Stocks Fall on Dow’s Longest Slump Since 2002

U.S. stocks fell for the sixth straight week, giving the Dow Jones Industrial Average its longest slump since 2002, as investor concern that the global economy is slowing intensified.

Technology stocks and consumer companies reliant on discretionary spending led losses in the Standard & Poor’s 500 Index, dropping more than 2.7 percent as a group. PulteGroup Inc., the nation’s biggest homebuilder, slumped 11 percent for the largest retreat in the S&P 500. Visa Inc. (V) and MasterCard Inc. (MA) decreased more than 3.6 percent after the U.S. Senate rejected a six-month delay of a Federal Reserve rule capping debit-card swipe fees set by the companies.

The S&P 500 lost 2.2 percent to 1,270.98, its lowest level since March 16. The benchmark gauge for U.S. equities has also dropped for six consecutive weeks, the longest retreat since 2008. The Dow fell 199.35 points, or 1.6 percent, to 11,951.91. Its last weekly slump of this length was in October 2002, the start of a five-year bull market for equities.

“The market is still digesting that there’s been a softening in economic growth in the U.S. and other parts of the world,” said Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, which oversees more than $38 billion. “That disappointing economic news has caused investors to turn more cautious. They could shrug off bad economic data in the first quarter. It’s harder to continue doing it in the second quarter.”

$1 Trillion Lost

More than $1 trillion has been erased from American equity markets since the S&P 500’s peak on April 29. Equities slumped this week amid weaker-than-expected economic reports, while Fed Chairman Ben S. Bernanke said that the U.S. recovery was “frustratingly slow.”

The S&P 500’s 6.8 percent slump since the end of April has cost the benchmark index the biggest rally in more than five decades. The measure gained 102 percent between March 9, 2009, and April 29 of this year, the largest advance over the same period of time since 1955, according to Howard Silverblatt at S&P. Now, it’s up 88 percent, the most since 1999.

Stocks extended their weekly decline yesterday after prices of goods imported into the U.S. unexpectedly rose, U.K. manufacturing dropped more than economists forecast and China reported a less-than-estimated $13.1 billion trade surplus in May as surging imports added pressure for higher interest rates in the world’s second-largest economy.

‘Uneven’ Recovery

Bernanke said on June 7 that the central bank should maintain record monetary stimulus to boost an “uneven” economic recovery, even as he gave no hint of a new round of so- called quantitative easing as policy makers plan this month to complete a $600 billion bond purchase program.

“It was a very ugly week,” said Andrew Ross, partner and global equity trader at First New York Securities LLC, a New York-based proprietary trading firm that bets on stocks, commodities and derivatives. “Traders grappled with rising macro concerns in the face of a Federal Reserve without the political will to push forward on a new round of stimulus.”

A gauge of technology companies in the S&P 500 lost 3.3 percent this week, the most among 10 industries. Cisco Systems Inc. slipped 5.6 percent to $15.12, the lowest price for the largest maker of networking equipment since March 2009.

Companies most-tied to economic growth slumped. The Morgan Stanley Cyclical Index dropped 2.2 percent as 26 of its 30 stocks retreated. The S&P 500 Consumer Discretionary Index decreased 2.7 percent.

Banks Drop

Financial shares had the third-biggest decline within 10 industries in the benchmark index, falling 2.6 percent. The group is the worst-performing of the 10 main industries in the index this year, down 7.3 percent. Bank of America Corp. (BAC), the biggest U.S. lender, fell 4.3 percent to $10.80.

Banks with at least $50 billion in assets will be required to conduct annual exams to “ensure that institutions have robust, forward-looking capital planning processes that account for their unique risks and that permit continued operations during times of economic and financial stress,” the Fed said yesterday in a statement in Washington.

Wells Fargo & Co., the largest U.S. home lender, lost 2.2 percent to $26.28 after Rochdale Securities LLC’s Richard Bove cut his recommendation to “sell” from “neutral,” citing a poor economic environment, weak housing prices, slowing manufacturing indicators and negative regulatory environment.

Visa, the world’s biggest bank-card network, dropped 5.6 percent to $74.69 and MasterCard, the No. 2 network, declined 3.6 percent to $267.03 after the U.S. Senate rejected a six- month delay of a Fed rule capping debit-card swipe fees set by the companies.

Bulls Stand Firm

The stock market’s six-week slump hasn’t reduced bullishness among money managers and market strategists such as JPMorgan Chase & Co.’s David Kelly and Liz Ann Sonders of Charles Schwab Corp., who say profit growth and below-average valuations will lift equities this year, Bloomberg Businessweek reports in its June 13 edition.

“The economy is still growing, albeit at a slow pace, and sufficient for corporate revenues, corporate earnings and corporate cash flow to advance,” said Bob Doll, who helps oversee $3.65 trillion at New York-based BlackRock Inc., the world’s biggest money manager. “We’re at the end of the recovery and the beginning of the expansion. That’s typically a time when stocks still go up, just at a lesser pace.”

Lowe’s Cos. declined 4.9 percent to $22.26 this week. The second-largest U.S. home-improvement retailer had its recommendation cut to “neutral” from “overweight” at JPMorgan, which said earnings risk is rising. PulteGroup tumbled 11 percent to $6.93.

Sino-Forest Corp. (TRE) slipped 15 percent to $4.60. Carson Block, the short seller whose assertions of financial manipulation by Sino-Forest preceded a two-day plunge of 71 percent plunge in the forestry company’s shares last week, said he will release more research “pretty soon.”

Sealed Air Corp. (SEE) rallied the most in the S&P 500, gaining 7 percent to $23.42. Davis Selected Advisers, the company’s largest stockholder, said it may oppose the packaging maker’s proposed acquisition of Diversey Holdings Inc. (source:bloomberg.com)

American International Group | History and development of American International Group

American International Group

American International Group, Inc. (AIG) (NYSE: AIG) is an American insurance corporation. Its corporate headquarters are located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in La Défense, Paris, and its Asian headquarters office is in Hong Kong. According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world. It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008.

AIG suffered from a liquidity crisis when its credit ratings were downgraded below "AA" levels in September 2008. The United States Federal Reserve Bank on September 16, 2008 created an $85 billion credit facility to enable the company to meet increased collateral obligations consequent to the credit rating downgrade, in exchange for the issuance of a stock warrant to the Federal Reserve Bank for 79.9% of the equity of AIG. The Federal Reserve Bank and the United States Treasury by May 2009 had increased the potential financial support to AIG, with the support of an investment of as much as $70 billion, a $60 billion credit line and $52.5 billion to buy mortgage-based assets owned or guaranteed by AIG, increasing the total amount available to as much as $182.5 billion. AIG subsequently sold a number of its subsidiaries and other assets to pay down loans received, and continues to seek buyers of its assets.

AIG history dates back to 1919, when Cornelius Vander Starr established an insurance agency in Shanghai, China. Starr was the first Westerner in Shanghai to sell insurance to the Chinese, which he continued to do until AIG left China in early 1949—as Mao Zedong led the advance of the Communist People's Liberation Army on Shanghai. Starr then moved the company headquarters to its current home in New York City. The company went on to expand, often through subsidiaries, into other markets, including other parts of Asia, Latin America, Europe, and the Middle East.

In 1962, Starr gave management of the company's lagging U.S. holdings to Maurice R. "Hank" Greenberg, who shifted its focus from personal insurance to high-margin corporate coverage. Greenberg focused on selling insurance through independent brokers rather than agents to eliminate agent salaries. Using brokers, AIG could price insurance according to its potential return even if it suffered decreased sales of certain products for great lengths of time with very little extra expense. In 1968, Starr named Greenberg his successor. The company went public in 1969.

Beginning in 2005, AIG became embroiled in a series of fraud investigations conducted by the Securities and Exchange Commission, U.S. Justice Department, and New York State Attorney General's Office. Greenberg was ousted amid an accounting scandal in February 2005; he is still fighting civil charges being pursued by New York state. The New York Attorney General's investigation led to a $1.6 billion fine for AIG and criminal charges for some of its executives. Greenberg was succeeded as CEO by Martin J. Sullivan, who had begun his career at AIG as a clerk in its London office in 1970.

On June 15, 2008, after disclosure of financial losses and subsequent to a falling stock price, Sullivan resigned and was replaced by Robert B. Willumstad, Chairman of the AIG Board of Directors since 2006. Willumstad was forced by the US government to step down and was replaced by Edward M. Liddy on September 17, 2008. AIG's board of directors named Robert Benmosche CEO on August 3, 2009 to replace Mr. Liddy, who earlier in the year announced his retirement.

On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permits firms with the highest credit ratings to enter swaps without depositing collateral with their trading counter-parties. When its credit rating was downgraded, the company was required to post additional collateral with its trading counter-parties, and this led to an AIG liquidity crisis. AIG's London unit sold credit protection in the form of credit default swaps (CDSs) on collateralized debt obligations (CDOs) that had by that time declined in value. The United States Federal Reserve Bank announced the creation of a secured credit facility of up to US$85 billion, to prevent the company's collapse by enabling AIG to meet its obligations to deliver additional collateral to its credit default swap trading partners. The credit facility provided a structure to loan as much as US$85 billion, secured by the stock in AIG-owned subsidiaries, in exchange for warrants for a 79.9% equity stake, and the right to suspend dividends to previously issued common and preferred stock. AIG announced the same day that its board accepted the terms of the Federal Reserve Bank's rescue package and secured credit facility. This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier.

AIG's share prices had fallen over 95% to just $1.25 by September 16, 2008, from a 52-week high of $70.13. The company reported over $13.2 billion in losses in the first six months of the year. The AIG Financial Products division headed by Joseph Cassano, in London, had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt securities backed by subprime loans. CNN named Cassano as one of the "Ten Most Wanted: Culprits" of the 2008 financial collapse in the United States.

On the evening of September 16, 2008, the Federal Reserve Bank's Board of Governors announced that the Federal Reserve Bank of New York had been authorized to create a 24-month credit-liquidity facility from which AIG could draw up to $85 billion. The loan was collateralized by the assets of AIG, including its non-regulated subsidiaries and the stock of "substantially all" of its regulated subsidiaries, and with an interest rate of 850 basis points over the three-month London Interbank Offered Rate (LIBOR) (i.e., LIBOR plus 8.5%). In exchange for the credit facility, the U.S. government received warrants for a 79.9 percent equity stake in AIG, with the right to suspend the payment of dividends to AIG common and preferred shareholders. The credit facility was created under the auspices of Section 13(3) of the Federal Reserve Act. AIG's board of directors announced approval of the loan transaction in a press release the same day. The announcement did not comment on the issuance of a warrant for 79.9% of AIG's equity, but the AIG 8-K filing of September 18, 2008, reporting the transaction to the Securities and Exchange Commission stated that a warrant for 79.9% of AIG shares had been issued to the Board of Governors of the Federal Reserve. AIG drew down US$ 28 billion of the credit-liquidity facility on September 17, 2008. On September 22, 2008, AIG was removed from the Dow Jones Industrial Average. An additional $37.8 billion credit facility was established in October. As of October 24, AIG had drawn a total of $90.3 billion from the emergency loan, of a total $122.8 billion.

Maurice Greenberg, former CEO of AIG, on September 17, 2008, characterized the bailout as a nationalization of AIG. He also stated that he was bewildered by the situation and was at a loss over how the entire situation got out of control as it did. On September 17, 2008, Federal Reserve Board chair Ben Bernanke asked Treasury Secretary Henry Paulson join him, to call on members of Congress, to describe the need for a congressionally authorized bailout of the nation's banking system. Weeks later, Congress approved the Emergency Economic Stabilization Act of 2008. Bernanke said to Paulson on September 17, "We can’t keep doing this. Both because we at the Fed don’t have the necessary resources and for reasons of democratic legitimacy, it's important that the Congress come in and take control of the situation."

It was reported that the trip was a reward for top-performing life-insurance agents planned before the bailout. Less than 24 hours after the news of the party was first reported by the media, it was reported that the Federal Reserve had agreed to give AIG an additional loan of up to $37.8 billion. AP reported on October 17 that AIG executives spent $86,000 on a previously scheduled English hunting trip. News of the lavish spending came just days after AIG received an additional $37.8 billion loan from the Federal Reserve, on top of a previous $85 billion emergency loan granted the month before. Regarding the hunting trip, the company responded, "We regret that this event was not canceled." An October 30, 2008 article from CNBC reported that AIG had already drawn upon $90 billion of the $123 billion allocated for loans. On November 10, 2008, just a few days before renegotiating another bailout with the US Government for $40 billion, ABC News reported that AIG spent $343,000 on a trip to a lavish resort in Phoenix, Arizona.

As of Sept 6, 2009, The Wall Street Journal has reported that Pacific Century Group has agreed to pay $500 million for a part of American International Group Inc.'s asset management business, and that they also expect to pay an additional $200 million to AIG in carried interest and other payments linked to future performance of the business.

On March 2, 2009, AIG reported a fourth quarter loss of $61.7bn (£43bn) and revenue of −$23.7bn (−£16.2bn) for the final three months of 2008. This was the largest quarterly loss in corporate history at that time. The announcement of the loss had an impact on morning trading in Europe and Asia, with the FTSE100, DAX and Nikkei all suffering sharp falls. In the US the Dow Jones Industrial Average fell to below 7000 points, a twelve-year low. The news of the loss came the day after the U.S. Treasury Department had confirmed that AIG was to get an additional $30 billion in aid, on top of the $150 billion it has already received. The Treasury Department suggested that the potential losses to the US and global economy would be 'extremely high' if it were to collapse and has suggested that if in future there is no improvement, it will invest more money into the company, as it is unwilling to allow it to fail. The firm's position as not just a domestic insurer, but also one for small businesses and many listed firms, has prompted US officials to suggest its demise could be 'disastrous' and the Federal Reserve said that AIG posed a 'systemic risk' to the global economy. The fourth quarter result meant the company made a $99.29 billion loss for the whole of 2008, with five consecutive quarters of losses costing the company well over $100 billion. In a testimony before the Senate Budget Committee on March 3, 2009, the Federal Reserve Chairman Ben Bernanke stated that "AIG exploited a huge gap in the regulatory system," ... and "to nobody's surprise, made irresponsible bets and took huge losses".

AIG was the principal sponsor of English football club Manchester United from 2006–2010, and as part of the sponsorship deal, their logo was prominently displayed on the front of the club's jerseys and a plethora of other merchandise. The AIG deal was announced by Manchester United chief executive David Gill on 6 April 2006, for a British shirt sponsorship record £56.5 million, to be paid over four years (£14.1 million a year). The deal became the most valuable sponsorship deal in the world in September 2006, after the renegotiation and subsequent degrading of the £15 million-a-year deal Italian team Juventus had with oil firm Tamoil. During AIG's sponsorship, Manchester United enjoyed one of its most successful periods in history, winning the Premier League three consecutive years, two Football League Cups, and the UEFA Champions League.

Oil price jumps as Goldman Sachs raises forecasts

The US investment bank raised its year-end forecast for Brent to $120 per barrel from $105, and its 2012 forecast to $140 from $120, saying rising demand for fuel would draw global inventories and strain OPEC's spare oil output capacity.

Brent crude for July rose as high as $111.68 a barrel, up $1.58, before easing slightly to $111.53 by 10am GMT. US crude was trading at an intraday peak of $99.15, up $1.45.

Other analysts were also bullish on the outlook for oil prices, with strong underlying demand from the global economy seen as insulating oil from market jitters prompted by European debt worries.

"I don't rule out oil moving back to this year's highs if OPEC keeps its production constant, particularly if we get strong data out of the US, which we expect," Amrita Sen, oil analyst at Barclays Capital, said.

US light crude peaked at just under $115 per barrel at the start of May, while Brent surpassed $127 in April.

Goldman Sachs raised its 12-month price forecast for Brent to $130 a barrel from $107, and increased the end-2012 forecast to $140 a barrel from $120, citing global economic growth and tight OPEC spare capacity.

The bank, which in April had predicted the major correction in oil prices earlier this month, said on May 7 that oil could surpass its recent highs by 2012.

Echoing this view was Morgan Stanley, who raised its 2011 Brent crude forecast to $120 a barrel, from $100 previously, and lifted its 2012 target to $130, from $105.

The loss of around 1.5m barrels per day of Libyan production, and firm demand from emerging economies, will lead to tighter inventories in the second half of the year, the bank's analysts said in a report.

"It is very likely that OPEC will respond to tightening inventories by lifting their production; in response, we see flat prices moving higher as spare capacity continues its fall to untenable levels," the report said.

The Organization of the Petroleum Exporting Countries are scheduled to meet on June 8 in Vienna to discuss output.

An expected fall in US crude stocks last week could also support prices, analysts said. A drop in imports and increased refinery use are forecast to have pushed crude oil inventories lower, according to a Reuters survey of analysts on Monday.

Data showed no let up in Chinese oil imports last month, which grew 9.6pc year-on-year, its third-highest level ever, even as a purchasing managers index on Monday showed China's factories expanding at their slowest pace in 10 months in May. (source : telegraph.co.uk)