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Tuesday, August 12, 2008

Bloomberg.com: Worldwide

By Alan Bjerga

Aug. 12 (Bloomberg) -- Corn and soybean crops in the U.S., the world's largest producer, avoided the damage investors anticipated in June from the worst flooding in 15 years as ``ideal'' weather helped plants recover, the government said.

The corn crop will be the second-biggest ever and the soybean harvest will be the fourth-largest, the U.S. Department of Agriculture said today in a report. Cash prices for both commodities will be lower than forecast last month, the USDA said, helping to keep food inflation in check.

The USDA's forecast for higher corn yields ``was a surprise and suggests the crops were never as bad as people thought back in the middle of the June flooding,'' said Chad Henderson, a market analyst for Prime Agricultural Consultants in Brookfield, Wisconsin. ``Both corn and soybeans will need an extended growing season'' to reach full potential, he said.

The floods sent crop prices surging, fueling concerns food prices would soar. Corn reached a record in late June, more than doubling from a year earlier, and soybeans touched an all- time high of $16.3675 a bushel on July 3, jumping 92 percent in 12 months. Since then, both commodities have plunged.

The USDA predicted a corn crop of 12.288 billion bushels, based partly on surveys of farmers in flood-affected states during July and August, after the waters receded. That's up 4.9 percent from last month's forecast. The soybean harvest will total 2.973 billion bushels, the USDA said, down just 0.1 percent from the month-ago projection.

Corn, Soybean Futures

Corn yields will rise to 155 bushels an acre, 4.4 percent more than estimated in July, the department said.

The corn-crop forecast is a ``negative number for the market,'' said Greg Grow, director of agribusiness for Archer Financial Services in Chicago. ``Buyers will wait for lower prices closer to harvest before increasing coverage.''

Corn futures for December delivery rose 2.5 cents, or 0.5 percent, to $5.195 a bushel at 12:04 p.m. on the Chicago Board of Trade, after earlier falling as much as 2.4 percent. Before today, the most-active contract had dropped 35 percent from the record high of $7.9925 a bushel on expectations that the flood damage was not as bad as first thought.

Soybean futures for November delivery rose 13.5 cents, or 1.1 percent, to $12.095 a bushel in Chicago. Yesterday, the price at one point touched $11.68, the lowest since April 1. The most-active contract before today had dropped 27 percent since reaching the record.

Cash Prices

The USDA reduced its estimates for cash prices for both crops in the marketing year that starts Sept. 1. Corn will average $5.40 a bushel, down from $6 projected in July, while soybeans will sell for about $12.25 a bushel, down from the month-ago estimate of $12.75.

The June floods killed at least 24 people and inundated more than 3.4 million acres. Crops were destroyed in waterlogged fields, threatening to increase food prices already forecast by the USDA to rise as much as 5.5 percent this year, the most since 1989.

A bigger crop should stabilize corn prices and ease inflation pressure on grain- and oilseed-based food products, USDA Chief Economist Joe Glauber said today in an interview. Unlike some past floods, such as the 1993 Midwest deluge most often compared with this year's, farmers had a chance to replant crops with assistance from the weather.

``With wet weather or late planting, sometimes the root system isn't fully developed, so that you really need timely rains'' combined with land that's drying out from overflows, he said. ``The plant population looks pretty good.''

Skeptical Analysts

Some analysts said USDA's yield projection for corn is high and the government may be underestimating the residual damage caused by the June floods, especially in Iowa.

``The thing that surprised me was the fact they increased harvested acres as a percentage of planted acres,'' said Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, Iowa. ``I talk to people who tell me about how bad their drowned-out stalks are everyday.''

On June 22, during the height of flooding, the USDA said 59 percent of the corn crop was in good or excellent condition, down from 73 percent at the same time in 2007. For soybeans, it was 57 percent, compared with 66 percent. The USDA yesterday said 67 percent of corn was in good or excellent condition and 63 percent of soybeans, compared with 56 percent for both at the same time last year.

``Abundant rainfall and near- to below-normal temperatures provided nearly ideal conditions for Midwestern corn and soybeans,'' the USDA said in today's report. The department's estimates were made after surveying about 11,000 farmers in Illinois, Indiana, Iowa, Minnesota, Missouri and Wisconsin during July and August.

To contact the reporters on this story: Alan Bjerga in Washington at abjerga@bloomberg.net;

Last Updated: August 12, 2008 13:06 EDT
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Bloomberg.com: Opinion

Aug. 12 (Bloomberg) -- Never mind.

Or, in the words of Merrill Lynch & Co. Chief Executive Officer John Thain, ``Our clients have been caught in an unprecedented liquidity crisis. We are solving it by giving them the option of selling their positions back to us.''

Thain said these words on Aug. 7, after the firm announced it would offer to buy back $10 billion in auction-rate securities from individual investors beginning in January.

The Merrill offer came the same day Citigroup Inc. reached an agreement with regulators to buy back the auction-rate paper it sold to individuals, small businesses and charities, and the day before UBS AG reached a similar agreement to make its customers whole.

There: Auction-rate securities problem solved.

I love the way Thain put the whole episode in present tense, and how he put Merrill in the role of the knight on the white charger, coming to the rescue of investors. If you didn't know what happened, you might be tempted to believe it.

The only question I have for these securities firms' CEOs is: If you had it all to do over again, would you still have stopped supporting these auctions back in February, leaving thousands of customers with investments that they could see but not get their hands on?

`De Minimis'

Thain makes it sound like Merrill's clients were walking around one fine day and all of a sudden stepped in quicksand. He didn't even have the grace to say, ``Mistakes were made,'' which are weasel-words but at least convey that someone made a boo-boo.

The only problem Merrill's clients had was Merrill. The firm sold them auction-rate securities without really telling them how the auctions worked, or that they would stop working if Merrill stopped providing backup bids.

Investors thought they were buying an investment vehicle that was described to them as just like a money-market fund, except with a little more yield. Some brokers apparently didn't even know that their own firm propped up the market, according to the administrative complaint filed on July 31 against Merrill by Massachusetts Secretary of State William Galvin.

Asked what kind of an impact the buyback would have on its balance sheet, Citigroup spokesmen said, ``de minimis,'' a Latin expression meaning insignificant.

Can you imagine? ``De minimis''?

Blood Oath

Let's think about that. I'm sure the company wanted to downplay the impact of the settlement, and maybe sound a little bit flip and even dismissive about it, but what an unfortunate and insulting choice of words.

Thousands of investors at minimum were mightily inconvenienced because they couldn't get at their money.

Their brokers had nothing to tell them, and the firms themselves, at least to judge from the volume and intensity of e- mail I received on this subject, were eerily uncommunicative.

Because of all this, customers have sworn blood oaths against their brokers -- even ones whom they had worked with for years -- and now say they will never trust their securities firms in particular and big Wall Street firms in general ever again -- and this was ``de minimis''? If this was ``de minimis,'' then why was it so important for the big firms to blow up the auction-rate market six months ago?

I wonder, too, just how ``de minimis'' the hundreds of states and municipalities that have had to spend millions of dollars in higher interest and refinancing costs find this whole sorry episode.

Lost to History

Surely the saddest words that accompanied the Citigroup story were: ``Citigroup neither admitted nor denied allegations of wrongdoing.''

This is common practice in securities-firm settlements. The company in question sidesteps the guilt and embarrassment of owning up to its bad behavior.

Now lost to the narrative of ``Lessons Learned From the Great Auction-Rate Securities Freeze of 2008'' are hundreds of pages of e-mails, reports and memoranda that would have documented Citigroup's role in the disaster. I can't imagine that they would have looked very much different from the UBS and Merrill exhibits, but we'll never know.

With the biggest names in the auction-rate securities market now agreeing to provide investors with ``liquidity at par,'' as they call it, we can expect the others to follow suit. It will be interesting to see the next act of this performance, because, as you know, the show never ends. How will the auction-rate securities be repackaged for sale?

(Joe Mysak is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Joe Mysak in New York at jmysakjr@bloomberg.net

Last Updated: August 12, 2008 00:01 EDT
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UBS rips up bank structure as rich clients flee - Forbes.com

Switzerland - (Updates with closing price, Olivant comment)

By John O'Donnell and Sam Cage

ZURICH, Aug 12 (Reuters) - UBS (nyse: UBS - news - people ) will separate its troubled investment bank from its prized wealth management arm, paving the way to sell the business that made it Europe's biggest casualty of the credit crunch.

The world's No.1 banker to the rich gave in to shareholder pressure to restructure on Tuesday, admitting there were problems keeping the two businesses integrated.

"It might be that we keep or divest or enter into joint ventures or collaboration," Chairman Peter Kurer told journalists, adding that there were no plans yet to sell parts of the business.

As peers such as Credit Suisse drew a line under the crisis, there were further reminders of the damage the investment bank has wreaked at UBS as investment writedowns climbed a further $5 billion to top $42 billion.

It haemorrhaged 44 billion Swiss francs ($41 billion) in the second quarter as investors moved their money to rivals including smaller Swiss banks.

Net new money inflows had been 34 billion francs a year earlier but many well-heeled clients have been scared off by the steady stream of bad news out of the group's Zurich headquarters. UBS has invested 2,000 billion francs for the world's wealthy.

Kurer's change of direction breaks a taboo at UBS, which has long stood by its strategy of running asset management, banking for the rich and investment banking together. These will now be run as autonomous businesses.

The move comes after the bank came under increasing pressure from investor Olivant -- headed by former UBS Chief Executive Luqman Arnold -- which has been pressing for a break-up.

"We believe UBS investment bank will be not fully owned and even potentially disposed of by UBS over the next two years," said JP Morgan analyst Kian Abouhossein.

Investors welcomed the decision, sending UBS's shares up initially although they later slipped and closed 2.4 percent lower at 22.62 Swiss francs as European peers also fell.

Olivant, which holds 2.78 percent of the ordinary share capital of UBS, welcomed the new strategic direction but cautioned that problems remained, not least to the bank's once rock-solid reputation.


The Swiss bank also appointed a new finance chief, former investment banking deal broker John Cryan, who last year masterminded the break-up of ABN AMRO which sold itself to a consortium led by the Royal Bank of Scotland (nyse: RBS - news - people ).

"We have learnt our lessons," chairman Kurer told journalists and analysts later, saying the bank would remain independent as it pares back 5,500 staff.

But Kurer and Chief Executive Marcel Rohner still face widespread investor unrest. UBS's share price has tumbled by almost two thirds to record lows since the start of the year -- twice that of European peers.

"We are still not happy with the results," said Helmut Hipper, a fund manager at UBS shareholder Union Investment.

Hipper said that there was evidence that not only Swiss customers were ditching the bank. "A big part of the money outflows were international," he said. "The reputational problems are hitting home internationally." The result in the second quarter -- a bigger-than-expected loss of 358 million francs -- was impacted by UBS's move to buy back bonds it was accused of misselling.

UBS and U.S. rivals Citigroup (nyse: C - news - people ) and Merrill Lynch (nyse: MER - news - people ) remain the three hardest hit in the financial markets turmoil.

Unlike its American rivals, however, UBS is being singled out for tough new rules from the Swiss banking watchdog that will force it to keep back considerably more capital, putting a brake on its investment bank in London and Wall Street.

UBS's admission that the one-bank model is broken comes just a week after rivals HSBC (nyse: HBC - news - people ) and Barclays (nyse: BCS - news - people ) defended the strategy.

** To read more on UBS please double click on (Additional reporting by Albert Schmieder and Steve Slater in London; Editing by Louise Ireland/Elaine Hardcastle)

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