Finance and Economic

Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research) raised $4 billion of capital on Tuesday in a preferred stock deal designed to stop questions about the Wall Street investment bank’s stability.

Lehman’s shares rose 17.8 percent as investors snapped up the offering, quelling rumors of looming write-downs that had left some worried Lehman could face a run on the bank similar to the one suffered by Bear Stearns Cos Inc (BSC.N: Quote, Profile, Research).

“The deal appeared to have gone pretty well. People feel comfortable with Lehman, unlike the situation around Bear Stearns,” said Lee Delaporte, director of research at Dreman Value Management.

Investors have been jittery about investment banks, and particularly Lehman, after Bear’s demise and more than $200 billion of write-downs industrywide tied to subprime mortgages and other toxic assets.

But Lehman’s convertible preferred deal allayed fears about the financial sector, and lifted U.S. stocks more than 3 percent fast cash advance. At the same time, prices dropped on U.S. Treasury debt, which is often seen as a safe haven in stormy markets.

In addition to the Lehman deal, UBS AG (UBSN.VX: Quote, Profile, Research) and Deutsche Bank AG (DBKGn.DE: Quote, Profile, Research) said they would record more than $23 billion of write-downs, pushing European financial stocks dramatically higher. Investors saw the write-downs as a signal that banks are getting their problems behind them.

Still, some question whether Lehman has written down enough of its $73.4 billion of mortgage and real estate assets. Lehman has said its valuation measures are fair.

Lehman suspects short sellers have spread false rumors about the company to profit from share declines. The company said last month that it has nearly $100 billion of assets at its holding company that could be easily sold or borrowed against. 

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Curbing shady lending practices that contributed to the housing and credit debacles should help revive the badly shaken confidence of the public and investors, a Federal Reserve board member said Thursday.

"Effective consumer protection can help to restore confidence in the mortgage markets and help to preserve the flow of capital to consumers who wish to purchase a home," Federal Reserve Governor Randall Kroszner said in a speech to a conference of Hispanic real-estate executives here.

Under fire from Congress for being too lax in its oversight, the Fed has proposed a sweeping rule to protect homeowners from dubious lending practices. Subprime borrowers - those with tarnished credit histories or low incomes - have been hurt the most, although problems have spread to more credit-worthy borrowers.

The Fed’s proposal is aimed at preventing prospective homebuyers from getting burned in the future when they take out a mortgage.

On this front, the Fed has a proposal that would: restrict lenders from penalizing risky borrowers who pay loans off early; require lenders to make sure these borrowers set aside money to pay for taxes and insurance; and bar lenders from making loans without proof of a borrower’s income.

It also would prohibit lenders from engaging in a pattern or practice of lending without considering a borrower’s ability to repay a home loan from sources other than the home’s value easy payday loan. The proposal would curtail misleading ads for many types of mortgages and bolster financial disclosures to borrowers.

"Substantial anecdotal evidence indicates that failing to verify [a borrower’s] income invited fraud," said Kroszner, who has been the Fed’s point person on the consumer protection provisions.

If ultimately adopted, the plan would apply to new loans made by thousands of lenders of all types, including banks and brokers. Thus, enforcement of the provisions would depend not only on the Fed but also on other federal and state regulators.

"It is not too early to emphasize that the effectiveness of the final rule will depend critically on effective enforcement," Kroszner said. "The Federal Reserve will do its part." 

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Democrats have long served as the traditional enemy of Big Pharma, but in this presidential campaign, the left is taking the lion’s share of drugmaker money.

Democratic senators Barack Obama and Hillary Clinton are the top recipients of donations from the pharmaceutical industry, according to The Center for Responsive Politics, a non-profit, non-partisan research group in Washington, D.C. Meanwhile, donations to Sen. John McCain, who was recently endorsed by President Bush as the official Republican candidate, pale in comparison.

Obama maintains a slight edge over his Democratic rival, with $181,000 in Big Pharma donations through Jan. 31, compared with Clinton’s $174,000, according to the center. McCain is far behind with $44,000.

This is in spite of the fact that all three candidates have consistently bashed the pharma industry and vowed to lower drug prices, which would take a bite out of corporate profits.

But it wasn’t always this way. Big Pharma, voting with its wallet, used to be more of an enthusiastic supporter for the Grand Old Party.

In the 2004 presidential election, drugmakers donated $516,000 to the Bush campaign, a huge increase over the $280,000 provided to Sen. John Kerry, the Democratic candidate from Massachusetts, according to the center.

There are two reasons for the recent shift in funding. The Bush administration may still control the White House, but Republicans no longer control Congress. Democrats hold the majority in the House, and the parties are evenly split in the Senate. Drugmakers could be trying to secure access to the ruling party by courting their traditional enemies.

"Since the Democrats took control of Congress in 2006, money has shifted away from Republicans, to the Democrats who hold the keys to the kingdom," said Massie Ritsch, a spokesman for The Center for Responsive Politics. "The pharmaceutical industry is one that would lean Republican if it didn’t have to make friends with the party that’s in power right now."

Merck spokesman Ron Rogers said his company has never announced support for a specific candidate and "has always sought to work with both Republicans and Democrats on the issues that affect pharmaceutical innovations whether one party or the other has controlled the Congress of White House."

Schering-Plough spokesman Steve Galpin said his company has not donated to any presidential candidates. Other drugmakers contacted on this issue - Pfizer and Eli Lilly & Co. - did not comment by press time.

Secondly, the distinctions have blurred between the two parties’ relationship with big business. Democrats have traditionally been seen as enemies to the pharmaceutical industry, while Republicans are supposed to be their allies.

"I think what you can say about the philosophical divide is that the Republicans as a party believe in free markets and the Democrats want to socialize our healthcare system," said Barbara Ryan, pharma analyst for Deutsche Bank North America.

But with McCain as the conservative contender for the White House, the issues are no longer black and white online payday advance. Ryan noted that the current campaign lacks hard and fast party differences in healthcare. In fact, the policies from of Clinton, Obama and McCain are uniformly unfriendly toward Big Pharma.

Much of their political ire is focused on drug prices. All the candidates co-sponsored a bill early last year to allow the re-importation of U.S.-made drugs back from Canada, where they’re cheaper. But the bill failed to pass the Senate.

McCain, who has described himself as "the biggest enemy of the pharmaceutical industry in Washington," has been particularly vocal on re-importation.

"Why shouldn’t we be able to re-import drugs from Canada?" he asked during the New Hampshire republican debates in January. "It’s because of the power of the pharmaceutical companies."

"Don’t turn the pharmaceutical companies into the big bad guys," countered Mitt Romney, the former presidential candidate who has since dropped out of the race.

"Well, they are," said McCain.

Campaign crosshairs are also focused on the Bush administration’s ban on drug-price negotiations between the government and drug companies. This ban was included in the 2003 Medicare Modernization Act. Removing it could result in lower drug prices, which would put the squeeze on pharma sales.

Obama and Clinton have clearly stated that they oppose the ban on price negotiations.

"[Clinton] has been very much against the non-negotiation ban, said Gene Sperling, her economic advisor, as well as former director of the National Economic Council for former President Bill Clinton. "She feels that that puts the government in a worse position than a big company."

Obama, on his campaign Web site, has vowed to repeal the ban that prevents the government from negotiating with drug companies, estimating it could result in savings of up to $30 billion for patients.

McCain’s stance on this issue isn’t clear. When Democrats failed to pass a bill last year that would have eliminated the ban, he wasn’t present for the vote. McCain’s office did not return calls and emails asking about his position on this issue.

But even with all the political rhetoric, Wall Street doesn’t seem to be paying attention.

Paul Alan Davis, manager of Charles Schwab’s $800 million healthcare portfolio, which includes holdings in Pfizer (PFE, Fortune 500), Merck (MRK, Fortune 500), Johnson & Johnson (JNJ, Fortune 500), Schering-Plough (SGP, Fortune 500) and other major pharma companies, said he wasn’t sure which of the candidates posed the biggest shake-up for the industry - if at all. He also said that the campaign is not a factor in his investment decisions.

"I think it’s probably easier to talk about change to get votes than it is to actually change the system," he said. 

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"U.S. recession is unlikely but not impossible," says the January "Straight Talk," the monthly economic outlook of Gail Fosler, president and chief economist of the Conference Board.

Fosler says the business sector, outside of the financial sector, remains "strong," benefiting as it is from an "export boom." The retreat in housing is "nearly over." "Non-financial corporate profitability looks solid."

In short, "The business sector is fundamentally stronger than at any time since the 1960s," Fosler writes in her latest forecast.

Why is this woman smiling? The Conference Board, a nonprofit business-research group in New York, is entrusted with maintaining the index of leading economic indicators, a gauge designed to predict turning points in the economy. And right now, the leading indicators are flashing signs of a recession.
The Conference Board’s business-cycle gurus use the six-month annualized change in the LEI and the six-month diffusion index to assess the depth, duration and diffusion of the decline in economic activity.

The "Three Ds" rule "helps to refine the signal and better interpret the LEI," said Victor Zarnowitz, senior fellow and economic counselor at the Conference Board.

Zarnowitz’s research has found that recessions generally are characterized by a six-month annualized decline in the LEI of at least 4.5 percent and a sub-50 reading in the six-month diffusion index, indicating that more than half of the 10 components have fallen in the last six months.

In January, the six-month annualized decline in the LEI was 4 percent, the biggest drop since the recession of 2001. The six-month diffusion index stood at 20, the lowest since June 2004. Periods of recession coincide with multiple low readings in the diffusion index.

Fosler was traveling and couldn’t be reached. However, her colleague, economist Ken Goldstein spoke with me instead. He says the U.S guaranteed payday loans. is "on the cusp of recession." The warning so far is "a strong yellow, not a full red."

So why the expectation that the economy will pull back from the edge? "Gail’s view is that if business profits remain OK, businesses have the money to invest and hire," Goldstein said.

But profits aren’t OK. They’re "falling on a year-over-year basis," said Paul Kasriel, chief economist at the Northern Trust Co. in Chicago. "S&P operating profits were down 11 percent in the third quarter from a year earlier. The last time profits contracted on a year-over-year basis was 2001," in a recession.

Fourth-quarter S&P profits fell as well.

Another problem with Fosler’s profits-into-jobs forecast is where U.S. companies are earning money. Domestic profits fell 4.6 percent in the third quarter, according to the Bureau of Economic Analysis’ National Income and Product Accounts. "Domestic profits have to do with hiring here," Kasriel said.

The labor market isn’t OK. Initial jobless claims, the number of people receiving unemployment benefits and the unemployment rate all are trending higher. Consumer confidence, another indicator published each month by the Conference Board, is sagging.

Kasriel is flummoxed by the seeming disconnect between the Conference Board’s forecast and the group’s indicators.

"Almost every economic indicator published by the Conference Board is pointing toward recession, yet Fosler’s 2008 real GDP growth forecast in the February Blue Chip survey was 2.3 percent, among the highest estimates," he said. "Why is Ms. Fosler so optimistic when the indicators her organization publishes imply much weaker economic performance?"

CAROLINE BAUM IS A BLOOMBERG NEWS COLUMNIST.

cabaum@bloomberg.net

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AstraZeneca PLC said Friday that it will appeal a U.S. court’s finding that it fraudulently inflated drug prices charged to the state of Alabama.

A state court in Alabama ordered the drug company to pay $215 million in compensatory and punitive damages after finding that it had overcharged for drugs for 15 years.

"AstraZeneca maintains that this lawsuit is legally and factually unfounded," the company said in a statement to the London Stock Exchange.

"The case was based on the misleading premise that the Alabama State Medicaid Agency did not understand how drug prices are established and reported."

Alabama Attorney General Troy King King in 2005 sued more than 70 drug companies quick payday loans. AstraZeneca (AZN) was the first case to come to trial. 

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Office supply retailer Staples Inc (SPLS.O: Quote, Profile, Research) is expected to raise its bid for Dutch rival Corporate Express (CXP.AS: Quote, Profile, Research) in the face of resistance, but it is considered unlikely to be prompted by a counterbid.

After several unsuccessful attempts to hold friendly merger talks, Staples bid 7.25 euros per share, or a total of 2.5 billion euros ($3.7 billion), which Corporate Express swiftly rejected on Tuesday.

“Corporate Express is not likely to surrender easily, and we are not sure whether Staples is willing to pay the price required,” said ABN AMRO analyst Mark Pieter de Boer. “We do not believe Corporate Express is a seller below 10-11 euros.”

Working out differences between the two could take time, analysts said, given the lack of a counterbid and difficulty in assessing the Dutch firm’s value.

The offer is widely seen as a first overture, ending months of speculation about Staples’ interest.

Corporate Express shares are currently trading at 7.72 euros, 6.5 percent above Staples’ offer, suggesting the market expects a higher bid freecreditreport. Lifted by the offer, the shares have more than doubled from a year low of 3.18 euros just one month ago.

Analyst Fernand de Boer suggests Staples could pay 8.25 euros for its European rival, while others believe Corporate Express shareholders would not yield for less than 10 euros.

The acquisition would allow Staples to cut costs, increase its global footprint and expand in the U.S., a fragmented market where Corporate Express generates about half its sales. 

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MBIA Inc (MBI.N: Quote, Profile, Research) ousted Chief Executive Gary Dunton and replaced him with former CEO Joseph “Jay” Brown as the bond insurer scrambles to overcome mortgage-related losses, maintain a top credit rating and restore market confidence.

MBIA said Dunton, 52, resigned on Saturday, effective immediately.

Its stock rose about 1 percent in early trading.

Shares of the Armonk, New York, company have plunged 83 percent in the past year, and the company has had to sell equity to bolster its finances weakened by exposure to mortgage market losses. MBIA also is battling with high-profile investors betting against its shares.

Brown, 59, in a statement issued on Tuesday said he had spoken to New York State Insurance Superintendent Eric Dinallo, who is trying to broker a solution to the woes of MBIA and its rivals.

“I believe we can look forward to improved dialogue with the department,” Brown said in a statement.

In an interview with CNBC, Brown said he was optimistic that a deal involving New York state could happen in the next two weeks.

Between 1999 and 2004, Brown ran MBIA and its main unit, MBIA Insurance Corp pay day loans. He joined the firm as a director in 1986 and retired last May. 

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Barring a change in the rules, my wife, Georgina, and I are set with our plan for when to claim — or wait on — Social Security benefits.

Using a little known “file and suspend” strategy, I expect us to receive higher combined benefits over the long run, while protecting Georgina if I die first. We also expect to save on taxes.

Discussed in a working paper for the Pension Research Council at the University of Pennsylvania’s Wharton School, this strategy calls for the lower-earning spouse — Georgina in our case — to file for benefits first under her work record.

Depending on their circumstances, some spouses may wish to do so as early as possible, which is age 62. Georgina will wait until her full retirement age of 66 in 2010 primarily because her earnings from freelance work would reduce her benefits until then.
As the higher-earning spouse, I will then “file and suspend” when I reach my full retirement age of 66 in 2011.

That means I will file for my full retirement benefits but immediately ask that they be voluntarily suspended, which can be done in the remarks section of the application, said Dorothy Clark, a Social Security spokesperson.

I then will wait to collect until I am 70. If we need money before then, we can tap our IRAs and other retirement plans.

Why do this?

•Once I file for benefits, even if I immediately suspend them, Georgina will become eligible for the spousal benefit.

•This benefit — 50 percent of what I would have received at full retirement age — will be higher than the benefit under her work record. (If the lower-earning spouse files for benefits before full retirement age, the spousal benefit is reduced.)

•My benefit at age 70 will be considerably higher than at 66 overnight payday loans. For every year I wait up to age 70, I get a credit of 8 percent a year on top of annual cost-of-living adjustments.

•If I die before Georgina, instead of the spousal benefit, she would receive a survivor benefit equal to whatever I was getting (or, generally, was entitled to get if I die before age 70).

•By taking withdrawals from IRAs if needed, we reduce mandatory distributions after age 70 1/2, potentially keeping more Social Security benefits tax free.

Intrigued? The paper for the Pension Research Council argues that the full value of delaying Social Security, particularly for the higher-earner spouse, has not been properly measured because the tax advantages and spousal, survivor and cost-of-living-adjustment benefits have not been adequately considered.

“In the future, Social Security benefits will become increasingly valuable due to their tax-favored status, inflation protection, survivor protection and longevity protection,” said the paper, “Rethinking Social Security Claiming in a 401(k) World,” by James Mahaney and Peter Carlson of Prudential Securities. (Even under the worst-case tax scenario, depending on other income, 15 percent of Social Security benefits are tax free. Under the best-case scenario, all is tax free.)

“This strategy gives you the best of both worlds,” that is, allows the lower-earner spouse to collect spousal benefits while the higher earner waits to receive higher benefits later, said Taylor M. Gang, an investment adviser with Evensky & Katz in Coral Gables, Fla.

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National Fuel Gas Co. and New Mountain Vantage GP, L.L.C., a leading shareholder of the energy company, have settled a disagreement involving several issues.

As part of the agreement, Williamsville-based National Fuel will increase the size of its board to 11 directors from 10 and to nominate, as a new director, Vantage's candidate Frederic Salerno.

Salerno will receive no compensation for his board service for as long as Vantage continues to own common stock of the company. The company said Salerno will be added to the original slate of the following continuing directors: Robert Brady, Rolland Kidder and John Riordan.

All four candidates will be nominated to serve for a term to expire in 2011. Upon election to National Fuel's board, Salerno will join the compensation and the nominating/corporate governance committees.

The parties, who have been at odds for several months, also agreed to resolve a dispute involving development of acreage Appalachian, including the Marcellus Shale, propetty which is considered extremely valuable faxless payday advance.

Also, National Fuel said that it intends to evaluate the divestiture of its assets in the Gulf of Mexico as one key alternative if performance targets set by the company are not met during this fiscal year.

"We have always sought to achieve a productive relationship with National Fuel's management and Board for the benefit of all shareholders," said a statement David DiDomenico, managing director of Vantage. "We believe that together we can successfully advance the Company's interests by focusing on developing the Appalachian acreage, including the Marcellus Shale, by carefully evaluating ongoing and future activities in the Gulf of Mexico, by considering Vantage's other suggestions, and by taking important steps to improve corporate governance."

Shares of National Fuel Gas (NYSE: NFG) closed up 18 cents thursday to $41.35.

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