Russia

A parade of power in Russia

Vladimir Putin watches his successor, Dmitry Medvedev, take office during a week of careful choreography

IN THE past week tanks, nuclear-bomb carriers and armoured vehicles drove up and down Tversakaya street—Moscow's main drag—and military jets whizzed past your correspondent's kitchen window, scaring children and knocking over plants. Reportedly damage caused to the roads will cost 1 billion roubles ($ ) to repair. This was in preparation for a military parade that was held on Friday May 9th on Red Square.

Such parades are held every year, but this was the first time since the cold war that Russia brandished its military hardware. The parade was supposed to celebrate victory in the second world war, but it also symbolised the return of Russia as a triumphant power in the course of eight years of Vladimir Putin's rule. This was only in part a Soviet style affair: the Lenin Mausoleum which witnessed such affairs in Soviet times was covered by a banner. It was a contemporary show.

Coming two days after the inauguration of Dmitry Medvedev as Russia's president, it was supposed to legitimise the notional transition of power from Mr Putin. As an antithesis of war, a parade also signifies predictability, order and clarity—all qualities lacking in modern Russian politics. And, short of hard facts, observers in Russia rely on the choreography of such public spectacles, the angle of the camera work, the mannerisms and facial expressions of the leaders, to interpret what is afoot.

Russian television courtiers helped to this end. They captured Mr Medvedev addressing the army while also showing Mr Putin at such an angle that the two men formed a perfect line up—a reminder of the old triptychs of Marx, Engels and Lenin. There they were: the father and the son, the founder and the follower, the great leader and his disciple. If Mr Medvedev stood slightly in front of Mr Putin at this pageant, in the real political event, the address to parliament on Thursday, Mr Putin took the centre stage and in effect gave a state-of-the-nation address.

Mr Medvedev himself told parliament that Mr Putin will play a big role in implementing his own strategy and that “no one has any doubt that our tandem, our co-operation, will only continue to strengthen.” That remains to be seen. An opinion poll suggests that, although many Russians (47%) want Mr Medvedev to have real power, only 22% think that he will get it.

Mr Medvedev and Mr Putin may stay loyal to each other, but they will struggle to contain the fierce rivalry among their apparatchiks. Mr Medvedev may remain a faithful minion for a few months, or even years, before standing aside for Mr Putin to stride back into the presidency. But the Kremlin has its own magic: there is also a chance that Mr Medvedev will try to emerge as an independent politician.

AFPBack to the future

The liberal, Westward-looking part of the Russian elite hopes for precisely that and would like to see Mr Medvedev as a beacon of a post-Putin thaw. They will try to exploit any cracks between Mr Putin and Mr Medvedev to steer the country in a more liberal direction. The new president's speeches are certainly encouraging. He talks of the supremacy of law. In his inaugural speech, he stressed the importance of civic and economic liberties for Russia's success. Unlike most of the ruling elite, he did not serve in the KGB, which may make him less prone to paranoia and conspiracy theories. On the other hand, he owes everything he has, including the presidency, to Mr Putin.

The West, encouraged by Mr Medvedev's liberal talk is hoping for a warmer relationship with Russia. But the first signals were disappointing. Hours after Mr Medvedev became president, two military attachés at the American embassy were kicked out of the country. The timing was telling. And so is a further escalation in Russia's relationship with Georgia. The Russian media has been scaremongering that Georgia is about to attack the separatist region of Abkhazia, which is supported by Russia.

Yet diplomatic expulsions aside, relations between Russia and America have been relatively peaceful of late. This week the two countries promised to co-operate in civilian nuclear technology. Mr Putin also signed a law before leaving office bringing Russia into compliance with UN resolutions on Iran's nuclear programme. And several senior politicians turned up at a leaving party for the American ambassador.

Nobody knows how the duumvirate between Mr Medvedev and Mr Putin is going to work—probably not even themselves. The bigger danger than Mr Putin being in charge is that nobody is and that Russia’s politics is determined by conflicting vested interests of different clans and individuals. A first real external crisis could expose a vacuum of power and a lack of democratic institutions. Projecting a perfectly angled image in a real life situation may be a lot harder than doing so in a parade.

Citigroup Plans to Shed About $400 Billion of Assets (Update4)

May 9 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit said he plans to shed about $400 billion of assets over the next three years as part of his plan to return the biggest U.S. bank to profitability.

``There will be more'' divestitures, Pandit, 51, told shareholders at a meeting today at the bank's New York headquarters. The company, which lost $5.1 billion in the first quarter, has recorded more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed last year.

``They need to pare back the parts that are broken,'' said Barry James, who manages more than $2 billion as president of James Investment Research in Xenia, Ohio, including Citigroup bonds. ``He's a cautious guy. He's not going to do anything rash.''

Pandit, who succeeded Charles O. ``Chuck'' Prince in December, has already announced plans that would reduce the bank's $2.2 trillion of assets by at least $65 billion, according to Susan Roth Katzke at Credit Suisse Group. Last week, he agreed to sell employee-benefit joint venture CitiStreet LLC. In April, the bank opted to sell the Diners Club International credit-card payment network and CitiCapital, a provider of leases and financing for industries including health care and construction.

The bank is also poised to dispose of more than $200 billion of loans and securities to shore up capital, a person with knowledge of the plan said March 24. Pandit will probably let them pay off as they come due, rather than sell them at a loss, the person said. The stakes may include $49 billion of securities the bank had to take on when it bailed out seven off- balance-sheet investment funds.

Tier 1 Capital

Under Prince, Citigroup's assets increased by $689 billion from 2005 through 2007, an amount larger than the entire balance sheet of Wells Fargo & Co., the fifth-biggest U.S. bank. Prince, 58, was forced to resign last November as the bank headed for a record fourth-quarter loss of almost $10 billion.

Selling assets that aren't trading at depressed prices would bolster Citigroup's so-called Tier 1 capital, the core measure of solvency demanded by regulators.

Under U.S. rules, banks have to set aside sufficient Tier 1 capital, which includes common stock and retained earnings, to provide a cushion that a bank would have to burn through before investors in Tier 2 capital -- mostly subordinated debt -- or depositors would suffer losses.

Weill's Legacy

``He's carting off the non-significant operations and raising money so that he can reinvest it in the business he's in, which is loaning money,'' said Robert Olstein, chief investment officer of Purchase, New York-based Olstein Capital Management, which owns Citigroup shares.

Pandit has raised $44 billion in capital, more than any financial-services company, through stock sales and private offerings to investment funds controlled by foreign governments including Abu Dhabi.

Citigroup fell 5 cents to $24.25 at 10:30 a.m. in New York Stock Exchange composite trading. The shares have plunged 54 percent on the New York Stock Exchange since the end of 2006 to the lowest in almost a decade, erasing gains made under former Chairman and CEO Sanford ``Sandy'' Weill. Weill, who built the company through a series of acquisitions over 17 years, stepped down in 2003 and tapped Prince as his successor.

Pandit told investors today that he expects to deliver return on equity, a gauge of how effectively the bank reinvests earnings, of 18 percent to 20 percent ``over time.'' The firm produced a return of 19.4 percent on average from 2001 through 2006. The measure plunged to 3 percent last year.

Morgan Stanley Team

He has already changed managers, putting former Morgan Stanley colleague John Havens in charge of trading and investment banking, moving U.S. consumer head Steve Freiberg to head a new credit-card division and recruiting former Wells Fargo & Co. executive Terri Dial to oversee consumer banking in the U.S.

The bank slashed the quarterly dividend by 41 percent in January to 32 cents a share, the first drop since the early 1990s. Oppenheimer & Co.'s Meredith Whitney has said the bank might have to cut the dividend again to bolster capital as losses escalate.

U.S. March Trade Deficit Narrowed More Than Forecast (Update2)

May 9 (Bloomberg) -- The U.S. trade deficit narrowed more than forecast in March as imports dropped by the most in more than six years, reflecting the economic slowdown.

The gap shrank to $58.2 billion, the lowest this year, from a revised $61.7 billion in February, the Commerce Department said today in Washington. The shortfall with China was the smallest in two years.

Americans bought fewer automobiles and less crude oil, furniture and communications equipment from overseas as the economy grew at the slowest pace since 2001. Exports fell for the first time in more than a year, indicating economies abroad may also be starting to cool.

``The report did not reflect well on the health of the underlying economy given that it was largely based on imports falling more than exports,'' said Russell Price, senior economist at H&R Block Financial Advisors in Detroit, who forecast a gap of $59 billion. A weaker dollar should still cause the shortfall to diminish further by fueling demand for U.S. products, he said.

Economists forecast the trade gap would narrow to $61 billion from a previously reported $62.3 billion, according to the median of 71 economists surveyed by Bloomberg News. Forecasts ranged from $59 billion to $64.9 billion.

The dollar, which fell earlier today, remained lower after the figures. The U.S. currency was at $1.5447 per euro at 8:58 a.m. in New York, from $1.5393 late yesterday.

Inflation Adjusted

After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the trade deficit shrank to $47.2 billion, the lowest since November 2003, from $50.9 billion.

Imports decreased 2.9 percent, the most since December 2001, to $206.7 billion. Purchases of crude oil dropped, even as the average price for the month jumped to a record $89.85. The quantity of petroleum bought from overseas was the lowest since February 2007.

The trade gap may not be able to keep narrowing as oil prices continue to surge. Crude oil prices jumped to over $125 a barrel today, the highest ever.

Demand for goods from China suffered the biggest slump last month, helping to narrow the trade gap with that nation to $16.1 billion, the smallest in two years. At the same time, exports to China were the second-highest ever.

Near Record

Total exports fell 1.7 percent to $148.5 billion, driven by a decline in sales of commercial aircraft, autos and petroleum products. Even with the drop, the first since February 2007, exports were still the second-highest on record.

Demand for American goods from the European Union and from South and Central America set records in March.

As the U.S. economy teeters on the brink of a recession, trading partners such as China and Brazil continue to grow at faster rates.

Brazil's economy grew 6.2 percent in the fourth quarter from a year earlier and India grew 8.4 percent. China expanded 10.6 percent in the year ended in March.

By comparison, the U.S. economy grew 2.5 percent in the first quarter compared with the same time last year. The 0.6 percent growth rate over the last two quarters was the slowest since the 2001 recession.

Emerging Markets

Growth in emerging economies is boosting demand and prices for commodities such as oil. This in turn is leading to increased sales of American-made oil-drilling rigs and construction equipment as countries seek to tap natural resources and modernize highways and factories.

Brazil is preparing to tap the biggest crude-oil discovery in the Western Hemisphere in three decades, which lies just off its Atlantic coast. Petroleo Brasileiro SA, Brazil's state oil company, is in talks with Houston-based Transocean Inc. to extend offshore drilling contracts.

A lower dollar, by making American goods cheaper to overseas buyers, is also boosting exports. The dollar was down 9 percent against a trade-weighted basket of currencies from the U.S.'s biggest trading partners in the 12 months ended in March.

Cisco Systems Inc., the world's biggest maker of networking equipment, is among the companies benefiting from gains abroad. The San Jose, California-based company posted sales growth of 10 percent in the third quarter, even as U.S. sales grew only 5 percent.

``Asia-Pacific was very strong,'' Cisco's Chief Executive Officer John Chambers said in a Bloomberg Television interview May 7. ``China and India are on fire.''

Still, record exports alone won't prevent the economy from shrinking. Harvard University economist Martin Feldstein, a member of the committee that determines when contractions begin and end, said May 6 in an interview with Bloomberg Television that the U.S. economy is ``sliding into a recession.''

An improvement in the trade gap may also come from a continued slowdown in imports as consumers, facing falling home values and rising fuel bills, restrain spending. U.S. companies are also investing less in foreign-made equipment as concern grows that consumer demand will continue to weaken.

Oil Climbs Above $126 to Record as Dollar Weakens Against Euro

May 9 (Bloomberg) -- Crude oil rose above $126 a barrel in New York to a record as the dollar weakened against the euro and yen, prompting investors to buy commodities.

Oil climbed to a record for a fifth day as the euro strengthened on signs the European Central Bank will keep rates at a six-year high to cut inflation. Dollar-based commodities like oil are often bought to counter the currency's weakness. Nigerian output fell to the lowest this decade in April because of a strike and attacks on oil installations.

``Oil is a safe haven because of the weak dollar and how badly the financial sector has been doing,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``There are also geopolitical concerns about places like Nigeria and Venezuela that are propping prices up.''

Crude oil for June delivery rose $1.63, or 1.3 percent, to $125.32 a barrel at 9:58 a.m. on the New York Mercantile Exchange. The contract surged to a record $126.20 today. Prices are up 7.7 percent this week, the biggest weekly gain in more than a year. Futures are more than double from a year ago.

Brent crude oil for June settlement climbed $2.36, or 1.9 percent, to $125.20 a barrel on London's ICE Futures Europe exchange. The contract touched a record $125.90 today.

The dollar dropped 10 percent since Sept. 18, when the Federal Reserve began cutting rates to ease financial-market strains and stave off a recession. The U.S. central bank cut rates seven times while the ECB has left rates unchanged.

Fed Policy

``Fed policy is accommodating the rise in energy prices,'' said Bill O'Grady, director of fundamental futures research at Wachovia Securities in St. Louis. ``The Fed and federal government are putting more liquidity in people's pockets, which is being spent on expensive oil.''

The U.S. government started sending $117 billion in tax rebate checks last week as part of its fiscal stimulus plan.

Goldman Sachs analyst Arjun N. Murti wrote in a report on May 6 that ``the possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months.'' Murti first wrote of a ``super spike'' in March 2005, predicting crude may trade between $50 and $105 a barrel through 2009.

``There's been a paradox, prices have surged over the last week while we've had bearish headlines,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``Clearly there's been a lot of fund buying on the back of Goldman's super-spike repot. They were right on the nose last time.''

The Organization of Petroleum Exporting Countries, the producer of more than 40 percent of the world's oil, may meet before September to consider increasing output in an attempt to rein in record crude-oil prices, Libya's Shokri Ghanem said.

``We would consider among other options the possibility of increasing output as a way to ensure market stability,'' Ghanem, who is the chairman of Libya's National Oil Corp., said in a telephone interview today from Tripoli.

U.S. Stocks Decline on AIG's Loss; Delta Retreats on Record Oil

May 9 (Bloomberg) -- U.S. stocks fell, sending the market to its first weekly drop in a month, as American International Group Inc.'s plan to raise $12.5 billion to cover writedowns renewed concern more losses are coming in the financial industry.

AIG, the biggest insurer, tumbled to a two-month low and posted the steepest decline in the Dow Jones Industrial Average. Delta Air Lines Inc. and Carnival Corp. led declines among companies hurt by higher fuel costs as oil climbed to a record. Mylan Inc., the largest U.S. maker of generic drugs, retreated the most since February after posting a wider loss. Tesoro Corp. led energy shares lower even as crude advanced after Goldman Sachs Group Inc. said refiners are facing ``liquidity concerns.''

The Standard & Poor's 500 Index sank 9.47, or 0.7 percent, to 1,388.21 at 10:31 a.m. in New York, giving it a 1.8 percent decline this week. The Dow slid 103.15, or 0.8 percent, to 12,763.63. The Nasdaq Composite Index lost 12.08, or 0.5 percent, to 2,439.16. More than two stocks fell for each that rose on the New York Stock Exchange.

``We're still cautious on the financials,'' said Julie Van Cleave, who oversees $4.5 billion as head of large U.S. growth stocks at Deutsche Asset Management in Milwaukee. ``People have been looking for the easy turn. It will take another couple of quarters before we're at a point where we feel more comfortable making a bigger allocation.''

The S&P 500 is down 5.7 percent this year as losses at the world's largest financial firms climb to more than $321 billion following the collapse of the subprime mortgage market. Profits have slumped 18 percent on average for the 420 companies in the index that have reported first-quarter results so far, led by an 86 percent decline at financial companies, data compiled by Bloomberg show.

Consumer Shares Outperform

While stocks fell this week, the S&P 500 is still up 9 percent since sinking to a 19-month low in March, as some investors bet the U.S. won't enter a recession. The S&P 500 Consumer Discretionary Index, a measure of companies reliant on Americans' disposable income, retreated 0.2 percent today, less than the S&P 500's drop.

AIG tumbled $2.67, or 6.1 percent, to $41.48. The insurer reported a first-quarter net loss of $7.81 billion, compared with earnings of $4.13 billion a year earlier. AIG wrote down contracts it had sold to protect investors by $9.11 billion in the quarter to comply with rules that require the company to estimate their present market value. Standard & Poor's and Fitch Ratings cut the company's credit grades after the announcement.

Delta Air Lines dropped 2.6 percent to $7.37. Crude oil rose to a record above $126 a barrel, set for the biggest weekly gain in more than a year, on speculation Nigerian export cuts may curb U.S. supplies during the peak summer driving season.

Carnival, Mylan

Carnival, the largest cruise-line company, slumped 1.6 percent to $39.81.

Fuel expenses for the U.S. major airlines now represent about 40 percent of total costs for the industry, according to a research report by Merrill Lynch & Co. distributed yesterday.

Tesoro Corp., the largest refiner in the U.S. West, slid 6.4 percent to $21.74. Valero Energy Corp., the biggest U.S. refiner, slumped 2.3 percent to $45.21 after Goldman cut second-quarter profit estimates.

Mylan fell 8.3 percent to $11.43, the second-biggest drop in the S&P 500. The largest U.S. maker of generic medicines reported a wider first-quarter loss on costs tied to the $6.9 billion purchase of Merck KGaA's generics division in October.

McDonald's, Burger King

McDonald's Corp. fell 45 cents to $59.32. Goldman Sachs Group Inc. removed the world's largest restaurant company from its ``conviction buy list'' and added Burger King Holdings Inc. McDonald's had risen 16 percent since being added to the list June 12, and additional gains may be ``muted'' in the coming months, Goldman analysts led by Steven T. Kron wrote in a report. Burger King may benefit from price increases and extended summer hours, Goldman said.

Burger King fell 37 cents to $27.80.

Citigroup Inc., the biggest U.S. bank by assets, slipped 7 cents to $24.23 on plans to ``wind down'' about $400 billion of assets as part of a program to return to profitability. The bank announced the wind-down today in a presentation posted on the company's Web site. The New York-based company, which lost $5.1 billion in the first quarter, has recorded more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed last year.

Priceline.com

Priceline.com Inc. surged $15.63, or 13 percent, to $139.41. The Internet travel agency featuring William Shatner as its spokesman said annual profit, excluding some items, may be as much as $5.65 a share. That topped the average analyst estimate of $5.09 a share. First-quarter revenue gained 34 percent as international sales more than doubled, the company said.

Stocks failed to pare losses after the government said the U.S. trade deficit narrowed more than forecast in March as imports dropped by the most in more than six years, reflecting the economic slowdown. The gap shrank to $58.2 billion, the lowest this year, from a revised $61.7 billion in February, the Commerce Department said.