Jin Liqun, chairman of China Investment Corp.
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Treasuries erased losses as German and French finance ministers meet before a summit of regional leaders to discuss ways to contain the European debt crisis, stoking demand for government debt.
U.S. 10-year yields rose earlier on speculation record-low yields may limit demand as the government auctions $99 billion of coupon-bearing debt this week starting tomorrow. The U.S. will start this week
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Investors fled stocks and made a rush toward the safety of U.S. Treasuries Thursday, sending 10-year yield to a record low close, as worries about Greece’s future in the eurozone continued to escalate.
The Dow Jones industrial average () dropped 156 points, or 1.2%, and the S&P 500 () lost 20 points, or 1.5%. The day’s retreat marked the fifth day of declines for the Dow and S&P 500.
The Nasdaq () closed in the red for a fourth consecutive session, shedding 60 points, or 2.2%.
All three indexes ended at the lowest levels since January.
Concerns about Greece’s place in the 17-nation eurozone continued to build, pushing investors toward U.S. government debt, which is perceived as a safe haven investment. The yield on the 10-year Treasury was 1.706% Thursday, the lowest closing level on record.
Greece downgraded deeper into junk
European leaders voiced support Wednesday for keeping Greece in the body, but said the debt-ridden country must stick with unpopular austerity measures if it wants to continue receiving help.
Greek voters rebelled against those measures in the May 6 elections, denying the ruling coalition — which had agreed to the bailout terms — the votes needed to form a new government. Greek voters will go to the polls again on June 17.
Though the ability to form a governing coalition remains uncertain, the main fear is that an anti-austerity ruling party could cause the bailout deal to unravel, leading to a Greek default and an exit from the euro.
Citing the "heightened risk that Greece may not be able to sustain its membership of Economic and Monetary Union," Fitch Ratings downgraded Greece’s credit rating by one notch to CCC.
Adding to those concerns, the European Central Bank has suspended its lending to some Greek banks that need to sufficiently boost their capital.
Meanwhile, a growing number of depositors are withdrawing their money amid worries that their savings could be converted to a devalued currency if Greece drops the euro.
The rapid withdrawals add pressure on the Greek banking system, which is the "primary trigger for some from of the eurozone break-up," said Jonathan Loynes, chief European economist at Capital Economics.
Investors remain worried about what a Greek exit from the eurozone would mean for global financial systems.
"Not surprisingly, concerns are growing that bank runs could soon become a regular feature in other troubled countries in the region deemed at risk of following Greece’s lead," said Loynes.
Adding to Europe’s troubles, Spain got yet another slap in the face Thursday, when Moody’s Investors Service downgraded sixteen Spanish banks including giants Banco Santander and BBVA, saying the Spanish government’s "ability to provide support to the banks has reduced." Earlier the ratings agency downgraded four of the country’s regional governments.
Stocks finished in the red Wednesday, as positive economic data in the U.S. failed to counter increasing pessimism over Greece’s fiscal woes.
Companies: Facebook ()priced its initial public offering at $38 a share after the closing bell Thursday. Shares of Facebook will begin trading Friday on the Nasdaq.
The offering raised $16 billion, making it the most valuable tech IPO in history.
Facebook’s IPO price: $38 per share
Retail giants Wal-Mart (, Fortune 500) and Sears Holdings (, Fortune 500) were among the biggest gainers Thursday. Wal-Mart, the nation’s largest retailer, posted stronger-than-expected quarterly earnings and sales.
Rival Sears also reported a profit, even as sales declined, thanks to a boost from selling real estate assets. The retailer also announced it was looking at a partial spin-off of its Canadian operations.
Shares of JPMorgan Chase (, Fortune 500) fell Thursday, a day after the director of the FBI confirmed his agency had launched an initial investigation into a $2 billion trading loss suffered by the bank.
Economy: Initial jobless claims were unchanged in the week ended May 12 from the revised figure of 370,000. The number came in weaker than expected.
Foreclosures fell for the third straight month in April, reaching the lowest level since 2007, according to tracking service RealtyTrac.
A Philadelphia Fed report showed that regional manufacturing unexpectedly plunged in May for the first time in eight months. The Philly Fed index fell to -5.8 from 8.5 in April. Economists were expecting the index to increase to 8.8. Any reading below zero indicates weakness.
The index of leading indicators, which gauges the economy’s performance over the next three to six months, was also discouraging. The index fell 0.1% in April, disappointing economists who expected it to rise 0.2%.
World markets: European stocks slid on Thursday. Britain’s FTSE 100 () and the DAX () in Germany slipped 1.2% and France’s CAC 40 () fell 1.1%.
Most Asian markets ended higher following a report that showed the Japanese economy grew 1% in the first quarter, which was much better than forecasts. Tokyo’s Nikkei () gained 0.9% on the news, while the Shanghai Composite () rose 1.4%. Hong Kong’s Hang Seng () slipped 0.3%.
Currencies and commodities: The dollar fell against the Japanese yen, but edged higher against the euro and British pound.
Oil for June delivery edged down 25 cents to settle at $92.56 a barrel.
Gold futures for June delivery rose $38.30 to settle at $1,5574.90 an ounce.
Facebook’s IPO is causing a frenzy among investors eager to get a piece of the social networking website.
Whether it’s a good idea to jump in when FB debuts Friday on the Nasdaq is another story.
"Investors shouldn’t invest in any one stock unless they can afford to lose it all," said Jay Ritter, professor of finance at the University of Florida. "With a growth company like Facebook, there is a lot of upside potential, but there is also substantial downside risk if the company fails to meet expectations."
Buying shares during the initial public offering process is particularly challenging for small investors. Shares of an IPO are primarily distributed to the institutional investors, mutual funds and hedge funds which are the biggest clients of the major Wall Street banks that are underwriting the offering.
While Facebook is making an effort to make some of its hotly sought after shares accessible to all, they’ll still be hard to come by.
The demand is so strong that Facebook raised the target price range for its stock to between $34 and $38 per share, from the $28 to $35 range it set earlier this month. And early Wednesday, Facebook said it will sell 25% more of its shares.
Sterne Agee analyst Arvind Bhatia says there’s a buying opportunity for investors if they’re able to snag Facebook shares within the IPO offering range. But to those who have to wait until Facebook shares begin trading on the open market on Friday, Bhatia urges caution.
Facebook IPO is no safe haven
Given all the hype, experts anticipate that the company will have a strong debut.
For example, when Groupon () went public last November, the stock opened at $28, 40% above its IPO price, and surged as much as 56% on its first day of trading when it hit an all-time high of $31.14.
If investors had purchased shares of Groupon during their first day of trading, they’ve likely had a tough time booking decent returns. The stock has been trading below its IPO price for months, and is currently 40% below its IPO price.
Similarly, Zynga () shares surged as much as 15% during their market debut in December, but ended up closing that day 5% below the IPO price. Shares are now trading more than 14% below the IPO price.
"I would say it’s better for individual investors to generally avoid playing the IPO game until a few quarters after the company goes public so that its stock is a bit more established," said Bhatia. "Or they need to be able to stomach a lot of volatility."
Seniors clamoring to invest in Facebook IPO
If you’re daring enough to try buying Facebook shares on opening day, there are a few ways to protect yourself.
For example, by using a so-called limit order, you can set a ceiling for the purchase price that you’ll be comfortable paying, said Tom Schrader, managing director at Stifel Nicolaus.
If the stock stays above your limit, or if other limit orders snatch up all the shares available at the limit price, the trade won’t be executed. You can also specify whether you want to consider buying the stock with the limit order just at the open or throughout the trading day.
On the flip side, if you nab some shares and want to sell them at a certain price, you can use a limit order that sets a floor on the sales price that you’re willing to accept, helping you prevent selling your shares for less than you want.
The hard part is determining what’s a fair price for a share of Facebook. Morningstar’s analyst Rick Summer pegs fair value for the stock at $32.
"The enthusiasm for Facebook is not misplaced, but the market may be underestimating near-term challenges for the company," he said.
How small investors can get in on Facebook IPO
In particular, Summer noted that while Facebook will be able to translate its immense user base - over 900 million a month — into massive growth over the long run, "the ability to further monetize current users represents a significant hurdle which must be overcome."
Concerns are particularly high about the company’s ability to monetize the growing number of users that are accessing Facebook on mobile devices.
"We see mobile monetization as a significant long-term growth opportunity for Facebook, but with some initial challenges," said Sterne Agee’s Bhatia, whose price target for Facebook’s stock over the next 12 months is $45. "For example, it is not yet clear if most of the mobile advertising growth will be incremental or will cannibalize online advertising."
Advertising accounted for 85% of Facebook’s total 2011 revenue, but to-date, most of Facebook’s ads have been display ads: banners, images and other graphics, ignoring mobile devices.
Another worry among analysts is Facebook CEO Mark Zuckerberg’s tight grip on the company. After the IPO, the young billionaire will control about 57% of the voting power.
Morningstar’s Summer notes that Facebook’s recent purchase of Instagram for $1 billion reportedly happened with little involvement from the company’s board of directors.
"If Mr. Zuckerberg loses discipline in allocating the company’s capital, there can be no guarantee that any such mechanism would prevent the company from destroying shareholder value," he said.
Following an IPO-induced pop, Summer said the focus on these looming challenges may lead to stock price declines and "ultimately create a very interesting buying opportunity for the shares at a later date."
The British pound has become currency traders
The reputation that Jamie Dimon honed for decades on Wall Street has been severely damaged in a matter of days.
In the 1980s and 1990s, he was the protege of banking industry legend Sanford Weill. In the early 2000s, he took over Bank One, an institution few believed was fixable, and restored it to a profit.
And in 2008 and 2009, at JPMorgan Chase, Dimon built a fortress strong enough to stay profitable during the financial crisis.
His zeal for cost-cutting and perceived mastery of risk did more than keep JPMorgan strong enough to bail out two failing competitors, Bear Stearns and Washington Mutual. It gave him a kind of street cred during the post-crisis years, when he lashed out at regulators who sought to rein in banks, and Occupy Wall Street protesters who raged against them.
Now all that is on the line.
Dimon had to face stock analysts and reporters on Thursday and confess to a “flawed, complex, poorly reviewed, poorly executed and poorly monitored” trading strategy that lost a surprise $2 billion.
The revelation caused traders to shave almost 10 percent off JPMorgan’s stock price the following day and brought a shower of complaints from industry observers and lawmakers who said banks needed tighter scrutiny.
Making the black eye worse for Dimon, the loss came in derivatives trading, the complex financial maneuvering that _ on a much greater scale _ led to large losses and dissolved banks during the financial crisis.
Dimon “staked so much of his reputation on creating this perception of being the ultimate, infallible risk manager,” said Simon Johnson, a former chief economist of the International Monetary Fund who is now a professor at MIT. “And along comes this huge mistake.”
Dimon, 56, grew up in the Queens borough of New York City, the grandson of a Greek immigrant. His father was a stockbroker who worked for many years at Merrill Lynch.
After college and business school, Dimon turned down an offer from the venerable investment bank Goldman Sachs. Weill had been Dimon’s father’s boss at a previous job and recruited the younger Dimon to American Express.
Weill became Dimon’s mentor. When Weill left American Express in 1986, Dimon followed him to Commercial Credit Co., a sleepy finance firm that catered to middle-class clients.
Weill went on to buy a host of companies, including Smith Barney and Travelers, and Dimon led some of those divisions. The empire-building culminated when Travelers merged with Citicorp to form Citigroup in 1998, the largest U.S. bank at that time.
Dimon was the heir apparent but had started to clash with Weill. Weill was insecure about Dimon’s growing assertiveness, and Dimon often showed his temper in meetings. Weill fired Dimon in 1998.
Dimon spent time reading biographies of statesmen and took up boxing lessons to let off steam. In 2000, he became CEO of Bank One, a Chicago bank that was losing money. By 2003, he had turned the bank around, and in 2004 it merged with JPMorgan Chase. Dimon became CEO of JPMorgan in 2006.
By that time, Dimon had lived through several industry crises, including the savings and loan meltdown of the late 1980s, a Russian debt default in 1998 and the dot-com stock bust of the early 2000s.
Dimon was not the man responsible for any of those, of course, as he is for the $2 billion error.
His admission of the mistake this week left some analysts asking whether his grip is slipping, and the bank’s more than $2 trillion in assets have become too big for him to manage.
More likely, some other analysts said, it is a statement about how, three and a half years after the crisis, banks still conduct impossibly complex trades that are difficult to track.
“If even Jamie gets it wrong managing a $2 trillion bank, what does it say about banks where management is far inferior?” said Mike Mayo, a bank analyst at the brokerage CLSA and author of the book “Exile on Wall Street.”
Just a few weeks ago, while answering questions from stock analysts, Dimon dismissed media reports of big market-moving trades by JPMorgan as a “complete tempest in a teapot quick payday loans.”
He admitted Thursday that he should have been paying better attention. Asked to what, he first said trading losses then said, “There was some stuff in the newspaper and a bunch of other stuff.”
Dimon’s signature trait has been cost-cutting, an attribute that helped the banks he led squirrel cash away. At Bank One, after finding out how many newspaper subscriptions the bank paid for, he is reported to have told an executive: “You’re a businessman; pay for your own Wall Street Journal.”
That low tolerance for profligacy kept the banks he managed strong enough to weather any crisis. Now, Dimon says the trade that was conducted is so complex that the losses could easily get worse.
JPMorgan’s $2 billion loss was caused by trades that were meant to hedge, or protect, the bank from trading losses that could occur in the investments of the bank’s corporate treasury.
The amount of the loss was small for an institution of JPMorgan’s size _ it cleared $19 billion in profit last year _ but will hurt its second-quarter earnings and was an embarrassment. It rattled the industry, too. Other bank stocks fell as much as 4 percent Friday.
“It puts egg on our face, and we deserve any criticism we get,” Dimon said at a hastily convened conference call with investors to reveal the losses.
During the crisis in 2008, Dimon drew wide praise for keeping his bank healthy, including from President Barack Obama and billionaire investor Warren Buffett. One biographical book that was released soon after the financial crisis was titled “Last Man Standing.”
In the years since, other Wall Street bankers and CEOs have cowered as the public backlash against bankers and their bonuses has grown. But Dimon, who made $23 million last year, according to an Associated Press calculation, used his stature to become the most outspoken banking CEO.
He attacked any obstacle that came in his way or his company’s _ especially regulations aimed at stopping banks from taking the kinds of risks that precipitated the financial crisis. Dimon viewed them as impediments to the bank’s ability to make a profit.
He did not even spare the Federal Reserve chairman, Ben Bernanke, or one of his iconic predecessors, Paul Volcker. At times, his outspokenness took on a swagger that raised eyebrows.
At a public forum last year, Dimon pointedly challenged Bernanke to defend his regulatory drive, which he said was going to slow down the U.S. economic recovery.
Earlier this year, Dimon said in a Fox Business Network interview: “Paul Volcker, by his own admission, has said he doesn’t understand capital markets. … He has proven that to me.”
One of the most respected Fed chiefs, Volcker has championed a law that restricts banks from trading with their own money.
Since Thursday, Dimon has contended the trades in question were meant to manage the bank’s financial risk, not turn a profit, and thus would not be subject to the so-called Volcker rule.
Outside analysts have been more skeptical, and the mistake has breathed energy into the push to toughen financial regulations. Dimon did say that he should have been paying closer attention.
“We know we were sloppy. We know we were stupid. We know there was bad judgment,” he told NBC News on Friday in an interview to air Sunday on “Meet the Press.”
He said he did not know whether laws had been broken and invited regulators to look into the matter. “But we intend to fix it and learn from it and be a better company when it’s done,” he added.
Most analysts gave Dimon kudos for coming clean on the trading loss, but few disagreed that his reputation had taken a severe hit.
Said Nancy Bush, longtime bank analyst at NAB research, and contributing editor at SNL Financial: “Jamie certainly cannot be standard-bearer for the banking industry anymore.”
Bank of England Governor Mervyn King said central bank officials are prepared to take unpopular measures to prevent banking excesses from undermining financial stability and economic growth.
For the first time since the start of 2008, bonds were the only investments to provide positive returns amid renewed concern the global economy is slowing and as widening deficits in Europe threaten contagion.
Fixed-income assets — from Australian government debt to U.S. Treasuries to global junk bonds — gained 0.7 percent last month including reinvested interest, according to Bank of America Merrill Lynch index data. The MSCI All-Country World Index of stocks lost 1.1 percent including dividends while the Standard & Poor
Spain will restore border checks and suspend the treaty that makes the EU frontier-free for travelers as it hosts a European Central Bank meeting next month.
An Interior Ministry official said Friday the so-called Schengen Treaty will be suspended right before and during the May 3 meeting in Barcelona. The bank’s governing council meets outside its Frankfurt headquarters periodically.
Spain is suspending the accord because it believes large numbers of protesters will come to Barcelona, in particular people from Italy and Greece, which are reeling under austerity measures guaranteed fast personal loans.
The official spoke on condition of anonymity in line with ministry policy.
Barcelona saw riots during a March 29 general strike. A beefed-up police presence is planned for the ECB meeting.
The number of people seeking U.S. unemployment benefits suggests hiring is slowing.
The Labor Department said Thursday that weekly applications dipped last week by 2,000 to a seasonally adjusted 386,000. But that was only after the department revised up the previous week’s data to show 8,000 more people applied for benefits than first estimated.
The four-week average, a less volatile measure, rose last week by 5,500, to 374,750. That’s the highest level in three months, although it is still 9 percent lower than the level from September.
Applications have started to tick up in recent weeks after months of steady declines. When applications fall below 375,000, it generally suggests hiring will be strong enough to lower the unemployment rate.
Some economists said temporary layoffs stemming from the spring holidays have inflated the figures. Many school employees are laid off during spring break and are eligible to file for benefits.
“What we’re seeing in the numbers is not unusual at this time of year,” said Carl Riccadonna, an economist at Deutsche Bank. Applications will likely fall in the coming weeks, he added.
Others said the gains may not only reflect seasonal adjustments.
“Discouraging news on initial jobless claims suggests job growth is slowing,” said Jennifer Lee, an economist at BMO Capital Markets. “Still growing, mind you, but at a slower pace.”
Hiring weakened in March after a fast start this year. Employers added only 120,000 jobs in March _ half the pace of the previous three months.
Many economists downplayed the weak March figures, noting that a warmer winter may have led to some earlier hiring in January and February. They have noted that the economy has added an average of 212,000 jobs per month in the January-March quarter, well ahead of last year’s pace.
The unemployment rate has fallen to 8.2 percent in March from 9.1 percent in August. Part of the drop was because people gave up looking for work. People who are out of work but not looking for jobs aren’t counted among the unemployed.
Lower benefit applications indicate that companies are cutting fewer jobs. And economists note that unemployment benefit applications are at a much lower level than they were last year, which is a hopeful sign that March’s weak numbers were a temporary lull. Economists say they will have a better sense of the trend in hiring when the government issues the April jobs report next month.
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