Sinopec Expects Higher Profit on Eased Price Controls

(Bloomberg) -- China Petroleum & Chemical Corp., Asia’s biggest refiner, said profit may grow more than 50 percent in the first half after the government eased fuel-price controls and crude oil costs dropped from a record.

First-quarter net income jumped 85 percent to 11.2 billion yuan ($1.6 billion) from a year earlier, the Beijing-based company known as Sinopec said in a statement to the Shanghai stock exchange yesterday. Operating profit from refining was 7.3 billion yuan compared with a 25 billion-yuan loss a year earlier.

The Chinese government in December revised a fuel-pricing system to allow refiners to pass on increases in crude oil costs to consumers. China’s economy has shown signs of recovery, helping to boost fuel demand and brighten the company’s prospects, Chief Financial Officer Dai Houliang said today.

“The key question now for the whole of the second quarter is whether the government will allow oil product prices to rise further to reflect crude prices,” said Wang Aochao, an energy analyst at UOB-Kay Hian in Shanghai. “We think demand for gasoline and diesel will pick up in the second quarter as the Chinese economy picks up.”

Sinopec gained as much as 3.8 percent in Hong Kong trading and the stock stood at HK$5.75, a 2.7 percent increase at 10:35 a.m. The Hang Seng Index was up 1.4 percent. The shares have advanced 22 percent since March 29, when the refiner posted 2008 earnings that beat estimates. PetroChina Co., China’s biggest oil company, gained 6 percent in the period.

Oil Exploration

Sinopec will step oil exploration as oil prices may rise later this year, Dai told analysts on a conference call today.

Virtually all of Sinopec’s revenue comes from refining, petroleum products sales and petrochemicals. Only 3 percent is generated by oil and gas exploration and production.

By contrast, about 55 percent of the income of PetroChina was from exploration last year, according to its annual report. PetroChina’s first-quarter profit fell 35 percent after oil prices declined.

Sinopec’s profit fell 47 percent last year before the pricing changes were introduced and it was unable to pass on soaring oil costs to customers. Crude rose to a record $147.27 a barrel last July and has since fallen 66 percent. Fourth-quarter profit gained 98 percent to 13.3 billion yuan.

“Due to the changes in the pricing mechanism our refining business is now making a profit,” Dai said. “This is a dramatic change from last year.”

Sinopec’s net income may rise 59 percent to 47.5 billion yuan this year, according to the median of eight analysts’ estimates compiled by Bloomberg, as China’s stimulus measures help boost economic growth and revive oil demand.

China’s Economy

The nation’s economy is showing signs of recovery after growing at the weakest pace in nearly a decade in the first quarter, as a 4 trillion-yuan stimulus plan spurs factory production and investment. Urban fixed-asset investment surged by almost a third in March and industrial-output growth accelerated, according to government reports on April 16.

Sinopec’s capital expenditure will increase 4 percent this year, with spending on refining rising about 35 percent, the company said last month.

Expenditure was about 15.3 billion yuan in the first quarter, of which exploration and development accounted for 7.8 billion yuan and refining 1.6 billion yuan, according to yesterday’s statement. No comparative numbers were given.

Sinopec will be able to take advantage of its strength in marketing and management to turn its refining operations into a major profit contributor, it said last month. The growth of the Chinese economy is only partially influenced by the global slowdown and domestic demand for oil and petrochemical products remains robust, the company said.

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The tale of Steve Jobs, an old house and preservationists

(MarketWatch) -- This is a story that normally wouldn't get a lot of attention here, but this yarn involving a high-powered tech chieftain, a kowtowing Silicon Valley township, an old house and a clash of wills is worth telling.

The house is a 1920s-era mansion. On one side of the clash is a group of historical preservationists who want to keep the house for posterity. The chieftain? None other than Apple Inc.'s Steve Jobs.

More than four years ago, the town of Woodside -- a bucolic Silicon Valley enclave known to occasionally toady to the region's high-tech billionaires -- approved an application by the Apple co-founder and chief executive to tear down his Spanish Colonial Revival estate.

But the sprawling 1925 home remains standing today because a group of preservationists intervened, and after a lawsuit and appeal, Jobs lost.
Now, Jobs is trying again to demolish the estate, which he purchased in the early 1980s and lived in for about 10 years. Known to be obsessive about the design of Apple's products, Jobs wants to build a smaller, brand new single-family house on the site of the once-elegant estate. (No doubt one of those sleek numbers with clean white spaces and free of any buttons. Sort of like a giant iPod or Mac cube?)
A new application will be heard on Tuesday evening, in what may be a lively and contentious meeting. No decisions are expected Tuesday, but based on their past actions and some documents on their Web site, the town of Woodside seems all but ready to grant Jobs another demo permit.

"The question now is whether the evidence he is submitting will let them legally permit the demolition," said Brian Turner, an attorney for the western office of the National Trust for Historic Preservation, a non-profit created by Congress in 1949 to promote the public participation of the preservation of historic resources in the U.S.

(Full disclosure: I've watched this episode with interest because I'm a member of this preservation group and I've also written a book on San Francisco architecture.)
The house Jobs wants to destroy has been deemed historic for both its architectural style, as well as for its former tenant.

The 17,250-square-foot estate was designed by architect George Washington Smith, renowned among architectural historians as an early and notable purveyor of the Spanish Colonial Revival style in Southern California. The house, designed for copper magnate Daniel Jackling, is one of Smith's rare works in Northern California and is replete with unique copper fixtures, evocative of his client's occupation at the time.

Jobs has been making an effort to give his house away, a condition specified in the original 2004 demolition permit.

The Apple chief is required by the town to market the estate at his own expense. He then could donate the house to anyone who had the financial wherewithal to relocate and restore it, which has sat empty and unoccupied for more than a decade.
Jobs would donate a "reasonable amount, as determined by the town manager, to the cost of moving the massive house to a new location." It is not clear what Susan George, Woodside's town manager, has deemed "reasonable." George did not respond to a request for comment.

Howard Ellman, Jobs' attorney, said in a memo to the town of Woodside in September that after spending more than 100 hours to market the Jackling house, "there are no persons or entities of which we are aware seriously considering the possibility of moving and restoring the Jackling Estate." He added that two financially strong parties are still considering the matter but that they had yet to present any proposal in writing.

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Stocks stage late advance

(CNNMoney.com) -- Stocks staged a late-session rally at the end of a turbulent day, influenced by a weak housing market report, a mix of corporate results and the latest for the automakers.

The Dow Jones industrial average (INDU) added 70 points, or 0.9%. The S&P 500 (SPX) index gained 8 points or 1%. The Nasdaq composite (COMP) gained 6 points, or 0.4%.

After the close, Microsoft (MSFT, Fortune 500) reported lower-than-expected quarterly sales on weaker earnings that met estimates.

Dow component American Express (AXP, Fortune 500) reported weaker quarterly earnings that topped estimates, sending shares almost 7% higher in extended-hours trading.

Biotech Amgen (AMGN, Fortune 500) reported weaker-than-expected quarterly sales and earnings after the close. Amazon.com (AMZN, Fortune 500) reported higher quarterly sales and earnings that topped estimates.

Dow component 3M (MMM, Fortune 500) is due to report results before the start of trade Friday. Honeywell (HON, Fortune 500), Schlumberger (SLB) and Xerox (XRX, Fortune 500) are also due to report.

Also Friday, the Commerce Department releases the March durable goods orders report and the Census Bureau releases the March new home sales report.

Stocks are down for the week as investors have retreated after a six-week advance that propelled the S&P 500 nearly 29%. Stocks zigzagged Thursday as investors sorted through the profit reports and economic news.

"The market is trying to determine whether we've come too far, too fast and it's been getting some mixed signals," said Christopher Colarik, portfolio manager at Glendmede.

"Incrementally, we are getting some economic and earnings reports that are less bad, if not good," he said. "But it might be a two-steps-forward, one-step-back kind of thing, like with the housing data."

Automakers: General Motors (GM, Fortune 500) said in the afternoon that it plans to temporarily shut down 13 of 20 North American plants this summer in order to reduce its inventory. The company has been hit hard by the recession and slowdown in auto demand and has until June 1 to cut its debt and labor costs or face Chapter 11 bankruptcy protection. Shares fell 4%.

Chrysler is reportedly set to enter Chapter 11 as soon as next week, The New York Times reported Thursday. The Treasury Department is overseeing the process, which will reportedly protect union members' pensions and retiree health care benefits.

Italian carmaker Fiat will complete its acquisition of a 20% stake in the company while it is under bankruptcy protection.

Housing: March existing home sales fell to a 4.57 million unit annual rate from a 4.71 million rate in February, the National Association of Realtors said. Economists surveyed by Briefing.com thought sales would fall to a 4.65 million unit annual rate.

The report countered bets that the housing market is nearing a bottom. Such bets were sparked by February housing market reports that showed smaller-than-expected declines in sales and productions.

Movers: Chevron, Exxon Mobil and McDonald's were among the Dow advancers. IBM (IBM, Fortune 500), Home Depot (HD, Fortune 500) and DuPont (DD, Fortune 500) were among the losers.

Chipmakers Intel (INTC, Fortune 500), Applied Materials (AMAT, Fortune 500) and Xilinx (XLNX) dragged on the Nasdaq, while eBay and Fifth Third Bancorp were among the advancers.

Market breadth was mixed. On the New York Stock Exchange, winners topped losers three to two on volume of 1.57 billion shares. On the Nasdaq, decliners topped advancers eight to five on volume of 2.49 billion shares.

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Freddie Mac acting CFO found dead in apparent suicide

(MarketWatch) -- The acting chief financial officer of Freddie Mac was found dead at his home Wednesday morning in an apparent suicide.
David Kellermann, acting chief financial officer at the government-controlled mortgage company, was found dead at his home in Fairfax County, Va.

Kellermann was named acting CFO in late September, three weeks after the government took charge of Freddie Mac. He had previously been senior vice president and corporate controller there.
His death came as staff from the Securities and Exchange Commission and Justice Department were probing the home-finance company about issues including possible accounting violations.

Freddie disclosed the investigation in a March 11 filing, and the firm said it was "cooperating fully in these matters."
According to the SEC filing, Freddie said it received a federal grand jury subpoena Sept. 26 from the U.S. attorney's office for the southern district of New York. The subpoena sought documents related to accounting, disclosure and corporate-governance matters, according to the filing.

But that subpoena was later withdrawn and the investigation was taken over by the U.S. attorney for the eastern district of Virginia.
According to the filing, on Oct. 21, Freddie said the SEC had begun its own investigation, asking Freddie for documents. Specifically, on Jan. 23, Jan. 30 and Feb. 25, the SEC issued subpoenas for documents. The agency also began its own interviews of company employees, Freddie said in the filing.
In addition to the investigation, Freddie Mac received a request from the House Committee on Oversight and Investigations on Oct. 20 seeking documents for a hearing it held on Dec. 9.

Freddie Mac has received more than $30 billion in government support as the mortgage and credit crisis intensified.
Kellermann's apparent suicide surprised some key regulators in Washington, who expressed their condolences.

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Regulators Give Greater Weight to Loan Quality in U.S. Tests

(Bloomberg) -- Regulators conducting the stress tests on the 19 largest U.S. banks are increasingly focusing on the quality of loans the companies made after finding wide variations in underwriting standards, a regulatory official said.

Supervisors concluded that banks’ lending practices would need to be given as much weight as macroeconomic scenarios after finding a wide variation in standards for mortgages and other loans as about 200 examiners poured through the portfolios, the official said.

The expanded criteria for the assessments will allow regulators to identify how much of each bank’s vulnerabilities stem from the economy’s deterioration, and how much comes from management decisions. Treasury Secretary Timothy Geithner has said he’s prepared to make management changes in any firms requiring “exceptional” amounts of fresh taxpayer funding.

“There was a heavy assumption” that soaring loan defaults in recent months were caused by the recession, said Kevin Petrasic, who served at the Office of Thrift Supervision from 1989 to 2008 and is now an attorney at law firm Paul Hastings in Washington. “If they find out that these were business decisions, that, in an odd way, is probably a good sign because you can fix this. There are very hard lessons to be learned.”

The official’s remarks provide insight into the release April 24 on the regulator’s methodology for the tests. Supervisors are addressing an error made two years ago when basing foreclosure projections on economic assumptions and concluding that poorly written loans may default regardless of the economy’s performance.

Capital Assessments

The person also said the tests don’t amount to solvency judgments, noting that estimates of each bank’s losses over the coming two years won’t necessarily equal the amount of new capital it needs to raise.

The goal of the reviews is to keep the major financial institutions lending over the next two years, and to determine how much capital they might need should the economic downturn worsen. Assumptions about capital will be forward-looking, the official said.

Supervisors will take into account how much capital each company now has, the ability to retain earnings over the next few years, access to private capital in the future and how aggressively they have already written down some assets.

Federal Reserve officials are coordinating the exams, dedicating a staff of about 140 people to the effort. All told about 200 regulatory officials are involved, with information percolating up from front-line bank examiners.

Bank Regulators

While the tests are a central element of the Obama administration’s financial rescue plan, the Treasury charged the Fed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., and Office of Thrift Supervision to conduct them.

Some of the findings on how portfolio quality varied will be revealed April 24 when supervisors release the white paper on the methodology. Final results of the tests will be released May 4. No decision has been made yet on how to publish the results, with some regulators concerned about a lack of uniformity in the releases if each firm discloses its own results, the official said.

The methodology paper will discuss what supervisors describe as a propensity for loss among loan portfolios. Some categories of lending, such as credit cards, are highly correlated with macroeconomic data such as rising unemployment.

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Nasdaq hits 5-month high

(CNNMoney.com) -- Wall Street recharged the advance Thursday, with the major gauges touching multi-month highs on JPMorgan Chase's better-than-expected results and anticipation about Google's profit report.

After the close, Google (GOOG, Fortune 500) posted quarterly earnings that rose from a year ago and topped estimates on revenue that rose from a year ago but was shy of forecasts. Shares slipped in after-hours trading after initially spiking.

The Nasdaq composite (COMP) added 44 points, or 2.7%, ending at the highest point since Nov. 5, 2008.

The Dow Jones industrial average (INDU) added 96 points or 1.2% and the S&P 500 (SPX) index added 13 points, or 1.6%. Both closed at their highest points since Feb. 9.

After seesawing through the morning, stocks began making a bigger move higher in the afternoon, before spiking near the close.

Stocks gained Wednesday after a Federal Reserve report on the economy added to hopes that the pace of the slowdown is easing. Such hopes have helped bolster the market for nearly six weeks. Since hitting 12-1/2 year lows on March 9, the S&P 500 has risen 25% as of Wednesday's close.

But gains this week have been minimal as investors have kept an eye on the first big batch of quarterly reports and the latest on the economy.

"The market has clearly surprised everyone to the upside and I think people have to be impressed by the way its been holding on to gains this week," said David Kreinces, portfolio manager at brokerage ETF PM.

"We should see a pretty good continuation of the rally with people buying on the dips," he said. "But that's going to depend on investors grappling with the continued weakness in housing and questions about further bank writedowns."

Friday brings quarterly results from Citigroup (C, Fortune 500) and General Electric (GE, Fortune 500), both Dow components.

Also Friday, the University of Michigan consumer sentiment index is due for release shortly after the start of trading.

Company news: JPMorgan Chase (JPM, Fortune 500) reported a higher-than-expected profit of $2.1 billion, although results were weaker than a year earlier. The company benefited from strength in its investment and consumer banking divisions, but also posted $10 billion in credit costs. JPMorgan shares gained 2%.

Earlier in the week, Goldman Sachs (GS, Fortune 500) also reported weaker quarterly results that nonetheless topped estimates. Wells Fargo (WFC, Fortune 500) last week forecast that it would report a $3 billion profit.

While these reports are seen as encouraging, some analysts are concerned about the fuzzy math banks are using to report results.

Nokia (NOK) reported a more than 90% drop in operating profit versus a year ago amid the global slowdown in the mobile phone market. However, results were expected to be worse and shares rallied 11.4%.

AIG (AIG, Fortune 500) said it will sell its U.S. car insurance business to a unit of Zurich Financial Services for $2 billion, as it begins the process of paying back the billions its received in federal aid. Shares gained 5.6%.

Economy: New home construction slumped almost 11% last month, falling to the second lowest level on record, indicating that the housing market has not yet bottomed.

March housing starts fell to an annual rate of 510,000 units versus a revised 572,000 units in the previous month. Economists surveyed by Briefing.com thought starts would rise to 540,000 units.

Building permits, a measure of builder confidence, fell to a 513,000 annual unit rate from a revised 564,000 unit rate in the previous month. Economists expected 549,000 permits.

The number of Americans filing new claims for unemployment fell to 610,000 last week from a revised 663,000 the previous week. Economists expected 658,000 new claims. Continuing claims, the number of people seeking benefits for a week or more, rose to 6.02 million, an all-time high.

The April Philadelphia Fed index improved to a decline of negative 24.4 from negative 35.0, versus forecasts for a reading of negative 32.

Bonds: Treasury prices slumped, raising the yield on the benchmark 10-year note to 2.83% from 2.76% Wednesday. Treasury prices and yields move in opposite directions.

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Oil Set for Biggest Weekly Decline Since February on Recession

(Bloomberg) -- Crude oil fell, poised for the biggest weekly decline since February, amid forecasts the recession will curb demand at a time when U.S. inventories are already at their highest in almost 19 years.

U.S. crude-oil inventories rose 5.67 million barrels to 366.7 million last week, the highest since September 1990, the Energy Department said April 15. The International Energy Agency reported April 10 that worldwide consumption will shrink by 2.8 percent in 2009 as the global economy contracts.

“The demand outlook continues to look quite bleak,” said Toby Hassall, an analyst at Commodity Warrants Australia Ltd. in Sydney. “The fundamentals of the oil market haven’t really shown any signs of improvement.”

Crude oil for May delivery fell as much as 48 cents, or 1 percent, to $49.50 a barrel, and traded at $49.68 at 11:36 a.m. Singapore time on the New York Mercantile Exchange. Oil has dropped 4.9 percent this week, set for its sharpest decline since the week ended Feb. 13.

Oil in New York has tumbled 66 percent from a record $147.27 a barrel in July as the recession in major consuming countries curbed fuel demand.

U.S. fuel demand in the first quarter fell to the lowest for the period in 11 years, the American Petroleum Institute said in a monthly report yesterday. Deliveries of petroleum products, a measure of consumption, averaged 19.2 million barrels a day, 3.4 percent less than during the same period in 2008, the industry-funded API said.

Jobless Claims

Oil futures are up 12 percent so far this year. Crude climbed as much as 2.5 percent yesterday after the Labor Department reported that claims decreased by 53,000 to 610,000 in the week ended April 11, the fewest since January.

Chinese industrial production expanded by 8.3 percent in March from a year earlier, up from 3.8 percent in the first two months, the statistics bureau said yesterday in Beijing.

“It’s sort of a contest between hope and reality,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “A lot of these numbers that have bounced have bounced from extremely low levels, and so it only makes the markets a little less bearish. It doesn’t necessarily make them bullish.”

The Federal Reserve said in its Beige Book business survey April 15 that economic contractions were slowing or stabilizing in San Francisco, the largest district, as well as in New York, Chicago, Kansas City and Dallas.

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EBay Offers to Buy Korea’s Gmarket for $1.2 Billion

(Bloomberg) -- EBay Inc., operator of the most visited U.S. e-commerce site, offered to buy South Korea’s Gmarket Inc. for $1.2 billion to expand overseas.

EBay will make a cash offer to buy all outstanding shares of Gmarket for $24 apiece, the San Jose, California-based company said in a Business Wire statement. Under an agreement with Gmarket’s management and investors, the U.S. company will own at least 67 percent of the South Korean company, it said.

The purchase may help EBay, whose sales declined for the first time last quarter, more than double revenue in South Korea. EBay said it plans to combine operations at Gmarket, which generated revenue of about $220.8 million last year, with those of Seoul-based EBay subsidiary Internet Auction Co.

Yahoo! Inc. said it agreed to sell its stake of about 10 percent to EBay, while Seoul-based Interpark Corp. said in a regulatory filing it sold 14.6 million shares of Gmarket for $350 million. Other investors that have agreed to sell include Interpark Chief Executive Officer Lee Ki Hyung, EBay said.

EBay fell 0.4 percent to $14.32 yesterday in trading on the Nasdaq Stock Market. Gmarket rose 3.2 percent to $19.96.

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Rough start seen for stocks

(CNNMoney.com) -- U.S. stock futures wavered Wednesday as investors digested results from Intel and awaited a wave of economic readings.

At 5:06 a.m. ET, Dow Jones industrial average, Standard & Poor's 500 and Nasdaq 100 futures were pointing to a mixed start for Wall Street.

Futures measure current index values against perceived future performance and give an indication of how markets may open when trading begins in New York.

Intel: The chipmaker posted a drop in quarterly profit after U.S. markets closed Tuesday. The results topped Wall Street's estimates, but shares fell in after-hours trading after Intel (INTC, Fortune 500) chose to not issue a formal sales guidance.

Economy: Reports on consumer prices and manufacturing activity in New York come at 8:30 a.m. ET. A report on industrial production and capacity utilization is due out at 9:15 a.m. ET. After the market opens, investors will take in the Fed's beige book of economic conditions.

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Cathay, Singapore Air Face Tough Decisions as Qantas Cuts Jobs

(Bloomberg) -- Qantas Airways Ltd., Australia’s largest carrier, will cut about five percent of its staff in anticipation of a record loss caused by a drop in business class travel. Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. may be next.

“All airlines in Asia will have to make similar tough decisions,” said Jim Eckes, managing director of industry adviser Indoswiss Aviation. “With traffic falling so rapidly, it’s going to be difficult for many airlines to make a profit.”

Traffic for Asia-Pacific carriers sank almost 13 percent in February, the steepest decline since June, according to the International Air Transport Association. Qantas Chief Executive Officer Alan Joyce is examining measures such as passengers tagging their bags or checking in via mobile phone, while Hong Kong’s Cathay Pacific will ask staff to take mandatory unpaid leave, a company official said.

The airline industry globally may lose as much as $4.7 billion this year as the deepening recession wipes out $62 billion of revenue. Carriers in Asia-Pacific are expected to post combined losses of $1.7 billion, the biggest of any region.

“If your top line has fallen off the cliff, then you have to adjust your costs,” said Christopher Wong, a fund manager at Aberdeen Asset Management Asia Ltd. in Singapore, which oversees $20 billion. “Whether it’s cutting headcount or reducing working hours, that’s the only thing airlines can adjust.”

Read more at Bloomberg