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.
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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.”
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Online practice tests for medical board exams. A system to trade recyclable materials. “The Hulu of foreign TV.”
Those are a few of the startups that received $50,000 Arch Grants Monday, winners of the first round of a new program designed to boost entrepreneurship in St. Louis. In all, 15 companies were awarded $750,000 in grants, which come with professional services and office space downtown.
The startups come from a mix of industries and backgrounds. Several are affiliated with other startup incubators in St. Louis. Four are moving here from elsewhere, including one from Costa Rica.
They were picked from more than 400 applicants from around the world, and most of the winners made it to Monday’s ceremony, where they gathered on a big staircase for the award presentation.
One of the people on that staircase was Dan Garcia. He’s a senior at Washington University, studying chemical engineering. He’s also director of science at Saturnis LLC, which is trying to commercialize a process for turning turn biomass into fuel for trucks and other vehicles.
Winning the grant is a big help, Garcia said, and will anchor his company in St. Louis – near plant research giants like Monsanto – for the forseeable future.
That’s the idea, said Jerry Schlichter, an attorney who co-founded the Arch Grants, to give companies with potential the chance to grow here in St. Louis, instead of going elsewhere for funding.
“We want to change the game here in St. Louis for entrepreneurs,” he said.
The event was held on the 10th floor of a downtown office building, with, fittingly, a picture-window view of the Arch. It was packed with bankers and biotech executives and other business leaders from around St. Louis. Gov. Jay Nixon was there, to talk about the importance of small business in growing Missouri’s economy.
Many of those business leaders – and Nixon’s Department of Economic Development – had kicked in money to fund the program. Arch Grants so far has raised just under $3 million in pledges, and plans more rounds of annual awards.
That money goes a long way, said Schlichter. It also sends a message that St. Louis is serious about startups.
“We’re building a community around entrepreneurship here,” he said. “The message we want to send is that St. Louis is the place, the place, to be for entrepreneurs.”
And to help pound that message home, they enlisted one of St. Louis’ best known entrepreneurs, Square co-founder Jim McKelvey, to address the crowd. McKelvey, who’s an advisor to the Arch Grants and helped judge the entrants, noted that starting a company from scratch can be “a lonely process.” But, he said, the people in that room want to help, and he hoped that message would resonate.
“We understand what it’s like in St. Louis, and we’re committed. Come to St. Louis, and you’ll be among friends,” McKelvey told the winners.
“Now get back to work.”
————–
Winners
Companion Pharma Inc. (veterinary medicine)
Food Essentials (Food labeling data analysis)
Graematter, Inc. (regulatory database)
IDC Projects (mobile, location-based social gaming)
Iveria TV (foreign-language TV streaming)
Labor Voices (crowd-sourced supply chain intelligence)
Material Mix (Exchange platform for trade in recyclables)
Med Preps (tests and flash cards for medical board exams)
Observable Networks (Network security and management)
Obsorb (small business work platform for web, smartphone and tablet)
Pharos Scientific (medical imaging)
Saturnis LLC (creating fuel from biomass)
simMachines (search engine technology)
Techli (blog for digital startup community in Midwest)
Unique Metal Solutions (pipe systems for food/beverage processing)
Laclede Group Inc., the owner of Missouri’s largest natural gas utility, overcame one of the mildest winters on record to post a higher fiscal second-quarter profit.
Net income for the three months ended March 31 rose 6 percent to $29.7 million, or $1.32 a share, from $27.9 million, or $1.25 a share, for the same period last year, the St. Louis-based company said.
Sales fell more than a third to $358.2 million.
Earnings for the company’s gas utility, Laclede Gas Co totally free credit score., fell slightly to $25.9 million as customers ran their furnaces less because of the warmer winter.
The company’s wholesale natural gas marketing business more than made up the difference, more than doubling its profit to $3.8 million.
A feud over the riches of South Korea’s Samsung business empire has erupted in public as family members prepare to take an inheritance battle to court.
Lee Kun-hee, chairman of Samsung Electronics Co., which is the flagship company of the Samsung conglomerate, is facing off against his older brother, a sister and a nephew’s wife who all want a bigger piece of the Samsung cake.
The court battle might upset a dynastic succession in Samsung’s leadership as it could result in the unraveling of a cross-shareholding structure that allows Lee Kun-hee to control the group as a minority shareholder.
Lee, who is South Korea’s wealthiest individual, on Tuesday took the rare step of publicly attacking his brother, Lee Meng-hee, declaring on YTN television that the 81-year-old “has been already kicked out from our home.” Lee Meng-hee had earlier called his brother “greedy” and “childlike.”
Battles for control of Chaebol, South Korea’s family-controlled industrial groups that wield immense power over the economy, are not uncommon but it is unusual for the internal wrangling to become public.
Lee Meng-hee filed a lawsuit in February, demanding more than 700 billion won ($613 million) of shares in Samsung Life Insurance Co. and other companies. Similar claims followed by Lee’s older sister and the wife of a dead nephew.
Lee Kun-hee, the third son of Samsung founder Lee Byung-chull, was tapped in 1979 by his father to lead what would become South Korea’s most valuable company. The decision apparently disappointed Lee Meng-hee who later wrote in his autobiography that he had thought his father would turn over the throne to him.
The 70-year-old Samsung chairman has refused to settle the dispute out of court. A date for the first hearing in the case will be announced after the court reviews responses from Samsung, said lawyer Jeong Jin-su of Yoon & Yang LLC, which represents the three plaintiffs.
The family members have taken to public denunciations that are being lappped up by local media.
“I’m trying to retrieve my property that Lee Kun-hee has been hiding for 25 years,” his sister Lee Suk-hee said in a statement released by the law firm.
The U.K. trade deficit widened to the most in three months in February as exports of cars and heavy machinery fell, especially to the U.S., China and Russia.
The goods-trade gap widened to 8.77 billion pounds ($14 billion) from a revised 7.88 billion pounds in January, the Office for National Statistics said today in London. The median of 18 forecasts in a Bloomberg News survey was for a deficit of 7.65 billion pounds. Exports fell 3.4 percent while imports were unchanged.
Prime Minister David Cameron is in Asia this week, leading a trade and diplomatic mission seeking to boost commercial ties with the region. The government hopes exports can bolster the British economy as manufacturers cope with rising unemployment and inflation that
Walgreen Co. has already suffered punishing losses since December, when it ended its contract with Express Scripts after a bitter public dispute over pharmacy reimbursement rates.
And with this week’s merger of Express Scripts and Medco Health Solutions Inc, Walgreen will have to contend with an even larger giant.
Now commanding more than 40 percent of the pharmacy benefit management market, north St. Louis County–based Express Scripts Holding Co. likely will likely demand big concessions from other drug store chains and grocery markets that operate pharmacies.
Walgreen standoff with Express Scripts provides a telling test case of industry fears that the now super-sized Express Scripts, the nation’s biggest PBM, wields too much market power. Critics of the merger have contended the merger will give Express Scripts unchecked ability to force untenable contracts on retail pharmacies, while pushing consumers into getting their drugs by direct mail.
For now, Express Scripts plans to operate Medco as a stand-alone business. Express Script “absolutely will have more negotiating gower in dealing with both the chains and the independents,” said Jeff Jonas, a stock analyst at Gabelli & Co, an investment management firm in Rye, N.Y. “But they need to integrate the companies first, which could take up to 18 months.”
Jonas estimates that Walgreens stands to lose $4 billion in revenue in 2012 — about 6 percent of its total revenue — due to lost prescription sales from the Express Scripts contract, and could lose another $3 billion in 2013.
Walgreen Co. Vice President Michael Polzin said the company intends to honor its existing contract with Medco, but would not disclose when that contract is set to expire. Express Scripts spokesman Brian Henry also declined comment on the specifics of the Medco-Walgreens contract.
Employers contract with pharmacy benefit managers to cover their workers’ drug benefits. PBMs then deliver drugs through the mail or reimburse pharmacies for filling prescriptions.
From Walgreen’s perspective, the only thing worse than losing the Express Scripts deal would have been taking it.
“We firmly believe that this decision was in the long-term interests of our customers, employees, and shareholders,” said Michael Polzin, a Walgreens vice president. “We expect the short-term impact to lessen over time. If the same terms are offered to us by another company, it still wouldn’t be in our long-term interest to accept those terms.”
In the meantime, Walgreen will pursue a strategy of aggressively seeking deals with small and mid-sized pharmacy benefit managers and remaking its stores to offer a wider array of health and wellness services to consumers. And it’s trying to get lean for the challenges ahead, cutting costs at its corporate offices in Deerfield, Il., which began several months ago and will continue, probably including layoffs, Polzin said.
Walgreen has largely shied away from public comments about the Express Scripts-Medco merger, but other drug store and supermarket representatives have asserted that consumers will lose as Express Scripts drives up prices and profits.
Express Scripts, which has built its business on cutting health costs, counters that economies of scale resulting from the deal will in fact drive down consumer prices. “We have a robust and competitive industry, by any analysis,” said Express Scripts’ Henry. “We’re going to have to compete against a large number of PBMs who have their own special niche in the marketplace. … We believe we have a very healthy relationship with over 60,000 retail pharmacies and that will only continue.”
Walgreens dropped its contract with Express Scripts on Jan. 1 after months of stalled talks, and has seen its rivals — including CVS Caremark, WalMart, and Rite-Aid, along with supermarket pharmacies — openly advertise that their readiness to fill prescriptions of Express Scripts members. And those competitors have picked up a sizeable chunk of Walgreens’ business.
The drug store chain reported March sales of $6.02 billion, a decrease of 4.3 percent from the previous year.
“The negative impact on comparable store prescriptions filled due to no longer being part of the Express Scripts, Inc. pharmacy network was 10.7 percentage points,” Walgreens disclosed Thursday in a news release.
Meanwhile, Moody’s Investors Service on Thursday downgraded Walgreen’s credit rating by one small notch. The rating service voiced concern about the drug chain’s ability to win back Express Scripts customers.
So the conventional wisdom is that the Express Scripts-Medco merger puts Walgreens over an even deeper barrel. Walgreens might get along without Express Scripts but probably can’t afford to lose Medco, said Judson Clark, a stock analyst at Edward Jones & Co. in Des Peres.
“It’s in the best interest of Walgreens to get a deal done,” Clark said.
Walgreens “made an attempt to play hardball with Express Scripts and it didn’t work. It looks like it’ll be difficult for Walgreens to grow with this hanging around their neck.”
Meanwhile, Walgreens is expanding its health-related business beyond the traditional pharmacy. Since November 2010, Walgreens has opened about 200 “wellness format” stores in Chicago, Indianapolis, and through its subsidiary, Duane-Reade locations, in New York.
The stores offer immunizations, health testing, disease management progreams, and the treatment of minor ailments such as skin rashes, with the goal of lowering overall healthcare costs. The stores accept insurance payments but also have cash prices.
“We’re looking to focus overall on health, pharmacy and wellness. To help people live well, stay well, and get well,” Polzin said. “And that means creating a new pharmacy and health experience … Expanding fresh healthy food offerings in the store. Bringing more beauty and cosmetic services.”
— Jim Gallagher of the Post-Dispatch contributed to this report
Bank of England policy makers will maintain the size of their bond-buying program next week amid a split over whether the economy needs more stimulus, economists forecast.
The nine-member Monetary Policy Committee led by Governor Mervyn King will hold the target at 325 billion pounds ($521 billion) on April 5, according to all 39 economists in a Bloomberg News survey. They will also leave their key interest rate at a record low of 0.5 percent, said all 53 economists in a separate poll.
Divisions have emerged as a surge in oil prices threatens to stoke an inflation rate now in its third year above target while Europe
The Federal Reserve
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