, upping the amount of money it is prepared to pump in, it said Friday. The company said in a statement that the changes do not significantly alter the underlying business plan it submitted on February 4, which would see the ex-boss of insurer Resolution, Paul Thompson, head the restructured bank.

But instead of at least 500 million pounds (668 million euros, 980 million dollars) in new equity pumped in, that would be increased by not less than 200 million pounds, it added.

There would also be "an improvement in the economic returns to HM Treasury and the government for providing ongoing financial support to the company," it said. "The board continues to believe that the revised restructuring proposal, once implemented in full, will result in an independent, well-capitalised, low cost and low risk mortgage and savings bank," the company said. "The board also believes that the revised restructuring proposal is capable of meeting all the objectives publicly announced by the Tripartite Authorities (Bank of England, Financial Services Authority watchdog and HM Treasury)." Northern Rock's board is vying with Richard Branson's Virgin Group to take control of the bank, which nearly went under in September last year in the fall-out from the US subprime mortgage sector crisis. Its application for emergency central bank loans to stay afloat prompted panic at its branches as savers queued to withdraw their cash, with a resulting knock-on effect on confidence in the banking sector. Branson plans to relaunch Northern Rock under the name Virgin Bank and provide a 1.25-billion-pound injection of fresh capital, including 500 million pounds generated through a rights issue priced at 25 pence per share.