The retail pullback

Facing tightfisted shoppers, many retail chains are keeping sparse inventories. This has been effective at boosting profit margins, as there are fewer items to sell at clearance prices, but it is also negatively affecting sales. “There’s a fine line between not having racks of clearance from leftover inventory, and cutting to the bone,” says Erin Armendinger at the Wharton School of Business. Wal-Mart, for example, reported an 11 point rise in gross margins yesterday, but a less-than-expected 3 percent rise in same-store sales, with much of that food- and gas-driven. ( In all, retail sales figures show that U.S. consumers are rapidly paring back to the necessities, which could crimp the economy. (The New York Times)

RBS posts first-ever loss

Royal Bank of Scotland, the No. 2 U.K. bank, reported a smaller-than-expected $1.35 billion first-half pretax loss, its first shortfall since going public 40 years ago and one of the worst in U.K. corporate history. To raise capital, RBS said it is in talks to sell its insurance unit, valued at about $12 billion. (Reuters) RBS’s balance sheet was hit by the bank’s $22 billion purchase of part of ABN Amro, as well as mortgage-related losses, but RBS said the $11.4 billion in writedowns it booked in April may be enough for this year. “ABN Amro integration looks ahead of schedule, which gives them a bit of credibility back,” said analyst Leigh Goodwin at Fox-Pitt Kelton. “There doesn’t seem to be any unexpected bad news.” (Bloomberg)

UBS follows Citigroup, Merrill in huge bond payback

UBS has reportedly agreed to pay $19.4 billion to settle state and federal charges that it misled investors into buying riskier-than-advertised bonds. Under the deal, which follows similar agreements yesterday by Citigroup and Merrill Lynch, UBS agreed to buy back the auction-rate securities from investors. (The Boston Globe) Citigroup agreed to repurchase $7.3 billion of the securities, plus pay $100 million in fines, while Merrill agreed to buy back $10 billion worth. The SEC and state attorneys general are also looking at about 20 other banks. Individual investors hold about $50 billion worth of auction-rate securities, which they have been unable to sell since the $350 billion market collapsed in February. (The New York Times)

China and the power of eight

It’s no coincidence that the Beijing Olympics start at 8:08 today, 8/8/08. China considers eight a lucky number—it is pronounced the same way as the verb “to prosper.” (In contrast, four is a homonym for “death.”) China hopes that all those eights will be good for its athletes, and Chinese couples clearly think it portends a good marriage—more than 28,000 couples have registered to get married today. But for the markets, the eighth month has been mixed, with an equal number of gains as losses on the Shanghai Composite over the past eight Augusts. “Chinese investors probably do take into consideration eights and fours,” said David Riedel of Riedel Research Group, but international capital makes that moot. (MarketWatch)