Cosmetic Surgery Decline Bodes Ill For Economy - WSJ
A slowdown in cosmetic surgery appears to be the latest indicator of a slowing economy, the WSJ reported Saturday. Doctors attending a meeting of the American Society of Plastic Surgeons in Baltimore said consumers are hesitating before committing to elective procedures. "This whole mortgage credit crisis is making people think twice," said Pittsburgh plastic surgeon J. Peter Rubin. At the quarter-ending conference call of breast-implant manufacturer Mentor Corp. (MNT), CEO Joshua Levine said plastic surgeons are seeing a falling off in cosmetic surgery consultations. "If we're going to have a real problem in the broader economy, we won't escape that," he said. Aesthetic laser manufacturer Cutera Inc. (CUTR) announced it will cease providing financial guidance to investors because "a number of factors, including recent signs of a slowing market growth rate, have made it more difficult to accurately predict our future financial performance." Consumer spending represents 70% of the U.S. economy, and the combination of dropping home prices, rising energy prices, and the credit crunch are reducing spending enough to ring alarm bells about recession. Discretionary spending, which includes airline tickets as well as brow lifts, is particularly susceptible to economic swings. On Friday, the Reuters/University of Michigan's consumer sentiment index posted a decline in early December to a fifteen-year low (except for the month following Hurricane Katrina; full story). Still, economist Dean Croushore does not believe declining consumer confidence necessarily portends declines in spending. "Pay attention to what people do, not what people say," he said. "As long as people's incomes are doing fine and they have money to spend, they'll spend it."
Vodafone Essar Outsources IT to IBM India
Vodafone Essar, the Indian unit of U.K.-based Vodafone (VOD), said Monday it has agreed to an IT outsourcing deal with IBM (IBM) in India. The five-year deal sees Vodafone Essar outsourcing its entire IT portfolio to IBM India, a move it says will boost efficiency.
Reuters, NY Times Partner to Produce IHT's Business Section
Reuters (RTRSY) and the International Herald Tribune, a property of media giant The New York Times (NYT), said Monday they would launch a co-branded daily print and online business report. From January 2008, the IHT's business section will be rebranded and carry Reuters- and IHT-generated content, along with content generated by the New York Times. It replaces the IHT's current deal with Bloomberg. IHT will still be allowed to use content from third-party providers.
ENERGY AND MATERIALS
Blackstone Readying Counterbid for Rio Tinto - Telegraph
Private equity firm Blackstone Group (BX) is assembling a consortium for the purpose of submitting a counterbid for Australian miner Rio Tinto (RTP), currently the target of a hostile offer by BHP Billiton (BHP), the British paper the Telegraph reported Monday. The consortium is said to include China Investment Corp., China's $200 billion sovereign wealth fund. Rio is planning to defend itself from Billiton's three-for-one offer by selling up to $30 billion in assets, possibly including the talc business, two uranium projects, the Northparkes copper and gold mine in Australia and the US Greens Creek zinc, lead and silver mine. Blackstone wants to buy the company and break it up completely. The Telegraph maintains that Blackstone's primary target is Rio's iron ore operations, which Blackstone values at a minimum $110 billion based on existing reserves -- though further mineralization in the Pilbara in Australia and at the Simandou project in Guinea could push that figure considerably higher. The Chinese steel industry is a massive consumer of iron ore and has expressed concern that a Rio-Billiton combination could control the market. Blackstone has close ties to China, feeding speculation that China is involved in the pending bid: China Investment Corp. bought a 10% stake in Blackstone for $3 billion just prior to its IPO.
Iran Inks $2 Billion Deal With Sinopec
Iran has finally signed a deal with China Petroleum and Chemical Corp., or Sinopec (SNP), to develop its Yadavaran oilfield, Chinese and Iranian news agencies reported Monday. The signing finalizes a memorandum of understanding agreed to in 2004 concerning Yadavaran, which is believed to contain 12-18 billion barrels of oil. "If other countries who like to invest in oil and gas hesitate, they will lose opportunities," said Gholam-Hossein Nozari, Iran's oil minister. The contract will go into effect immediately. Iran possesses the second-largest oil and gas reserves in the world behind Saudi Arabia and Russia, respectively. It has had difficulty signing contracts for development of those resources, however, because of the threat of sanctions over its nuclear program. Contributing to investor reluctance is Iran's insistence that the National Iranian Oil Company be allowed to operate all facilities after they are developed. China, which is eager to secure resources to sustain its surging economy, was not deterred by either consideration. It has also inked deals with Sudan, suggesting it is not overly concerned with Western anxieties about troublesome regimes. "We are very happy to sign this contract [with Iran]," said Zhou Baixiu, head of Sinopec's international exploration and production unit. Total (TOT), Royal Dutch Shell (RDS.A) and Repsol YPF (REP) have been negotiating with Iran to develop parts of South Pars, the world's largest gas field, but Iran has threatened to cut off talks if they do not reach an agreement by June 2008.
UBS Raises $11.5 Billion; Writes Down Another $10B
UBS AG, scrambling to manage a further $10 billion writedown, announced Monday that two foreign investors will provide a capital infusion worth 13 billion Swiss francs ($11.5 billion). The bank also said it is revising its October 30 forecast of a profit in Q4 to a loss, and might post a loss for full-year 2007. The Government of Singapore Investment Corp. [GIC] is investing 11 billion francs, and an undisclosed strategic investor in the Middle East -- believed to be either Abu Dhabi or the government of Oman -- is putting in two billion francs. GIC's stake in the Swiss bank will come to about 9%. "Our losses in the U.S. mortgage securities market are substantial but could have been absorbed by our earnings and capital base," said UBS Chairman Marcel Ospel. "Nevertheless, it is important to always maintain a notably strong capital position to support the continued growth of our wealth management business, which is the largest generator of value to UBS shareholders." Monday's $10 billion in writedowns are on CDOs exposed to the U.S. subprime residential mortgage market. "In the last several months, continued speculation about the ultimate value of our subprime holdings -- which remains unknowable -- has been distracting," said CEO Marcel Rohner. "[T]hese writedowns will create maximum clarity on this issue and will have the effect of substantially eliminating speculation." "UBS was quite clever this time to couple some extremely bad news with some good news," said Dieter Winet of Swisscanto Asset Management. "It's positive that capital is placed in firm hands. This will help restore trust in private banking and asset management and help UBS write new business." Shares were down 0.9% in Frankfurt at 4:15 a.m. ET.
Additional Reading: UBS: Waiting for the CDO Shoe to Drop
Credit Suisse, Morgan Eye China Ventures
Credit Suisse (CS) and Morgan Stanley (MS) are one step closer to tapping China's lucrative investment banking market, which has been off limits due to a moratorium on new joint ventures since late 2005. Credit Suisse has signed a memorandum of understanding to form a JV with China's Founder Group, according to a draft internal memo. Founder Group is a Beijing-based conglomerate with $8B of assets under management and has a brokerage arm ranked among the largest 20 in the country. Meanwhile, Morgan Stanley is reportedly partnering with Shanghai-based China Fortune Securities. Morgan already owns 34% of China International Capital Corp., a leading domestic underwriter, but its role has become increasingly passive. Data from Thomson Financial show year-to-date through Nov., China leads global IPO proceeds and issues rankings, with $87.3B in 195 listings vs. second-ranked USA with $38.5B in 174 listings. Goldman Sachs (GS) and UBS (UBS) also have I-banking ventures in China. Credit Suisse shares gained 3.6% on the Virt-x exchange Monday morning. Credit Suisse is among the top holdings of the Switzerland ETF EWL and Morgan Stanley is a core holding of the ETFs IAI and KCE.
Additional Reading: Citigroup Lowers Earnings Estimates at Three Major I-Banks • Managing Your ADRs: The Case of European Financials • Has China's IPO Boom Run its Course?
China Triples Foreign Investment Cap; Bumps Up Reserve Ratio
China has agreed to raise the cap on foreign investment to $30 billion from $10 billion, Beijing's foreign exchange regulator said Sunday prior to cabinet talks with the U.S. Also, in its first move since formally shifting to a tighter monetary policy, China will raise the proportion of deposits banks must keep on reserve. China's Central Economic Work meeting, which establishes the country's economic policy priorities for the coming year, ended Wednesday with a decision to shift to a "tight" policy from a "prudent" and "stable" one. On Christmas Day, the reserve requirement ratio will be raised one percentage point to 14.5%, its highest in about twenty years. On the investment front, the Chinese State Administration of Foreign Exchange [SAFE] said "the QFII [Qualified Foreign Institutional Investor] investment quota will be raised to $30 billion" in order to "further open the country's capital markets to foreigners." The agency also wants to encourage Chinese to invest abroad under the Qualified Domestic Institutional Investor [QDII] program. "SAFE will broaden overseas securities investment by domestic residents to further enlarge the investment size under... QDII," SAFE said. Treasury Secretary Henry Paulson and a delegation will attend another round of an ongoing "strategic economic dialogue" with China this Wednesday and Thursday. For investors interested in Chinese equities, the ETFs FXI and PGJ offer broad exposure. China's Shanghai Composite Index climbed 1.4% Monday (Asian Market Summary).
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
• Barron's cover story takes a bullish stance on Wall Street investment bank JPMorgan Chase (JPM) and its detail-conscious CEO Jamie Dimon. Once the financial sector starts moving JPMorgan is ready to take the pole position. (Full story)
• Despite technology that has revolutionized how hospitals treat chronic skin lesions, Barron's says Kinetic Concepts' (KCI) shares are dead money due to the likelihood of its inability to enforce its patents. (Full story)
• In spite of a recent CEO change, Yahoo (YHOO) continues to struggle. Bernstein's Jeffrey Lindsay suggests a three-prong revival plan, failing which he says the company "... could lose a lot more ground... And steps could be forced upon them." (Full story)
• Barron's Mark Veverka says despite the Street's disappointment with Palm's (PALM) recent earnings warning, shares may be worth holding, as a recent cash infusion "may launch Palm into the smartphone big leagues." (Full story)
• Shares of auto-insurance giant Allstate (ALL) look cheap, considering the company's limited downside risk, and growth potential. (Full story)
THIS WEEK'S IPOS
• Software IPO VanceInfo Competes with Infosys, Cognizant
• Semiconductor IPO: MEMSIC Inc.
• Software IPO MedAssets Inc. Competes With McKesson, Eclipsys
• Internet IPO K-12 Inc. Competes With Pearson, McGraw-Hill
• Intellon IPO: Second Attempt For Conexant Rival
• Internet IPO: CampusU
• Internet IPO Classmates.com Competes With MySpace.com
• China Internet IPO: ChinaEdu Corp.
MUST-READS ON SEEKING ALPHA TODAY
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