Nisshin Steel, Nippon Metal aim to merge by Oct 2012

TOKYO | Tue Nov 15, 2011 8:00am EST

(Reuters) – Nisshin Steel Co (5407.T) and Nippon Metal Industry Co (5479.T) said on Tuesday they aim to merge by October next year, forming Japan’s second-largest stainless steel maker with a combined market capitalization of 121 billion yen ($1.57 billion) at current share prices.

The companies are consolidating as the industry confronts a shrinking domestic market and tough competition from larger, lower-cost competitors elsewhere in Asia, such as South Korea’s POSCO (005490.KS).

They aim to set up a holding company but gave no further details of the merger plan.

Nisshin Steel is by far the larger of the two with market capitalization of 107.4 billion yen, and already holds a 5 percent stake in Nippon Metal Industry.

Shares in the two firms jumped on Monday after a media report of the merger plan, which Nisshin declined to confirm at the time, although their share prices fell back again on Tuesday. The merger announcement came after Tuesday’s market close.

Nisshin Steel ended at 108 yen on Tuesday, down 6.9 percent from the day before and a 1.8 percent fall from last Friday, before the media report. Nippon Metal Industry ended at 73 yen, down 6.4 percent on the day but up 5.8 percent from Friday.

The merged company would be Japan’s second-largest stainless steel producer after Nippon Steel Corp (5401.T), Japan’s largest steel maker and a 9 percent owner of Nisshin Steel.

Nippon Steel and Sumitomo Metal Industries (5405.T) announced in February their plans to merge to form the world’s second-largest steelmaker.

Nisshin Steel President Hideo Suzuki said in an interview early this year that consolidation was crucial if Japan’s stainless steel sector was to survive against bigger Asian rivals .

Nisshin also owns 15 percent of Spain’s Acerinox (ACX.MC), the world’s leading stainless steel producer.

($1 = 76.950 Japanese Yen)

(Reporting by Junko Fujita and Edmund Klamann; Editing by Edwina Gibbs and Joseph Radford)

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Starbucks to open U.S. juice bars in 2012

By Lisa Baertlein

Thu Nov 10, 2011 7:04pm EST

(Reuters) – Starbucks Corp (SBUX.O) plans to start a chain of juice bars starting next year, venturing into territory staked out by Jamba Inc (JMBA.O), in its biggest-ever expansion beyond coffee.

The world’s largest coffee chain, which has made no secret of its ambitions to expand beyond its staple business, said on Thursday it bought juice company Evolution Fresh for $30 million in cash.

Chief Executive Officer Howard Schultz hopes buying Evolution Fresh, whose products are sold by a handful of retailers, including Whole Foods Market Inc (WFM.O), will give the company a meaningful foothold in the estimated $50 billion health food market.

The first juice bars will open on the U.S. West Coast around the middle of next year, but the company would not say how many were planned. The chain’s name has not been revealed and it was not clear whether Starbucks’ familiar Mermaid logo — which recently dropped the word “coffee” from its design — would be displayed in the stores, which also will sell food.

The CEO said the moves announced Thursday were the first of many things the company planned for the so-called health and wellness market.

Starbucks is getting into a fragmented market with intensifying competition and potentially lower margins than those enjoyed by its coffee shops.

Jamba, a publicly held juice and smoothie chain, has struggled in recent years. Revenues have slid as companies such as Starbucks and McDonald’s Corp (MCD.N) introduced competing products.

Schultz said Jamba suffered after it moved toward a more commodity business and away from what popular independents do well. He argued that some successful independent juice bar operators have annual sales of well over $1 million per outlet.

Analysts said that is far higher than a typical Jamba store and a bit less than an average U.S. Starbucks cafe.

“We think we can build a major business,” Schultz told reporters on a conference call.

Setting up a regional or even nationwide chain could prove costly and take the company further away from its core competency, analysts said.

“It has interesting potential, but I don’t know if has the broad appeal that coffee has,” said Bob Goldin, executive vice president at food service consultancy Technomic.

But “Starbucks is smart enough that, if it’s something that doesn’t work, they can pull the plug pretty quickly,” Morningstar analyst R.J. Hottovy said.

I CHOOSE … FRUIT

Schultz said demand is coming from people who choose fresh fruit and vegetable drinks as meal replacements, as well as from individuals watching their weight or attempting to bolster their health with dietary “cleanses.”

New York City’s Liquiteria juice bar, for example, says its pressed juices “detoxify and rejuvenate.”

Seattle-based Starbucks wants to sell a broader range of branded products through its own cafes, grocery stores and other retail outlets — including juices from Evolution Fresh.

Starbucks took control of its business selling packaged coffee, tea and ready-to-drink beverages earlier this year and has had success getting its products in more desirable spots on grocery store shelves, Hottovy said.

San Bernardino, California-based Evolution Fresh sells fruit and vegetable juices and was started by the founder of Naked Juice, which is now owned by PepsiCo Inc (PEP.N). It uses a heat-free, high-pressure pasteurization process it says retains more of the nutrients in its products compared with using conventional heat pasteurization.

Its products are currently sold in Whole Foods and PCC Natural Markets stores on the U.S. West Coast. Starbucks plans to expand distribution into additional retail channels and sell the products in its own retail stores.

Over time, Starbucks said it plans to invest in Evolution Fresh’s facility upgrades, as well as its distribution business.

Starbucks expects Evolution Fresh to operate at a modest loss in fiscal 2012 before breaking even in fiscal 2013. The company, which returned to profit growth in 2010 after a painful two-year restructuring, said its forecasts for fiscal 2012 are unchanged as a result of the acquisition.

Jamba shares were unchanged at $1.66 at the close of Nasdaq trading on Thursday. Starbucks, which is up about 40 percent over the last 12 months, added 1.3 percent to finish at $43.52.

(Editing by Edwin Chan, Gerald E. McCormick and Andre Grenon)

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Olympus shareholder calls for reinstatement of ex-CEO

TOKYO | Wed Nov 9, 2011 6:04pm EST

(Reuters) – Japanese police have launched a full investigation into the financial scandal engulfing Olympus Corp, a newspaper said Thursday, as a major investor joined increasing calls for a wholesale clean-out of the board.

Tokyo Metropolitan Police are investigating the firm’s concealment of investment losses for possible violation of financial laws, the Yomiuri newspaper said, adding that police had asked Olympus for internal accounting documents and would also question Olympus executives and related officials.

Police would work with markets watchdog the Securities and Exchange Surveillance Commission and Tokyo prosecutors, which were already investigating, and swap information with the U.S. markets regulator and Federal Bureau of Investigation, it said. A police spokesperson declined to comment on the report.

Olympus has lost three-quarters of its market value since the scandal broke last month, when sacked chief executive Michael Woodford went public with allegations that the company had not properly accounted for about $1.5 billion in payments related to mergers and acquisitions.

Tuesday, the crisis escalated when the company dropped weeks of denials and stunned investors by admitting to hiding substantial investment losses for decades and using the unusual payments to assist in the cover-up.

Olympus said the revelation had come to light through an independent inquiry it had commissioned, and it blamed three senior executives for the cover-up. It remains unclear if all three have yet relinquished their executive and boardroom positions. The Olympus inquiry continues.

Earlier Thursday, a big foreign shareholder in Olympus, a once-venerable maker of cameras and medical equipment, called on the firm to reinstate its sacked chief executive to lead a “clean up” and added its voice to demands for wholesale sackings.

UK fund manager Baillie Gifford & Co, which says it holds more than 4 percent of Olympus, said CEO-turned-whistleblower Woodford should return to the helm of the company.

“What Olympus needs now is a thorough clean-up and we believe Michael Woodford is the best man for the job,” Baillie Gifford partner and its head of developed Asia equities, Elaine Morrison, said in a statement.

“The current management of Olympus has been discredited by its original response to Mr. Woodford’s allegations and its poor communications with shareholders. We expect all directors or employees linked to this wrongdoing to be dismissed and have their ties to the company severed.”

This week, Olympus’s biggest foreign shareholder, Southeastern Asset Management, also demanded a wholesale clean-out of the firm’s board of directors.

Southeastern, which holds about 5 percent of Olympus, called for an extraordinary meeting of shareholders to sweep out all the remaining directors and its internal-audit board.

Lenders to Olympus are also reported to be restless, with Jiji news agency reporting Wednesday that creditor banks are considering changing conditions for their loans.

(Reporting by Mark Bendeich; Editing by Richard Pullin)

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Fannie Mae taps $7.8 billion from Treasury, loss widens

By Margaret Chadbourn

WASHINGTON | Tue Nov 8, 2011 7:29pm EST

(Reuters) – Fannie Mae, the biggest source of money for U.S. home loans, on Tuesday said it needed a further $7.8 billion in federal aid to stay afloat as a shaky housing market widened its third-quarter loss to $5.1 billion.

The government-controlled firm also attributed the deeper cash drain to losses on derivatives used to hedge its exposure to interest-rate swings and on expenses related to home loans made prior to the 2008 financial collapse. In the year-earlier quarter it had a loss of a $1.3 billion.

Fannie Mae has now drawn $112.6 billion in bailout funds from the Treasury Department since being seized by the government in 2008 as mortgage losses mounted, and it has returned $17.2 billion to taxpayers in the form of dividends.

“There is certainly a lot of pre-2009 loans that we need to work through and that is certainly driving the credit losses you saw in this quarter and over the last several years,” Fannie Mae Chief Financial Officer Susan McFarland told Reuters.

She said the company was “working to reduce losses” on those legacy loans and “limit taxpayer exposure.”

The mortgage finance company and its smaller rival Freddie Mac were taken over during the financial crisis as losses on subprime mortgages threatened insolvency.

Given the crucial role the two play in U.S. housing finance, owning or guaranteeing about half of all mortgages, the government has pledged unlimited funds to keep the firms afloat through the end of 2012. Combined, they have cost taxpayers around $169 billion.

The plan to put them into a government conservatorship was meant to be temporary, although it is likely to be years before a long-term replacement structure takes shape. Both the Obama administration and Congress want to eventually wind them down.

Their regulator estimates that the bailout could reach about $193 billion through 2014, with dividend payments taken into account.

Fannie Mae said credit losses, which include expenses related to the foreclosed properties it holds on its books as well as on its derivatives, increased in the third quarter to $4.5 billion from $3.9 billion in the second quarter.

Freddie Mac, the second-largest source of U.S. mortgage finance, said last week it lost $4.4 billion in the third quarter and needed to borrow an extra $6 billion from the federal government.

Fannie Mae has now reported losses in 16 of the last 17 quarters. It reported a profit of $73 million in the fourth quarter of last year, but that was largely attributed to a one-time payment from Bank of America.

Fannie Mae and Freddie Mac were created by Congress to encourage homeownership. They buy mortgages from lenders and repackage them as securities for investors, with a guarantee, to ensure a steady source of home loan funds.

The two firms, along with the Federal Housing Administration, now back about nine out of 10 new home loans.

(Reporting by Margaret Chadbourn; editing by Bob Burgdorfer)

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China considers shrinking railway investment goal: report

BEIJING | Mon Nov 7, 2011 7:38pm EST

(Reuters) – China’s annual investment on railway construction could fall to about 500 billion yuan ($78.7 billion) a year, retreating from ambitious heights mapped out in a plan for the sector that has struggled with high debts, an official Chinese newspaper said on Tuesday.

The China Securities Journal cited an unnamed source who said yearly spending on rail construction for the remainder of the current five-year plan (2011-15) could shrink from the 800 billion yuan a year proposed in a long-term plan.

In 2010, investment in rail sector fixed assets reached 842.6 billion yuan, and this year the Ministry of Railways plans to complete basic infrastructure investment worth $600 billion, the newspaper said.

The unnamed source told the paper that China’s State Council — its central government cabinet — ordered adjustment of the medium-to-long term plan for rail network expansion, “but no conclusive document has emerged yet.”

“The current financing environment has some bearing on this adjustment, which is mainly focused on some smaller lines,” said the paper. “Major lines will continue to maintain the previously planned pace of construction,” it said, without specifying a source.

The China Securities Journal is published by the state-run Xinhua news agency.

The government initially moved to slow railway project approvals to address public anger after a crash on a new high-speed rail line in July that killed 40 people.

Work on 10,000 kilometers of railways was suspended, leaving contractors with large piles of accounts receivable.

But the Railway Ministry also faces a high debt burden. It said in August its total liabilities at the end of June were 2.1 trillion yuan, up by nearly half from the end of 2009.

CSR Corp Ltd (1766.HK) (601766.SS), China’s largest train maker, said last week that it had received a $944 million payment from the ministry, sending its stock higher.

The Ministry of Railways is expected to receive at least 200 billion yuan ($30 billion) in fresh funds soon, the official Xinhua news agency reported last week.

(Reporting by Chris Buckley; Editing by Ken Wills)

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MF Global CEO Jon Corzine quits as big bet fails

By Jonathan Stempel and Christopher Doering

Fri Nov 4, 2011 6:38pm EDT

(Reuters) – Jon Corzine, one of Wall Street’s best-known stars, stepped down as MF Global Holdings Ltd’s chairman and chief executive after his bets on European debt drove the futures brokerage into bankruptcy.

The departure was announced on Friday, hours before conflicting reports surfaced about the whereabouts of $633 million of missing customer money, whose disappearance derailed MF Global’s effort this week to quickly sell a variety of assets.

JPMorgan Chase & Co said late on Friday it had no information about whether balances in MF Global accounts at the bank contained any of the missing customer funds. It also declined to disclose the balances of those funds.

“The accounts and their balances have been and continue to be wholly transparent to MF Global and the recently appointed (brokerage) trustee,” JPMorgan said in a statement.

Earlier in the day, Bloomberg News had said customer funds had been found in a JPMorgan custodial account holding $658.8 million, citing two people with knowledge of the matter.

Corzine, a former chief of Goldman Sachs & Co, characterized his abrupt departure from a company he once joked as “too small to care about” as “difficult” but voluntary.

It was effective on Friday, four days after MF Global sought bankruptcy protection, a company spokeswoman said.

Corzine, 64, joined MF Global in March 2010 as his ticket back to Wall Street, after stints as a U.S. senator from New Jersey and one-term governor of that state. He had run Goldman from 1994 to early 1999.

But when MF Global’s $6.3 billion bet on sovereign debt from Belgium, Ireland, Italy, Portugal and Spain went public, counterparties and investors headed for the exits.

“He was seeking redemption,” said Robert Fagenson, former vice chairman of the New York Stock Exchange. “When you’re not dealing with a Goldman Sachs-type of balance sheet, though, you can’t take Goldman Sachs-type bets.”

MF Global’s decline accelerated last week as the New York-based company revealed more details about its European exposure, posted a larger-than-expected quarterly loss, and was downgraded by major credit rating agencies to “junk” status.

Many investors were also spooked by MF Global’s roughly 30-to-1 leverage ratio, based on more than $40 billion of assets and just $1.4 billion of equity. Corzine himself has said that much leverage is unacceptably high.

The bankruptcy is the seventh-largest in U.S. history, according to BankruptcyData.com and Reuters data.

THE MIGHTY HAVE FALLEN

“My how the mighty are fallen,” said Jim Rogers, a prominent commodities investor. “It is inconceivable to me he would do this after Refco,” he added, referring to a brokerage that failed in a 2005 accounting scandal.

MF Global’s problems this week triggered steep declines in stocks of other financial companies, such as Morgan Stanley and investment bank Jefferies Group Inc.

Jefferies, seeking to soothe investors, said on Friday it had a net short position in sovereign risk ofGreece, Ireland, Italy, Portugal and Spain. [ID:nN1E7A3097]. Its shares closed up 0.5 percent on Friday, but lost 18 percent for the week.

“The idea that you might be holding European debt is very frightening” to markets,” said Franklin Edwards, a Columbia Business School professor specializing in futures markets, regulation and governance. “There is so much uncertainty.”

It is unclear how Corzine’s resignation might affect the various ongoing investigations. Neither MF Global nor Corzine has been charged with wrongdoing.

Corzine said he intended to “continue to assist the company and its board in their efforts to respond to regulatory inquiries and issues related to the disposition of the firm’s assets.”

James Giddens, the trustee overseeing the liquidation of the company’s MF Global Inc unit, is working with CME Group Inc and others to move about 50,000 accounts to new clearing firms.

Giddens said his team is “securing” MF Global offices in Chicago and New York, plans to work through the weekend to transfer large accounts, and will try through next week to transfer individual accounts. Corzine’s departure will not affect that process, a spokesman for Giddens said.

CME late on Friday said it expected to finish transferring all customer segregated positions by the end of the day, for a total transfer of positions in about 15,000 MF Global accounts and $1.45 billion of associated clearing collateral.

‘GREAT SADNESS’

In his statement, Corzine said his departure is best for MF Global and its stakeholders.

“I feel great sadness for what has transpired at MF Global and the impact it has had on the firm’s clients, employees and many others,” he said.

MF Global said Corzine is not seeking severance. He had been entitled to $12.1 million in severance, prorated bonus and other benefits if he were let go without cause, a July 7 regulatory filing shows. The severance portion was $9 million.

Corzine has hired prominent white-collar defense lawyer Andrew Levander of the law firm Dechert to represent him in cases that might stem from the bankruptcy filing, a legal source briefed on the matter said on Thursday.

Chief executives often step down as their companies face federal probes or bankruptcy. Leaving might also give him greater flexibility in dealing with authorities.

“If you’re no longer with the company, it gives you freedom to respond from the perspective of solely protecting your own interest,” said Barry Pollack, a partner at law firm Miller & Chevalier specializing in white-collar defense.

Chief Operating Officer Bradley Abelow and lead director Edward Goldberg will stay in their positions, MF Global said.

STALLING REFORMS

Brokerages are required to keep customer money segregated from their own cash. Questions about the integrity of MF Global client accounts have also attracted the attention of the Federal Bureau of Investigation.

“To the extent there were diversions of funds in segregated accounts, or funds that were lost, it would certainly violate regulatory rules and perhaps even rise to the level of securities fraud,” said Edwards, the Columbia professor. “We just don’t know the facts.”

It is unclear why regulators such as the Securities and Exchange Commission, Commodity Futures Trading Commission and Financial Industry Regulatory Authority did not do more to rein in MF Global’s risk-taking, coming so soon after the 2008 financial crisis.

Last year’s Dodd-Frank financial reforms have yet to take full effect, and would likely have done little to avert MF Global’s collapse. But Corzine played a key role in stalling reforms designed to stop firms from using customer funds for proprietary trades.

“Many firms, including MF Global and Senator Corzine specifically, have asked us to hold back on tightening up our regulations,” CFTC Commissioner Bart Chilton said in a Friday speech.

Corzine’s original decision to join MF Global surprised many on Wall Street.

He has referred to himself as a “recidivist banker,” and said he was willing to join a small Wall Street company because financial regulatory reform would force big banks to shrink.

(Reporting by Jennifer Ablan, Suzanne Barlyn, Nick Brown, Matthew Goldstein, David Henry, Jed Horowitz, Herb Lash, Jennifer Merritt, Marcy Nicholson, Jeanine Prezioso, Jonathan Stempel andDan Wilchins in New York; Alexandra Alper and Christopher Doering and Sarah N. Lynch in Washington, D.C.; and K.T. Arasu, Karl Plume and Theopolis Waters in Chicago; Editing by Edward Tobin and Tim Dobbyn)

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MF Global customers fume as funds, trades frozen

By Theopolis Waters and David Sheppard

CHICAGO/NEW YORK | Wed Nov 2, 2011 11:10pm EDT

(Reuters) – Joe Ocrant, a veteran livestock trader, is livid.

His accounts frozen, unable to trade with his bankrupt broker and denied access to the Chicago trading floor, his frustration over the failure of 230-year-old MF Global was turning to rage as regulators said it may have misappropriated

some $600 million in customer funds.

Ocrant remained hopeful that somehow his collateral at MF Global would be returned. In the meantime, like so many others, he was left idle, unable to transfer or liquidate his trades.

“I am aggravated and upset…. I feel fairly confident my customers will be made whole. The question is how long the feds will tie the funds up so they can’t be used,” said Ocrant, president of livestock-focused fund Oak Investment Group.

It was a common tale across the markets.

As the initial chaos surrounding the collapse and bankruptcy of one of the commodity market’s leading brokers slowly subsided, former customers fumed over the slow and frustrating process of moving their traders over to rival brokers or returning the cash used to back them.

Some hope for a more rapid resolution appeared near after U.S. Bankruptcy Judge Martin Glenn in New York late on Wednesday approved the transfer of customer accounts to other brokers, which should speed the process.

Before MF Global brokers stopped processing transactions earlier on Wednesday, customers faced a Hobson’s choice: close out positions they might otherwise maintain, or put up a second hefty dose of collateral.

A total of 150,000 customer accounts were effectively frozen on October 31, more than a third commodity accounts, according to the court filing on Wednesday. That is too much diversity for any single broker to take on, and six other brokers were named likely to take the accounts.

MF Global, as a clearing broker, was responsible for taking the collateral required to back the trades it placed on exchanges. Getting that collateral back was proving difficult.

Tales of vague responses, unanswered telephones and confusing plans spread among the many independent introducing brokers, local traders and small-scale hedgers that made up a sizable share of MF Global’s business.

“I’m confident that eventually this will be sorted out but for the moment when you call MF Global and the call doesn’t get answered for two to three hours, how do you think customers feel? They can’t open new positions which is not good in these volatile markets. You either liquidate it or sit on it,” says Matthew Bradbard of MB Wealth Commodity Brokerage in Florida.

COLLATERAL DAMAGE

In theory, up until earlier on Wednesday, customers could call MF Global brokers and close out their trading positions or arrange to have them transferred to another broker, a process that was being partly facilitated by the exchanges.

In practice, MF Global has not been able to cope with the mad scramble to liquidate or hand over positions.

“The problem is there are only five people on their ‘give-in’ desk at MF and 30,000 screaming customers,” said one hedge fund manager.

Additionally, with MF Global in bankruptcy, the collateral it was holding to back those trades — typically 5 to 10 percent of the face value of the contracts, some $5,000 or up to nearly $20,000 per contract — was stuck at the broker.

As a clearing broker, MF Global would have been holding three types of customer funds in its segregated accounts: 1) the minimum margin required to clear trades on the exchange; 2) additional margin over and above that sum that the broker itself may have required of smaller or less credit-worthy customers; 3) any excess funds over and above the collateral that customers would have simply left on account.

Brokers have been loath to take on new positions without the payment of new margin.

Sean McGillivray, Vice-President at Great Pacific Wealth Management in Grants Pass, Oregon, relayed a typical story.

Since MF Global declared bankruptcy on Monday, he has tried without success to move $5.5 million in funds tied to commodity futures positions to a rival broker, RJ O’Brien, one of the biggest independents after MF Global.

But as he’s discovered, while brokers are happy to take the positions, he’ll need to stump up new capital for margin.

“For us to move positions without collateral, that’s basically worthless,” he told Reuters.

He said the allegations of missing money had added complexity to what is meant to be a relatively smooth process of moving funds from one broker to another.

“We seem to be in the dark on the regulatory side, from the MF Global management side and also from the exchange side.”

Every day the complexity grows.

With prices gyrating, the amount of margin that traders are required to post fluctuates daily. For loss-making positions, that means an even higher collateral requirement than on Friday, when MF Global was last operating. For profitable trades, that means more money due back from the broker.

SMALL TRADERS HURT MOST

MF Global was a leading broker in the U.S. commodity markets, claiming the No. 1 most active spot on the key New York oil and metals markets and the No. 2 spot at the Chicago Mercantile Exchange’s grain and financial pits.

It acquired a sizable number of smaller local customers when it took over much of the business of Refco, a once-mighty broker which failed six years ago.

Those smaller customers are scrambling, since few had relationships with other brokers or extra capital to manage their trades. Many independent commodity brokers have been eager to lift some MF Global customers, but not for free.

“The policy is we’ll take positions from MF Global only if the client will margin them,” said Pedro Dejneka, director of business development RJ O’Brien, one of the firms that was subsequently named likely to take on some MF Global accounts.

“It’s tough for them, not every client from MF Global has the extra money to do this as it’s still tied up. You want to be able to help the client out but you just can’t take the risk. They need to double-margin.”

It is not clear exactly how much money is trapped at MF Global, and the company’s brokers have been unable to offer much reassurance to clients.

“I think my broker at MF has been as helpful as he is allowed to be and has been answering in the boilerplate that they’re being allowed to say.” says George de Luna, an independent energy trader.

“I asked, aren’t the accounts segregated and they should be okay? and the broker answered: ‘In the theory, yes. That did set off alarm bells.”

(Additional reporting by Jeanine Prezioso, Robert Gibbons, Barani Krishnan, Matthew Robinsonand Chris Kelly in New York; KT Arasu and Mark Weinraub in Chicago; Editing by David Gregorio)

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