Asian Stocks Fall for First Time in Three Days; Banks Decline

May 6 (Bloomberg) -- Asian stocks dropped for the first time in three days as declines in financial companies overcame gains in producers of raw materials.

Kookmin Bank, South Korea's biggest bank, dropped to a one- week low after profit fell and St. George Bank Ltd., Australia's fifth-largest, tumbled the most in three weeks as bad debts and funding costs rose. BHP Billiton Ltd., the world's biggest mining company, advanced after copper and gold prices gained.

``Results so far are not showing that things are turning around, especially in the financials,'' said Leslie Phang, Singapore-based head of private client investments at Schroders Plc, which manages $275 billion. ``Earnings estimates in Asia haven't been lowered enough to take into account the macroeconomic headwinds.''

The MSCI Asia Pacific excluding Japan Index dropped 0.2 percent to 498.17 as of 6:33 p.m. in Hong Kong, following a two- day, 2 percent advance. Financial shares fell 1.1 percent, the biggest drag among the regional benchmark's 10 industry groups, while commodity producers gained 1 percent.

Japan's markets are closed for a holiday. Australia's S&P/ASX 200 Index lost 0.5 percent, while China's CSI 300 Index dropped 1.1 percent. About half of Asia's benchmarks retreated.

China Petroleum & Chemical Corp., the nation's largest refiner, slumped after crude oil prices surpassed a record $120 a barrel. South Korea's Posco rose after it agreed to buy a stake in Sandfire Resources NL, an Australian minerals explorer.

Banks Drop

U.S. stocks fell yesterday, sending the Standard & Poor's 500 Index lower for the first time in three days. Macy's Inc. led a decline among retailers on concern record oil prices will damp consumer spending and Yahoo! Inc. tumbled the most in almost two years after Microsoft Corp. abandoned its $50 billion bid for the company.

Kookmin lost 3.2 percent to 69,200 won, declining for the first time since April 24. The company said first-quarter net income fell 47 percent, prompting Morgan Stanley and UBS AG to cut their ratings on the stock.

Shinhan Financial Group Ltd., the second largest, dropped 2.7 percent to 57,300 won, its steepest loss since April 4. South Korea's second-largest financial company said first-quarter profit retreated 35 percent on higher funding costs.

``While the thinking prevalent a month ago that the world is over for the financial markets is no longer there, you'll still see some more writedowns by banks,'' said David Ng, who helps manage about $1 billion at Hwang-DBS Asset Management Sdn. in Kuala Lumpur. ``We don't doubt there will still be credit weaknesses'' in some banks, he said.

St. George, RBA

St. George dropped 2.7 percent to A$26.98, the biggest retreat since April 18, after saying net income declined 10 percent. Chief Executive Officer Paul Fegan cut his forecast for earnings per share growth to 8 percent to 10 percent for the full-year, from 10 percent estimated in February.

The Reserve Bank of Australia today left interest rates unchanged at a 12-year-high of 7.25 percent after reports in the past month showed consumer and business confidence slumped, retail sales slowed and home building fell.

Malayan Banking Bhd. dropped 3.8 percent to 7.70 ringgit, its lowest close since January 2004, after Citigroup Inc., UBS and Macquarie Group Ltd. cut their share-price forecasts for Malaysia's largest bank. The company said yesterday it will pay as much as 60.3 billion rupees ($916 million) for a 20 percent stake in Pakistan's MCB Bank Ltd.

Record Crude

BHP Billiton advanced 0.7 percent to A$44.42, capping a four-day, 5.1 percent gain. Rio Tinto Group, the world's third- biggest mining company, rose 2.1 percent to A$141.93. Newcrest Mining Ltd., Australia's largest gold producer, added 2.5 percent to A$29.

Copper prices advanced 3.3 percent yesterday in New York, while gold added 1.9 percent.

China Petroleum, the nation's largest oil refiner known as Sinopec, dropped 2.2 percent to HK$8.52, ending a four-day, 8.1 percent rally, on speculation profit from making gasoline, diesel and kerosene will be squeezed by the rising cost of crude.

Crude oil for June delivery yesterday rose to an intraday high of $120.36 a barrel after the Institute for Supply Management's index of non-manufacturing businesses, which make up almost 90 percent of the U.S. economy, grew for the first time since December, signaling higher energy use.

Cnooc Ltd., China's biggest offshore oil explorer, jumped 3 percent to HK$13.90 in Hong Kong. Woodside Petroleum Ltd., Australia's No. 2 oil and gas explorer, added 1.3 percent to A$60.

Posco Acquisition

Posco, Asia's third-biggest steelmaker, climbed 3.3 percent to 510,000 won, its highest close since April 7. The company agreed to buy a 19.9 percent stake in Sandfire Resources for A$7.2 million ($6.7 million).

In the Philippines, Manila Electric Co. slumped 8.3 percent to 72 pesos, its biggest retreat since Sept. 3. Credit Suisse Group cut the stock's rating to ``underperform'' from ``neutral,'' saying the company will probably be unable to raise its rates this year because of political pressure to control electricity prices.

Nine Dragons Paper (Holdings) Ltd., China's biggest maker of containerboard used for packaging, had the regional index's second-largest gain. The shares jumped 9.2 percent to HK$9.94 in Hong Kong after saying it will buy a paper maker in Vietnam.

Crude Oil Rises to Record $122 on Nigeria Attack, Demand Growth

May 6 (Bloomberg) -- Crude oil rose to a record $122 a barrel in New York on threats to supply in Nigeria and Iraq and growing Asian fuel consumption.

Royal Dutch Shell Plc said a militant attack over the weekend damaged a flow-station in Nigeria, where violence has cut exports from Africa's biggest oil producer. Economic growth in China, the world's second-biggest fuel consumer, will be 10.8 percent this quarter, State Information Center economists wrote in the official China Securities Journal today.

``The price keeps changing but not the reasons for the rally,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. ``Until the fundamental supply and demand levers start to shift and the psychology changes we will continue to see new records.''

Crude oil for June delivery rose $1.65, or 1.4 percent, to $121.62 a barrel at 10:51 a.m. on the New York Mercantile Exchange. Futures have gained 96 percent from a year ago.

Supply shortfalls will probably send oil to between $150 and $200 a barrel within two years, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report yesterday.

``We will have to see stories of the economy in China, Asia, slowing to send prices lower,'' Sieminski said. ``We haven't seen them yet but at some point in the future we may. Then oil demand growth will slow down.''

Chinese Growth

Chinese oil consumption will climb 4.7 percent to 7.89 million barrels a day this year, the International Energy Agency said on April 11. Global demand will rise 1.5 percent to 87.23 million barrels a day, the IEA said. The Paris-based agency is an adviser to 27 industrialized nations.

Brent crude oil for June settlement rose $1.71, or 1.5 percent, to $119.70 a barrel on London's ICE Futures Europe exchange. The contract touched a record $120.41 today.

``The crude-oil market is showing little sign of finding a top,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. ``Supply is tight, with OPEC keeping output steady, falling production at some of the world's biggest fields and the disruptions in Nigeria.''

The Organization of Petroleum Exporting Countries has no plan to hold an emergency meeting before a scheduled Sept. 9 gathering, members said over the past week. OPEC has rebuffed requests from consuming nations for more oil, arguing that supply is adequate. The 13-member group kept output targets unchanged at its past three meetings on March 5, Feb. 1 and Dec. 5.

``The rally is a combination of two things, significant supply disruptions and inflation,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``The recent attacks in Nigeria have amounted to a serious supply disruption event, which is the last thing consumers needed.''

Nigerian Disruptions

About 164,000 barrels a day of production attributable to Shell are off line in Nigeria, Shell spokesman Rainer Winzenried said. The company lost an average 156,000 barrels a day of Nigerian output in the first quarter, it reported last week.

The Movement for the Emancipation of the Niger Delta, or MEND, which claimed responsibility for the assault, has forced the company to cut exports of Bonny Light crude by at least 170,000 barrels a day.

Exxon Mobil Corp.'s Nigeria unit will probably return to its normal rate of oil production of about 860,000 barrels a day by the middle of the week following settlement of a labor strike last week, a government spokesman said.

``Inflation concerns are back in play due to some of the recent economic data points,'' Kilduff said ``Monetary policy may be a bit too loose given the most recent GDP and employment data in the U.S. Throw in a bit of bullish enthusiasm from Goldman Sachs and you have the makings for more record prices.''

``The last few days we've all been looking for facts that fit the move in prices,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``For the most part the increase in prices is due to momentum, not any specific headline.''

U.S. Stocks Drop on Earnings; Qwest, Legg Mason Shares Retreat

May 6 (Bloomberg) -- U.S. stocks declined for a second day after earnings at telephone and financial companies trailed estimates and higher oil prices pushed down consumer shares.

Legg Mason Inc. dropped as subprime-infected investments dragged the money manager to its first loss in 25 years as a public company. Qwest Communications International Inc. tumbled the most since January after the local phone service provider said customers abandoned their home phone lines. Fannie Mae helped financial shares pare earlier losses when the largest U.S. mortgage finance company's regulator said it will loosen restrictions on its capital.

The Standard & Poor's 500 Index retreated 2.05, or 0.2 percent, to 1,405.44 at 11:43 a.m. in New York after earlier falling 0.7 percent. The Dow Jones Industrial Average decreased 59.6, or 0.5 percent, to 12,909.94. The Nasdaq Composite Index slipped 4.68, or 0.2 percent, to 2,459.44. About seven stocks fell for every five that rose on the New York Stock Exchange.

``Today's earnings announcements remind us that we're not all the way out of it,'' said David Doll, who helps manage about $2 billion as chief executive officer of Kanaly Trust Co. in Houston.

Europe's regional benchmark index retreated 0.4 percent after UBS AG said it lost $17.3 billion in its investment banking unit and Swiss Reinsurance Co.'s profit trailed estimates.

Legg Mason, Qwest

Legg Mason retreated $3.47 to $59.29. The asset-management company posted a bigger-than-expected loss after bailing out money-market funds hurt by investments in debt backed by subprime mortgages. Baltimore-based Legg Mason lost $255 million, or $1.81 a share, in its fiscal fourth quarter. The average estimate of nine analysts surveyed by Bloomberg was a loss of 84 cents.

Qwest fell 5 percent to $5.09. The local phone service provider in 14 U.S. states said first-quarter profit dropped 35 percent. Profit was 9 cents a share, missing by 1 cent the average estimate of analysts in a Bloomberg survey.

Fannie Mae climbed 89 cents, or 3.2 percent, to $29.18 after dropping as much as $2.05. Regulators said they will loosen restrictions on Fannie Mae's capital once the company has raised $6 billion in new capital. Fannie Mae, which owns or guarantees one of every five U.S. home loans, needs new capital to weather credit and derivative losses that rose fivefold to $8.9 billion. The money raised will enable the company to ``emerge from this crisis'' in a stronger position, Chief Executive Officer Daniel Mudd said.

The shares fell earlier after Fannie Mae posted a first- quarter loss of $2.19 billion, or $2.57 a share, and said it will cut its dividend.

Freddie Mac, Fannie Mae's smaller rival, added 45 cents to $25.97.

Retailers Slide

Staples Inc., the world's largest office-supplies retailer, retreated 74 cents to $21.94, helping lead the S&P 500 Retailing Index to a 0.7 percent decline.

Energy companies posted the biggest gain among 10 groups in the S&P 500, rising 1.3 percent.

Crude climbed above $121 a barrel for the first time on threats to supplies in Nigeria and Iraq and growing global fuel consumption.

Fannie Mae Has Loss, Cuts Dividend, to Raise Capital (Update5)

May 6 (Bloomberg) -- Fannie Mae, the largest U.S. mortgage- finance company, reported a wider loss than analysts estimated, cut the dividend for the second time in six months and said it will raise $6 billion in capital as the worst housing slump since the Great Depression deepens.

The first-quarter net loss was $2.19 billion, or $2.57 a share, Washington-based Fannie Mae said in a statement. Analysts were expecting a loss of 64 cents a share, the average of 12 estimates from a Bloomberg survey.

The shares rose after the company's regulator said it will loosen restrictions on Fannie Mae's capital once the company has raised the $6 billion. Fannie Mae, which owns or guarantees one of every five U.S. home loans, needs new capital to weather credit and derivative losses that rose fivefold to $8.9 billion. Moody's Investors Service affirmed the company's Aaa credit rating. The money raised will enable the company to ``emerge from this crisis'' in a stronger position, Chief Executive Officer Daniel Mudd said.

``They are now starting to realize the fact that their credit losses will be considerably higher than they were in 2007,'' said Ajay Rajadhyaksha, head of fixed-income strategy for Barclays Capital, who is based in New York. ``Things in the housing and credit markets are deteriorating very fast.''

The Office of Federal Housing Enterprise Oversight said it will lower requirements for surplus capital to 15 percent from 20 percent once the money is raised, enabling Fannie Mae to buy more mortgages. The limit may be reduced to 10 percent by September if Fannie Mae continues to retain excess capital, the company said.

Ofheo Limits

Ofheo lifted limits on the size of Fannie Mae's and Freddie Mac's investment portfolios this year, ending more than two years of restrictions after an accounting scandal forced the companies to restate more than $11 billion of earnings. Ofheo Director James Lockhart said at the time the companies are needed to bolster the mortgage market.

Congress created Fannie Mae and Freddie Mac to increase mortgage financing. The companies, which own or guarantee 40 percent of the $12 trillion in U.S. home loans, profit by holding mortgage assets that yield more than their debt costs, and from fees charged to guarantee bonds they create out of loans. Increasing their ability to buy or guarantee mortgages may help prop up prices of mortgage securities and stem losses for the government chartered companies.

``As the market turns and takes its move upward and to the right, our numbers will respond in kind,'' Mudd said on a conference call with investors.

Shares Rise

Fannie Mae rose 52 cents to $28.81 at 11:28 a.m. in New York trading after falling as low as $26.24. The shares have plunged 55 percent in the past year. Freddie Mac, down 64 percent, rose 41 cents to $25.93 today.

Mudd, 49, and Freddie Mac CEO Richard Syron, 64, agreed in March to raise capital after Ofheo allowed the companies to add more assets in an effort to pump cash into the housing market.

Fannie Mae will begin a $4 billion sale of common and convertible preferred shares today, according to a statement. The dividend is being lowered to 25 cents a share from 35 cents. It had already been cut from 50 cents last year.

Capital Raisings

The government-chartered company, which sold $7 billion of preferred stock in December, may need as much as $15 billion to cope with delinquencies and foreclosures, analysts including Paul Miller of Friedman, Billings, Ramsey & Co. in Arlington, Virginia, said.

Financial firms have raised more than $234 billion as the world's biggest banks reported more than $318 billion of credit losses and asset writedowns stemming from the U.S. subprime mortgage-market collapse. McLean, Virginia-based Freddie Mac issued $6 billion in preferred shares in November.

Fannie Mae said home price declines this year are exceeding its estimates and attributed the larger share of its credit losses to loans in California, Florida, Michigan and Ohio.

Fannie Mae boosted estimates for credit losses this year to a range of 13 basis points to 17 basis points, up from a range of 11 basis points to 15 basis points. Every basis point, or 0.01 percentage point, is equivalent to 15 cents of earnings a share, according to Morgan Stanley analyst Kenneth Posner, who said he expects the losses to reach 20 basis points as the housing crisis deepens.

Fair Value

The deteriorating market conditions took a toll on Fannie Mae's balance sheet as the fair value of assets dropped to $12.2 billion last quarter from $35.8 billion in December. Shareholder equity, which measures how much money would be left to stockholders after Fannie Mae pays all its bills, dropped to less than zero for common stockholders for the first time in at least 15 years from $20.5 billion in the fourth quarter.

Credit-default swaps on Fannie Mae increased 5 basis points to 48, according to CMA Datavision. Contracts on Freddie Mac jumped 6 basis points to 49, CMA prices show. A rise indicates deterioration in the perception of credit quality.

Fannie Mae, under new standards, listed $56.1 billion in so- called Level 3 assets, a category which indicates the holdings are so illiquid that they can only be priced using the firm's own valuation models. This is the first quarter Fannie Mae has been required to disclose such assets.